The Court of Justice of the European Union (CJEU) has ruled on price parity clauses in contracts between an important hotel reservation platform and hotel establishments. The CJEU has determined that these clauses must be analyzed under the rules on anticompetitive agreements as they cannot be qualified as “ancillary restraints” since they are not strictly necessary to ensure the viability of the economic activity of the said reservation platform.
The Court of Justice of the European Union (CJEU) rendered a judgment on September 19 in Case C-264/23, about a hotel booking platform in which it ruled on price parity clauses in contracts between hotel establishments and this hotel reservation platform (hereinafter also referred as OTA, online travel agency).
The aforementioned OTA is a provider of intermediation services between hotel establishments and travelers. The former use the platform to offer accommodation services at the price they deem appropriate, while the latter can search, filter establishments and book them through the platform. The generation of income from this intermediation activity comes mainly from the establishments, which pay commissions for the reservations made by travelers, while the service has no cost for the latter.
Since hotel establishments can also offer their services through other channels, including their own websites, the OTA involved always argued that there is a risk of free-riding in its platform, as establishments could use it to make themselves known, but then redirect booking traffic to other sales channels or to their own websites, offering lower prices. In this way, they would avoid paying commissions, and the reservation platform would no longer receive income from the activity of its platform, in which it has made significant investments.
As a result, since it began operating in 2006, the OTA included in the general terms of its agreements with hotel establishments a so-called “wide parity” clause (WPC), which prohibited them from offering their services in their own sales channels and in third-party sales channels at a lower price than the price offered in the reservation platform. In 2014, several European competition authorities considered that WPCs restricted competition and initiated proceedings to investigate this. As part of these proceedings, the OTA committed in mid-2015 to replace these clauses with so-called “narrow parity” clauses (NPC). Unlike the WPCs, the NPCs only obliged hotel establishments not to undercut the prices they offered on the hotel reservation platform on their own websites but allowed them to offer lower prices on third-party sales channels.
By the end of 2020, the OTA concerned in the CJEU’s judgement brought an action in the Netherlands seeking a declaration that its parity clauses were not contrary to Article 101 of the Treaty on the Functioning of the European Union (TFEU), which prohibits agreements restricting competition. The Dutch judge in charge of the case decided to stay the proceedings and referred two questions to the CJEU for a preliminary ruling on (i) whether the parity clauses, both wide and narrow, could be considered as “ancillary restraints”, and (ii) on how the market in which the OTA operates should be defined. This question was relevant in order to verify whether its market share was below 30% and whether it could therefore be exempted from the application of Article 101 TFEU as provided for in the vertical block exemption regulations (VBER).
CJEU analysis
In its judgment, the CJEU interprets Article 101 TFEU as meaning that both wide and narrow parity clauses do not meet the requirements to be qualified as ancillary restraints, but leaves it to the Dutch court to define the exact market in which the hotel reservation platform operates.
Ancillary restraints
According to the case law of the CJEU, when a main transaction or activity does not have negative effects on competition, a restriction on the autonomy of one of the parties may be exempted from the aforementioned prohibition of restrictive agreements if it is ancillary to the main activity. In such a case, it will not be necessary to analyze the effects of this restriction on competition, for such analysis will only be required regarding restrictions that are not ancillary. In this analysis, it will be determined (i) whether, due to its anticompetitive nature, the restriction is incompatible with the prohibition of anticompetitive agreements, and (ii) whether its procompetitive nature justifies its exemption from the aforementioned prohibition.
As the CJEU has recalled in this judgment, in order to be ancillary, a restriction of competition must be (i) objectively necessary for the performance of the main activity; and (ii) proportionate to the objectives pursued. The necessity criterion requires that the restriction cannot be dissociated from the main activity without compromising its existence and purpose, while the proportionality criterion requires that there be no realistic alternative solutions that are less restrictive of competition.
In the case of this OTA, the CJEU admitted that its activity has a positive effect on competition, but concluded that there is no intrinsic link between the viability of this activity and the price parity clauses, so these parity clauses were not necessary. To such an extent, the CJEU noted that these clauses had been prohibited in several Member States without the OTA’s activity being compromised. Although the CJEU recognized that NPCs were less restrictive than WPCs, and that both clauses addressed the risk of free-riding, this did not make them necessary. The CJEU therefore concluded that the clauses did not meet the necessity requirement. This made it unnecessary for it to carry out a proportionality analysis assessing the existence of alternative means that were less restrictive of competition.
Relevant market
Secondly, the Dutch court asked how the relevant market in which the OTA operates should be defined, in order to estimate its market share and, in case it was below 30%, to apply the exemption from the VBER. In particular, it asked whether the relevant market was that of “hotel platforms”, where these offer intermediation services to hotel establishments, or whether it should be understood as being broader.
The CJEU concluded that it was up to the Dutch court to delimit the market, assessing whether other intermediation services and other sales channels could be substitutes for the services offered by the hotel reservation platform, both from the point of view of hotel establishments and travelers (such as travel agency services that do not operate online, direct hotel sales channels and even other online services such as those offered by search engines).
Importance of the judgment
The most important aspect of the judgment is that it establishes for the first time with clarity that parity clauses are not ancillary. Specifically, by applying a strict necessity criterion, the CJEU greatly limits the possibility for considering parity clauses as “ancillary” in other contexts, which means that the legality of these clauses must be assessed on a case-by-case basis, analyzing whether they have restrictive effects on competition in the specific market in which they are to be applied and, if so, whether there are procompetitive effects that justify their exemption.
The current VBER, adopted in May 2022, has excluded WPCs from the scope of the exemption, hence only NPCs included in vertical agreements between operators with a market share not exceeding 30% can be automatically considered exempted. All other parity clauses will have to be analyzed directly under the prohibition of restrictive agreements in Article 101 TFEU.
Ultimately, the CJEU’s reasoning can be understood as applicable to other digital platforms for the booking of services (e.g., travel, leisure experiences, or medical appointments), as well as to operators active in other markets for whom the inclusion of parity clauses is desirable.
We cannot conclude this analysis without recalling that the potential anticompetitive nature of parity clauses has been highlighted very recently by the CNMC. The Spanish authority opened a sanctioning file against this very same hotel reservation platform in October 2022, in which it investigated the general conditions it imposed for contracting with hotel establishments. The CNMC adopted in July 2024 a decision in which it declared that it had incurred in two abusive conducts, one of which consisted precisely in preventing hotels from offering their rooms on their own websites below the price they offered on the OTA, while reserving the right to unilaterally lower the price that hotels offer through this platform. The CNMC imposed a fine of more than 400 million euros.
The undertaking sanctioned has announced that it will challenge the decision before the Court of Appeal, so it will be necessary to wait for a decision on this claim and an eventual appeal before the Supreme Court. If the CNMC’s thesis is confirmed, the hotels harmed by the practice, as well as the users of its services, will be able to initiate civil actions for damages against the said hotel reservation platform, if they can prove that they paid higher prices when contracting its services than they would have been offered in the absence of the parity clauses.
