Many people in the hospitality industry are dismissing the recent report on Hotel News Resource regarding the “Antitrust lawsuit filed against six major hotel chains” as a frivolous lawsuit without merit. While I agree with the sentiment that this case shouldn’t be allowed to exist, unfortunately, the law may not be on our side. Having read the case file, which, (thanks to Robert Cole) can be found here, they may have a shot at winning.
On the surface, we all know that bidding on competitor’s brand names is not an effective advertising strategy. We would all argue that forcing Hilton to bid on Marriott keywords is nonsensical. However, the lawsuit isn’t focused on the fact that they’re not bidding on each other’s keywords. It’s focused on the fact that there are contractual agreements that specifically prohibit the behavior.
The case is two-fold. They complain that collusion occurred between the defendants, which may be hard to prove. The second claim is that the defendants entered into illegal agreements of anti-competition with the OTAs. Where the more likely victory could come would be from the fact that the defendants have language within their Expedia contracts that could be interpreted as anti-competitive and harmful in accordance with the Clayton Antitrust Act of 1914 and Section 1 of the Sherman Antitrust Act.
An example is in Paragraph 12 of the August 2015 agreement between Hilton and Expedia, which provides:
neither Party shall knowingly bid on or otherwise use any of the other Party’s trademarks … or common misspellings for use in connection with hotel services with the intent of targeting specifically the other Party’s properties or services. Each Party shall actively apply negative keywords for the Marks and common misspellings of the other Party.
Based on historical rulings, there is an argument here that this limits fair competition. The complaint goes on to cite precedent where this type of agreement has harmed consumers by adversely impacting pricing in a market.
Again, I want to be very clear. I do not condone the lawsuit in any way. I am very much opposed to it. I am just pointing out that this may not be the open and shut case that it appears to be on the surface and that US law may be such that the plaintiff wins.
Can the courts really force a property to bid on a competitive keyword? Absolutely not.
So what’s the real fallout? No non-compete agreements between competitors or between hotels and OTAs will be permitted. The chains still won’t bid on competitive keywords because it’s not a cost-effective advertising strategy. OTAs will be free to resume bidding on brand keywords for the big chains, much like they currently do for smaller properties. This will force the chains to make higher bids on their brand keywords, leading to higher operating costs. In addition, they will likely see an increase in reliance from OTAs, to whom they have to pay a commission. The NET result is that the hotel prices will likely increase for the consumer.
The only silver lining to this whole thing is that a ruling in favor of the defendant may actually level the playing field between independent hotels and the major chains. Currently, the only hotels who have been able to successfully prevent the OTAs from bidding on their brand keywords have been chains with enough properties to carry clout with the OTAs. Independent hotels have almost entirely been stonewalled by the OTAs when submitting a request to have the same provisions added to their agreements. If the lawsuit is successful, and OTAs do begin bidding on the brand keywords of the major chains, one could argue that this is a good thing for independent hotels who would now have a shot at a consumer who was intending to stay with a chain hotel.
DISCLAIMER: Keep in mind that opinions are not facts and that this article is pure speculation on my part. I am in no way a legal expert.