€6.7m EU fine on Meliá Hotels for carving up markets
€6.7m EU fine on Meliá Hotels for carving up markets
On 21 February 2020, the European Commission imposed a fine of €6,678,000 on the Spanish hotel group Meliá for its contracts with four tour operators. The contracts discriminated between customers within the EU's internal market by reference to the customer's country of residence.
As a result of the contracts, customers could only obtain certain hotel prices if they lived in a particular country in the EU's internal market. This meant that customers were not able to avail of the best prices and were confined to prices which were available to them because of the contractual arrangements between Meliá and the tour operators.
The case involved geographical partitioning of the EU internal market for hotel rooms.
The Commission found that Meliá's contracts in 2014 and 2105 with four tour operators (Kuoni, REWE, Thomas Cook and TUI) contained a clause providing that the contracts were valid only for reservations by consumers who were resident in specified countries. This meant that:
the four tour operators could not sell Meliá's hotel accommodation freely in all EEA countries (i.e. across the internal market) but only in contractually permitted countries
the tour operators could not respond to direct requests from consumers who were residents outside the defined countries.
The investigation commenced in February 2017. It took three years to conclude in a decision. The Commission said that the case commenced because of complaints from consumers. The investigation examined whether hotel accommodation agreements concluded by Meliá and tour operators contained clauses that illegally discriminated between customers, based on their country of residence. The Commission also investigated whether nationality of customers was also a relevant consideration.
In competition law terms, the clause restricted active and passive sales for hotel accommodation. The contracts were therefore in breach of Article 101 of the Treaty on the Functioning of the European Union (TFEU). This article generally prohibits in Article 101(1) all anti-competitive arrangements between two or more "undertakings" (i.e. businesses) which have the object or effect of preventing, restricting or distorting competition in the internal market or any part of the internal market. Such arrangements are void under Article 101(2). It is possible under Article 101(3) for such arrangements to be lawful where they are, on balance, beneficial to the economy despite being apparently anti-competitive.
The Commission has the ability to impose fines for breach of Article 101 TFEU. The Commission adopted guidelines in 2006 on how such fines are calculated and imposed. The fine in this case was imposed for infringements in two years, namely, 2014 and 2015. While the fine of €6,678,000 is high, this is after the Commission gave the company a 30% reduction in the fine because it cooperated with the Commission's investigation. The Commission recalled in its press release that "Meliá cooperated with the Commission beyond its legal obligation to do so. It expressly acknowledged the facts and the infringement of EU competition rules and cooperated on the provision of evidence." In this case, the Commission said that it took into account the:
value of sales relating to the infringement
gravity of the infringement and its duration
fact that Meliá cooperated with the Commission during the investigation
The Commission decided, following assessment of the evidence and the circumstances of the case, to close its investigations into the four tour operators.
The Vestager Competition era, starting in 2014, has been characterised by many cases which deal with consumer goods. Such cases help make the EU more relevant for consumers / citizens. Competition Commissioner Vestager said in regard to this case:
“this time of the year [i.e. February], many people are booking their summer vacation and are looking for the best deals on offer. Meliá prevented tour operators from freely offering hotel accommodation everywhere in Europe. As a result, consumers had access to different offers and different prices based on their nationality. This is illegal under antitrust rules. Consumers should be able to make full use of the Single Market and to shop around for the best deal.”
This case involves partitioning the EU's internal market. As the Brexit negotiations demonstrate, there is hardly anything more precious to the EU than its internal market. Any attempt to undermine the internal market is punished severely by the European Commission.
Commissioner Vestager recalled in the media release that “consumers had access to different offers and different prices based on their nationality.” It meant that consumers are not able to “make full use of the single market and to shop around for the best deal." It will be interesting to see how the Commission's dealt with nationality when this is published.
Meliá issued a statement after the Commission announced its decision:
"…the European Commission opened an investigation into compliance with the rules on competition in the hotel distribution industry. One of the companies investigated was Meliá Hotels International…. As part of the investigation, the European Commission analysed some of the agreements made in 2014 and 2015 between Meliá Hotels International and various tour operators, which contained commercial conditions that could be interpreted differently depending on the consumer's nationality and/or country of residence. Meliá Hotels International has always understood that the aforementioned agreements had no adverse effects on competition in the market, and signed them with that intention.
However, in order to prioritise the interests of our customers and partners, Meliá Hotels International decided not to delay the investigation and fully cooperate with the European Commission from the beginning of the investigation, as the Commission itself indicates….Meliá Hotels International is fully committed to the rules on competition and the European single market, and as a result of this investigation implemented internal compliance procedures to ensure that all of its contracts are fully compatible with those rules. As a responsible company committed to transparency, compliance and good governance, we are confident that this penalty will further reinforce our commitment and that of the entire industry to compliance with regulations within the European space."
The company's comment about "nationality" (as well as residency) is interesting. So too is the commitment to increase compliance.
The case is reflective of the Commission's approach in the 1998 Football World Cup case. It may well be that the Commission will become even more interested in cases which involve dividing markets.
It is unlikely, given the company's statement, that we will see an appeal to the General Court in this case. It is a pity because it would be interesting to see how the Court of Justice of the European Union would deal with this case given the court's approach in MEO (an abuse of dominance case).
It is possible that consumers who were overcharged may sue for damages. Such actions would be instituted in a Member State court in the EU. The actions would probably be against Meliá rather than the tour operators.
The message for business is clear:
do not enter into agreements which discriminate between customers within the EU's internal market on the basis of the customer's state of residency. Local taxes and charges can be taken into account. This case did not turn on whether Meliá was dominant
do not carve up the market such that consumers cannot
be careful of consumers' complaints – this case and fine was initiated by consumer complaints
co-operation with the Commission can reduce the fine ultimately imposed