In re Online Travel Co.

• Decision Date: 18 February 2014
• Docket Number: Civil Action No. 3:12–cv–3515–B.
• Citation: 997 F.Supp.2d 526
• Parties: In re ONLINE TRAVEL COMPANY (OTC) HOTEL BOOKING ANTITRUST LITIGATION.
• Court: U.S. District Court — Northern District of Texas

997 F.Supp.2d 526

In re ONLINE TRAVEL COMPANY (OTC) HOTEL BOOKING ANTITRUST LITIGATION.

Civil Action No. 3:12–cv–3515–B.

United States District Court,

N.D. Texas,

Dallas Division.

Feb. 18, 2014.

Steve W. Berman, Hagens Berman Sobol Shapiro LLP, Seattle, WA, Marc R. Stanley, Martin Woodward, Scott A. Kitner, Stanley Law Group, Dallas, TX, for Plaintiff.

Christopher S. Yates, Brendan Andrew McShane, Daniel M. Wall, Jason L. Daniels, Latham & Watkins LLP, Gretchen Ann Hoff Varner, Covington & Burling LLC, San Francisco, CA, Reginald V. Terrell, The Terrell Law Group, Oakland, CA, Anne Y. Lee, Thomas O. Barnett, Thomas A. Isaacson, Covington & Burling LLP, George S. Cary, Steven J. Kaiser, Cleary Gottlieb Steen & Hamilton LLP, Washington, DC, Jessica B. Pulliam, Van H. Beckwith, Baker Botts, Dallas, TX, Emily Johnson Henn, Covington & Burling LLP, Redwood Shores, CA, for Defendant.

MEMORANDUM OPINION AND ORDER

JANE J. BOYLE, District Judge.

Defendants, who include major U.S. hotel chains and online travel agencies (“OTAs”) in the United States, jointly move to dismiss this putative class action brought by consumers claiming they paid inflated prices on hotel rooms booked online. Defendants first challenge the Consolidated Amended Complaint's (“Complaint”) (doc. 85) three antitrust law claims, which charge Defendants with engaging in an industry-wide conspiracy to uniformly adopt resale price maintenance agreements, containing most favored nation clauses, in an effort to eliminate price competition among hotel room booking websites. Defendants also seek to dismiss the Complaint's state consumer protection law claim, which alleges that Defendants deceptively published “best price” or “lowest price” guarantees on their websites while knowing that “best” price was the same fixed rate offered across all hotel booking websites.

To survive this motion, the Complaint's factual allegations (taken as true) must plausibly establish the essential elements of each claim. Because it finds the Complaint fails to plausibly allege (1) a price-fixing conspiracy for the three antitrust law claims and (2) proximate causation for the consumer protection law claim, the Court GRANTS Defendants' Joint Motion to Dismiss (doc. 108), and DISMISSES WITHOUT PREJUDICE all four counts of the Complaint. ¹

I.BACKGROUND

A. Factual Background²

The relevant conduct at issue in this case took place in the U.S. market for “direct online sale of hotel room reservations.” (Compl., Doc. 85, ¶ 138.) Hotels have long sold rooms to consumers through various channels of distribution, including “telephone or walk up reservations.” ( Id. ¶ 139.) With the rise of the internet, an important new channel presented itself: the online bookings market. In this market, a hotel can offer a single room to consumers through multiple online outlets, including its own website or any of the websites operated by OTAs. OTAs—which are entities “organized to effectuate travel plans, reservations and purchases via the worldwide web”—were an unknown concept just a short time ago, but have “seen explosive growth” in recent years. ( Id. ¶ 65.) This growth, in large part, is attributable to the value OTAs offer consumers; they “allow consumers to rent hotel rooms in many different hotels throughout the country and the world” ( Id. ¶ 66) and “easily search many different hotel types and locations in their desired areas” ( Id. ¶ 139), and “[m]any ... have reviews provided by consumers with which to evaluate different properties.” ( Id.)

Occupying the largest sector of the online hotel bookings industry in the United States are the two main groups of defendants in this case. The first group includes twelve “collectively ... dominant hotel chains in the United States” (the “Hotel Defendants”).³ ( Id. ¶ 140.) The second group is made up of nine OTAs (the “OTA Defendants”),⁴ four of which—Expedia, Orbitz, Priceline and Travelocity—“accounted for 94% of” all OTA-hotel bookings in 2011. ( Id. ¶ 46.) A third category of defendants is solely occupied by EyeforTravel, Ltd. (“EyeforTravel”), a travel industry news company based in the U.K. that allegedly facilitated the price-fixing conspiracy in this case through its annual industry conferences. ( Id. ¶ 60.)

Collectively, Defendants are charged with entering into an industry-wide conspiracy to impose “rate parity” across hotel room booking websites. Put differently, Defendants allegedly conspired to eliminate, on an industry-wide basis, intra-brand competition—that is, competition among each hotel's online distribution channels, including its own website and OTA-run websites. ( Id. ¶ 78.) Here are just two examples set out in the Complaint ( Id. ¶ 128) illustrating the rate parity Defendants' conspiracy allegedly created:

Dallas Marriott, 1 King Bed or 2 Double Beds, June 1–2, 2013 (posted 4/25/13):

Expedia

$159

Hotels.com

$159

Orbitz

$159

Priceline

$159

Travelocity

$159

Booking.com

$159

Marriott's website

$159

Hilton Dallas/Park Cities, 1 King Bed, June 1–2, 2013 (posted 4/25/13):

Expedia

$139

Hotels.com

$139

Orbitz

$139

Priceline

$139

Travelocity

$139

Booking.com

$139

Hiton's website

$139

According to the Complaint, “[t]he exact date the conspiracy began is unknown, but it is believed to have started in 2003.” ( Id.¶ 75.) Before this time, each OTA Defendant grew its market share by offering online consumers discount rates “below the rate published by hotels.” ( Id. ¶ 74.) Soon however, OTA Defendants apparently became “concerned that further discounting by competing [OTAs] could erode their margins.” ( Id.) Hotel Defendants were similarly “concerned that they would lose more market share to [OTAs] if there was price disparity between the published hotel room rate and an [OTA's] website rate.” ( Id.) Accordingly, the Complaint claims that “[i]n 2002 and 2003, in trade press, at industry conferences and on conference calls with stock analysts, [OTAs] and hotels began to discuss ‘rate parity.’ ” ( Id. ¶¶ 75, 78.) It was through these “discussions at industry trade meetings and in private communications where Defendants jointly discussed, urged and agreed to adoption of rate parity ‘in all channels' ” that the conspiracy formed. ( Id. ¶ 79.)

The conspiracy or agreement that ultimately came out of these purported discussions involved “an express or tacit agreement” among all Defendants. ( Id.) Holding this wider conspiracy together were at least two additional agreements. First, the OTA Defendants entered into a horizontal agreement ⁵ not to compete with each other, apparently formed in the same sort of express or tacit way as the larger conspiracy. ( Id.) Second, each Hotel Defendant signed vertical written contracts known as resale price maintenance (“RPM”) agreements with each OTA Defendant. ( Id.) The “typical RPM agreement between” each OTA–Hotel Defendant pair “provided at least two restrictive terms.” ( Id. ¶ 77.) The first term mandated that the hotel “would establish” and publish “the ‘Best Available Rate’ or ‘Lowest Rate’ for a non-packaged room ... [and] [t]hat published rate was the price the [OTA] could use when selling rooms to consumers.” ( Id.) The second relevant term—known as the most favored nation (“MFN”) clause—“provided that the published rates offered by the [OTA] would be as favorable as the published rate offered to (a) any [OTA] competitor and (b) the rates published on the internet site operated by the hotel itself.” ( Id.)

Thus, each RPM agreement ensured first, that each OTA would not discount below each hotel website's published rate, and second, that each hotel was providing each OTA with its lowest online rate. As the industry began to uniformly adopt these RPM agreements starting in “late 2003 and 2004,” the conspiracy's plan to impose rate parity began to materialize. ( Id. ¶ 76.)

Defendants also allegedly conspired to ensure this rate parity remained in place. Hotel Defendants “threatened other [OTAs] with legal action and/or refused to allow [OTAs], such as Skoosh.com, to sell rooms if [that OTA] refused to ... maintain resale prices at the agreed rate in compliance with the RPM scheme.” ( Id. ¶ 104.) Likewise, the OTA Defendants took their own steps to ensure the RPM agreements were being honored, “employ[ing] market managers who monitor closely a hotel's rates across all channels, and if a preferential rate was given to one over he other that hotel could face dire penalties.” ( Id. ¶ 129) (quotation marks omitted.)

With the “RPM scheme” ensuring rate parity remained in tact, the OTA Defendants began to “offer a near identical ‘best price’ guarantee—knowing that it is the only price available even among competitors.” ( Id. ¶ 130.) A couple examples include Travelocity's advertisement guaranteeing the “Best Price: If you find a lower rate, we'll pay the difference and send you $50,” and Orbitz's “Low Price Guarantee: If you book a qualifying prepaid hotel rate on the Orbitz Web site, and then find the same room, in the same hotel, for the same dates, at a lower price online ... we'll refund the difference and give you a $50 discount on future hotel booking.” ( Id.) The Hotel Defendants made “similar promises,” for example, Marriott's “Best Rate Guarantee: Book a Marriott rom using any Marriott reservation channel,” online or otherwise, and “[i]f within 24 hours of making your reservation, you find a lower hotel rate for the same hotel, room type and reservation dates, ... we'll match the rate + give you an extra 25% discount on the room.” ( Id. ¶ 131.)

B. European Investigations and Procedural History

In 2012—nearly a decade after the conspiracy allegedly formed—Defendants began facing public scrutiny. On July 31, 2012, the British Office of Fair Trade (“OFT”) publicly announced its “Statement of Objection” to “separate arrangements” between two OTA Defendants (Bookings.com and Expedia) and one Hotel Defendant (IHG), which the OFT claimed infringed U.K. competition law. ⁶ Similarly, Switzerland's Competition Commission...