Full Federal Court confirms Trivago misled hotel comparison site consumers

Trivago N. V. ("Trivago") has been unsuccessful in its appeal against a Federal Court of Australia decision which found that Trivago had made false or misleading representations about hotel room rates, in contravention of the Australian Consumer Law ("ACL").  The question at the heart of the case was whether Trivago had sufficiently disclosed to consumers that it used an algorithm which gave prominence to online booking sites based on their cost per click bids ("CPC", being the amount payable by the site if a consumer clicked on their offer).

Background

Earlier this year, the Federal Court of Australia found (at first instance) that between 1 December 2016 and 13 September 2019, Trivago had engaged in the following false or misleading representations and conduct:

• Cheapest Price Representations: representations in TV ads and statements that appeared in online search results that Trivago's website would quickly and easily identify the best or cheapest rate for a hotel room, when in fact (partly due to Trivago's algorithm) the website often did not provide the cheapest price for a hotel room ("Cheapest Price Representation");
• Top Position Recommendation and Representations: implied representations that offers displayed on Trivago's website with the most prominence ("Top Position Recommendation", displayed in large green font) were the cheapest available offer for the hotel identified or had some other characteristic that made them more attractive than other offers ("Top Position Representation"), when the website often did not provide the cheapest price for a hotel room;
• Strike Through and Red Price Representations: implied representations that prices displayed directly above the Top Position Recommendation in red strike-through text ("Strike Through Representation") and later in small red font ("Red Price Representation") were a comparison between prices offered for the same room category in the hotel identified, when in fact that price often related to a more expensive, luxury room in the hotel; and
• Additional Conduct: conduct that was liable to mislead the public as to the nature of the accommodation search service provided by Trivago by leading consumers to believe that Trivago's website provided an "impartial, objective and transparent price comparison" which would enable consumers to quickly and easily identify the cheapest available offer, when the site did not enable consumers to do so, and in fact directed them to more prominently displayed offers made by online booking sites that offered to make higher CPC payments to Trivago ("Additional Conduct").

Trivago's appeal related to the Top Position Representation, the Red Price Representation and the Additional Conduct.  The Full Federal Court dismissed each of Trivago's grounds of appeal.  The matter will now return to the primary judge to determine the orders to be made. The ACCC is seeking orders for declarations, injunctions, penalties (the amount is yet to be specified) and costs.

In this article, we focus on the Top Position Representation.

The Top Position Representation had been made: ineffective website disclosures and design 

Trivago submitted that the primary judge erred in finding that Trivago had represented that the Top Position Offer was the cheapest or most desirable option, in light of the contextual factors in which the representation had been made. 

The Full Federal Court rejected Trivago's submissions and upheld the primary judge's finding that the representation was misleading. In doing so, the Full Federal Court rejected Trivago's submissions that the context of the representation, including the following, dispelled the Top Position Representation:

• other elements of the webpage which made qualifying disclosures, including:
  • pop ups that appeared if the consumer hovered over an information button, which stated "in determining the price to display in the leading position of our search results, we consider a variety of factors, including price, the likelihood that you will find your ideal hotel, your ability to complete a booking after you click on a search result and the level of compensation provided by the booking site we offer…"; and
  • the "Learn how Trivago works" page, which stated "…Our Algorithm takes into account a number of relevant factors, such as your search criteria (for example your location and stay dates), the offer's price, and its general attractiveness – for example the experience we think you'll likely have on the displayed booking site. We also take into account the compensation booking sites provide us with when a user clicks on an offer… You may find offers under the 'more deals from' slide-out section with a lower price than the 'top position' offer…"; and
• the occasional listing of cheaper prices in offers near the Top Position Offer.

The Full Court concluded that the qualifications were not effective, and were "opaque and insufficient".  The hover-over text was only visible to those consumers who happened to come across it – there was nothing indicating the existence of any hover-over text which might alert consumers to the fact there was some important qualification.  Further, the reference to "compensation" was ambiguous and failed to clearly state the character of the CPC, and the significant role the CPC had in the determination of the Top Position Offer.  

On appeal, the Full Federal Court also noted that Trivago had exaggerated the frequency with which cheaper prices were displayed below the Top Position Offer, and endorsed the primary judge's acceptance of expert evidence which indicated that most people will accept the first choice that meets their needs when faced with too many options, rather than conducting a more intense search.

The Top Position Representation was misleading: the Court shines a light on Trivago's algorithm 

Trivago claimed on appeal that to succeed, the ACCC had to prove that Trivago selected the Top Position Offers primarily by reference to the CPC payment that Trivago would receive from the online booking site that submitted the offer if a consumer clicked on the offer.  Trivago pointed to expert evidence on the following aspects of Trivago's algorithm:

• the raw inputs into the Trivago algorithm include a number of inputs in addition to the CPC, such as offer price, the minimum offer price of competing offers, the maximum offer price of competing offers, the click-through rate and the priority modifier;
• based on those raw inputs, the algorithm calculated a "composite score" for each offer made by an online booking site with respect to a hotel listing, and the site with the highest score became the Top Position Offer; and
• when Trivago applied its algorithm to determine the composite scope of each offer and award the top position, the primary, most important, or weightiest factor influencing the selection was the offer price, not the CPC.

Trivago had sought to dismiss evidence from the ACCC's expert regarding Trivago's algorithm on the basis that it analysed the results of the algorithm's selection in order to measure the relative importance of each input, rather than how the algorithm actually made selections (the expert did not use the source code of the algorithm in his model).  The Full Court rejected these submissions as a distraction, noting that Trivago "offered no cogent reason … as to why inferences cannot be drawn as to the operation of the algorithm based on the outcomes produced". (Expert evidence about Trivago's algorithm was given in closed court due to commercial sensitivities of some aspects of the algorithm.)

The Court held that the primary judge correctly found the Top Position Representation to be misleading, because evidence showed that:

• the Top Position Offer was determined by Trivago's algorithm which placed a significant weighting on the CPC; and
• often the Top Position Offer was not the cheapest price offer (according to the ACCC, in 66.8% of cases), including because Trivago filtered out offers from sites that had bid below a minimum CPC amount, even if they were the cheapest price offers.

Online aggregators, comparison sites and booking sites under close scrutiny

The Full Federal Court's decision is the latest in a string of successful cases brought by the ACCC against online comparison and booking sites:

• In 2018, the ACCC was successful in proceedings against Meriton regarding misleading online review manipulation on the TripAdvisor website. The Federal Court imposed a AUD 3m penalty.
• In August 2020, the ACCC was successful in proceedings against HealthEngine for misleading conduct involving inadequate data disclosure and manipulation of online reviews. The Federal Court imposed a AUD 2.9 million penalty.
• Last month, the ACCC was successful in proceedings against iSelect for misleading consumers about its comparison of electricity plans and prices. The Federal Court imposed a penalty of AUD 8.5 million.
• Last month, the ACCC was successful in proceedings against Viagogo for misrepresentations about being the official seller of tickets and pricing practices. Viagogo AG was ordered to pay a penalty of AUD 7 million.

Aggregators, online comparison sites, booking sites and other online marketplaces should closely review their website disclosures, design and marketing materials in light of these proceedings, as well as the ACCC's Comparator Website Guide.

With thanks to Karen Zhong of Ashurst for her contribution.