An online travel agency has sued eight major hotel chains on claims that they monopolized an avenue of the online hotel booking process in a conspiracy that not only devalued the plaintiffs’ own company, but also hurt consumers looking for hotels online.
In the 49-page federal lawsuit, filed Thursday in the Texarkana division of the Eastern District of Texas, Utah-based TravelPass Group and a couple of its affiliates allege that beginning in late 2014, the defendant hotels abruptly halted the longstanding practice of bidding on each other’s branded keywords as displayed by internet search engines when customers search for specific hotel brands online. The lawsuit alleges the hotels violated the Sherman Act by engaging in an anti-competitive horizontal agreement.
The defendants named in the lawsuit are Caesars Entertainment, Choice Hotels International, Hilton Domestic Operating, Hyatt Hotels, Marriott International, Red Roof Inns, Six Continents Hotels and Wyndham Hotel Group. The filing follows a consumer class action lawsuit that was filed earlier this year that alleged similar claims against six of the eight defendants in Illinois federal court.
Though not named as defendants, the Texas lawsuit also alleges the hotels conspired with “gatekeeper online travel agencies” (OTAs) like Expedia to engage in a group boycott that eliminated the competing paid search advertisements.
Spokespersons for Marriott, Hilton and Hyatt declined to comment, citing that their companies do not comment on “pending litigation.”
A spokesperson for InterContinental Hotels Group, the parent company of Six Continents, said in an email that the company is “reviewing the filing and will respond to any allegations through the appropriate judicial process.”
Red Roof Inns, Wyndham Caesars and Choice Hotels did not respond to requests for comment.
The lawsuit argues that it was better for the economy when hotels still engaged in competitive bidding for each other’s branded keywords. Before 2014, companies like Hilton would bid on the keywords for competitors’ brands, such as Marriott’s “Residence Inn” hotels, in addition to Hilton’s own properties so that when a customer searched for a Residence Inn, Hilton-branded hotels would also appear in their search results.
The hotels would bid on these keywords during auctions conducted by search engines such as Google. The lawsuit says the search engines calculate the rank of each advertisement “according to the maximum bid the advertiser submits for the ad and the quality score of the advertisement.”
This practice, according to the lawsuit, became common in 2004 after Google changed its trademark policy to allow third parties to bid on trademarks as keywords.
TravelPass is one of these third parties. Its business model, according to the lawsuit, is centered around a “sophisticated data analysis system” in which it uses complex algorithms that allow the company to be “uniquely effective” when bidding in branded keyword search auctions.
Most of TravelPass’ revenues have been generated by commissions that the Gatekeeper OTAs – Expedia, for example – would pay for the reservations that TravelPass generates.
Now that the conspiracy is in place, the lawsuit says, a consumer will only see paid advertisement search results for the respective hotel brand that he or she types into the search engine. For example, if one searches “Marriott Dallas” in Google, the only advertisement will be one that links directly to Marriott’s website.
“As a result, these conspiracies have led to a decrease in information to consumers, an increase in the transaction and other costs for consumers seeking to book a hotel, which inevitably leads to overall higher prices and reduced quality for consumer,” the lawsuit says.
Dallas attorney Jeremy Fielding, who represents TravelPass in the lawsuit, explained this is problematic because a majority of consumers search for a specific hotel brand online, as opposed to typing ‘hotels in [location of destination].’
“What the internet has done is it’s provided consumers with access to information and choices that they’ve never had before,” Fielding, a partner at Lynn Pinker Cox & Hurst, told The Texas Lawbook. “What this lawsuit is about is an attempt by hotels to eliminate and restrict that information and take away those choices.”
“If hotels are able to get away with it, who’s next?”
For TravelPass specifically, this new practice of not bidding has provided “staggering” damage, since it essentially resulted in the defendant hotels succeeding in “cutting off virtually all of TravelPass’ access to inventory,” the lawsuit says.
“As the conspiracies took root, defendant hotels ultimately demanded that the gatekeeper OTAs each cut the ‘feed’ of the defendant hotels’ room inventory available to TravelPass and other downstream OTAs who continued to follow their branded-keyword-bidding-based business models,” the lawsuit says.
The lawsuit says this kind of bidding “abruptly stopped” in the third quarter of 2014, according to studies conducted by Google and Brand Verity. TravelPass said it did not learn about the bidding shift until August of this year, when a TravelPass executive spoke by phone with Google’s Head of Travel Industry executive and other Google employees.
“Google confirmed to TravelPass that the defendant hotels’ abrupt change in bidding patterns was unlike any shift in keyword bidding strategy that they had seen before,” the lawsuit says.
The lawsuit also points to TravelPass’ previous communications with Expedia in the early 2015 and early 2016 timeframes that provide evidence for the “horizontal conspiracy,” including Expedia’s “demand” for TravelPass to cease bidding on branded keyword search advertising.
“TravelPass did not understand the anticompetitive implications of Expedia’s communications at the time,” the lawsuit says.
TravelPass alleges the conspiracy significantly decreased the value of its own company, documented by a lucrative private equity deal that fell through. The lawsuit says in March 2015, “just before the defendant hotels’ conspiracies really took hold,” a private equity firm offered TravelPass a cash investment of $40 million for a 22 percent stake in the company. The firm also valued TravelPass at $165 million. But before the deal was scheduled to close, the firm withdrew its offer.
TravelPass said it received another offer in December 2017, but this time it was a bid for 100 percent of the company for only $25 million.
Other attorneys from representing TravelPass in the lawsuit are Chris Schwegmann, Chris Patton and Ruben Garcia from Lynn Pinker and California attorneys Todd Schneider and Jason Kim.
The case number is 5:18-cv-00153 and is in the U.S. District Court for the Eastern District of Texas, Texarkana Division.