- Top EU Court Finds Booking.com’s Price Parity Clauses Not Ancillary to its Operation
- Developments in UK Investment Control on National Security Grounds: Latest Annual Report and Conditional Clearance Decision
- First Clearance of an Acquisition Under the EU Foreign Subsidies Regulation After an In-Depth Investigation
- UK Consumer Law: CMA Opens Investigation Into Oasis Ticket Sales and Consults on Draft Guidance on Enforcement of New Rules
Top EU Court Finds Booking.com’s Price Parity Clauses Not Ancillary to its Operation
If a main operation or activity is neutral or positive in its competitive effect and therefore falls outside EU competition law, then certain restrictions on the parties are treated in the same way. This is the “ancillary restraints” principle, which is very important in practice when analysing agreements and related restrictions between actual and potential competitors, including joint ventures, research and development agreements and other forms of cooperation.
EU case law has established that a restriction is only ancillary if it is indispensable to the implementation of the main operation or activity and proportionate to the objectives pursued by it. These requirements are interpreted restrictively. The same applies at EU member-state level and in the UK.
The European Court of Justice (ECJ), the EU’s highest court, was asked by a Dutch court to consider the validity under EU competition law of the use of parity clauses, both “wide” and “narrow,” by online hotel reservation platform Booking.com in its agreements with accommodation providers. This followed numerous national cases on the issue and an action brought by Booking.com in the Dutch court for a declaration that the parity clauses employed by the company were valid.
A wide parity clause prohibits a provider from offering overnight stays at prices lower than those offered on Booking.com on its own and third party sales channels. A narrow parity clause prohibits only the offer by a provider of overnight stays at a lower price through its own sales channels.
In its judgment on 19 September 2024, the ECJ confirmed that the platform has a neutral, or even positive, effect on competition. The services lead to significant efficiency gains by enabling consumers to have access to a wide range of accommodation offers and to compare those offers simply and quickly according to various criteria and enabling accommodation providers to acquire greater visibility, thereby increasing the number of potential customers.
However, parity clauses cannot, according to the court, be considered ancillary to this activity. Wide parity clauses are not indispensable as there is no intrinsic link between the continued existence of the main activity of the platform and such clauses. They “clearly produce appreciable restrictive effects” by reducing competition between the various hotel reservation platforms and also carry the risk of ousting small platforms and new entrants. Narrow parity clauses, although intended to address the risk of free-riding by hotels, do not appear to be indispensable to ensure the economic viability of the platform.
The court considered it not relevant that the absence of price parity clauses might possibly have negative consequences for the profitability of the platform. This issue, along with their use in combating possible free-riding, could however potentially be relevant when analysing whether an exemption for the clauses (if found to be anticompetitive when considered separately from the main operation) would be available under the balancing test included in EU competition law relating to agreements and restrictions between actual and potential competitors.
In support of its analysis, the court also considered the counterfactual of how Booking.com would have functioned in the absence of the parity clause. Helpfully, there was a real-world test of this. Both wide and narrow parity clauses have been prohibited in several EU member states, but the company’s provision of services has, according to the court, not been compromised.
Developments in UK Investment Control on National Security Grounds: Latest Annual Report and Conditional Clearance Decision
On 10 September 2024, the UK government published its latest annual report on the operation of the UK National Security and Investment Act 2021 (NSI Act), covering 1 April 2023 to 31 March 2024. The NSI Act is the UK legislation that controls acquisitions of UK assets and companies on national security grounds, whether by non-UK or UK purchasers. It is not only a “foreign” direct investment control regime.
The annual report is a data-heavy analysis of “notifications” (filings) under the act, “call-ins” (where a detailed review is required), the results of reviews and review periods.
According to the report, an increased number of transactions were notified. In the reporting period the government received 906 notifications, an increase from 865 notifications received in the previous reporting period. Of those, 753 were mandatory notifications.
Of the notifications actually reviewed during the period, 4.4% (37) were called in. Of those 37, 15 (41%) were notified voluntarily. This is a reminder that parties to transactions should consider the potential application of the NSI Act even when a mandatory notification is not required.
An additional four non-notified transactions were called in, showing that the government actively monitors for non-notified transactions in order to identify potential concerns under the NSI Act.
In relation to enforcement, the report shows that, during the period, the government issued five final orders (decisions clearing an acquisition but imposing conditions to mitigate national security risks), but did not block or unwind any transactions. All of these final orders involved acquirers from “friendly” Western jurisdictions and four related to the defence, military or dual-use sectors.
In addition, there were 10 instances in which parties withdrew from a called-in acquisition, likely because they thought the transactions would have been blocked or cleared subject to unacceptable conditions. Of these, eight involved Chinese investors.
The report provides a backward-looking review, but active enforcement continues. The most recent final order issued by the government relates to the acquisition of control over an 80-MW battery energy storage system by KXP Immingham Limited.
The case raises several notable points. The purchaser is a UK entity controlled by a UK and U.S.-based asset management firms, therefore involving domestic and friendly country firms. This was an asset acquisition (therefore not subject to a mandatory notification), and control of the asset was gained by the granting of an Ofgem electricity generation licence to the company. This is a situation expressly covered by the government’s guidance on the application of the NSI Act to new build downstream gas and electricity assets. That guidance states “In the context of new build downstream gas and electricity infrastructure, you acquire a right in an asset [and therefore fall subject to the act] when you acquire the right to operate the asset and/or connect it to the network.”
The government identified potential concerns relating to the security of a future UK electricity asset and disruption of services. It approved the transaction subject to conditions requiring the company to notify and receive approval from the government in advance of making changes to the power offtaker and provider of ancillary services. In addition, the sharing of information by those third parties is restricted to a list of permitted information.
First Clearance of an Acquisition Under the EU Foreign Subsidies Regulation After an In-Depth Investigation
Under the EU Foreign Subsidies Regulation (FSR), the European Commission (EC) has the power to investigate financial contributions granted by non-EU governments to companies active in the EU. If the EC finds that such financial contributions constitute distortive subsidies, it can impose measures to redress their effects.
The obligation to notify certain large M&A transactions to the EC for clearance under the FSR has applied since 12 October 2023. There is a similar notification obligation for certain large public procurements, and the EC can launch its own ex officio investigations into any other market situation.
On 24 September 2024, the EC adopted its first final decision under the FSR. In the decision, the EC approved the acquisition by the Emirates Telecommunications Group Company PJSC (e&) of sole control of PPF Telecom Group B.V. excluding its Czech business. e& is a telecommunications operator based in the United Arab Emirates (UAE) controlled by a sovereign wealth fund itself controlled by the UAE, the Emirates Investment Authority (EIA). PPF is a European telecommunication operator. The approval is conditional on full compliance with commitments accepted by the parties.
During its in-depth investigation that started on 10 June 2024, the EC found that e& and EIA received foreign subsidies from the UAE, consisting notably of an unlimited state guarantee to e& as well as grants, loans and other debt instruments. These foreign subsidies received by e& did not lead to actual or potential negative effects on competition in the acquisition process. e& was the sole bidder for the target and had sufficient resources to perform the acquisition on its own, which reflected the target’s market value, so foreign subsidies did not alter the outcome of the acquisition process.
However, according to the EC, the foreign subsidiesreceived by e& and the EIAcould have led to a distortion of competition in the EU internal market post-transaction. They would have artificially improved the capacity of the merged business to finance its activities in the EU internal market and increased its indifference to risk. As a result, the merged entity could have engaged in investments — for instance, in spectrum auctions or in the deployment of infrastructure, or acquisitions — thus distorting the level-playing field relative to other market players by expanding its activities beyond what an equivalent economic operator would engage in absent the subsidies.
To address these concerns, e& and EIA made a commitment that e&’s articles of association would not deviate from ordinary UAE bankruptcy law, thereby removing the unlimited state guarantee. In addition, they agreed to a prohibition of any financing from the EIA and e& to PPF’s activities in the EU internal market, subject to certain exceptions concerning non-EU activities and “emergency funding,” as well as the requirement that other transactions between those companies take place at market terms. Finally, e& and EIA agreed to a requirement that e& inform the EC of future acquisitions that are not notifiable concentrations under the FSR.
Under the supervision of the EC, an independent trustee will monitor implementation of these commitments. They run for 10 years and can be extended by the EC to another five years.
The case is important because it is the first example of the conditions the EC will require to approve an acquisition raising concerns under the FSR. It also shows that the EC can move quickly, with the in-depth investigation taking only three and a half months. It is also interesting that this first case concerned a non-China buyer, because the assumption has always been that the FSR is largely aimed at buyers from that country.
UK Consumer Law: CMA Opens Investigation Into Oasis Ticket Sales and Consults on Draft Guidance on Enforcement of New Rules
Massive demand for tickets for Oasis’ 2025 UK concerts gave rise to multi-hour virtual queues when ticketing websites including Ticketmaster’s opened for sales on 31 August 2024. Many fans who persisted and reached the front often gave up when they realised that prices had significantly increased from the levels originally advertised.
Social media was flooded with complaints, and the UK Prime Minister even got involved, commenting two days later that “We’ll grip this and make sure that tickets are available at a price that people can actually afford.” The UK Competition and Markets Authority (CMA), then announced on 5 September 2024 an investigation under its consumer law powers into sales by Ticketmaster.
The CMA investigation is considering whether Ticketmaster has engaged in unfair commercial practices that are prohibited under the UK Consumer Protection from Unfair Trading Regulations 2008. In particular, it will look at whether potential customers were given clear and timely information to explain that the tickets could be subject to so-called “dynamic pricing,” with prices changing depending on demand, and how this would operate, including the price they would pay for any tickets purchased. In addition, the CMA will consider whether, once they reached the front of the virtual queue after waiting for hours, customers were put under pressure to buy tickets within a short period of time at a higher price than they understood they would have to pay, potentially impacting their purchasing decisions.
The CMA commented that dynamic pricing is not in itself unlawful, but “consumer law is clear — ticket sales sites must be transparent in their dealings with consumers and give clear and accurate information about the price people have to pay.” It invited evidence from the public and wrote to the government.
The CMA already has the power to take enforcement action for possible breaches of consumer protection law by Ticketmaster under existing powers. However, these powers will soon be significantly enhanced under the UK Digital Markets, Competition and Consumers Act 2024 (DMCC Act).
The DMCC Act, which became law on 24 May 2024, introduced the most significant changes to UK consumer protection (and competition) laws in over 20 years. Once the consumer protection reforms enter into force under secondary legislation, the CMA will have the power directly to enforce the law in the UK and sanction breaches itself. Currently under the existing law, the CMA can only accept undertakings from a company under investigation or otherwise apply to court to seek an enforcement order. Both processes have proven to be slow, unwieldy and of limited practical effect.
Direct enforcement, with associated powers to gather evidence, will result in infringement decisions by the CMA. The CMA can impose fines on infringing companies of up to 10% of worldwide turnover. There are potential penalties on companies for failure to comply with investigative measures or noncompliance with CMA orders. Individuals can also face personal fines.
On 31 July 2024, the CMA opened a consultation on its draft guidance and procedural rules for the direct consumer enforcement regime in the DMCC Act. The guidance will set out the CMA’s general approach to the carrying out of its direct consumer enforcement functions. The procedural rules will set out the legally binding framework for the CMA’s use of its direct enforcement powers.
Although the CMA’s powers are significantly increased by the DMCC Act so that it considers itself the lead regulator, the consumer law enforcement regime in the UK remains complex. The CMA will be the only regulator with direct enforcement powers, but several other regulators and enforcers are able to enforce on a civil and/or criminal basis through the courts. This includes the Trading Standards bodies, which are part of local authorities and have civil and criminal enforcement powers in addition to certain product safety and other regulatory functions. The overlap between these various bodies and the CMA will need to be worked out over time, but the CMA will likely focus, as it does now, on issues of general concern with wide impact (such as Oasis ticket sales).