Old friends in new frocks? MFN clauses in the online hotel booking sector/1

Most-favoured-nation (MFN) provisions are found in vertical arrangements and stipulate some sort of preferential treatment in favour of specific market participants. Thus, an MFN clause widely used in industry and commonly analysed by competition authorities and courts imposes on a seller the contractual obligation to treat a customer that is party to the agreement no worse than all other customers. In this respect, the MFN clause at issue embodies the seller’s promise to treat a specific buyer as the seller treats her most-favoured customer (also called most-favoured-customer clauses - MFCs). Typically, these MFNs are employed in markets for intermediate goods, and ensure that the buyer at some stage of the supply chain will pay a specific input no more than the other customers of the same supplier. Some MFN clauses that have attracted the attention of competition policy enforcers concerned the sale of turbine generators, of lead-based anti-knock gasoline additives, of synthetic substances belonging to groups of vitamins, the distribution of digital music, of gas, and were found also in dental plan contracts between dental care service providers and dental practices and in healthcare contracts between a health insurance provider and hospitals.

While traditional MFNs ensure that one party to the agreement gets terms at least as favourable as any other party in an analogous position, a so called retail (price) MFN requires the seller to sell a good or service via a specific intermediary at a price that is not higher than the price the seller charges via other intermediaries (and/or direct). In this case, the end-buyer of the good or service is not a party to the agreement, as was always the case with the more traditional MFNs previously mentioned, and she may not even be aware that such an agreement exists between the seller and the intermediary. It follows that the buyer has no right to obtain redress if the seller does not satisfy the terms of the retail MFN clause.

Recently, adherence to retail MFN clauses has emerged as a popular pricing policy in the online world. Specifically, the seller undertakes not to charge on a specific electronic trade platform a price that is higher than the price that she charges on other platforms, creating “price parity” across platforms (Across-Platform Parity Agreement – APPA). National competition authorities in various countries have opened investigations into the price parity agreements commonly found in the online hotel booking sector. In December 2013, the German Competition Authority (German Federal Cartel Authority, Bundeskartellamt) issued a decision prohibiting HRS, leader in the German market for hotel bookings, from applying a retail MFN clause in its relationships with providers of hotel services, and ordered HRS to delete this clause from its terms and conditions. The clause investigated in the context of the German proceedings obliged providers of hotel services to offer their lowest room prices and other conditions, e.g. relating to cancellation policy, also through HRS’ platform. Moreover, the clause prevented hotels offering cheaper hotel rates and better conditions via their own websites - and even to customers directly at hotel receptions. Prior to the German Competition Authority’s decision, in February 2012, the Düsseldorf District Court of Appeal had already enjoined HRS from enforcing the retail MFN clause.

(To be continued).

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