The HRS Test Case in Germany

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Fachgruppentag DAJV 2014
ARIM Fachgruppe
1
Parity Clauses between Hotels and Online Portals
- The HRS Test Case in Germany-
Christa Pfeil-Kammerer
Bundeskartellamt
13.04.2015
2
Agenda
1. How did the case start off?
2. Why only HRS in 2010?
3. Scope and enforcement of parity clauses
4. Market definition
5. Theory of harm
6. Legal assessment: Art. 101 (1) TFEU and question of vertical block
exemption
7. Conditions for withdrawing the benefits of the Vertical Block
Exemption Regulation
8. State of play
Bundeskartellamt
13.04.2015
3
The HRS Test Case in Germany
1.How did the case start off?
_____________________________________________________
 In 2010, HRS extended the already existing parity obligations and
the sanctions in case of non-compliance and at the same time HRS
raised the commission for bookings from 13% to 15%.
 Initially a single hotel complained about these changes, in the
course of time others joined.
 In 2011 a civil law suit was filed by a newcomer platform against
the parity clauses - in 2012 this led to an interim injunction by
the court obliging HRS to suspend the parity clauses for the
duration of the proceedings.
 HRS accepted a similar (informal) commitment vis à vis the
Bundeskartellamt for the duration of the case.
Bundeskartellamt
13.04.2015
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The HRS Test Case in Germany
2. Why only HRS in 2010?
______________________________________________________
 At the outset of the case HRS was by far the strongest online
portal in Germany.
 Even though all large portals (HRS, Booking, Expedia) have parity
clauses hotels mainly complained about HRS since HRS very
actively enforced these clauses.
 As other portals have gained stronger market positions HRS is still
the portal responsible for the largest number of online bookings
for hotel rooms in Germany.
 Dependency of hotels is still strong because of the overall market
position and the HRS strategy to offer services to firms needing
hotel rooms for their business travels.
Bundeskartellamt
13.04.2015
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The HRS Test Case in Germany
3. Scope and enforcement of parity clauses
_____________________________________________________
Scope
 Price parity
 Parity on conditions for booking and cancellation
 Parity on room availability
 Parity on all distribution channels including the hotel reception
desk
Enforcement
 „Crawler“ for searching the internet for hotel price differences.
 Hotels receive e-mails with lists on price differences to the
detriment of the online portal using parity clauses and hotels are
advised to eliminate price differences.
 Insistent telephone calls by hotel portal employees lead to hotels
renouncing their price policy.
 Contract terminations by hotel portals without any reasons being
given.
Bundeskartellamt
13.04.2015
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The HRS Test Case in Germany
4. Market definition
Product Market
 Hotel portals combining the functionalities of searching, comparing
and booking of hotel rooms in one hand.
Geografic Market no larger than national:
 National presence necessary in order to attract local/regional
hotels and to maintain business relationships.
 Portals invest stronlgly in national advertising.
 Cooperation with nationally well-known marketing partners in the
travel industry.
 By far the largest group of customers booking hotel rooms in
Germany are German residents.
Bundeskartellamt
13.04.2015
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The HRS Test Case in Germany
5. Theory of harm
____________________________________________
 Parity clauses hinder competition among hotel portals for
lower room prices to end customers and for lower
commissions to hotels.
 They impede market entry of new portals offering similar or
innovative services (such as last minute offers via
smartphone) as hotels cannot pass on lower commisssions
to consumers.
 Due to failing flexibility of hotels parity clauses also reduce
competition among hotels.
Bundeskartellamt
13.04.2015
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The HRS Test Case in Germany
6. Legal assessment – Art. 101 (1) TFEU
_________________________________________________
 Competition law is applicable to contracts between portals and
hotels because hotels do not instruct portals and portals take their
own market decisions. Nevertheless, HRS is an agent, not a
reseller.
 Our view: Parity clauses are restrictions by object within the
meaning of Art. 101 (1) TFEU. By their very nature they have the
potential of restricting competition.
However, we did not decide on this issue and showed the effects.
 Our view: Taking the Vertical Block Exemption Regulation (VBER)
literally, parity clauses are not a hardcore restriction within the
meaning of Art. 4 a) VBER. However, the market effects of these
clauses are very much comparable. We did not decide on this issue
though and showed the effects.
Bundeskartellamt
13.04.2015
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The HRS Test Case in Germany (2013)
6. Legal assessment – question of vertical block exemption
 Market Shares have to be calculated on the basis of market sales
data.
 Art. 3 (1) VBER: HRS exceeded the 30% („safe harbour“)-
threshold in 2011.
 As we were still waiting for data for 2012, we choose a twofold
approach:
 Individual exemption assessment in case HRS continued to exceed
30% in 2012.
 Withdrawal of the benefits of the Block Exemption Regulation in
case HRS fell beneath 30% in 2012.
Bundeskartellamt
13.04.2015
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The HRS Test Case in Germany
7. Conditions for withdrawing the benefits of the
Vertical Block Exemption Regulation
 If the German Cartel Office intended to withdraw the
benefits of the Block Exemption for HRS it would have to
show the following:
 The affected market is no larger than national in scope (Art.
29 [2] Reg 1/03).
 Helpful (see Art. 6 VBER): Parity clauses form part of a
network of similar vertical restraints [HRS, Booking and
Expedia which all have parity clauses in hotel contracts
cover about 90% of the German hotel portal market].
 The exemption conditions in Art. 101 (3) TFEU are not
fulfilled for HRS individually.
Bundeskartellamt
13.04.2015
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The HRS Test Case in Germany
8. State of play
______________________________________________________
 Final decision HRS Dec. 20, 2013
- declaring that the parity clauses [„best price clauses“] are not
compatible with Art. 101 TFEU (and the relevant national law),
- requesting HRS to delete the best price clauses in contracts between
HRS and hotels in Germany as of 1st March 2014,
- prohibiting the further application of the best price clauses by HRS.
Since HRS exceeded the 30% VBER-threshold („safe harbour“) in 2012 we
did not withdraw the benefits of the Vertical Block Exemption Regulation.

HRS: Appeal to the Court of Appeal in Düsseldorf on January 17, 2014.
Start of proceedings against Booking and Expedia Dec. 19, 2013
Bundeskartellamt
13.04.2015
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