A benefit to the consumer or the end of online booking services in Austria?
On 14 June 2016, a draft law amending the Austrian Federal Act against Unfair Competition 1984 and the Austrian Price Labelling Act was published for public consultation (the ‘Draft Law’). The Draft Law intends to introduce a ban on best price clauses (also referred to as price parity clauses or most favoured nation clauses, ‘MFNs’) in contracts between providers of booking portals (more commonly referred to as online travel agencies, ‘OTAs’) and hotel operators (in the following simply referred to as ‘hotels’).
After a public consultation period of only two weeks, the Draft Law passed the Council of Ministers on 12 July 2016. The Austrian Parliament is scheduled to decide on the Draft Law in autumn and - if approved - it is planned to enter into force by the end of 2016.
The reasoning behind MFNs in the online travel sector
OTAs provide travelers with the opportunity to search for, compare and book a multitude of travel offers (in particular lodgings) via a single platform. To hotels, OTAs offer the possibility to market their offer via the platform of the OTA (typically OTAs do not act as buyer/resellers and do not take inventory risk). Hotels (in particular smaller and independent ones) usually benefit from visibility of their offer on the platform, opening an additional marketing and sales channel to present to potential clients worldwide. The price parameters for the hotel accommodation offered via the platform of the OTA are set by the hotels.
In principle, both services - the worldwide presentation/promotion of the hotel on the platform and the possibility for consumers to search for a suitable offer, check availability, get information and compare offers/prices - are available for free. In order to finance the services of the OTA, hotels need to pay a commission (a percentage of the room rate) to the OTA, once (and only once) an actual booking is made via the platform and completed (i.e. not cancelled). However, once the customer has found a hotel via the platform, he can check whether the same or even better prices for the same offer are available via other booking channels (such as, in particular, the website of the hotel itself).
In such business model, MFNs are intended to prevent hotels from free-riding on OTA services by offering better prices in particular on their own website (which they could easily do by increasing the prices offered via the OTA) and by this jeopardising the functioning of the OTA business model. For consumers such clauses are beneficial since they can rely on the best price offers. Absent MFNs, consumers relying on the comfort of searching, comparing and booking an offer on one OTA would suffer disadvantages vis-à-vis consumers searching and comparing offers on various platforms, including the hotels’ own websites. Hotels may likely inflate their prices offered via OTAs and thereby discriminate against consumers booking via such platforms.
Summary and potential consequences for e-commerce
The Draft Law prohibits best price clauses in contracts between OTAs and hotels and therefore significantly restricts their commercial freedom. Also, there appears to be no objective justification or a need for a national provision prohibiting MFNs in a very specific business relationship only. EU antitrust law deals with MFNs and - in contrast to the Draft Law - does not prohibit them, and even prohibits a national provision that is stricter than EU law. The UCP-Directive has introduced a catalogue of practices that are considered unfair and therefore impermissible - MFNs are not among them; the extension of the catalogue of practices under national law is prohibited due to full harmonisation. Under the E-commerce Directive, the intended law would not be applicable to OTAs located in EU Member States outside Austria. The Draft Law appears to be in conflict with the basic principles of EU law, such as in particular the principle of free movement of services between Member States and the (Digital) Single Market.
Commercially, the Draft Law puts the business model of OTAs at risk and may even have a deterrent effect on innovation and investments even beyond the specific industry: If hotels cannot be prevented by MFNs from setting higher prices on the website of the OTA than their own websites, hotels - after being found and chosen by the customer, i.e. having profited from the services of the booking platform for free - have an incentive to attract consumers to their own sales channel (where they do not have to pay a commission for the booking). Such free riding on the investments of OTAs could lead to a situation where more and more customers book Austrian hotels via other channels than OTAs and - as a consequence – OTAs as a result of a lack of remuneration for their services would most likely reduce their marketing activities and lower investments in the promotion of Austrian hotels. This in turn could be detrimental to the Austrian tourism industry and for the consumer, who could lose the benefit of a convenient and efficient resource for travel bookings.
A long version of this article first appeared on www.e-comlaw.com.
Originally published as Schoenherr legal insights on 21 September 2016.