Case C-264/23 – Booking.com: Ancillary Restraints in the Platform Economy and Market Definition
The recent ruling of the CJEU on Booking.com is yet another development in a long line of cases involving price parity clauses within the platform economy. Booking.com has seen its parity clauses come to an end with the recent judgment. The judgment, in its broader context of applying EU Competition Law to the digital economy offers new insights on how to apply two important concepts: ancillary restrictions and market definition. In the case ancillary restrictions, the Court’s findings show that in order to make such an argument for digital platforms, it is necessary to demonstrate that the restrictive measure is essential to the platform as a legal and economical construct rather than its business model. Background to the case
On the 14th September 2024, The Court of Justice handed down its judgment in the preliminary decision procedure in the Booking.com
case. Booking.com filed the case before the District Court of Amsterdam to get a final clarification of the legality of the parity clauses. These narrow price parity provisions prohibited hotels from offering lower rates on their websites than Booking.com. Booking.com’s position has always been that such clauses were necessary to prevent hotels from free-riding, where consumers would search for rooms on Booking.com and then make their reservations at the hotel’s website due to the lower rates. Booking.com cannot charge for its intermediary services if the reservations are not made through it. In the past these clauses were also accompanied by wide price parity clauses that prohibited hotels from having better offers on competing hotel room booking platforms.
The implementation of these price parity clauses by Booking.com has led to numerous cases across the EU and outside of it. Booking.com also abandoned the clauses that prohibited hotels from having better offers on competing hotel room booking platforms. However, there was no consensus on the legality of narrower parity clauses across jurisdictions. Nevertheless, all the MFN cases involving Booking.com have taken place at the national levels over the years. This means that EU courts still haven’t provided their opinion on the legality such clauses. The Amsterdam Court launched the preliminary reference procedure to gain clarity on this matter across the EU. A favorable decision from the CJEU would have meant a significant win for Booking.com in the context of both public and private enforcement.The importance of a favorable finding for Booking.com stems to a great extent from the case practice on its parity clause in Germany, where the German Federal Court of Justice ruled against Booking.com. According to the German Federal Court of Justice, Bookings’ parity provisions significantly restricted competition and couldn’t be considered ancillary restrictions. The clauses were therefore found to violate Art. Due to the primacy that EU law
has, if EU courts find that the narrow price-parity clauses of Booking.com do not constitute ancillary restrictions and therefore do not violate art. Booking.com would be absolved of all decisions taken against them at the national level if the EU courts were to find that the narrow price parity clauses of Booking.com constitute ancillary restraints and do not infringe art. Booking.com would therefore have been absolved of all national decisions taken against it. Booking.com’s cross-border practice in this regard would have prevented any diverging findings based upon the national equivalents to art. Art. 3(2) of Regulation 1/2003
.
The two preliminary questions referred by the District Court of Amsterdam covered two of the main angles through which the legality of Booking.com’s parity clauses could be (re)established. The first question addressed directly to the CJEU dealt with the permissiveness narrow parity clauses. It asked the CJEU whether such clauses could constitute an ancillary restriction under art. 101 TFEU. The second question was to get guidance on how to define the market for Booking.com to apply the Vertical Block Exemption Regulation. This question’s answer would indirectly affect the permissiveness or not of Booking.com’s parity clauses, by determining if Booking.com would be covered under the VBER. In order for this to occur, Booking.com would need to be in a relevant market where it does not exceed a 30% market share threshold. In such a case, the permissiveness of the narrow parity clauses would be presumed as long as the VBER remains applicable, as they do not constitute hardcore or excluded restrictions under this regulation.In its judgment, however, the CJEU did not deliver Booking.com with the answers it desired. Some aspects of the CJEU’s answer may have even shut down more avenues than expected for Booking.com’s ongoing and future cases in the context of private enforcement.However, as with any CJEU case, the Court’s findings are not limited in relevance to the undertaking concerned. The CJEU’s responses to the preliminary questions are bound to have implications for two issues that pose a challenge (both within and outside the digital platform context): the concept ancillary restrictions and market definition. The prohibition of article 101 (1) TFEU may not apply to actions that restrict competition in a limited way but are necessary to facilitate (much) larger pro-competitive activities or to neutralize the negative effects. 101 (1) TFEU. Inclusion of a noncompete clause in different types of sales agreements that facilitate acquisitions of other enterprises (or certain aspects thereof, like IP rights), is the most obvious of these instances. This approach is logical and can be viewed as neutral in terms of the context it would be applied. On the surface, it’s hard to see how the application of the concept in the context digital platforms would be problematic. The Court’s answers reveal a mismatch between ancillary restrictions and digital platforms, whose governance rules often include provisions that limit multi-homing or switching to fuel and ignite the network effects on which they rely. This is because preliminary proceedings do not include factual discussions, and leave the final application to the specific circumstances of the case in the hands the referring court. The CJEU must therefore be able, in order to answer the questions it receives, to make a decision in an abstract manner, without having to go as deeply into the facts of the case as a national judge would. The question was, therefore, whether this would be the case with the narrow parity clauses of Booking.com.
In its judgment, the CJEU engaged with this question and concluded that assessing whether Booking.com’s narrow parity clauses could constitute ancillary restraints did not require an in-depth factual assessment and could, therefore, be assessed in the abstract. This answer was initially interpreted as a formalistic argument by the CJEU in order to establish its jurisdiction over the interpretation of EU law (competition). The meaning of this answer is far more complex than just a matter of jurisdiction. It has implications that go beyond the interpretation of EU laws. This would mean that this option would be limited to non-context-dependent (pro-competitive), non-context-dependent goals, or better put, legal constructs such as a SPA or a selective or exclusive distribution agreement. This is because assessing whether a particular type of restriction is required to allow such constructs to function in commercial practice doesn’t require looking (far beyond) the functional boundaries of each construct. Such an assessment can be done to a large extent by mapping out the various conflicting interests at play in the context of such constructs from a theoretical economic perspective (e.g., the conflicting interests and incentives of parties to an SPA when it comes to the market re-entry possibility of the seller post transaction).
By contrast, applying this concept to restrictive actions that help facilitate the profitable continuation of a specific ongoing economic activity is far less suitable since the respective market conditions, which cannot be incorporated in the abstract assessment, determine the need for such actions. In this case, it may be a question of timing as to whether a practice is necessary (and therefore potentially ancillary). This contrast is particularly important in the case digital platforms where, initially, igniting network effects to fuel their growth can require certain restrictive practices which are no longer necessary or as significant once this goal has been reached. This time-dependent aspect cannot be considered if the assessment is done in the abstract, without a thorough understanding of the facts. Accordingly, the natural growth pattern of digital platforms cannot truly be accounted for in the ambit of such assessments, which may require many platforms to redesign their governance that often incorporate rules that seek to limit, for example, switching and multi-homing in an attempt to ignite and/or fuel the network effects at play.
Therefore, for certain practices to be considered ancillary restraints, they should be indispensable for the platform’s existence, meaning such action should be indispensable to the construct of a platform as such from an economic perspective. This would include implementing a skewed price structure and corresponding measures that prevent arbitrage. These are essential for creating a platform regardless of its business model. If a platform is unable to offer different value propositions for its different customer groups (i.e. implement a skewed price structure), it won’t be able get different types of customers, who have different degrees in demand for the platform service to join the platform, and will thus fail to launch. The ability to implement a skewed structure is essential, even if not all iterations of the structure are in line with (EU) Competition Law
. In contrast, wide parity clauses and narrow parity provisions do not meet this requirement of indispensability because their implementation is dependent on the business model of the platform. It is also true for actions that try to mimic or duplicate the effect of MFN provisions without actually imposing these directly
– such as demoting platform customers
who offer better prices on websites. As such, the inclusion or omission is not connected to the economic structure of a (multisided platform) and should not be considered ancillary within the scope of art. 101 TFEU.
When considered in this context, it was inevitable that the CJEU would find that Booking.com’s narrow parity provisions could not be deemed ancillary restrictions. As stated, these clauses are not essential for the creation of a marketplace, nor are they necessary at this time for Booking.com to be viable. It does not matter if this was the case in the previous years. Booking.com would not be able to limit its liability by claiming that its parity provisions constituted a supplementary restraint during a specific period. Any other conclusion that the CJEU has provided would conflict with the function of art. 101 TFEU. Consequently, for follow-on damages claims in Germany and elsewhere in the EU, the decision of the German Federal Court of Justice stands as (at least prima facie) evidence of infringement.
Individual exemption under Art. 101(3) TFEU – The impact of (increased market power)
The strictness in the ancillary restrictions test will force most discussions about the procompetitive effects investigated practices to be confined to art. 101(3) TFEU is better suited to this purpose, as it deals with context-specific issues. In this case, the CJEU seems to have taken the same position. This test is generally less strict, as the element of irreplaceability is linked to specific efficiency claims rather than viability (economically) in the abstract. Booking.com’s free-riding argument may have (theoretically), had a better chance to succeed. Booking.com’s case has overruled such an argument. Booking.com was already a gatekeeper when the CJEU answered the preliminary questions. The DMA
prohibits the use parity clauses in article. According to the Commission, Booking.com had reached a dominant position in art. In Spain, the practice of narrow price parity clauses was found to constitute an abuse of dominance by Booking.com.
While all of this does not exclude the ability to rely on art. Formally, the 101 (3) TFEU reduces the chances of success. The increase in market share directly relates to art. 101 (3) TFEU.The increased market power impacts, in essence two elements of a possible justification argument. First, the anticompetitive effect is magnified and must be compensated for by the claimed efficiency. Second, the necessity of the restriction is likely to diminish as more market power will equip the concerned undertaking with more (less restrictive means) of achieving such efficiencies. This is true, even if the magnitude of the claimed efficiencies increases in proportion to an increase in market power. Booking.com would face a difficult battle (at the very least) if it were to present an art. The preliminary procedure and the market definition
The only solution to the above conundrum was the second preliminary question regarding the correct market definition in order to apply the VBER. However, the nature of the question and its timing make this way out unattainable.When it comes to the nature of the question, the topic of market definition is one where the interaction with EU Courts is rather limited, particularly in the context of preliminary procedures. The CJEU cannot provide a specific definition of a market in a particular case during such procedures. The preliminary procedure under article. The purpose of the preliminary procedure under art. In the context market definition, the CJEU may provide in its response a general description according to established caselaw and Commission practice. However, it cannot provide a specific delineation or view of a potential substitution between a product or service. Booking.com’s best outcome in this regard was to receive guidance that would have allowed it to present a market consisting of non-platform players.In reality, however, this did not happen. When asked to define the market in the case of Booking.com, the CJEU re-stated the approach taken by the Commission as outlined in the new Notice on the Market Definition
in almost its entirety. This approach is neutral in terms of the outcome and leaves the final decision to the District Court of Amsterdam. The consistency of the definition of the market and relevance of increased power
For Booking.com to be included in the VBER, it would need to be a broad relevant marketplace that includes more types of actors other than hotel room booking platforms. 3 VBER. This outcome is virtually unthinkable, given the fact that Booking.com has a dominant position in the OTA market, as established by the EU Commission. First, in the blocked acquisition of Booking/eTraveli
, the Commission indicated that Booking.com has a dominant position in the OTA market. This was, in essence, the foundation for the competitive concern identified for the concentration
. Second, this provisional ruling of dominance was later supplemented by a designation under the DMA as gatekeeper. There is no perfect overlap in the concepts of dominance under article 102 TFEU and gatekeeper under the DMA. The idea that a company that meets the quantitative benchmarks set by the DMA, and is found to have a durable and entrenched position, would only hold less than 30% of the market is at least questionable. The fact that Booking.com’s market definition has been done multiple times
, and the result was a market made up of only other platforms, makes it difficult to understand why, absent entirely different market conditions. The CJEU’s remarks on the cross-jurisdictional validity of market definitions and digital platforms are contradictory to some extent. The cross-border use in competition law (especially follow-on procedures), is not a new concept. However, the evidentiary values are extended to market delineations performed in the contexts of diverging types procedures. Booking.com is a case in point. This means that both market definitions made in the contexts of MFN cases within the EU as well as the contexts of (EU merger control) have (at the very least) a primacy evidentiary value. In the absence of completely different market conditions, it is appropriate that the District Court of Amsterdam follow such findings. The DMA designation decision is not evidence of this type, but it does indicate that Booking.com has a degree of market dominance that is far greater than what would be expected of parties that fall under the VBER. First, it makes it easier to initiate ‘twin cases’ via public or private enforcement. Take the case against Apple Appstores in the Netherlands regarding dating apps. This could be easily replicated in other jurisdictions, and applied to additional categories. The conditions of iOS app distribution is the same across the board. Booking.com would be a good example of this, as the German practice could be used to support claims in other countries. This allows for easier initiation of cases by transferring the market definition between procedures. This is especially true when it comes down to merger control. These procedures are more frequent and therefore offer more information on market definitions. This may be more than just a judicial review of the market definition by EU Courts, given its complex economic nature. Luckily, however, such friction would likely be minimal as NCAs are increasingly better at coordinating their practices within the ECN framework.
Conclusion
With this judgment, the debate on the legality of Booking.com MFN clauses can be said to have come to an end, at least in the EU. This judgment also makes it clear that relying solely on the ancillary restriction doctrine will be difficult when it comes to ongoing business practices by platforms. In order for future arguments to be successful, they must relate to the elements that are fundamental to the existence and success of platforms in general, not just to one or several platform-based business model. These arguments are better suited to an individual justification within the context of art. 101(3) TFEU. The individual justification allows for a more case-specific analysis of the pro- and anti-competitive effects of the investigated restriction.
When it comes to market definition, the evidentiary value awarded to market definitions performed in the context of other procedures may help increase the number of cases that would otherwise be considered very burdensome to start in the context of both public and private enforcement. This can help to soften the reality that the EU Commission is not able to cover all relevant cases in the context of the digital market. Furthermore, it can strengthen the role of NCAs in the enforcement of (EU) competition in the case of digital platforms if the Commission’s focus in this respect is diverted to the DMA.
Disclaimer: This blog post was first published on the author’s blog here
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