A dud deal for consumers Trivago ordered to pay

What you need to know

• The Federal Court has ordered Trivago to pay a total of $44.7 million in pecuniary penalties for misleading consumers and breaching the Australian Consumer Law through claims made during television advertisements and on its website with respect to offering the cheapest or best hotel deals. The Court also granted an injunction restraining Trivago and ordered Trivago to pay the ACCC's costs.
• The decision serves as a reminder that, in cases where a business is found to have misled consumers, the Court may impose a penalty that is far greater than the business' net income if it considers such a penalty to be necessary in the circumstances for the purposes of deterrence.

What you need to do

• Businesses should exercise care when making representations about the goods and services that they are offering, particularly where the representations compare good and services or include a claim that a particular good or service is being offered at the best or cheapest available price.

Penalty imposed on Trivago

On 22 April 2022, the Court handed down its decision on penalty following its findings that Trivago had contravened the Australian Consumer Law. We previously reported on these proceedings here.

The penalty judgment focused on Trivago's representations to consumers that the hotel room offers displayed on its website with the most prominence (Top Position Offers) were the cheapest available room rates for a particular hotel, when in many instances this was not the case. A significant factor in determining the offer selected by Trivago's algorithm as the Top Position Offer was the amount of money that the relevant online booking site had agreed to pay to Trivago for each "click" by a consumer.

The factors the Court had regard to in imposing a penalty of $44.7 million included:

• the highly misleading nature of the representations;
• the conduct extending over a period of nearly three years; and
• the large number of consumers affected.

Quantification of the penalty

The Court considered there to be two benchmarks of assistance in determining the appropriate penalty:

• Firstly, the estimated loss or damage suffered by consumers as a result of the contravening conduct. Taking into account the available data, the parties estimated that the difference between the amount that consumers paid for hotel rooms that were promoted by Trivago as Top Position Offers, but which were in fact not the cheapest available offers for a room, and the amount that those same consumers would have paid had they instead booked the cheapest available offer for that room, was $30 million.
• Secondly, the additional revenue that Trivago obtained through the contravening conduct. It was estimated that the difference in revenue that Trivago earned from consumers clicking on Top Position Offers which were not in fact the cheapest available offers, and the revenue it would have earned had those same consumers instead clicked on the cheapest available offers for those rooms, was at least $53 million.

Trivago submitted that the Court should assess the benefit it had obtained through the conduct by reference to its net profit, rather than its total revenue. The Court rejected this argument, noting that Trivago's net profit was significantly lower than its revenue because most of its revenue had been spent on advertising, which Trivago obtained a benefit from as the advertising attracted more consumers to its website.

In the circumstances, the Court considered it necessary for the purposes of deterrence to fix penalties that were far greater than the profit Trivago earned from the contravening conduct.

Authors: Anita Cade, Partner and Nick Perkins, Senior Associate.