On 6 June 2024, Advocate-General Collins handed down his Opinion in Case C-264/23 Booking.com. The Opinion concerned an Article 267 TFEU request from a Dutch court to the Court of Justice of the European Union (the CJEU) for a preliminary ruling on two questions concerning price parity clauses (PPCs).
While not binding on the CJEU, the Opinion considers how market definition and the doctrine of ancillary restraints should be approached when analysing PPCs, as well as the application of the current and pre-2022 vertical block exemption regulations. The Opinion is largely in line with relevant European Commission guidance, and if followed by the CJEU, should give businesses added certainty as to how PPCs are likely to be analysed under EU law. This is against a context of divergent approaches – at the EU Member State level and indeed even within the UK, between the Competition and Markets Authority (the CMA) and the Competition Appeal Tribunal (the CAT).
What are price parity clauses?
PPCs (which are also sometimes referred to as most favoured nation clauses or MFNs) are clauses in an agreement that restrict the price at which a supplier can sell its goods or services through different distribution channels. They are typically found in cases of "dual distribution", where a supplier can reach consumers directly, for example through its own platform, as well as through distribution platforms operated by third party intermediaries. Under a PPC the supplier agrees not to undercut the platform price through its own website or sales network (a narrow PPC) or offer better prices on any other distribution channel (a wide PPC).
Distributors/platforms often argue that the purpose of PPCs is to prevent "free riding" by the supplier. In other words, the distributor/online platform has made an investment in its sales network or online platform, and the supplier should not be able to take advantage of the value this brings in getting their product to market, while at the same time undercutting and diverting sales from that distributor/online platform. Whilst there is clearly some force in these arguments as regards "narrow" PPCs, they are less compelling when considering "wide" PPCs, given third-party platforms will have made their own investments to build out competing platforms and are not simply free-riders. For this reason, competition authorities have tended to draw a distinction between wide PPCs (which have an impact on competition between distribution platforms and can serve to protect incumbents from price competition) and narrow PPCs (which seek to address what is on its face a legitimate commercial concern).
AG Collins' Opinion in Booking.com
The proceedings and reference to the CJEU
The Dutch court's Article 267 TFEU reference was made against a background of separate German damages proceedings brought against Booking.com (Booking) by German hotel operators. These operators had sought to rely on two decisions of the German Federal Cartel Office which found that contracts entered into with online travel agents (OTAs) which included wide and (in the case of the second decision) narrow PPCs infringed Article 101 TFEU to seek damages against Booking.
In response to the follow-on damages claim brought against it in Germany, Booking initiated proceedings before the Amsterdam District Court seeking a declaration that its PPCs did not infringe Article 101 TFEU (with the German operators bringing a counterclaim in the same court). Booking argued, among other things, that:
- the PPCs did not fall within the scope of Article 101(1) TFEU as they were 'ancillary restraints'. In particular, Booking argued the PPCs were necessary to prevent hotels from using its services without paying for them and thus avoid 'free-riding', as Booking did not charge a listing fee but instead took a proportion of the fee paid for each booking made on its platform as commission; and
- additional distribution channels for hotel accommodation (including both online and offline channels for booking) should be included within the relevant market definition. The approach to market definition could affect both the potential availability of the Vertical Block Exemption Regulation (VBER) (bearing in mind the Article 3 market share threshold) and impact upon an effects-based analysis under Article 101 TFEU (since it would affect Booking's deemed level of market power and the breadth of the market covered by the PPCs).
AG Collins' answers to the questions referred
On the applicability of the ancillary restraints doctrine, AG Collins' conclusion was that wide and narrow parity clauses imposed by an OTA on hotels are not ancillary restraints unless they are "indispensable and proportionate to ensuring the OTA's economic viability". While these were factual questions which were left to the referring court to determine, AG Collins expressed some doubt that the PPCs were indispensable, noting that "the Court's file suggests that OTAs continue to provide their services and even thrive in several Member States after they have been prohibited from having recourse to price parity clauses." On proportionality, AG Collins' view was that charging a fee for use of the platform could have been an alternative, less restrictive means of achieving the goal of preventing "free riding".
On the question of market definition, AG Collins referred to the guidance on two-sided markets in the Commission's new market definition Notice, concluding that a determination must be made as to whether other sales channels are substitutable with the OTA channel from the point of view of both hotels (one side of the market) and end customers ("present on the other side of that two-sided platform"). While this was a question of fact for the Dutch court, AG Collins was sceptical that offline sales channels would form part of the same product market, noting that: "It seems clear that offline travel agency services provided by bricks-and-mortar operators present very different characteristics and functionalities" and also that "Metasearch engines also appear to have different characteristics and functionality."
AG Collins also made some obiter comments regarding the application of the pre-2022 VBER, and the current VBER (since the issue had been aired at the relevant hearing). AG Collins noted that it is only under the current VBER that certain types of wide PPC are excluded restrictions; under the old VBER they were neither hardcore nor excluded restrictions.
Commentary
The Opinion set a high bar for anyone seeking to rely on the ancillary restraint doctrine to remove PPCs from the scope of Article 101(1) TFEU. Previous case law had insisted that a restriction could only amount to an ancillary restraint if the restriction is "objectively necessary" for "implementing the main operation" of the agreement. By contrast, the test formulated by AG Collins requires an OTA to establish that PPCs are indispensable for the economic viability of its operation and therefore appears to introduce an element of economic analysis into the assessment. However, AG Collins does not explain why such an assessment is relevant to the application of the ancillary restraint and how such an assessment should be conducted in practice.
Otherwise, the Opinion generally reflects and reaffirms current orthodoxy and is consistent with the position taken by the Commission. As well as the aforementioned comments on how market definition should be addressed when looking at a two-sided platform, AG Collins' Opinion also indicates that the question of whether PPCs can be justified as a solution to the "free-rider problem" will generally require an Article 101(3) TFEU analysis (something on which the Commission's new Guidelines on Vertical Restraints provide a significant amount of guidance). Rather than being capable of being answered in the abstract, both these issues require a close analysis of the available evidence on the functioning of the agreements and the wider market context.
The position in the UK
As is the case with the new VBER and the Commission's Guidelines on Vertical Restraints, the 2022 UK Vertical Agreements Block Exemption Order (VABEO) and the CMA's accompanying guidance also specifically address PPCs. Whilst the VABEO adopts the same approach as VBER in providing that narrow PPCs can benefit from the block exemption, it takes a more restrictive approach in respect of wide PPCs at the retail level which are 'hardcore restrictions' which remove the benefit of the block exemption from the whole agreement. Additionally, the CMA's guidance goes one step further and states that not only are arrangements involving wide PPCs unable to avail themselves of the benefits of the block exemption, they are "presumed to restrict competition and thus to fall within the Chapter I prohibition ... [and] unlikely to fulfil the conditions for [individual] exemption".
The validity of this approach was, however, called into question by the CAT's decision in BGL,1 which concerned an appeal against a CMA decision sanctioning wide PPCs imposed by Compare the Market (an online intermediation platform for financial products operated by BGL). In that decision, which was adopted pre-VABEO and the CMA guidance, the CMA found that wide PPCs between BGL and the insurance companies on its platform had the effect of appreciably restricting competition. The CAT set aside the decision and criticised the CMA for failing to carry out a sufficiently rigorous market definition exercise and effects analysis by, among other things, not properly considering alternative sales channels for insurance policies (including offline channels), whilst also emphasising that wide PPCs cannot be presumed to restrict competition, contrary (in essence) to the form-based adopted in the CMA guidance. As a result, in future cases the CMA will have to conduct a more thorough effects analysis, including as to the nature and scope of the PPCs, the breadth of market coverage, and how they were ultimately implemented.
Conclusion
The analysis of PPCs has long been a subject of controversy and both the AG Opinion in Booking.com and the CAT's decision in BGL underscore the importance of the underlying evidence on the functioning of the market and the competitive context for any assessment of object and effect of such obligations and their potential efficiency justifications.
Finally, it is worth noting that – having recently been designated as a gatekeeper under the EU Digital Markets Act, Article 5(3) of which prohibits gatekeepers from using both wide PPCs and narrow PPCs – Booking appears to have revised its agreements with accommodation providers within the EEA, eliminating its PPCs. Booking's accommodation partners are therefore now at liberty to set lower rates for their rooms on their own direct channels than the rates available on Booking.com.
Footnote
1 1380/1/12/21 BGL (Holdings) Limited & Others v Competition and Markets Authority [2022] CAT 36
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