This July, Connecticut Attorney General George Jepsen announced that he had reached a settlement with three hotel companies, to avoid a civil lawsuit or criminal prosecution for their participation in “call-arounds,” a practice in which competing hotels exchange information on their room rates and occupancy levels.
In a press release announcing the settlement, the Attorney General’s office stated that it had found it to be common for “hotels in close proximity to exchange sensitive competitor information at least once a day about occupancy and current room rates . . .” (emphasis added). The office found that this information “was used to fix rates for hotel rooms,” in violation of the state’s antitrust laws and the Connecticut Unfair Trade Practices Act.
Under Connecticut’s antitrust statute, “every contract, combination, or conspiracy is unlawful when the same are for the purpose, or have the effect, of . . . [f]ixing, controlling, or maintaining prices, rates, quotations, or fees in any part of trade or commerce . . .” C.G.S. § 35-28(a). Under the Connecticut Unfair Trade Practices Act, “[n]o person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.” C.G.S. § 42-110b(a).
In a press release announcing the recent settlement, the Connecticut Attorney General’s office stated that the practice of the daily “call-around” is “widespread and long-standing in the hotel and hospitality industry, both within Connecticut and nationally.” It continued, “This agreement will end an artificially imposed practice that drove up room rates at certain hotels. The settlement will help restore a competitive marketplace by providing consumers the opportunity to obtain prices for hotel accommodations that were set by the market, not by collusion.”
The settlement agreement provides the following definition of a prohibited “Call-Around”:
[T]he process whereby a hotel employee calls or otherwise contacts hotels within a close proximity geographically that may directly compete for hotel guests and, after identifying the hotel from which the employee is calling, shares, collects and exchanges information which is not otherwise available to the public, concerning the hotel’s current room rates for rooms to be occupied that same day and the current rate of occupancy, and where such sharing, collecting, and exchanging of such information is performed at regular intervals (generally, multiple times daily) via telephone or other medium, including the internet. Call-Arounds include communications in which only one party to the communication provides or collects information, which is not otherwise available to the public, concerning the current hotel rates and/or occupancy rates solely for the purpose of illegally fixing rates, but shall not include efforts to collect and/or gather information at the specific request of or specifically on behalf of a guest or potential guest inquiring about the availability or rate for hotel accommodations. Call-Arounds include the sharing, collecting or exchanging of information, which is not otherwise available to the public, between hotels concerning current hotel room rate and occupancy on the internet through websites or blogs that are operated to facilitate the sharing, collecting or exchanging of such current rate and occupancy information (e.g. callaround.blogspot.com).
In re McSam Hotel Group LLC et al. (July 5, 2011), an Agreement By and Among the Attorney General of the State of Connecticut, McSam Hotel Group, LLC, Metro Ten Hotel, LLC and Jamsan Hotel Management, Inc., pp. 2-3 (emphasis added).
In addition to payment of a $50,000 civil penalty, the settlement imposed by the Connecticut Attorney General required the three hotel companies involved to cease Call-Arounds (as defined above) and impose policies that prevent them.
An essential element repeated in the Connecticut Attorney General’s definition of prohibited “Call-Arounds” is the lack of availability to the public of information exchanged between hotels. The two categories of information whose exchange the Attorney General challenged are current room rates and occupancy rates. (The settlement agreement does not mention average daily rate (ADR) or revenue per available room (REVPAR) figures.) With regard to room rates, the settlement agreement states that “the standard rate being charged for hotel rooms to be occupied that same day” is “generally expressed as the ‘BAR rate’ or the ‘rack rate,’ which would not include any available discount rates.” Curiously, these rates typically are available to the public, on hotels’ websites. (The settlement agreement even acknowledges this fact.) Occupancy rates, on the other hand, are not available to the public (except perhaps when a hotel is fully occupied and publishes that no rooms are available). The settlement makes it clear that direct exchange between competing hotels of either current room rates or current occupancy rates is prohibited.
However, the settlement also makes it clear that the following activities are not prohibited:
- “[C]onsult[ing] and participat[ing] in commercially available industry reports (e.g., Smith Travel Reports, Travelclick, etc.), internet websites that provide online reservation services and that contain pricing information (e.g., online travel companies such as Expedia, Travelocity, etc.), portals for global distribution systems and online management tools (e.g. GDS, Sabre), billboards or other advertising . . .”;
- Communicating with competing properties on behalf of a specific guest when he or she is looking for a room or to relocate;
- Communicating with competing properties about relocating groups;
- Communicating with competing properties “to determine guest relocation options . . . when [a] hotel is at or nearly reaching capacity.” “For the purposes of this [exception], a hotel shall be deemed to be at or nearly reaching capacity when its occupancy rate is eighty-five percent (85%) or higher[.]”;
- “Making ‘blind calls’ or ‘mystery shopping’ to competitors to inquire about current room rates without inquiring about occupancy and without providing any information about hotel occupancy or room rates”; and
- “Communicating with any other hotel/motel to accommodate guests in the event of a situation of force majeure, state of emergency, disaster declaration or similar situation.”
Shortly after the Connecticut Attorney General’s office announced this settlement, I received an e-mail from another attorney who serves the hospitality industry asking, “Since when does simply gathering information concerning the competition constitute ‘price fixing’? How is this any different from reviewing a weekly [Smith Travel Research STAR] report to get the same information?” In response to my colleague’s second question, I would advise that participating in and using STAR reports is different from the call-around practice the Connecticut Attorney General has prohibited. Smith Travel Research has posted a sample STAR Report, which can be accessed though this link: http://www.str.com/Products/Persona_Detail.aspx?personaId=6 . (Scroll down the page to a box titled “Star Program . . .” and click the “North America Sample” link to access a sample in Microsoft Excel. Maximize the Excel document and browse through the tabs at the bottom of it.) The data in this sample differs from the data obtained from a call-around in at least two respects. First, the STAR Report data is at least a week old. More importantly, the data from members of a hotel’s competitive set is aggregated from all of the hotels in the set. (I believe a competitive set must have at least five members.) A recipient of a STAR Report cannot see data from any individual hotel other than the recipient’s own hotel.
It is noteworthy that the Connecticut Attorney General’s definition of prohibited “Call-Arounds” is limited to exchange of hotels’ current room rates and rates of occupancy. Although there does not appear to have been any exchange of future rates in this case, the Connecticut Attorney General would undoubtedly conclude that such exchanges violate antitrust laws (especially if the future rates have not been made available to the public). Notably absent from the settlement and press release is any comment on exchange of information on past rates. Some antitrust attorneys advise that even exchanges of past rates can be interpreted as a collusive exchange of competitive information with intent to influence rates in the future. It is also easy to imagine a regular practice of exchanging past rates occasionally devolving into exchanges of current and future rates, even if only because of mistakes by uninformed employees.
The best practice for a hotel researching its competition is to rely exclusively on information posted on competitors’ and third parties’ websites (and obtained from the websites) as well as data in recognized industry reports (such as Smith Travel Research reports), which are produced to avoid antitrust violations.
A copy of the press release issued by the State of Connecticut Office of the Attorney General about its recent settlement is available at http://www.ct.gov/ag/lib/ag/press_releases/2011/081111callaround.pdf.
A copy of settlement agreement itself is available at http://www.ct.gov/ag/lib/ag/press_releases/2011/mcsamsettlement.pdf