The use of AdWords by Travel Agents – Can it be restricted by Tour Operators?

Written by Neil Baylis and Robert Pieters.

It is not uncommon for tour operators to seek to control the use of their brand by restricting the use of it by travel agents selling their holidays.  One particular restriction that is seen is the prohibition on the agent using one or more trademarks belonging to the operators on Google Adwords.   This is because the tour operator wants to ensure that any searches on Google trigger results relating to its website and not those of its agents.

This article considers whether such a restriction would be enforceable under UK and EU competition laws.

Our conclusion is that a tour operator cannot in fact prevent a travel agent from using the tour operator’s trademarks or branding online, or from bidding to use those trademarks or branding on an online search engine such as through Google Ads. Such restrictions on travel agents are prohibited as anticompetitive, due to their effect of limiting the effective use of the internet as a sales channel by the travel agents.

Competition Law and Keyword Bidding – the analysis

UK and EU competition laws (specifically the Competition Act 1998, and Article 101 of the Treaty on the Functioning of the EU) prohibit agreements that prevent, restrict, or distort competition. This prohibition not only applies to ‘horizontal’ agreements between competitors, but also to ‘vertical agreements’ between firms operating at different levels of the market, such as between a supplier and a distributor.

These vertical agreements encompass the relationship between tour operators and travel agents which is discussed in this article.

Although post Brexit, UK and EU competition laws have diverged slightly regarding vertical agreements, the laws remains largely identical.

Under both UK and EU competition law, some commonly entered vertical agreements are exempted from the prohibition on agreements that prevent, restrict, or distort competition. To qualify for this exemption, the agreement must comply with the Vertical Agreements Block Exemption Order 2022 (known as ‘VABEO’) in the UK, or the Vertical Agreements Block Exemption Regulation (known as ‘VBER’) in the EU (on which VABEO is based).

For an agreement to qualify for either exemption, neither party must have a market share exceeding 30 percent on the relevant market or markets on which it operates.  The travel industry is relatively unconsolidated so no operator or agent is likely to enjoy this level of market power.

Assuming both parties have a market share of 30 percent or below, the VABEO exemption will apply, provided that none of the ‘hardcore restrictions’ listed in VABEO apply to the agreement. The relevant hardcore restriction in this case is any provision restricting the customer groups or geographic areas to which the buyer can resell the holidays (unless the supplier is reserving the group or area for itself).

VABEO specifies that a restriction on online sales that, directly or indirectly, has as its object ‘the prevention of buyers or their customers effectively using the internet for the purposes of selling their goods or services online or from effectively using one or more online advertising channels’ is included within the hardcore restriction (VABEO, s8(6)(a)).

This is further clarified under paragraph 8.38 of the VABEO guidance, which lists specific restrictions that prevent effective use of the internet. At 8.38(e) the guidance states that one such restriction is ‘prohibiting the buyer from using the supplier’s trademarks or brand names on its website or in its online store’. At 8.38(g) the guidance states that another restriction is ‘prohibiting the buyer from using an entire online advertising channel, such as search engines or digital comparison tools, or restrictions which indirectly prohibit the use of an entire online advertising channel, such as an obligation not to use the supplier’s trademarks or brand names for bidding to be referenced in search engines, or a restriction on providing price-related information to price comparison services’.

This position is identical under EU competition law. Sections 206(e) and (g) of the VBER guidance replicate the language from 8.38(e) and (g) in the VABEO guidance. In 2017, the European Commission fined clothing manufacturer and retailer Guess €40 million for restricting online sellers by, among other things, using distribution agreements that restricted retailers from using the Guess brand names and trademarks for the purposes of online search advertising.

UK and EU competition law do however, allow for some restrictions to online sales, which may provide a competition-compliant alternative to an outright restriction on the use of trademarks in online sales.

1. a supplier can prevent sales on an online marketplace; it would therefore be compliant with competition law for tour operators to restrict the ability of travel agents to sell on one or more marketplaces. Note that an online marketplace does not include an agent’s own website or online store, or search engines or digital comparison tools, or online advertising channels. Instead, the VABEO guidance states that ‘online marketplaces connect merchants and potential customers with a view to enabling direct purchases and are generally providers of online intermediation services. Online services that offer no direct purchasing functionality, but re-direct customers to other websites where products can be purchased, are not considered online marketplaces for the purpose of [the VABEO guidance], but as advertising services or digital comparison tools’.
2. restrictions on online sales that take the form of requirements intended to ensure the quality or particular appearance of the supplier’s product (this might be relevant for luxury holidays or cruises).
    

None of these permitted restrictions on how the supplier’s trademark is used will, however, change the fact that that there can be no restrictions on whether the trademark is used by the buyer.

In summary therefore, UK and EU competition law prohibits a tour operator from restricting a travel agent from using its trademarks or branding online or from bidding to use the trademark on search engines.

Companies infringing competition law risk not only having their agreement turn out to be unenforceable but perhaps more seriously risk receiving a fine of up to 10% of their global group turnover from the UK or EU competition authorities.

Commercial and IP Aspects

If a tour operator has registered one or more trademarks then it can validly enforce those trademark against third parties who are using those marks without any right to do so.  Assuming the tour operator has granted the travel agent a right to sell its holidays, such agreement will normally expressly include a right to use the operator’s brand (and as noted above such right cannot limit its use on the internet or by using Google Adwords). So long as the agent is not misleading consumers into thinking they are dealing directly with the brand owner (rather than a third-party agent) then its use of the trademark is unlikely to be open to challenge by the tour operator.

Note that competition law always takes precedence over any commercial agreement entered into between tour operators and travel agents.  Parties should always take care to ensure that any clauses that restrict how agents can market their services, including keyword bidding are carefully reviewed by their lawyers.  Arguments based on brand protection or exclusive marketing rights may be reflected in the agreement but must not violate competition laws.

Finally, Google itself has its own search engine policies relating to bidding on branded terms. For example, Google allows bidding on trademarked terms, but it restricts the use of those trademarks in the actual ad copy without permission from the trademark owner.  Such policies should always be reviewed by agents seeking to use Adwords.

To find out more about CMS, please click here.