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Hotel price fixing case will likely do little but generate legal fee bonanza - August 22, 2012
NB: This is a guest article by Al Anolik, a travel law attorney at Anolik Law Group in California, US.
A class action suit was filed this week in California against various major online travel retailers and hotel chains alleging antitrust violations in relation to resale price management (RPM) agreements.
RPM exists when an agreement between actors at different levels of the distribution chain specifies the minimum or maximum amount price to be charged by resellers to their downstream customers.
The parties bringing the suit have claimed that online travel retailers conspired with the hotel chains to impose an RPM schedule that would fix the retail price the Hotels were selling the rooms (“rack rates”).
Prior to 2007, RPM was “per se” illegal (ie. illegal regardless of any surrounding circumstances) in the US pursuant to federal law for over 96 years.
On June 28, 2007, the Supreme Court held that minimum RPM plans were no longer subject to a per se ban under federal law.
Under Leegin, minimum RPM plans are now evaluated under the Rule of Reason, which weighs the procompetitive benefits of an agreement against the anticompetitive harms.
If on balance the harms outweigh the benefits, the agreement is illegal under federal law. Leegin did not change state laws relating to RPM plans though.
Various states, including California, have still maintained that RPM plans are per se violations of their state antitrust laws, and plaintiffs have argued that alleged RPM plans are both per se violations of state law and do not pass the so-called federal rule of reason analysis.
Applying to travel
As one of the attorneys representing ARTA when they brought the largest settled carrier price fixing cases, and as one of the lead attorneys defending a number of the major Hawaiian hotel chains for alleged price fixing and price manipulation, I feel that I can make an informed prediction as to the likely “real” outcome of the current California suit.
As opposed to benefiting consumers, any recovery in the matter will likely become the retirement fund for the winning attorneys while the ultimate consumers, whose damages will be too speculative, will merely receive coupons towards hotel rooms valid for only one night for leisure travel, which will actually generate more money for the hotels than cause them harm.
Some of my best friends are attorneys, so I do not want to demean their actions, but in this case the consumers had full access to the online travel agencies (OTAs) who have over half of this hotel business, so one might question the actual damage to the consumers.
Can they really believe that consumers bargaining direct with a hotel cannot move the rack rates?
With 14 of the giants of the industry in North America named, and more to follow, with each defense team using their corporate antitrust counsel in addition to the local San Francisco counsel they will need, you are talking of approximately 12 attorneys, billing at $400 to $800 per hour for antitrust work.
Time and resources and impact
This “stimulus” to our economy is obviously needed and appreciated, but is this good for consumers and our agents?
Already travel agents are using the OTAs to purchase rooms for customers with a service fee that is still less then what consumers by themselves might not get unless they used the OTAs, and certainly many are and more will switch to OTAs because of their buying power.
For most, if not all, of the hotels, the rack rates are regulated by yield management based on occupancy factors.
Consumers will see OTA prices, confront the hotels to match, and when they have low occupancy factors the hotels will do so. The rule of reason looks at today’s market place when the alleged violation took place and never has our industry or the consumer seen such competition.
I feel sorry for my tour operator clients, having negotiated room rates two years out, who are now watching rates fall below what they can get with the high volume of sales they make for a property.
NB: This is a guest article by Al Anolik, a travel law attorney at Alexander Anolik Corporation in California, US.
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