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MFNs: Falling Further out of Favour?

AUTHORs: Kate McKenna Services: Competition and Regulation DATE: 13/11/2018

On 2 November 2018, the Competition and Markets Authority (CMA) provisionally concluded that ComparetheMarket (a UK comparison website offering price comparisons of insurance products and utilities) had breached competition law as a result of its use of ‘most-favoured nation’ clauses (MFNs).

These clauses are commonly found in contracts with price comparison websites (PCWs), online travel agents (OTAs) and other selling platforms and allow these companies to market themselves as offering the ‘best price’ for a particular product or service.  The CMA identified particular concerns with contracts restricting the price of insurance products on the PCW’s website.

Competition authorities across the EU have in recent years scrutinised the use of MFNs amidst growing concern that they can lead to uniform pricing (since the supplier is prevented from offering their products more cheaply elsewhere).

In June 2017, the Paris Appeal Court fined Expedia €1 million for its use of MFNs with French hotels and, in July of this year, the Swedish Patents and Markets Court ordered Booking.com to end its use of MFNs, threatening a €2.9 million fine in the event of a failure to comply.  This latest UK case may represent a further crack-down on these clauses and a growing presumption in the enforcement community that they may lead to consumer harm.

The evolving approach to most-favoured-nation clauses

Competition authorities have generally been most concerned with ‘wide’ MFNs (preventing a supplier from selling their product or service more cheaply on any competing platform) rather than ‘narrow’ MFNs (where the restriction only applies to sales made directly by the supplier).  Current economic thinking is that the efficiency benefits of MFNs (which discourage free-riding by the supplier through its own website but permit competing platforms to offer better deals) can in certain circumstances outweigh any upwards pressure on price and should therefore be assessed on a case-by-case basis.

The CMA has previously investigated both wide and narrow MFNs on PCWs and OTAs (Online Hotel Bookings, 2010, Motor Insurance, 2014, Online Auction Houses, 2016 and a consumer investigation into PCWs in 2017, which led to the current investigation).  However, to date the CMA and the EU Commission have only identified concerns with wide MFNs and have been satisfied to accept binding commitments. This latest development marks a significant escalation, raising the prospect of substantial fines (up to 10% of ComparetheMarket’s annual turnover) should anti-competitive conduct be proven.

Across Europe authorities have taken differing approaches.  For example, the Competition and Consumer Protection Commission (CCPC) in Ireland investigated MFNs in contacts between Booking.com and hotels in 2015 and ultimately required Booking.com to remove wide MFNs from their contracts with hotels, whilst permitting narrow MFNs to remain.  In contrast, the German Competition Authorities have adopted a stricter approach, striking down the use of all MFNs by Booking.com.  France and Italy have taken this approach one step further, introducing primary legislation prohibiting the use of any MFNs in the hotel booking sector.  This leaves companies operating across Europe with significant uncertainty regarding the approach they should take and whether MFNs are at all permissible.

Takeaways for Irish companies doing business here and in the EU

While not all MFN clauses will raise concerns, companies should consider whether their current contractual relationships have kept pace with the evolving approach of enforcers and, in particular, whether any continue to rely on or be bound by wide MFNs.  A watching brief on the CMA’s approach in ComparetheMarket is advised; in particular, to see whether the CMA’s focus signals a move towards a prohibition on all MFNs.  Continued scrutiny of MFNs by the CCPC and European Commission remains a risk.

This article was co-authored by Kate McKenna, Ronan Scanlan and Rachel O’Sullivan of Matheson’s EU, Competition and Regulatory Group.

See further: CMA case page