Suit against OTAs, hotels alleges conspiracy to prevent rate discounting

Some of the world’s largest online travel companies and hoteliers were named last week in a wide-ranging class action alleging that they had conspired to restrict room-rate discounts and limit competition from smaller online retailers.

Among the companies the lawsuit accuses of price fixing are Expedia, Hilton Hotels & Resorts, InterContinental Hotels Group (IHG), Kimpton Hotel and Restaurant Group, Marriott International, Orbitz, Priceline, Sabre, Starwood Hotels & Resorts and Trump International Hotels Management plus several of those companies’ wholly owned subsidiaries and sister companies.

The suit was filed on Aug. 20 in U.S. District Court for Northern California. The Seattle-based Hagens Berman law firm is representing lead plaintiffs Nikita Turik and Eric Balk as well as a class of consumer plaintiffs that has yet to be certified by the court.

The suit alleges that the OTAs engaged in “anticompetitive” behavior by coercing the hotels to “impose minimum resale price maintenance agreements” on the smaller online retailers and to “refuse to supply or [to] cut off supply to price-cutting competing online retailers.”

Sabre, which owns Travelocity, denied that either company had engaged in any anticompetitive actions and declined to comment further.

In a statement, IHG said, “We are aware of the class-action lawsuit filed by Hagens Berman against several online travel sites and hotel companies. We believe our pricing practices and arrangements with online booking agencies are compliant with the law and will be responding to the litigation in the normal course.”

The lawsuit’s claims are notable because, typically, price-parity agreements are designed to ensure that hoteliers can force online travel agencies (OTAs) to honor their minimum room rates so that the hoteliers’ own websites are not undercut. But this claim alleges that the intermediaries actually enforced such price minimums in order to prevent smaller OTAs, such as, from competing.

Whether or not that claim is judged to be legitimate, it suggests the growing level of influence the largest OTAs hold over the hotel industry. This year, OTAs will book more than $16.5 billion in U.S. hotel reservations, up 9% from last year and up 37% from 2009, according to a PhoCusWright report released late last year.

During that same period, the OTAs’ share of all U.S. hotel bookings will have grown to 15% from 13%.

Hagens Berman managing partner Steve Berman said in a statement that the hotels and OTAs “have created the illusion that savvy consumers can spend time researching hotel rates online to find good deals,” when in fact “consumers see nothing but cosmetic differences and the same prices on every site.”

According to the claim, Turik and Balk are representative of consumers who have allegedly been prevented from securing the lowest possible prices on hotel rooms because of the hotel-OTA agreements. Turik, a Chicago resident, booked a room at the Westin Beale Street Memphis (Westin is a Starwood brand) in early 2010, while Balk, who lives in Iowa, booked a room at the Holiday Inn Express Hotel & Suites Bloomington in Indiana last year. (Holiday Inn is an IHG brand.)

Robert Lande, a professor at the University of Baltimore Law School and a director at the American Antitrust Institute, said the plaintiffs might have a case if they are able to prove that the OTAs worked in concert with each other to impose the pricing agreements.

Lande added that it made sense for the case to be filed in California because of that state’s Cartwright Act, which makes California’s antitrust laws more stringent than those in other states when it comes to imposing restrictions on resale price maintenance agreements between suppliers and retailers.

That said, there are two reasons the Cartwright Act might not apply in this case. First, a hotel room could be categorized as a rental rather than a sale. Second, neither lead plaintiff lives in California nor did either make his hotel bookings within the state.

“If you’re a California resident or if you’re booking a room there, you could argue [a violation of the Cartwright Act],” Lande said. “If not, it’s a hard argument for the plaintiffs.”

This is not the first time antitrust allegations have been made with reference to the relationship between hotels and OTAs.

Last month, the U.K.’s Office of Fair Trading alleged that IHG, Expedia and Priceline’s unit had engaged in anti-competitive practices by reaching agreements that limited the OTAs’ ability to discount rooms, restricting competition from smaller OTAs that would be willing to offer lower room prices. The Office of Fair Trading started its probe into the issue in September 2010.

IHG said last month that it wasn’t breaking any competition laws and was operating consistently with the rest of the industry. It also said it was cooperating with the office’s probe.

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