We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
November 01 2016
On June 14 2016 a draft law amending the Federal Act against Unfair Competition 1984 and the Price Labelling Act was published for public consultation. The draft law intends to introduce a ban on best price clauses (also referred to as price parity clauses or most-favoured nation clauses) in contracts between providers of booking portals (more commonly referred to as online travel agencies) and hotel operators.
After a public consultation period of only two weeks, the draft law passed the Council of Ministers on July 12 2016. Parliament is scheduled to decide on the draft law in autumn and – if approved – it is scheduled to enter into force by the end of 2016.
Online travel agencies allow consumers to search for, compare and book a multitude of travel offers (in particular lodgings) via a single platform. Online travel agencies also allow hotels to market their offers via an online platform. Typically, online travel agencies neither act as buyers/resellers nor take inventory risk. Hotels – in particular, smaller and independent ones – usually benefit from the visibility this opportunity offers, as it provides an additional marketing and sales channel to present to potential clients worldwide. The price parameters for the hotel accommodation offered via online travel agencies' platforms are set by the hotels.
In principle, both services – that is, the global promotion of hotels on the platform and the opportunity 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 offered by online travel agencies, hotels pay a commission (a percentage of the room rate) to the online travel agencies once (and only once) an actual booking is made via the platform and completed (ie, not cancelled). However, once a consumers has found a hotel via the platform, he or she can check whether the same or even better prices for the same offer are available via other booking channels (eg, on the hotel's actual website).
In this business model, most-favoured nation clauses are intended to prevent hotels from free-loading on online travel agency services by offering better prices on their own websites, which they could easily do by increasing the prices offered via the online travel agency. For consumers, such clauses are beneficial, as they ensure that they receive the best price offers. In the absence of most-favoured nation clauses, consumers relying on searching, comparing and booking an offer with one online travel agency will be at a disadvantage compared to consumers searching and comparing offers on various platforms, including hotel websites. Hotels will likely inflate the prices offered via online travel agencies and thereby discriminate against consumers booking through these platforms.
The draft law prohibits most-favoured nation clauses in contracts between online travel agencies and hotels and therefore significantly restricts their commercial freedom. Further, there appears to be no objective justification or need for a national provision prohibiting most-favoured nation clauses in this specific business relationship. EU antitrust law deals with most-favoured nation clauses and, in contrast to the draft law, does not prohibit them. EU law even prohibits national provisions that are stricter than EU law. The EU Unfair Commercial Practices Directive has introduced a catalogue of practices that are considered unfair and therefore prohibited – most-favoured nation clauses are not among them. Further, the extension of the catalogue under national law is prohibited due to full harmonisation. Under the EU E-commerce Directive, the intended law would not apply to online travel agencies located in EU member states outside Austria. The draft law appears to be in conflict with the basic principles of EU law – in particular, the principle of free movement of services between member states and the digital single market.
Commercially, the draft law puts online travel agencies' business model at risk and may even deter innovation and investments beyond this niche industry. If hotels cannot be prevented from setting higher prices on online travel agency websites by most-favoured nation clauses, they – after profiting from the services offered by the online booking platform for free – have an incentive to attract consumers to their own sales channel, where they need not pay a commission for bookings. This kind of free-loading on the investments of online travel agencies could lead to an increasing number of consumers booking hotels via channels other than online booking agencies and, consequently, these agencies will most likely be forced to reduce their marketing activities and lose investments in the Austrian hotel industry as a result of a lack of remuneration for their services. This in turn could be detrimental to the Austrian tourism industry and consumers, who may lose a convenient and efficient resource to book travel online.
For further information on this topic please contact Michael Woller or Stefanie Stegbauer at Schoenherr by telephone (+43 1 5343 70) or email (email@example.com or firstname.lastname@example.org). The Schoenherr website can be accessed at www.schoenherr.eu.
A version of this update was first published on www.e-comlaw.com.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.