Free-riding allowed? - BGH declares Booking.com's ‘narrow most favored nation clause’ illegal

The BGH overturned the decision of the OLG Düsseldorf and dismissed Booking.com's appeal against the prohibition by the FCO.

According to the BGH, the narrow MFN clause restricts competition when offering hotel rooms. Since the hotels are not allowed to offer more favorable room rates and contract terms in their own online sales than on booking.com, they have in particular not the opportunity to pass on the saved brokerage commission in full or in part to customers in the form of price reductions and to thereby convince the customer to book.

The BGH rejects the view of the OLG Düsseldorf that the narrow MFN clause is a necessary ancillary restraint to an agreement on the exchange of considerations that is neutral under antitrust law and criticizes the systematic approach of the OLG Düsseldorf. A weighing of pro-competitive aspects, such as securing an appropriate remuneration for the platform service by solving the free-riding problem, could only take place when examining the requirements for an exemption from the cartel prohibition under Article 101 (3) TFEU. However, the narrow MFN clause was in the BGH’s view not objectively necessary as an ancillary restraint for the performance of the platform contract. According to the court, it is not a necessary ancillary restraint for the contractual purpose of the online brokerage of hotel rooms, because Booking.com has been able to further strengthen its market position in Germany, although Booking.com has no longer used the narrow MFN clause since February 2016. In contrast to that, the OLG Düsseldorf had found the circumstance that Booking.com had secured and expanded its market position since February 2016 even without the narrow MFN clause to be “without significance from the outset (...)" (OLG Düsseldorf, decision of 4 June 2019, VI-Kart 2/16 (V) – Enge Bestpreisklausel II, para. 70 - juris).

The BGH's position on the ancillary restraint had already been indicated in its decision of July 14 2020 concerning the appeal of the FCO. The BGH had pointed out that due to the outstanding importance of price as a parameter of competition, the narrow MFN clause was not qualitatively comparable with any of the examples of the immanence theory relied on by the OLG Düsseldorf and that price-related vertical restrictions of competition to solve free-riding problems had so far only been used in connection with the possibility of an individual exemption under Article 101 (3) TFEU or Section 2 GWB (BGH, decision of 14 July 2020, KVZ 56/19, marginal no. 9 f. - juris).

The BGH now also rejects an individual exemption pursuant to Article 101 (3) TFEU, because it finds that the requirement of an improvement in the production or distribution of goods or the promotion of technical or economic progress not to be met. The BGH decides that the narrow MFN clause leads to efficiency advantages, for example the extended customer reach of the hotel. However, the efficiencies do not require the narrow MFN clause. According to the BGH the free riding problem does not seriously jeopardize the efficiency of the platform offer, whereas the narrow MFN clause considerably hinders the online sales of the hotels outside the platform.

Since Booking.com no longer uses the narrow MFN clauses since February 2016, nothing changes for the hotels in the daily booking business.

However, in terms of legal policy and with a view to the future, the BGH ruling has more far-reaching consequences. The BGH's decision shows once again that outside the "safe harbor" of a block exemption, it is extremely difficult to justify a restriction of competition on the basis of efficiencies under Art. 101 (3) TFEU. The individual exemption, which systematically should stand alongside the block exemption as an exemption option, runs the risk of becoming a theoretical construct on which companies can hardly rely in practice. It is generally acknowledged that the free-riding problem is a typical case group that can justify such restrictions of competition. It is probably undisputed as well that the free-riding problem is present in platform cases and that at least narrow MFN clauses address this problem. However, according to the BGH, the individual exemption was out of the question because Booking.com had expanded its business despite using the clause had been prohibited. Does a company therefore have to tolerate free-riding as long as it is still successfully participating in business despite the free-riding? This seems questionable and devalues the significance of the free-riding problem in the context of Article 101 (3) TFEU.

Therefore, it will be all the more important to observe developments at EU level - namely the question of how such clauses will have to be assessed in future under Regulation (EU) No. 330/2010 (Vertical Block Exemption Regulation (V-BER)). The question of whether narrow MFN clauses can be exempted from the prohibition of Article 101 (1) TFEU pursuant to Article 2 (1) V-BER was not the subject of the decision. The BGH did not have to decide on this, because Booking.com has a market share of more than 30% on the relevant market of hotel booking platforms in Germany. Whether the BGH would affirm a block exemption pursuant to Article 2 (1) of the V-BER in the case of MFN clauses of hotel portals with a market share of less than 30% is questionable after its decision on the non-admission appeal of the FCO. The BGH had the opinion that the narrow MFN clause is a price-related agreement whose effect is comparable to a minimum price requirement that is qualified as a hardcore restriction (BGH, decision of 14 July 2020, KVZ 56/19, marginal no. 9 - juris). In the case of hardcore restrictions pursuant to Article 4 V-BER, a block exemption is excluded. However, the BGH's statements on the hardcore restriction qua "comparable effect" disregard the wording of the V-BER, according to which a hardcore restriction only exists if the buyer or the broker (cf. Articel 1h V-BER) is restricted in its pricing. This is not the case with MFN clauses that restrict the supplier (here: the hotels). Accordingly, the OLG Düsseldorf correctly decided in its Expedia decision that MFN clauses are exempt from the ban on cartels as a vertical restraint of competition (OLG Düsseldorf, decision of 4 December 2017, VI-U (Kart) 5/17, marginal no. 34 - juris). This is also the legal opinion of the EU Commission concerning the current V-BER. Companies should therefore also keep an eye on European developments in this context: The V-BER expires on 31 May 2022. As part of the reform process, the European Commission is currently weighing the question of whether and to what extent MFN clauses should continue (!) to be block exempted. In addition to a block exemption of MFN clauses, the inclusion of all or only the broad MFN clauses in the catalog of non-exempted restrictions of Article 5 V-BER is being considered (European Commission, Inception Impact Assessment of 23 October 2020, Ref. Ares (2020)5822391). As a consequence, these clauses would not prevent the block exemption of the entire agreement, but would have to be assessed on a case-by-case basis whether they actually restrict competition and whether they are block exempted. The prospects for a positive assessment do not look too good following the BGH ruling. A tightening of the rules in the V-BER would therefore be bad news for small platforms and new market actors, because they would be measured by the same strict standards as companies with market shares above 30%. The antitrust community is thus looking eagerly to Brussels: a first draft of the new V-BER is to be presented before the "summer break".