CJEU rules that Booking.com's price parity clauses do not qualify as ancillary restraints under Article 101(1) TFEU

On 19 September 2024 the Court of Justice of the EU (CJEU) issued a preliminary ruling in a referral made by the Amsterdam District Court in the context of a dispute between Booking.com and a number of German accommodation providers. The CJEU was asked whether the wide and narrow price parity clauses in agreements between Booking.com's online hotel booking platform and accommodation service providers qualify as ancillary restraints under the EU competition rules and therefore fall outside the scope of Article 101(1) TFEU (the prohibition on anti-competitive agreements). 

The CJEU concluded that price parity clauses, both wide and narrow, are not objectively necessary for the implementation of Booking's online hotel booking platform and are not proportionate to the objectives pursued by the platform.  On that basis the price parity clauses do not qualify as ancillary restraints and are caught under the Article 101(1) TFEU prohibition.

The CJEU's ruling does not mean that price parity clauses will always infringe the EU competition rules.  Businesses can also rely on the Article 101(3) TFEU efficiencies exemption to justify such clauses provided the relevant criteria for the exemption are met. The EU vertical agreements block exemption Regulation (VABER) also provides a safe harbour for narrow retail parity clauses. Wide parity clauses are excluded restrictions under the VABER, which means they do not benefit from that safe harbour and will instead need to be justified on the basis of the Article 101(3) TFEU efficiency criteria in order to benefit from an individual exemption.

In the case of Booking.com the turnover thresholds in order to benefit from the VABER were not met, and the German competition authority and Federal Court of Justice had held that Booking's wide and narrow price parity clauses restricted competition on the market for the provision of hotel accommodation services and were in breach of the EU competition rules.

It is worth noting that Booking.com has also been designated as a gatekeeper under the Digital Markets Act, which prohibits the use of wide and narrow parity clauses by gatekeepers.

Background to the case

When it entered the German market in 2006, Booking.com and other online travel agencies (OTAs) inserted wide price parity clauses into the terms and conditions of the agreements concluded with accommodation providers.  Under such clause accommodation providers were prohibited from offering, through their own sales channels or through sales channels operated by third parties including competing OTAs, rooms at prices lower than those offered on Booking.com.  In 2015 Booking.com removed the wide parity clause and replaced it with a narrow price parity clause under which the restriction only applied to offers made through accommodation providers' own sales channels.

The German Federal Court of Justice subsequently ruled that Booking.com's wide and narrow price parity clauses restricted competition on the market for the provision of hotel accommodation services.  This resulted in a claim for damages being brought against Booking.com by a German association representing more than 2,600 hotels.  In the context of that litigation Booking.com filed a pre-emptive request for a declaratory judgment with the Amsterdam district court against a number of hotels that operate in the Netherlands but are part of the wider group bringing the damages claims in Germany.  Booking.com asked the Amsterdam court to rule that its parity clauses are not in breach of the EU competition rules and that the hotels had therefore not suffered damages.  The Amsterdam court made a referral to the CJEU asking whether Booking.com's parity clauses qualify as ancillary restraints and are therefore outside the scope of Article 101(1) TFEU.

The CJEU's ruling

The Court starts by reiterating the definition of ancillary restraints under EU competition law.  For a restriction to qualify as ancillary, it is necessary to establish first whether the implementation of the main operation, which is not anti-competitive, would be impossible without that restriction.  The fact that the operation is more difficult to implement, or less profitable without the restriction, is not sufficient for it to be objectively necessary.  In addition, the restriction must be proportionate to the aims pursued by the main operation.

The Court takes the view that the main operation in this case, the provision of online intermediation services by OTAs to hotels, has neutral or positive effects on competition.  It increases competition between hotels and makes it possible for consumers to search for and compare competing offers of hotel services. 

As far as the price parity clauses are concerned however, the Court concludes that it has not been established that these are objectively necessary for the provision of the online intermediation services and are proportionate to the objectives pursued by these services. In this regard the Court notes that in Member States where price parity clauses are not permitted Booking.com's service has nevertheless not been compromised.

Wide parity clauses (which prevent hotels listed on the booking platform from offering rooms at prices lower than those offered at the platform both on their own direct sales channels and on third party sales channels) clearly produce appreciable anti-competitive effects as they reduce competition between the various hotel booking platforms and risk excluding small platforms and new entrants.

The Court recognises that narrow parity clauses (which only prevent hotels from offering lower rates on their own direct sales channels) are less restrictive of competition.  Booking.com tried to justify such clauses in order to address the issue of free-riding, with hotels able to use its platform services and the greater visibility it offers unfairly and without compensation.  The Court makes it clear that such balancing between pro-competitive and anti-competitive effects of a restriction can only take place in the context of arguing an efficiencies exemption under Article 101(3) TFEU. There is a clear distinction between the concept of ancillary restraints, which fall outside the scope of Article 101(1) TFEU altogether (provided they meet the test of objective necessity and proportionality), and the concept of efficiencies exemptions under Article 101(3) TFEU, which provides an exemption for agreements that are caught under Article 101(1) TFEU but can be justified because on balance their benefits to consumers outweigh their anticompetitive effects.

Comment

The CJEU's ruling in Booking.com makes it clear that it will be difficult for price parity clauses to qualify as ancillary restraints under Article 101(1) TFEU.  It does however remain possible to justify such restrictions under the Article 101(3) TFEU efficiencies exemption, and the free-riding argument will be relevant in this context.  The Commission's vertical agreements guidelines recognise that the most common justification for the use of retail parity obligations by providers of online intermediation services is to address the free-rider problem. 

Also, where the relevant turnover thresholds are met under both the EU VABER and the UK's vertical agreements block exemption Order (VABEO), narrow price parity clauses benefit from the safe harbour of these block exemptions. Wide price parity clauses however are excluded from the safe harbour of the VABER (and need to be assessed under Article 101(3) TFEU), and under the VABEO they qualify as hardcore restrictions.

Interestingly, in the UK the Competition Appeal Tribunal (CAT) in BGL (Holdings) Limited (see our blogpost here) set aside the CMA's infringement decision in its Compare The Market investigation relating to the use of wide price parity clauses.  The CAT concluded that the CMA had failed to show, to the requisite legal standard, that wide price parity clauses had any appreciable anti-competitive effects.  It will be interesting to see the CMA's approach to such restrictions going forward, and whether, despite their qualification now as hardcore restrictions in the VABEO, it will nevertheless carry out a more detailed and tailored effects analysis when assessing wide price parity clauses.