Switzerland opens consultation on banning online booking platforms from including rate parity clauses in contracts with hotels
On November 11, 2020, the Swiss Federal Council opened a consultation procedure for an amendment (art. 8a) of the federal law against unfair competition (UCA), which would prohibit price-fixing clauses, including price parity clauses, in the terms and conditions of online booking platforms for accommodation services. According to the Swiss Federal Council, the objective of this new provision is to ensure that hotel pricing does not depend on online booking platforms. Hotels will thus be better able to promote direct sales, in particular via their own websites.
The current preponderance of online booking platforms is linked to the extremely rapid digitization of the hotel industry and the steady increase in online bookings compared to traditional distribution channels. To remain competitive, hotels must be able to promote direct sales on their own website. Online booking platforms have, however, tried to prevent hotels from offering their services at lower prices on their own websites by imposing price parity clauses in their contracts with hotels.
Also known as Most Favored Nation (MFN), the price parity clauses prohibit hotels from offering a third party better conditions than the online booking platform. Such clauses may be “narrow” if they only prevent the hotel from offering lower prices on its own website or they may be “broad” if they prevent the hotel from offering better terms on its own or through any other distribution channel (for example, e-mail, telephone or competing online booking platforms).
In 2015, the Swiss Competition Commission (COMCO) ruled in a case against online hotel booking platforms Booking.com, HRS and Expedia that extended price parity clauses were illegal under Swiss cartel law. However, COMCO left open the question of whether the narrow price parity clauses violate competition law. Narrow clauses had just been introduced by the platforms and the authority wanted to wait before evaluating their effect.
In the EU, price parity clauses have also caught the attention of the two national competition authorities (CNA) and the new legislation. While most NCAs have not intervened on narrow price parity clauses, some EU member states have passed legislation prohibiting both broad and narrow clauses. In France, the “Macron Law”, which came into force on October 1, 2016, qualifies the clause in both variants as illegal. The legal situation is similar in Austria, where in 2016 both broad and narrow price-matching clauses were deemed inadmissible aggressive commercial practices under Austrian unfair competition law. Similar laws have been passed in Belgium and Italy. In other jurisdictions, such as the UK, Sweden and Germany, the assessment of parity clauses has been left to competition authorities and the courts. In Germany, the Higher Regional Court in Düsseldorf recently overturned the decision of the German NCA and concluded that narrow price parity clauses are in principle legal, aligning the German position with that taken by other European NCAs. However, the German NCA appealed the court’s decision and the case is currently pending before the German Federal Supreme Court.
In its May 10, 2017 final report on an investigation into the e-commerce sector, the European Commission takes an even more lenient approach and provides a safe harbor for wide and narrow price parity clauses by stating that such clauses do not pose no problem if the market shares of the two parties do not exceed 30%. If either party’s market share exceeds 30%, an individual assessment is required.
As in some EU countries, the Swiss legislator seems to take a stricter approach than its competition authority in introducing the suggested provision in the LCU. The current draft of the Swiss Federal Council clearly aims to prohibit broad and narrow price parity clauses in the terms and conditions of online hotel booking platforms. However, the suggested provision is only at the stage of the consultation procedure and is likely to cause controversy in Switzerland.