Hotels and booking sites now face suit in U.S. over hotel price-fixing “conspiracy”

On the heels of UK regulators provisionally finding that major hotel chains and online travel agencies engage in anticompetitive practices, a class-action lawsuit was filed in California today (embedded end of story) similarly alleging a price-fixing scheme that harms consumers.

The law firm Hagens Berman Sobol Shapiro filed the class action complaint August 20 in U.S. District Court, Northern District of California, on behalf of U.S. consumers and against defendants Expedia (Hotels.com), Priceline (Booking.com), Sabre (Travelocity), Orbitz Worldwide, Hilton, Marriott, InterContinental, Trump International, and Kimpton Hotels.

The suit is a bit sloppy at points, erroneously alleging that OTAs purchase “and take title” to hotel rooms from the chains under the merchant model, and at another juncture the plaintiffs claim that Sabre owns Booking.com, which it doesn’t.

Is rate parity anti-consumer?

But, the core claims could put major hotels and OTAs — and the way they conduct business — on the defensive.

The suit alleges that the hotels and OTAs enter into rate parity and most-favored nation agreements that ensure that OTAs don’t undercut one another and the room rate on hotel websites. These rules were put into place on the insistence of the hotels a decade ago when sites such as Expedia.com and Hotels.com were gaining power and providing lower rates to consumers than were the hotels themselves.

The defendants are engaged in an ongoing price-fixing scheme that violates federal and California antitrust laws, harms competition, and ensures that consumers pay inflated room rates, the suit alleges.

Alleged misleading practices 

“The practices are misleading because they were likely to deceive consumers into believing that they are obtaining the “best price” or a “low price” for their hotel room” when in reality the OTAs, conspiring with hotels, use their “monopoly power” to offer uniform rates across the Internet, the suit alleges.

The suit also alleges that “smaller price-cutting online retailers” such as the UK’s Skoosh, which not-so-coincidentally filed the rate parity complaint in the UK that led to the Office of Fair Trading’s investigation, are bullied by hotels, online travel agencies, and even travel metsearch companies such as Kayak into complying with rate parity strictures.

The federal lawsuit, which will undoubtedly seek class-action status, seeks injunctive relief and monetary damages.

Will these business practices survive?

If other class-action lawyers see that this complaint is gaining traction and pile on, this could open a new litigation front against the OTAs, which are already bogged down in hotel-tax litigation brought by state and local jurisdictions across the country.

And, if this litigation prevails, it would overturn the standard way that hotels and OTAs interact and do business in the U.S.

You can expect U.S. regulatory authorities to take a closer look, as well.

For its part, Booking.com has denied the claims in the UK case, arguing that it engages in the agency model and hotels have complete freedom to set their own prices.

Reactions and non-reactions to the suit

Not everyone is convinced about the potential impact of the suit, which hotel consultant Robert Cole labels as “frivolous.”

Cole argues that rate parity, or resale price maintenance, as the suit labels it, “is not illegal.” Says Cole:

“There is no evidene of collusion among the distributors, for example, to exclude other retailers. There is no evidence of collusion between suppliers to establish product pricing or to work exclusively with a select group of retailers. There is no evidence of cartel activity on the supplier or the retailer side of the distribution channel.

“The mechanism of rate parity keeps the intermediaries from undercutting the hotel’s website price and vice versa. There is no evidence that this activity increases consumer pricing as rates are set by the hotel property or local cluster level.”

Travel attorney Mark Pestronk doesn’t think the antitrust allegations will hold up.

“As far as the antitrust allegations are concerned, my comment is that a principal cannot conspire with its agent to fix prices, as the two companies are considered one actor under the antitrust laws, and one actor cannot conspire with itself,” Pestronk says.

“Although the OTAs and the plaintiffs here may claim that the OTAs are not agents under the merchant model, I don’t think that this is true,” Pestronk adds.

Meanwhile, Priceline, Expedia and Sabre declined to comment on the suit.

08-20-12 Class Action Complaint – Hotels