Third party challenge to OFT commitments decision sends online hotel booking settlement back to CMA.

UK Competition Appeal Tribunal returns OFT settlement to CMA to reconsider following the first successful third party challenge to a commitments decision.

The Competition Appeal Tribunal has quashed the 31 January 2014 decision by the Office of Fair Trading (OFT) to close its investigation into the online supply of room-only hotel accommodation bookings by online travel agents.

Skyscanner Limited, operator of a price comparison website in the travel sector, challenged the OFT’s decision to close its investigation into the online supply of room-only hotel accommodation  bookings by online travel agents. The OFT did this by accepting commitments from online travel agents (OTAs) and its parent company, Expedia, Inc, and InterContinental Hotels Group plc (IHG). The booking sites had entered into separate arrangements with IHG that restricted their ability to discount the room-only rates they could offer to consumers.  The commitments required the removal of the complete prohibition on discounting room-only rates. Instead, each could discount only to closed groups of EEA residents who had previously joined the group voluntarily and made one full price booking. The extent of the discount was limited to the level of the OTA’s commission or margin.

Secondly the OTAs could not advertise the specific level or extent of the discounts outside the closed group of consumers, but could advertise the general availability of discounts on their own websites, price comparison websites, and metasearch sites.  The OTAs were prevented from applying “most favoured nation” clauses, under which they could match the prices offered by hotels to the closed groups of EEA consumers who had booked a room previously at full price, and the hotels were prevented from advertising their reduced rates to anyone not a member of a closed group.

Skyscanner accused the OFT of:

  • failing to take account of its submissions on the impact that the commitments decision would have on the metasearch sector and on competition between brands
  • failing to consider the anti-competitive consequences that the commitments would have (because Skyscanner would be prevented from showing actual room prices and discounts offered by different hotels on its website), and
  • acting beyond the scope of its powers by requiring third parties to act in line with the commitments, even though they were not party to them.

The CAT subjects commitment decisions to judicial review (rather than considering the issues on the merits).  Essentially, it looks at whether the decision is illegal, irrational, or procedurally unfair.  The rationality test applies to whether the authority has taken sufficient steps to be able to decide the issue, and whether it has a sufficient basis in light of all the evidence available to it to reach the decisions it did.  In other words: would no reasonable competition authority have been satisfied on the basis of the inquiries made?  The CAT will not intervene otherwise, nor will it trawl through the decision to identify arguable errors - it considers the decision as a whole.

The Tribunal concluded that the OFT had indeed failed properly to consider the Skyscanner objections to restricting disclosure of specific price information outside the closed group and had failed to inform itself properly about the actual impact on price transparency of an “obvious and clear restriction on disclosure of price information” within the sector.  However, the CAT rejected the third ground of challenge – it was normal, as previous case law demonstrated, for commitments to have an effect beyond the immediate parties to those commitments. 

The case was remitted to the CMA for it to reconsider in light of its judgment.  The case is interesting as it is the first challenge to the commitments procedure to reach the CAT, and confirms the Tribunal’s approach to judicial review.  While it is willing to concede a large margin of appreciation to the CMA to exercise its expert judgement, it will “intervene under the normal principles of judicial review where there has been a clear error”.

What the CMA now does with the case remains to be seen.  In the meantime, other National Competition Authorities (NCAs) have addressed, or are in the course of addressing, the online travel sector, and have taken a far more robust approach to aspects such as rate parity (most favoured nation) clauses which mean that an OTA cannot be undercut.  The OFT’s decision did not identify rate parity obligations as a distinct competition concern, nor did it identify a separate harm to competition arising from them.  Given developments across other NCAs, the CMA may no longer feel able to discount the issue when it looks again at the case.

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