Following Avantika’s excellent post on “most favoured nation” or “MFN” clauses, we’ve decided to make an article on the same subject our “CLIP of the month” (look to the top right…). In this, Dr Volker Soyez takes a step back and looks at the December 2013 prohibition decision by the German Federal Cartel Office issued against Hotel Reservation Service (“HRS”) an online hotel booking platform. I’m not quite sure that the FCO’s decision is quite ‘the beginning of the end of MFN clauses’, but he’s quite right to note that competition authorities are no longer turning a blind eye to such provisions.
Here are a few points to whet your appetite for the article itself.
- MFNs should not be classified as hard-core restrictions
The article questions the suggestion that MFNs could in some circumstances be regarded as akin to RPM (an idea mooted by the FCO in its December 2013 decision).
- It will be an uphill struggle to satisfy Article 101(3) TFEU… but context is key
Dr Soyez notes that avoiding free-riding could be a legitimate criterion for individual exemption but only in exceptional circumstances – he highlights the damning words of the FCO: the comprehensive elimination of competition created by the MFN would never be necessary and proportionate to protect HRS’s investments especially where HRS had other less restrictive methods at its disposal for recouping such fees.
- An MFN imposed by a dominant undertakings is likely to be a “no no”
The article comments that it may be tough for a dominant company to justify MFNs and highlights that the FCO found HRS to have abused its dominant position.
This (and other comment) sets in stark relief that context is key for the assessment of MFNs: the greater the impact on the market (whether because of industry – wide practice or because of significant market power), the greater the likelihood of an MFN being regarded as anti-competitive.
The avoidance of free – riding is a key stated reason for MFNS in online trading. However, Article 101(3) is a demanding standard and it remains to be seen whether free riding can provide a defence satisfying that standard. As ever, the most difficult aspect of the high standard for exemption seems likely to be the “indispensability” criterion and particularly showing that the MFN was an indispensable means of recouping sunk costs.