Q: Last month, a law firm filed a class-action suit against all the major online travel agencies (OTAs) and many major hotel chains. The suit alleges that each chain agreed with each OTA that no hotel would undercut the prices offered by the OTA and that no competing OTA would be allowed to sell for less. As a result of these agreements, the major OTAs and the chains' own websites allegedly always offer the same rates to the public. The plaintiffs claim that these agreements violate the antitrust laws because they fix prices. If my agency got a hotel to agree not to undercut the group rates that I am offering to convention participants, would we be violating the antitrust laws, too?
A: Your agreement with the hotel would not violate the antitrust laws, even though you would be engaging in the same conduct that is the subject of the class-action suit.
The suit's claims regarding those agreements are bogus, as they reflect a fundamental misunderstanding of the OTA business in particular and the agency business in general.
What the plaintiffs fail to understand is that the major OTAs are travel agencies. As you probably know, under agency law, a supplier, as the principal, has the right to dictate the prices at which an agency can sell.
The reverse is also true: An agent can get a supplier to agree on selling prices by the supplier. Both kinds of price actions are nothing more than agreements between principals and agents.
Under the antitrust laws, a principal and an agent cannot conspire with each other to fix prices because the two are considered just one actor, and a single actor cannot conspire with itself, by definition.
Therefore, they can agree on each other's prices and can even agree to boycott smaller OTAs that discount, all without liability under antitrust laws.
You can see how such agreements are legal by analogizing to real estate. Obviously, a homeowner and a seller's agent can agree on the home's selling price, agree with each other not to undercut that price and agree not to allow other real estate agents to sell the house for less.
The plaintiffs try to avoid the principal-agent rule by claiming that under the OTAs' "merchant model," the OTAs buy blocks of hotel rooms for their own account and then resell them, taking the inventory risk of unsold seats just like a retail store.
The trouble is that this is not an accurate description of the merchant model, which is really just another principal-agent relationship.
Under the merchant model, the OTA simply marks up a net rate that it must pay to the hotel, but the OTA does not assume inventory risk. This relationship maintains the OTA as an agent of the hotel, just as your agency is the agent of a hotel that quotes you a net rate that you can mark up for a group.
So your agency and the hotel can agree that you cannot sell the marked-up rooms at a price lower than the hotel's rates, and you can agree that the hotel will not offer lower prices to any party over the same dates. Such hotel agreements are perfectly legal, and I am sure that the judge will eventually agree.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at [email protected].