E-Commerce: Most Favoured Nation Clauses
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What are retail MFNs?
This chapter considers the use of retail parity provisions, otherwise known as retail most favoured nation (MFN) clauses, in agreements between suppliers of products or services and price comparison tools on which they are listed, and between retailers and online marketplaces, which relate to the conditions under which products are offered to end users.
Two main types of retail MFN clauses have been considered by competition authorities across Europe:
- ‘wide’ MFNs: typically require suppliers and retailers to publish on a price comparison tool or online marketplace the same or better prices and conditions as those published on any other third-party sales channel; and
- ‘narrow’ MFNs: typically require suppliers and retailers to publish on a price comparison tool or online marketplace the same or better prices and conditions as those published on its own (direct) website.
MFN clauses can also be distinguished according to the factor regulated – price being the most common. Non-price MFN clauses may require the supplier and retailer to offer the same product range, availability, conditions and customer services.
Key European MFN cases and legislation to date
The use of retail MFNs by price comparison tools and online marketplaces has been the target of a number of antitrust enforcement cases and market studies in Europe.
Online hotel bookings
Starting in 2010, several European national competition authorities (NCAs) have investigated MFN clauses in agreements between online travel agents (OTAs) and hotels, and have taken different approaches. The French, Italian and Swedish NCAs accepted five-year commitments from the OTA Booking.com to replace wide MFNs with narrow MFNs in April 2015. The narrow MFN commitments were unilaterally extended by Booking.com throughout the European Union – an approach that Expedia followed shortly thereafter.
In August 2020, Booking.com and Expedia voluntarily agreed to extend their formal commitments not to impose ‘wide’ parity clauses. The German NCA, however, issued prohibition decisions both in respect of the use of the wide MFN by the hotel booking OTA HRS in December 2013 and in respect of Booking.com’s narrow MFN in December 2015. While its decision against the narrow MFN was overturned on first appeal, it has since been endorsed by the German Federal Court of Justice, which held that even the narrow MFNs used by Booking.com until 2016 restricted competition.
Insurance PCWs and DCTs (UK)
The UK NCA carried out a market investigation into the private motor insurance (PMI) market between 2012 and 2014. Aspects covered included the use of wide MFNs in agreements between PMI providers and price comparison websites (PCWs). The investigation led to the prohibition of wide MFNs in relation to motor insurance (with PCWs relying instead on narrow MFNs). More recently, the UK NCA published further analysis on MFNs as part of its digital comparison tools (DCT) market study and fined CompareTheMarket £17.9 million for its use of wide MFNs, although this has since been overturned on appeal.
Amazon Marketplace (UK and Germany)
In 2012 and 2013, the UK and German NCAs both launched investigations into the use of wide MFNs on Amazon Marketplace. As a result of these proceedings, Amazon announced in August 2013 that it would no longer be enforcing Marketplace parity provisions across the European Union, although it continued to use such parity provisions in the US until recently.
Apple e-books (EU)
The Commission investigated Apple and a number of international e-book publishers in relation to retail price MFNs and other pricing clauses introduced by Apple in its iBookstore contracts after switching from a wholesale to an agency model. The Commission was concerned that those arrangements formed part of a strategy aimed at raising e-book prices. The case was settled by way of commitments, including a commitment by Apple not to enter into or enforce any retail price MFN clauses in agreements with e-book retailers or publishers for five years.
Amazon e-books MFN (EU)
The Commission initiated antitrust proceedings in June 2015 examining MFN clauses in agreements between Amazon and e-book publishers. The Commission considered that those clauses, which covered price as well as a number of other aspects, such as distribution model, innovative features and promotions, could impede the ability of other e-book platforms to compete with Amazon. The case was settled by way of commitments in May 2017, under which Amazon offered not to enforce or include such clauses in respect of any e-book distributed in the EEA for five years.
E-commerce Report (EU)
In 2017, the Commission briefly assessed MFNs as part of its wide-reaching sector inquiry into e-commerce.
DMA and revised VABER (EU)
The Digital Markets Act (DMA) text adopted by the European Parliament in December 2021 prohibits the use of both wide and narrow parity clauses by large online platforms identified as ‘gatekeepers’. The Vertical Agreements Block Exemption Regulation (VABER) only comes out strongly against retail wide parity clauses, but recognises that parity clauses at other levels of the distribution chain or narrow retail parity clauses could deliver efficiencies that would justify a block exemption.
The UK equivalent of the VABER – the Vertical Agreements Block Exemption Order (VABEO) – takes an even harder stance on wide parity clauses, designating such clauses (whether online or offline), or measures that have the same effect as a wide retail parity obligation, as a hardcore restriction. There is, therefore, recognition at the policy level of efficiencies that narrow parity clauses can deliver, although both block exemptions note that the benefit of the exemption may be withdrawn in individual cases and cite narrow MFNs in concentrated markets as an example.
In respect of gatekeepers, the debate on narrow parity clauses has, for now, effectively ended on the basis that their market power is considered to mean that any efficiencies will not outweigh the anticompetitive effects of those clauses.
The position in the UK may begin to diverge from the EU. In November 2020, the UK NCA found that insurance PCW CompareTheMarket’s use of wide MFNs violated both Section 2(1) of the UK Competition Act 1998 and Article 101 of the Treaty on the Functioning of the European Union (TFEU), and imposed a fine of £17.9 million. CompareTheMarket appealed this to the UK Competition Appeal Tribunal (CAT).
In August 2022, the CAT handed down its judgment on CompareTheMarket’s appeal, which successfully overturned the decision of the Competition and Markets Authority (CMA). The CAT criticised the CMA’s findings, concluding that wide MFNs are not by-object infringements and that the UK NCA had failed to establish that the clauses had the anticompetitive effects articulated in its decision.
What are the competition issues raised by MFNs?
MFN clauses have largely been analysed as potentially anticompetitive agreements under Article 101 of the TFEU and national equivalents (see below for an overview of Article 102 of the TFEU analysis to date).
Wide MFNs – theories of harm
Two theories of harm have been advanced by European competition authorities in respect of wide MFNs: they soften competition between platforms and impede innovation, entry and expansion by new platforms.
Softening of competition between platforms
Wide MFNs have been alleged to reduce the incentive for platforms to compete on the basis of commission levels by creating ‘price floors’. According to this theory, a platform can increase the commission charged to a supplier who is subject to a wide MFN without the constraint that this supplier could retaliate by setting a higher price and less advantageous conditions on the platform compared with other channels; instead, short of delisting themselves, suppliers are faced with two options: pass on the commission increase by raising prices across all their distribution channels or maintain current prices and absorb the loss.
In addition, wide MFNs typically spread across a market: competing platforms will have a strong incentive to implement similarly wide MFNs to protect themselves against the risk of rates on their websites exceeding those listed elsewhere. This can result in low levels of price differentiation (i.e., suppliers displaying the same price across all platforms).
Barrier to entry and innovation
Wide MFNs have been alleged to constitute a barrier to entry, on the basis that online platforms are prevented from entering the market or expanding through a strategy based on offering low commission rates in exchange for better prices and conditions from suppliers (who are constrained by the wide MFNs agreed with other platforms). Platforms can still differentiate themselves based on factors such as quality and brand image; however, these typically require significant upfront investments. These effects are said to be strengthened when MFN clauses spread and become industry standard.
Narrow MFNs – theories of harm
While narrow MFNs have largely been treated positively by NCAs on the basis of associated efficiencies, these potential concerns have been explored: the potential for narrow MFNs to replicate the effects of the wide MFN and restrictions on competition from the direct channel.
Potential to replicate the effects of the wide MFN
Competition authorities have noted that narrow MFNs could have anticompetitive effects if suppliers are not willing to undercut their direct channel (possibly to avoid the cannibalisation of their direct sales). Faced with an increase in commission, these suppliers might opt to raise prices not only on the platform with a narrow MFN and their own website, but also across other channels – thereby replicating the price floor effects of a wide MFN. In particular, where competition for the supply of online intermediation services is limited, narrow MFNs may allow platforms to maintain a higher price for their services, leading to higher retail prices for the intermediated goods or services on all sales channels.
Restricting competition from the direct channel
Narrow MFNs have the potential to produce anticompetitive effects by limiting the competitiveness of suppliers’ direct sale channels; however, the extent to which direct channels have the potential to exercise a constraint on platforms varies greatly across markets, as it will depend on factors such as the extent to which consumers shop around between platforms and the visibility of direct channels. Narrow MFNs are likely to have a greater anticompetitive effect if a significant share of sales takes place through the direct channel, and narrow MFNs are imposed by multiple platforms.
Can smaller platforms and suppliers rely on VABER?
The EU VABER provides a safe harbour for agreements that would otherwise fall under the Article 101(1) prohibition, provided certain conditions are satisfied – including a 30 per cent market share threshold on both the upstream and downstream markets.
It was previously unclear whether wide MFNs could be exempted under the VABER, and NCAs had often rejected this notion on the basis that these clauses do not relate to conditions of sale or resale. The UK NCA dismissed the possibility of applying VABER during its private motor insurance (PMI) market investigation into wide MFNs on the basis that PMI providers and PCWs were competing undertakings that both provide PMI quotes on their websites and compete for customers through advertising.
This point can now be considered settled as in the new VABER, the Commission explicitly excludes cross-platform parity agreements (wide MFNs) from benefiting from the safe harbour, although these are not considered hardcore restrictions. The UK has gone further, as the VABEO does categorise wide retail MFNs (including those that apply offline) as hardcore restrictions. In both jurisdictions, it is therefore for parties to individually assess the legal compatibility of their wide MFNs.
Narrow MFNs, however, benefit from the safe harbour under VABER and VABEO, provided neither of the parties’ market share exceeds the 30 per cent threshold, subject to the proviso that each states that the benefit of the block exemption could be withdrawn in certain cases. Narrow MFNs in concentrated platform markets are cited as one such example.
Article 101(3) of the TFEU provides for an individual exemption for otherwise anticompetitive agreements on the basis of associated efficiencies. Four specific conditions must be met for an agreement or concerted practice to be exempted from Article 101(1) in this way. In particular, it must:
- ‘contribute to improving the production or distribution of goods or to promoting technical or economic progress’;
- allow consumers ‘a fair share of the resulting benefit’;
- not impose restrictions ‘which are not indispensable to the attainment of these objectives’; and
- not ‘eliminate competition in respect of a substantial part of the products in question’.
The Commission’s Guidelines on the Application of Article 101(3) provide that an assessment of efficiencies involves a balancing act, taking into account the extent of relevant restrictions of competition and balancing them against the efficiencies that flow from those restrictions to determine whether the efficiencies outweigh the harm caused by the arrangement. This provides a framework within which to apply the specific conditions of Article 101(3).
In the context of wide and narrow MFNs, given that narrow MFNs are contractually less restrictive than wide MFNs, the Article 101(3) threshold should generally be lower.
Assessment of narrow MFN clauses under Article 101(3)
There has been divergence within Europe regarding how NCAs have assessed the efficiency benefits of narrow MFNs.
The UK NCA undertook a detailed analysis of narrow MFNs in its PMI market investigation, and found that such clauses did meet the requirements of Article 101(3). In particular, it found that:
- Narrow MFNs enhanced competition between PMI providers through increased transparency and reduced search costs for consumers. Without narrow MFNs, the existence of PCWs might be threatened with a consequent reduction in inter-brand competition. In particular, the credibility of PCWs could be undermined, and providers could free-ride on the investments of PCWs, if providers were able to undercut the PCWs on which they advertise.
- Consumers would benefit from enhanced inter-brand competition (provided the PCW market was also competitive).
- Narrow MFNs would not eliminate competition: in fact, the UK NCA found that ‘if there are any anticompetitive effects from narrow MFNs in the PMI market, these effects are unlikely to be significant’ on the basis that providers would offer lower prices on low commission PCWs despite the narrow MFN, and the websites of PMI providers did not appear to be a significant restraint on PCWs.
- The narrow MFN was indispensable to achieving the efficiency gains. While there may be alternative mechanisms to prevent free-riding (e.g., anonymous quotes or an alternative charging model), the UK NCA stated that it could not:
identify an alternative mechanism for PCWs to protect their credibility as a comparison tool. Rather it appeared to us that the ability to offer prices which were the same as those available online directly was part of the essential, customer-attracting proposition of a PCW. Overall, we found that even if narrow MFNs had some anti-competitive effects, they might be necessary for PCWs to survive.
As set out above, in the online hotel bookings investigations, several NCAs recognised the efficiency benefits associated with narrow MFNs, and their decisions leave the impression that the decision to accept Booking.com’s commitments was driven by efficiency considerations. For example, the Swedish NCA stated that OTAs can attract customers that the hotels themselves have difficulty reaching, and ‘offer consumers a search and comparison function that individual hotels are unable to offer’. It found that this contributed to ‘price transparency on the market and to increased competition between hotels’ and that without narrow MFNs, these efficiency benefits would be put at risk through free-riding. The French and Italian NCAs also recognised that hotel booking OTAs give rise to important efficiencies, which would be protected through narrow MFN commitments.
The German NCA, by contrast, has been unconvinced by the benefits of narrow MFNs, finding instead that narrow MFNs restrict competition and that harm is not outweighed by efficiency gains. In particular, it found in its decision against Booking.com that none of the conditions of Article 101(3) were met, noting that:
- The general efficiency gains that hotel booking OTAs bring do not result from the narrow MFN. The German NCA was unconvinced by evidence put forward by Booking.com that the removal of the narrow MFN would result in free-riding or increased search costs, and considered that Booking.com would continue to operate successfully without the narrow MFN. As a consequence, consumers did not share in any ‘resulting benefit’.
- Even if efficiency benefits were attributed to the narrow MFN, they were not indispensable. The German NCA’s view was that in the absence of the narrow MFN, Booking.com could take steps to secure its position in the marketplace; for example, through increased innovation, reducing its commission rate or, if necessary, by changing its business model (e.g., by implementing a usage fee for consumers or a pay-per-click model for hotels).
- Narrow MFNs ‘palpably restrict price competition and . . . quality competition’, but whether the fourth condition of Article 101(3) (the agreement does not eliminate competition in respect of a substantial part of the products in question) was met was left open on the basis that the German NCA considered it irrelevant given the first three conditions were not fulfilled.
In May 2021, the German Federal Court of Justice in substance endorsed the above position of the German NCA.
Support studies commissioned by the European Commission for its ongoing evaluation of the VABER, published in May 2020, carried out a detailed review of the potential pro-competitive and anticompetitive effects of both wide and narrow MFNs. The study again noted the well-documented efficiencies of narrow MFNs, such as protecting platform investments against free-riding, reducing consumer search costs, strengthening inter-brand competition, preventing ‘rent-seeking’ behaviours from suppliers and protecting both platforms and suppliers against demand uncertainty; however, it also noted a risk that these pro-competitive effects could be replaced by negative effects in more concentrated markets or where the parties have high market shares.
Wide MFNs – any incremental benefits over and above narrow MFNs?
The UK NCA considered whether the wide MFN had any incremental benefits over the narrow MFN in its PMI investigation. In particular, it considered efficiency arguments that consumers would not trust PCWs unless they had the best prices across all providers; a wide MFN provides a ‘one stop shop’, further reducing search costs for consumers; and wide MFNs prevent other distribution channels from free-riding on the advertising investments of PCWs.
The UK NCA found that these claimed efficiency benefits were not supported by evidence. In particular, it found that many consumers searched across multiple PCWs, ‘suggesting that they did not expect the prices returned through each PCW to be the same’ and that PCWs did not currently operate as a ‘one-stop shop’.
With respect to free-riding, the UK NCA drew a distinction between narrow and wide MFNs, stating that:
as PCWs do not provide a link to other PCWs when they produce their search results, there was not the same possibility for another PCW to free-ride on the first PCW’s investment as other PCWs would still need to invest in advertising to attract customers. Therefore, we did not see that a wide MFN added any protection from free-riding to that provided by a narrow MFN.
Ultimately, the UK NCA found that even if there were some incremental benefits of wide MFNs ‘such incremental benefits would be unlikely to outweigh the anticompetitive effects of wide MFNs’.
The UK NCA reaffirmed its assessment that wide MFNs were not necessary to deliver any potential benefits to consumers over and above those of narrow MFNs in its DCT market study. It states in the VABEO Guidance that an agreement containing wide MFNs is unlikely to fulfil the conditions for exemption, although undertakings have the possibility to raise an efficiency justification. The burden is on the parties to substantiate any efficiencies and to demonstrate that all the criteria for exemption are fulfilled.
However, the findings in the CAT’s August 2022 judgment overturning the CompareTheMarket case in the UK cast that into doubt, suggesting that the UK NCA may, in future, struggle to prove anticompetitive effects of wide MFNs. Other authorities have also found that wide MFNs do not meet the requirements of Article 101(3).
Analysis under the ancillary restraints doctrine
Another potential approach to justifying MFNs is under the ancillary restraints doctrine. There are arguments that a narrow MFN could be justified as an ancillary restraint, which is a clause that is objectively necessary and proportionate for the implementation of a competitively neutral transaction; therefore, the same arguments that have been used by PCWs to justify that narrow MFNs under an Article 101(3) analysis – namely, that narrow MFNs are necessary to prevent free-riding and ensure credible search and comparison – could also be argued to be a necessary and proportionate restriction for the provision of services by PCWs.
This position was also taken by the Higher Regional Court of Düsseldorf in the Booking.com case on narrow MFNs. It found narrow parity clauses to be compatible with competition law on the basis that they are a necessary ‘ancillary agreement’ in the contracts with hotels that enable performance of the (pro-competitive) overall contract, and thus considered them exempt from Article 101.
Without specifically mentioning efficiencies, the court noted that Booking.com is obliged to perform its part of the contract in advance and must, therefore, be able to prevent the ‘evident and serious risk’ that hotels disloyally divert customers to their own sales channels to make the final booking – depriving Booking.com of its commission and disrupting the ‘fair and balanced exchange of services’. The court considered it irrelevant whether Booking.com would be able to prevent the occurrence of free-riding through a different remuneration agreement such as a usage fee, as had been suggested by the German NCA; the starting point is that the disputed price parity clause is a necessary ancillary agreement to implement the contract, and the clause does not go beyond what is proportionate in doing so.
The German Federal Court, however, overturned this decision in May 2021 on the grounds that it did not consider Booking.com’s narrow MFN to be ‘objectively necessary’ for the performance of the main contract, which is the provision of online intermediary services. The Court considered that the balancing of pro-competitive aspects of narrow MFNs, such as securing an appropriate remuneration for the platform by solving the free-rider problem or increased market transparency for consumers against their anticompetitive aspects should only happen within the framework of Article 101(3).
The interesting legal quirk here is that the burden of proof under Article 101(3) is on the parties to show that the pro-competitive gains of the agreements outweigh the anticompetitive effects, whereas the burden of establishing a restriction of competition in an ancillary restraints analysis rests with the regulator. It remains to be seen how other courts and regulators will approach narrow MFNs in the future, and which framework of analysis they seem most persuaded by.
Are there any other considerations for dominant companies?
Although MFNs have largely been considered under Article 101, the use of wide MFNs in standard contracts with suppliers by dominant companies could also be found to constitute abuse under Article 102 TFEU because of concerns about associated exclusionary effects.
In particular, the Commission analysed MFNs under Article 102 in the Amazon e-books MFN investigation. The Commission took the preliminary view that Amazon may have abused its dominant position through a number of MFN clauses requiring e-book publishers and suppliers to inform Amazon about more favourable or alternative terms given to competing platforms (relating to price, promotions and e-book features) and to offer Amazon similar (or better) terms. The Commission considered that such clauses could strengthen Amazon’s position by reducing the ability and incentive of e-book suppliers and competing platforms to develop new business models.
The relevance of Article 102 was also raised in the online hotel bookings cases. In particular, the French NCA noted that the imposition of wide MFNs by one or multiple platforms could be deemed to constitute individual or collective abuse of a dominant position.
More recently, pursuant to a complaint from a hotels association, the Spanish NCA has launched an investigation into whether Booking.com has abused its dominant position by imposing narrow MFNs. In any event, the EU’s DMA now envisages that gatekeepers designated under the Act would not be able to impose wide or narrow MFNs, as well as measures that have equivalent effect.
What type of economic analysis has been conducted by NCAs on the impact of the switch from wide to narrow MFNs?
In the online hotel bookings sector, a European Competition Network (ECN) working group conducted a year-long monitoring exercise with a view to assessing and comparing the impact of the switch from wide to narrow MFNs across Europe on the one hand, and the prohibition of MFNs in Germany and France on the other. The working group carried out a difference-in-differences analysis of room price data obtained from metasearch websites and found that ‘the switch from wide to narrow parity clauses by Booking.com and Expedia led to an increase in room price differentiation between OTAs by hotels in eight of the 10 participating Member States.’ The ECN indicated that it would continue to monitor the online hotel sector and ‘re-assess the competitive situation in due course’.
Subsequently, in July 2020, the European Commission announced a call for tenders for a second market study into the marketing and sale of hotel accommodation in Austria, Belgium, Cyprus, Poland, Spain and Sweden. The market study was intended to provide up-to-date information on how hotels market and sell their rooms, including whether (1) distribution arrangements differ between Member States, (2) there have been changes relative to the findings of the monitoring exercise carried out by the ECN in 2016 and (3) national laws banning MFNs have led to changes in distribution arrangements. The results of that market study, published in August 2022, did not indicate any significant change in the competitive situation in the hotel accommodation distribution sector in the EU compared to 2016.
The UK NCA also reviewed the impact of the switch from a wide to a narrow MFN by PCWs in agreements with PMI providers as part of its DCT market study in 2017. The econometric analysis carried out showed that ‘commissions have been lower than they would have been since the removal of the wide MFNs . . . this suggest[s] that the impact of narrow MFNs has not (or not fully) replicated that of wide MFNs.’
As noted above, in May 2020, the European Commission published support studies it had commissioned as part of its ongoing review of the VABER. These studies found that while the VABER and the Vertical Guidelines remain relevant, they do not adequately address the new issues raised by the development of the digital economy and online sales.
In their assessment of MFNs (analysed in detail along with other types of vertical restraints), the studies’ authors undertook an analysis of the hotel sector. The studies, which also relied on a qualitative assessment of stakeholder interviews, ultimately concluded that it was not possible to draw general conclusions regarding the effect of narrow as compared to wide MFNs, with the effects varying depending on the characteristics of the market. Nonetheless, the studies’ authors posited that the empirical analysis carried out on the hotel sector suggested that a ban on narrow MFN clauses may decrease prices in that sector, although they acknowledged that such clauses do have important welfare effects for consumers (as discussed in the above section on Article 101(3) efficiencies) and give rise to fewer competition concerns than wide MFNs.
Practical considerations when drafting narrow MFN clauses
The UK NCA provided guidance on the scope of narrow MFN clauses as part of its DCT market study. In the NCA’s view, narrow MFNs should not go beyond the scope of what is strictly necessary to achieve related efficiencies. In particular, the UK NCA noted that narrow MFNs should not apply to existing customers (customers with whom the supplier already has a contract or who participate in a supplier’s loyalty programme) on the basis that free-riding efficiencies are less likely to apply to those customers.
Are any new developments expected over the coming months?
MFN clauses will undoubtedly remain a hot topic in Europe:
- NCAs are continuing to take enforcement action against wide MFN clauses. In August 2021 Russia’s antitrust authority fined Booking.com for abusing its market power by imposing wide parity clauses. In November 2020, the UK NCA found that the insurance PCW CompareTheMarket’s use of wide MFNs violated both Section 2(1) of the UK Competition Act 1998 and Article 101 TFEU, and imposed a fine of £17.9 million. CompareTheMarket successfully appealed the decision after the CAT held that, among other things, the market definition incorrectly included narrow MFNs and that the UK NCA had failed to establish that wide MFNs had the anticompetitive effects articulated in its decision. This muddies the waters considerably in the UK, where wide MFNs have been categorised as hardcore restrictions under the VABEO and, therefore, are subject to individual assessment under Section 9(1) of the Competition Act 1998 with, according to the VABEO Guidance (further to the CMA’s findings in its CompareTheMarket decision and the earlier PMI investigation), a presumption that they are anticompetitive. The CAT's decision confirms that wide MFNs are not a by-object infringement, and shows that it is challenging for NCAs to establish the anticompetitive effects of (even wide) MFNs, meaning that businesses operating in the UK have to undertake their own complex effects analysis to get comfortable on this front.
- Legislation has been introduced in Switzerland in addition to the already existing legislation in France, Austria, Italy and Belgium prohibiting MFN clauses (including narrow MFNs) in contracts between accommodations and hotel booking OTAs.
- As discussed above, support studies published in conjunction with the ongoing VABER review, which assessed the impact of MFNs, concluded that their effects in general are ambiguous and that inconsistencies in the approach taken by NCAs, Member States and courts at various points in time have led to different enforcement and legislative outcomes. The studies’ authors conclude that it would therefore be preferable if ‘clear guidance could be provided on the circumstances in which the use of MFNs should not raise competition concerns, such as safe harbours, as well as the circumstances where the presumption would be of illegality’.
- The EU’s platform-to-business regulation, which came into force on 12 July 2020, requires online platform intermediaries to include an explanation of the ‘main economic, commercial or legal considerations’ for using MFNs (if any) in their terms and conditions for business users (such as suppliers), and make this explanation publicly available.
- In the EU, the position on wide (cross-platform) MFN clauses at least appears more or less settled. In its VABER Guidelines, the European Commission has also provided detailed guidance on its approach to assessing efficiencies of narrow MFNs. In parallel, the DMA has gone a step further and prohibited the imposition of narrow MFNs by gatekeepers. We continue to watch this space, as non-gatekeepers may still be able to self-assess and use narrow – and even wide – parity clauses to the extent they are efficiency-generating and indispensable for their purpose.
1 Philippe Chappatte and Kerry O’Connell are partners at Slaughter and May. The authors would like to thank Sarah de Morant, former associate at Slaughter and May, and Shweta Vasani and Katie Hudson, associates at Slaughter and May, for their contributions.
2 French Competition Authority, Decision 15-D-06 dated 21 April 2015; Italian Competition Authority, Decision dated 21 April 2015; and Swedish Competition Authority Decision 596/2013 dated 15 April 2015.
3 German Competition Authority, Decisions B 9 – 66/10 dated 20 December 2013 and B 9 – 121/13 dated 22 December 2015; Press release, Ministry of Justice of Nordrhein-Westfalen, ‘Higher Regional Court of Düsseldorf: Online Hotel Bookings: “Narrow” MFNs are Permitted’ (19 June 2019).
4 German Federal Court of Justice, 18 May 2021: www.bundesgerichtshof.de/SharedDocs/Pressemitteilungen/DE/2021/2021099.html (full text decision yet to be published).
5 UK Competition and Markets Authority (CMA), Private motor insurance market investigation, Final Report dated 24 September 2013 (UK CMA PMI investigation).
6 UK CMA, Digital comparison tools (DCT) market study, Final Report dated 26 September 2017; UK CMA, price comparison website: use of most favoured nation clauses (opened 26 September 2017).
7 Decision of the UK CMA, Price comparison website: use of most favoured nation clauses (Case 50505) (dated 19 November 2020).
8 German Competition Authority, Decisions B 6 – 46/12 dated 26 November 2013 and B 9 – 121/13 dated 22 December 2015; Office of Fair Trading, Case CE/9692/12 (closed November 2013).
9 AT.39847 E-books, Decision dated 12 December 2012.
10 AT.40153 E-book MFNs and related matters (Amazon), Decision dated 4 May 2017.
11 COM(2017) 229, Final Report on the E-commerce Sector Inquiry dated 10 May 2017.
12 Commission Regulation (EU) 2022/720 of 10 May 2022 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices (VABER). This Regulation entered into force on 1 June 2022.
13 See footnote 7.
14 Judgment of the UK Competition Appeal Tribunal (CAT), BGL (Holdings) Limited & Others v Competition and Markets Authority (Case  CAT 36) (published 8 August 2022): www.catribunal.org.uk/judgments/138011221-bgl-holdings-limited-others-v-competition-and-markets-authority-judgment-2022.
15 UK CMA PMI investigation, Paragraph 8.40-43.
16 ibid., Paragraphs 8.35–39.
17 UK CMA, DCT market study, ‘Paper E: Competitive landscape and effectiveness of competition’ dated 26 September 2017 (UK CMA DCT study, Paper E), Paragraphs 3.34–37.
18 European Commission Guidelines on Vertical Restraints, Paragraph 370.
19 See, for example, UK CMA PMI investigation, Paragraph 8.55.
20 European Commission Guidelines on Vertical Restraints, Paragraph 374.
21 See footnote 12.
22 Higher Regional Court of Düsseldorf Administrative proceedings VI-Kart 1/14 [V], Decision dated 9 January 2014, Paragraphs 164–165.
23 UK CMA PMI investigation, Annex 12.1 Paragraph 38.
24 Article 5(1)(d) of revised VABER.
25 European Commission Guidelines on Vertical Restraints, Paragraphs 259 and 374.
26 Commission Guidelines on the Application of Article 81(3) of the Treaty (101(3)) (OJ C101/97, 27.4.2004), Paragraphs 11–12.
27 UK CMA PMI investigation, Paragraph 8.82-83.
28 ibid., Paragraph 8.82.
29 ibid., Paragraphs 8.89–107.
30 ibid., Paragraph 8.7.
31 ibid., Paragraph 8.118.
32 ibid., Paragraph 8.100.
33 ibid., Paragraph 8.102.
34 Swedish Competition Authority Decision 596/2013 dated 15 April 2015 (English version), Paragraph 16.
35 ibid., Paragraph 27.
36 ibid., Paragraph 30: ‘The Competition Authority’s assessment, which is supported by analysis . . . is in view of the above that the vertical price parity substantially reduces the risk that hotels free-ride on investments made by Booking.com. This in turn allows Booking.com to receive remuneration for its search and compare services so that the services continue to be offered on the market for the benefit of consumers.’
37 See, for example, French Competition Authority, Decision 15-D-06 dated 21 April 2015 (English translation), Paragraph 289: ‘The commitments allow restoring a balance in the sector, and ensure efficient competition likely to lead to a decrease in the amount of commissions of OTAs while respecting the positive contribution that the latter bring to the sector in terms of economic efficiency’; and Italian Competition Authority, Decision dated 21 April 2015 (English translation), Paragraph 67: ‘the said commitments are able to remove the anti-competitive concerns that had been identified in the notice of commencement of the investigation. At the same time, we believe that they are able to ensure that consumers have the opportunity to keep using the comparison, research and booking services that it offers for free’.
38 German Competition Authority, Decision B 9 – 121/13 dated 22 December 2015, Paras. 261–267.
39 ibid., Paragraphs 268–281.
40 ibid., Paragraphs 283–285.
41 ibid., Paragraphs 286–298.
42 ibid., Paragraphs 300–302.
43 DG Comp, Support Studies for the evaluation of the VABER – Final Report, Paragraph 126.96.36.199.1
45 UK CMA PMI investigation, Annex 12(1)-7, Paragraph 30.
46 UK CMA PMI investigation, Paragraph 8.104.
47 ibid., Paragraph 8.106.
48 ibid., Paragraph 8.116.
49 UK CMA DCT study, Paper E, Paragraph 3.16.
50 See, for example, French Competition Authority, Decision 15-D-06 dated 21 April 2015 (English translation), Paragraphs 134–141.
51 See, for instance, European Court of Justice (ECJ), Remia, Decision dated 11 July 1985 (C-42/84), Paragraph 20; ECJ, Oude Luttikhuis, Decision dated 12 December 1995 (C-399/93) Paragraph 14; and ECJ, MasterCard, Decision dated 11 September 2014 (C-382/12 P), Paragraph 89.
52 Higher Regional Court of Düsseldorf Administrative proceedings VI-Kart 2/16 [V], Decision dated 4 June 2019, p. 6.
53 ibid., pp. 15–16.
54 ibid., p. 24.
55 German Federal Court of Justice, Decision of 18 May 2021 – KVR 54/20: www.bundeskartellamt.de/SharedDocs/Publikation/EN/Pressemitteilungen/2021/18_05_2021_BGH_KVR_54-20_Booking.com.pdf?__blob=publicationFile&v=3.
56 AT.40153 E-book MFNs and related matters (Amazon), Decision dated 4 May 2017.
57 French Competition Authority, Decision 15-D-06 dated 21 April 2015, Paragraphs 142–146.
58 See the Madrid Hotel Business Association’s press release dated 22 June 2020, available at: https://aehm.es/aehm-denuncia-a-booking-ante-la-cnmc-por-practicas-detrimento-hoteles-asociados/.
60 Article 5 (Obligations for Gatekeepers).
61 European Competition Network (ECN), Report on the monitoring exercise carried out in the online hotel booking sector dated 6 April 2017, Paragraph 11.
62 ECN, Outcome of the ECN DGs on 17 February 2017.
63 UK CMA DCT study, Paper E, Paragraph 3.48.
64 DG Comp, Support Studies for the evaluation of the VABER – Final Report.
65 ibid., dated 26 September 2017, Paragraph 3.88.
66 See footnote 7.
67 See footnote 14.
68 Law No. 2015-990 for Growth, Activity and Equal Economic Chances, adopted on 10 July 2015.
69 Draft Federal Act amending the Federal Act Against Unfair Competition 1984 and the Federal Act on Price Marking, adopted on 17 November 2016.
70 Annual Bill for Market and Competition, adopted on 2 August 2017.
71 Act on pricing freedom for tourist accommodation operators in contracts concluded with online reservation platform operators, adopted on 19 July 2018.
72 DG Comp, Support Studies for the evaluation of the VABER – Final Report, Paragraph 188.8.131.52.
73 Regulation (EU) 2019/1150 of the European Parliament and of the Council of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services (OJ 2019 L 186/57) (11 July 2019), Article 10.