1 October, 2019
On July 31, 2019, CCI dismissed allegations made by RKG Hospitalities Private Limited (‘Informant’) against Oravel Stays Private Limited (‘OYO’) alleging contravention of the provisions of Section 4 of the Act. [1]
The allegations pertain to a Marketing and Operational Consulting Agreement (‘Agreement’) entered into between the Informant and OYO. The Informant alleged that the Agreement consists terms which are one sided, unfair and discriminatory allowing OYO to:
(i) unilaterally modify the structure of the Informant’s hotel;
(ii) put exclusive signage of OYO brand with the Informant’s hotel name;
(iii) subject the hotel to incentives and disincentives as per OYO’s policy based on its performance and misuse such policy by creating circumstances leading to unpleasant relationship between the Informant and its customers;
(iv) deny market access to the Informant by debarring it for a period of one year from entering into agreements with other online aggregators;
(v) unilaterally modify the terms of the revenue sharing agreement in relation to revenues derived from bookings done directly with partner hotel; and
(vi) terminate the Agreement under certain circumstances, while the Informant could terminate the Agreement by giving 30-day written notice etc. The Informant further alleged that OYO offered predatory discounts on hotel room bookings.
CCI defined the relevant market as the ‘market for franchising services for budget hotels in India’. On dominance, even though CCI noted that OYO appears to be the leading player in the relevant market with significant market shares and maximum number of budget hotels, CCI held that market share alone may not be the determinative factor for dominance.
CCI further noted that franchising is only one of the many business models that a hotel can be operated under and majority of budget hotels in the country still operate as independent hotels. Further, online travel agents have been coming up with new and innovative means to provide better value to both partner hotels and consumers such as launch of assured hotel services, which involve lending of their respective brands to the budget hotels, extending their role beyond just providing intermediation services for booking of hotel rooms. CCI further observed that franchising as a business model is still in at a nascent stage and OYO is yet to access a large number of hotels.
With respect to OYO’s conduct, CCI dismissed the allegation on revenue sharing agreement and held OYO’s demand to have a logical business justification on account of OYO’s efforts towards branding services.
On the allegation of denial of market access, CCI held that franchisee is often seen as an extension of the franchisor and is perceived as a single brand seller and the importance of contractual provisions for protecting the franchisor’s know-how are likely to involve exclusivity in order to prevent the franchisee from unduly appropriating the benefits of the know-how to be distributed to competing franchisors.
On the allegation in relation to subjecting hotels to disincentives, CCI held that OYO has no incentive to de-prioritise or block any particular partner hotel. With respect to the other allegations, CCI found logical business justifications for all the terms of the Agreement. Accordingly, CCI dismissed the complaint.
[1] Case No. 03 of 2019.
For further information, please contact:
Zia Mody, Partner, AZB & Partners
zia.mody@azbpartners.com
