This month’s CLIP is a blog post by Adrian Deuschle covering a decision by the German Federal Supreme Court (Bundesgerichtshof) that found the narrow MFN clauses in Booking.com BV’s terms and conditions incompatible with Art 101 TFEU. There is considerable discrepancy as to the lawfulness of MFN clauses amongst European competition adjudicators, with this case laying to rest the debate at the German national level.
What is an MFN?
MFNs typically stipulate that a supplier will offer its products to the buyer at the same (best) price that it offers to any third parties. We previously covered the topic in relation to the CMA’s Compare The Market decision here.
In the price comparison website context, MFNs tend to come in two forms:
- Narrow MFNs – the supplier agrees not to set a lower price on its own website compared to prices offered through the comparison website.
- Wide MFNs – the supplier agrees not to set a lower price on its own website, or to offer a lower price to any other price comparison website (or other sales channel).
The article discusses the background to the proceedings brought before the Bundesgerichtshof, which started when the Bundeskartellamt, the German national competition regulator, started investigating such clauses in 2012, and came to a decision in 2015 that Booking.com’s use of these clauses was incompatible with Art 101 TFEU. The decision was appealed to the Düsseldorf Higher Regional Court, which found in favour of Booking.com through the application of the ancillary restraints doctrine. The Regional Court found that the best price clauses were necessary to prevent the problem of free riding: hotels could expand their reach through their presence on Booking.com, but offer lower prices through their own sites, with Booking.com receiving no commission for the transactions which they essentially facilitated.
The author notes that, although a referral to the ECJ would have been possible in this case, the Bundesgerichtshof seized the opportunity to settle the matter at the national level. The Court did so on a number of bases. It ruled that the ancillary restraints doctrine was not applicable to the matter, since investigations by the Bundeskartellamt showed that narrow MFN clauses were of minor importance to Booking.com, given that the platform could improve its market position without them. This fact also supported the Court’s view that the pro-competitive effects of the clauses were not justified in comparison to their anti-competitive effects (as under the Art 101(3) TFEU balancing exercise) since the free-rider problem did not detract from the efficiency of the platform in practice. The Court also held that a block exemption under Art 2(1) of the Vertical Block Exemption Regulation (VBER) was unavailable due to Booking.com’s market shares (which exceeded 30%) in the hotel booking market in Germany.
Although this case provides certainty as to the lawfulness of narrow MFN clauses in Germany, the issue remains disputed by adjudicators across the continent. The European Commission currently takes the view, supported by a Staff Working Document accompanying the Final Report in the E-commerce Sector Inquiry, that both wide and narrow MFN clauses are exempt from Art 101 TFEU provided they meet the market share criteria for exemption under VBER. However, an update published in respect of the ongoing consultation on a replacement VBER and its accompanying Guidelines suggests a possible change of approach, confirming that wide MFN clauses will no longer benefit from the Block Exemption . Narrow MFN clauses, however, remain exempted. The UK’s proposed equivalent of the VBER at the national level, the Vertical Agreements Block Exemption Order (VABEO) also envisages adding wide MFN clauses to its list of hardcore restrictions.
Whilst these developments at the legislative level are a welcome clarification, narrow MFN clauses and their pro- and anti-competitive aftermath remain up for debate , at least outside the market share thresholds set out in VBER. Given the protracted nature of the investigation and proceedings on this very issue brought before the Bundesgerichtshof, it may be considerable time until the lawfulness of such clauses is settled across Europe and the UK.