Regulators in Paris have ruled that Expedia Inc hotel contracts dating from 2011 represent a significant imbalance between the hotels and the online travel agency under French commercial law, according to a copy of their judgment, which has been leaked to Tnooz.
The Commercial Tribunal of Paris has ruled against the company in the year-old case but did not recommend that Expedia be fined. (It does not have direct regulatory power; it refers cases to court.)
This case centers around French commercial law. It is legally distinct from the French competition authority's investigation into the contracts.
In a key passage, regulators wrote, in translation:
"due to lack of adequate consideration, clauses aimed at automatic obtainment of the best promotional, and tariff conditions in contracts of the incriminated hotels located on French territory, constitute a significant imbalance within the meaning of article L442-6 1 2nd and are null."
The tribunal found that the contracts have a lack of sufficient compensatory measures under French commercial law.
On the one side is a hotelier who must drop its price by clipping strongly on its profit margins. On the other is a global website that loses little, if any, money when it drops prices in retaliation for a hotel breaking rate parity agreements.
The tribunal's ruling applies immediately, even if Expedia appeals the decision.
UPDATE 8pm ET: Expedia issued the following statement to Tnooz this evening:
"Expedia currently is reviewing a judgment issued by the Paris Commercial Court yesterday, pertaining to certain so-called “price parity clauses” contained in old and previous forms of Expedia’s agreements with a limited number of French hotels.
While this is a complex judgment and we are considering our options, we are pleased to note that by not imposing any fines, the Paris Commercial Court determined that there was no harm caused to hotels by Expedia’s so-called “parity clauses” and that there was no intent by Expedia to cause any such harm.
Moreover the Court excluded current and future “parity clauses” from its review, which therefore are not prohibited by this judgment.
Expedia has always been focused on ensuring that the best rates and availability are presented to consumers in order to attract travelers to our sites to book with our partners.
By doing so, Expedia helps its hotel partners become visible and bookable to consumer globally, contributes to the development of tourism in France and provides transparency to the market which enables travelers to find the right hotel at the right price as efficiently as possible."
The ruling affects contracts Expedia was using in 2011, which the company has previously said are significantly different from what's in the contracts issued today. It's unclear how the court might rule on the newly worded contracts.
UPDATE 8 May: The French hotel association Groupement National des Indépendants (GNI) issued a statement disputing Expedia's interpretation that the contracts are substantively different.
What rate parity notices look like
The 2011 contracts include rate parity clauses and most-favored-nation status clauses, which refer to the contract clauses that stop operators from offering rates on their brand.com websites if those are lower than what they give online travel agencies.
A hotelier has anonymously shared with Tnooz an example of the kind of rate-parity breakage notice that Expedia Inc used to send to hoteliers:
A different French authority, focusing on competition laws, recently accepted an amendment by Priceline’s Booking.com to its contracts.
Since then, many hoteliers have claimed that its agreement with the giant online travel agency is still wrong and anti-competitive.
Nevertheless Booking.com's changed wording on rate parity has satisfied French authorities. It is unclear if Expedia will follow its lead. (Here's the backstory on how Booking.com eased its rate parity clauses after European pressure.)
The European Commission has said that a settlement with key countries like France will be made valid for all of the Continent. Germany has already ruled the most favored nation clauses to be illegal there.
In the US, rate-parity clauses have been ruled legal in several cases.
ANALYSIS: As rate parity falters, what OTAs and hotels may do next
Booking.com makes changes to rate parity clauses in Europe
HRS loses rate parity appeal, calls for unified approach