Major hotel chains seek to dismiss antitrust suit, online booker alleges conspiracy to inflate prices

By David Yates | Feb 11, 2019


TEXARKANA – By agreeing not to bid on each other’s branded keywords, major hotel chains allegedly engaged in a conspiracy to stifle competition, keep prices high and make it harder for consumers to comparison shop – that’s the primary accusation made in an antitrust lawsuit brought by the TravelPass Group, an online travel agency.   

However, there seems to be a flaw in the argument, at least according to a recently filed motion to dismiss, which points out that any lack of competition for branded keywords would, if anything, benefit TravelPass, making it easier and cheaper for the company to win a bidding contest.

TravelPass filed its complaint on Dec. 6 in the U.S. Court for the Eastern District of Texas, naming Caesars Entertainment, Choice Hotels, Hilton, Hyatt, Marriott, Red Roof Inns, Six Continents Hotels and the Wyndham Hotel Group as defendants.

TravelPass is what’s called a “downstream” online travel agency (OTA). The company resells rooms that hotel chains make available to “upstream” OTAs, such as Expedia or Booking.com.


Schwegmann  

According to the antitrust suit, the nation’s leading hotel chains allegedly engaged in a horizontal conspiracy to eliminate inter-brand competition for keyword Internet searches, which millions of customers use to book hotel rooms online each year.

By allegedly conspiring with one another and the gatekeeper OTAs, like Expedia, the hotels rigged bids and engaged in a group boycott to eliminate competing paid search advertisements.

“Over time, their conspiracy effectively divided the market for branded keyword search results between and among the Defendant Hotels, allocating branded keyword territory such that the Defendant Hotels no longer had to compete either with one another or with TravelPass and other internet travel innovators,” the suit states.

“Taken together, the Defendant Hotels’ illegal activities have severely reduced, and in many cases even eliminated, the revolutionary benefits of the Internet economy for hotel consumers, taking us back to the ‘bad old days.’”

On Dec. 7, the hotel chains filed a joint motion to dismiss, arguing that the facts needed to plead a plausible antitrust conspiracy are “entirely absent” from the complaint.  

“Despite its nearly 200 paragraphs, the Complaint does not identify a single communication, statement or encounter through which any of the Defendants reached an agreement not to bid on each other’s keywords,” the motion states. “The ‘primary conspiracy’ theory also poses an insurmountable problem for TravelPass—it could not be injured by any such conspiracy, given that it is a buyer, not a seller, of keywords.

“Lack of competition for branded keywords would, if anything, have benefitted TravelPass, making it easier and cheaper for TravelPass to win a bidding contest for a keyword.”  

The hotels argue TravelPass does not even claim any injury stemming from any alleged agreement among the hotels, and therefore lacks standing under antitrust laws to pursue a claim for its “primary conspiracy.”

“In apparent recognition of that problem, TravelPass creatively constructs what it terms a ‘secondary’ conspiracy, involving vertical, bilateral restrictions in individual distribution agreements between the hotel Defendants and the so-called Gatekeeper OTAs,” the motion states.

“TravelPass theorizes that those OTAs joined a conspiracy among hotel Defendants to restrict keyword bidding, thereby limiting the ability of TravelPass, as an OTA affiliate, to bid on branded keywords and to obtain more bookings.”

TravelPass claims that Expedia and other upstream OTAs denied it access to hotel room inventory for failure to abide by the contractual restrictions, causing the company injury.

“The problem for TravelPass is that its purported injury is not antitrust injury,” the motion states. “In order to maintain an antitrust claim, a loss must stem from a competition-reducing effect of a defendant’s behavior, which this Complaint fails to plead.

“Like the primary conspiracy claim, the 'secondary' conspiracy claim fails for lack of standing.”

Apart from speculation, the hotels argue the complaint’s secondary conspiracy describes only parallel conduct by competitors who use individual agreements with the OTAs as one of many methods for marketing the hotel rooms bearing their respective brands.

“The law is clear that such agreements, and Defendants’ alleged parallel use of them, cannot sustain a conspiracy claim,” the motion states.

“That is all the more true where, as here, TravelPass itself explains why a hotel company would unilaterally insert such terms into its distribution agreements in exchange for the OTA’s right to display the hotel’s rooms: it costs a hotel less when a guest books directly on the hotel’s website rather than through an OTA.”

According to Travel Pass, the major hotels stopped bidding on one another’s branded keywords by the third quarter of 2014. Around that time, hotel chains also began enforcing the “sham” provisions in their global agreements with large OTAs.

As a result, the value of TravelPass decreased from $165 million to $25 million between March 2015 and December 2017.

“This decrease in TravelPass’s value was the direct and intended consequence of the Defendant Hotels’ illegal activities,” the suit states.

The hotels agree that it is “undisputed” that TravelPass has faced challenges, stating in the motion that the Federal Trade Commission recently investigated and obtained a consent decree against it for deceptive advertising practices.

“In particular, the FTC criticized TravelPass’s use of hotel brand names in search engine advertisements, thereby misleading consumers into believing that the source of the listing was the hotel itself,” the motion states.

“Separately, TravelPass filed a lawsuit against Expedia, its former upstream OTA, blaming Expedia’s conduct for a purported $61 million loss in TravelPass profits after Expedia, among other conduct, allegedly breached the parties’ contract by refusing to provide rooms to TravelPass unless it complied with certain contractual keyword advertising restrictions.”

TravelPass is represented in part by Christopher Schwegmann, attorney for the Dallas law firm Lynn, Pinker, Cox & Hurst.

Cause No. 5:18-cv-00153

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Hilton Texas TravelPass Group U.S. District Court for the Eastern District of Texas

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