Across Platform Parity Agreements (APPAs) and Most Favored Nation (MFN) Clauses The US Approach Presentation to ICN Annual Conference, BOS Sydney, Australia 1 May 2015 Robert Schlossberg

MFN Enforcement in the United States Traditional, offline MFNs are evaluated under the “Rule of Reason” Under the Rule of Reason, no court has found MFN provisions illegal Enforcement actions have been brought challenging MFN clauses Theories of anticompetitive effects: Facilitating collusion Price stickiness Unreasonably exclusionary conduct US antitrust agencies have obtained consent decrees prohibiting MFN clauses Typical context is the healthcare industry (e.g., “Blue Cross” private insurance cases) Likelihood that an MFN will be deemed anticompetitive is higher where: The MFN is employed in a highly concentrated market Either or both of the parties employing the MFN have substantial market share/market power

US Precedent Reflects Deferential Approach to MFNs “‘Most favored nations’ clauses are standard devices by which buyers try to bargain for low prices, by getting the seller to agree to treat them as favorably as any of their other customers. . . . [T]hat is the sort of conduct that the antitrust laws seek to encourage. It is not price-fixing.” Blue Cross & Blue Shield United v. Marshfield Clinic, 65 F.3d 1406, 1415 (7th Cir. 1995)

MFNs and Agency Agreements: Lessons from the e-Books Case United States v. Apple Inc. Did Not Conclude MFNs and Agency Agreements are Inherently Illegal Apple Challenged an Horizontal Conspiracy Under US antitrust law, principal and agent are treated as a single entity and are therefore incapable of conspiring with each other Apple did not challenge MFNs and agency agreements themselves Apple did challenge the simultaneous adoption of agency model agreements with MFN terms, maximum retail price grids, and a 30% commission to Apple Conduct alleged to be in furtherance of an overarching conspiracy between the publishers to raise e-Book prices, orchestrated by Apple “If Apple is suggesting that an adverse ruling necessarily implies that agency agreements, pricing tiers with caps, MFN clauses, or simultaneous negotiations with suppliers are improper, it is wrong. As explained above, the Plaintiffs have not argued and this Court has not found that any of these or other such components of Apple’s entry into the market were wrongful, either alone or in combination. What was wrongful was the use of those components to facilitate a conspiracy with the Publisher Defendants.” United States v. Apple Inc., 952 F. Supp. 2d 638, 708 (S.D.N.Y. 2013) “The Attorney General mentioned that as part of the settlement, these companies will end their illegal most favored nation agreements with Apple and other e-book retailers. I want to stress that agreements between companies that are reached unilaterally are legal and appropriate. However, let me be clear, when companies get together and conspire to enter into agreements that eliminate price competition, it crosses the line. This kind of agreement is illegal and anticompetitive.” Sharis A. Pozen, Acting Assistant Attorney General, the US Department of Justice’s Antitrust Division (April 11, 2012)

Online Hotel Bookings: The US Example In re Online Travel Company (OTC) Hotel Booking Antitrust Litigation (N.D. Tex. 2014) Private enforcement challenge brought by putative class of persons who reserved hotel rooms via defendants’ online hotel booking sites Challenged an alleged “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” Challenged the horizontal conspiracy between hotel room booking sites Did not directly challenge the individual minimum RPM or MFN agreements Court dismissed the complaint; defendants’ parallel conduct was not suggestive of a conspiracy but rather, “the result of each Defendants’ independent effort to protect their business efforts by rationally adopting similar vertical distribution agreements”

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