A federal judge has turned down a bid by the world’s largest hotel brands to shut the door on an antitrust class action accusing them of conspiring to boost room rates by working together to make it harder for consumers to compare prices online.
On March 21, U.S. District Judge Rebecca Pallmeyer refused the hoteliers’ request to dismiss the lawsuit, brought by lawyers from the firm of Hagens Berman Sobol and Shapiro LLP, based in Seattle and Chicago, on behalf of named plaintiff Karen Tichy.
The judge specifically found the plaintiffs had done enough at this point to establish the likelihood the defendants, including Hilton, Marriott, Hyatt, Wyndham and Intercontinental Hotels Group had conspired in some fashion to work together to reduce online competition and make consumers pay more for hotel rooms when booking online.
The legal action centers on actions allegedly taken by the hotel brands to manipulate online search results to ensure competitors and online travel agents (OTAs), like Expedia and Orbitz, could not use online advertising tactics to poach customers.
The lawsuit noted the rise of online bookings, especially through OTAs, has pressured hotel room rates down, while also increasing the market power of OTAs, which cost hoteliers 12-20 percent commissions per booking.
In response to these trends, the lawsuit accused the hotel brands of partnering since 2015 to alter the online travel booking landscape. The lawsuit particularly accuses the big brands, who collectively control about 60 percent of all hotel room inventory in the U.S., of agreeing to allow each other to secure their own brand advertising rights online by allowing each brand to purchase only their own search engine keywords.
Previously, the brands and the OTAs could bid against each other for the use of the keywords, allowing advertisements for other brands to pop up anytime a consumer searched for another brand’s hotel listings.
Further, the lawsuit accused the brands of pressuring most of the OTAs into going along with the practice, offering them allegedly anti-competitive assurances in what plaintiffs said were very similar agreements offered by all of the hoteliers.
By restricting such keyword advertising, the hotel brands effectively restricted the ability of consumers to easily compare prices online.
The hotel brands asserted the plaintiffs have yet to offer any proof of anti-competitive activity, saying they don’t “necessarily benefit from bidding on competitors’ keywords.”
“Keyword advertising ‘isn’t free’ … and bidding on competitors’ keywords targets only ‘consumers who have already expressed an interest in a competitor’s brand by using it in their searches,’” the judge wrote, characterizing the hotel brands’ argument.
“Plaintiff ‘alleges no facts … to suggest that this particular means of advertising … would be a sound use of [a] Defendant’s limited marketing resources.’”
The judge, however, said she found the hotel brands’ arguments “unconvincing,” lending credence to the plaintiffs’ assertions the hotel brands would have harmed themselves if they had attempted the marketing strategy individually, rather than in concert.
“… Plaintiff does plausibly allege that each Defendant would have acted against its economic interest by unilaterally restricting branded advertising as alleged,” Judge Pallmeyer wrote. “Specifically, by ceasing to bid on other Defendants’ (or OTAs’) branded keywords, the independently-acting Defendant would sacrifice opportunities to win direct bookings and decrease the chance that a consumer searching for Defendant would visit its website.
“And by prohibiting OTAs from bidding on its keywords, the independently-acting Defendant would decrease the likelihood of winning indirect bookings, yet continue to face just as much advertising competition from other Defendants.”
The judge said such conclusions were only bolstered by the alleged apparent change in online search results since the point in time when the plaintiffs alleged the hoteliers began working together to alter them.
The judge added the plaintiffs’ have plausibly asserted this alleged behavior has cost consumers by either driving up hotel room rates, or preventing them from declining naturally, as plaintiffs assert they should, under prior market conditions.
The hotel brands have been represented in the action by attorneys with the firm of Latham & Watkins LLP, of Chicago and San Francisco; King & Spalding LLP, of Chicago and Atlanta; Schiff Hardin LLP, of Chicago and Ann Arbor, Mich.; Weil Gotshal & Manges LLP, of Washington, D.C.; Novack & Macey LLP, of Chicago; Loeb & Loeb LLP, of Chicago; and Crowell & Moring, of Washington, D.C.