A Swedish court has ruled that Booking.com’s most-favoured-nation clauses are a by-effect infringement of EU competition law, which prevented hotels from charging lower prices on their own websites than those listed on the hotel booking platform.
Stockholm’s Patent and Markets Court said on 20 July that Booking.com had abused its dominance in the online travel agency and online hotel booking markets by retaining narrow price parity – or most-favoured-nation – clauses in its contracts with hotels.
The ruling follows a 2015 decision by Sweden’s Competition Authority, which ordered the company to amend its broad price parity clauses restricting hotels from advertising better deals on rival websites.
The company subsequently narrowed those clauses to allow lower prices on rival websites, but not on the websites of the hotels themselves.
Tourist services industry association Visita filed a complaint against Booking.com in the Patents and Markets Court last year, alleging that the platform violated competition law by prohibiting hotels from offering lower room rates than the prices advertised on Booking.com.
Earlier this month, the Patents and Markets Court said that the narrower price parity clauses had also violated competition law. The court found that the price parity clauses were not themselves a by-object infringement, but it concluded that they restricted competition in the Swedish online travel agency market and the online hotel booking services market.
The court has now ordered Booking.com to end the restrictive policy. If the platform does not comply within three months, the court will impose a 30 million krona (€2.9 million) fine.
In its decision, the court noted that Booking.com’s conduct pushed hotel room prices up, citing research that found that 50% to 66% of its customers would book their hotel rooms directly through hotel websites if the rates were 5% lower than on the platform.
The Swedish court found that hotels do not typically put higher prices on their websites than online travel agencies. Booking.com’s price parity clauses therefore prevented the hotels from offering lower prices on their own websites, which affected the price that consumers paid for hotel rooms.
Additionally, the court said that hotels benefit from substantial administrative cost savings by selling rooms on their own websites, rather than through platforms like Booking.com. The price parity clauses therefore cost hotels and consumers money by deterring savings on either side.
Booking.com had argued that it needed the price parity clauses, because its revenue is mainly generated from the commission that hotels pay when customers book rooms through its platform.
However, the court noted that the terms of Booking.com’s narrow price parity clauses were not included in the company’s original contract with hotels. It therefore assumed that the clauses were not objectively necessary for Booking.com to provide its services in Sweden.
The court also found that Booking.com’s competitive advantage did not solely lie in its ability to offer lower rates than hotel websites. It said its platform is able to offer services in over 40 languages; its customers trust its security when making bookings using a credit card; and they are able to reserve hotels across the world using just one website.
Booking said it was disappointed by the decision, but believes its platform provides consumers with a transparent and consistent price comparison experience. A spokesperson did not respond to a question asking if it would appeal against the decision.
The company has until 10 August to challenge the decision in the Patent and Markets Court of Appeal.
David Nordström, a senior economist at Copenhagen Economics who advised Visita during the case, said that it is “quite rare” for Swedish courts to find a by-effect infringement of article 101 of the Treaty on the Functioning of the European Union.
He noted that the peculiarities of the Swedish hotel market likely affected the court’s assessment, as Sweden’s hotels are predominantly chain-owned and are mostly booked through online platforms like Booking.com.
“Sweden and Germany are at the forefront of these cases,” he said. “Looking at the administrative booking costs that hotels currently face, it is clear that they have incentives to reduce prices on their own websites in relation to the price advertised on Booking.com – but the platform did not allow that.”
Jonas Siljhammar, chief executive of Visita, said the court’s decision will have a big impact on the Swedish hotel market because it allows hotels more flexibility to set room prices. The ruling will also benefit consumers who will now be able to pay better prices directly through hotel websites, he said.
Booking.com has already been penalised in several EU countries, in a series of enforcement decisions that revealed differences between national competition authorities. In 2015, France, Sweden and Italy accepted commitments from the company to abolish its wide price parity clause in favor of the narrower clause.
However, Germany’s competition authority rejected Booking.com’s commitments and maintained that the narrow price parity clause is also an infringement of EU competition law. In January 2016, it ordered the website to remove all price parity clauses.
Denmark and the UK also criticised the company’s use of wide price parity clauses. In 2016 the EU committee of the UK’s House of Lords urged the country’s Competition and Markets Authority to begin a new investigation into the online travel agent sector.
Additionally, Australia’s Competition and Consumer Commission said in April that it “still had concerns” about Booking.com’s conduct, despite the website removing in 2016 its contractual clauses that forced accommodation providers to give the platforms their best rates.