German Federal Supreme Court: Narrow best-price clauses applied by Booking.com in Germany breach EU competition law

Background

The hotel-booking platform Booking.com offers mediation services for hotel operators and consumers, enabling consumers to book hotels directly via its platform, with Booking.com receiving a commission for each such room booking. Since 2015, narrow best-price clauses had been used in Booking.com’s terms and conditions, which prohibited hotel providers from offering their rooms on their own website at a lower price than on Booking.com. However, on other online platforms and offline, as long as this was not advertised online, better conditions were allowed to be offered.

The roots of the case actually date back to 2013, to a decision of the Bundeskartellamt against the booking portal HRS, in which the authority prohibited the use of so-called wide best-price clauses. Under these clauses, hotel providers were prohibited from offering rooms at better prices via any other distribution channel. Booking.com also used these wide best-price clauses at that time. After Booking.com switched to narrow best-price clauses following that decision, these clauses also came into the Bundeskartellamt’s sights. In its decision of December 2015, the Bundeskartellamt found that narrow best-price clauses also infringe competition law and banned their use from February 2016 for the reason that such clauses were anti-competitive as they illegally restricted the pricing freedom of hotel providers and created barriers to enter the market for booking platforms.

On appeal by Booking.com against the 2015 decision, the Oberlandesgericht Düsseldorf annulled the Bundeskartellamt’s order in 2019 on the grounds that narrow best-price clauses should be considered as a necessary ancillary agreement to an agency contract and therefore did not fall within the scope of Article 101(1) TFEU. In particular, narrow best-price clauses were necessary to prevent the so-called free-rider problem, where hotels could use Booking.com's services to expand their reach and then offer a cheaper option on their own websites after being found by potential customers on Booking.com. In such cases, booking platforms would not receive any commission despite the hotel having benefitted from their services.

Decision of the Bundesgerichtshof

The Cartel Senate of the Bundesgerichtshof has now overturned the Oberlandesgericht Düsseldorf’s 2019 judgment following an appeal filed by the Bundeskartellamt, with the Bundesgerichtshof ruling that narrow best-price clauses applied by Booking.com violate EU competition law. It did so for a number of reasons.

Firstly, the court did not agree with the view of the Oberlandesgericht Düsseldorf that narrow best-price clauses applied by Booking.com constituted an ancillary agreement necessary for an agency contract and therefore fell outside the scope of Article 101(1) TFEU. For this to be the case, such clauses would have to be objectively necessary for the performance of the contract. However, the object of the contract, namely the online mediation brokerage of hotel rooms, would also be achievable without a best-price clause.

Secondly, the Bundesgerichtshof stated that the European Commission’s (Commission) Vertical Block Exemption Regulation (VBER) was not available for Booking.com to exempt its practice from amounting to an infringement under Article 101. The VBER did not apply as Booking.com’s market share exceeded 30 per cent on the relevant market for hotel booking platforms in Germany.

Take away

The ruling of the Bundesgerichtshof is a further example of the inconsistent landscape for the legal assessment of narrow best-price clauses across Europe:

• The French, Swedish and Italian competition authorities have previously found that wide best-price clauses impede competition as they restrict competition between platforms and raise barriers to entry, but that narrow best-price clauses have pro-competitive effects, such as preserving the economic model of online platforms by preventing free-riding by suppliers.
• The UK Competition and Markets Authority (CMA) has found wide best-price clauses to be problematic, and that narrow MFNs have the potential to restrict competition in some circumstances.
• At the EU level, the European Commission used to take the view that best-price clauses in general – wide and narrow – were covered by the VBER and exempted from Article 101(1) TFEU, provided that the market share of neither of the parties to the agreement exceeded 30 per cent and the agreement did not contain any hardcore restrictions (see Commission Staff Working Document on the Final Report on the E-Commerce Sector Inquiry, May 2017, para. 621).

Given that all mentioned national competition authorities consider wide best-price clauses to be problematic, it will be interesting to see whether the Commission will take a step back from its previous view with respect to the assessment of such clauses, and whether it will provide guidance in the upcoming revised version of the VBER and its associated guidelines, e.g. by drawing a distinction between narrow and wide best-price clauses, as suggested by many national authorities (see Commission Staff Working Document on the Evaluation of the Vertical Block Exemption Regulation, September 2020, p. 131). It will also be interesting to see how the Commission deals with narrow best-price clauses not covered by the VBER, e.g. if the applicable market share threshold is exceeded.

Companies operating their businesses across various EU countries and in the UK face legal fragmentation increasing costs for business in terms of adapting contracts and business models for individual countries in which they are active – a consequence that is not desirable from the perspective of either consumers or platform operators.  

The full text of the ruling is not available yet, but the press release issued by the Bundesgerichtshof can be found here (only available in German).