Online platforms and refusal to deal – Unlockd vs. Google – a seminal case in the making?

The recent standoff between advertisement application developer Unlockd and Google, concerning the removal of Unlockd from the Google Play Store and AdMob marketplace, may turn out to be one of the most important competition law cases of the year. This case, which will likely require a competition law review of Google’s terms and conditions for these platforms, provides the opportunity to assess the meaning of exclusionary practices in the context of two- sided (online) platforms.

Background to the case

The Unlockd advertisement apps have gained significant popularity in the past few years due to Unlocked’s different approach to mobile advertising. The idea behind the Unlockd apps is rather simple: consumers that install the apps agree to consume or be exposed to content, such as advertising, when they unlock their phone in return for rewards like a reduction on their monthly phone bill or store credits. Accordingly the all-too-often used catch phrase – consumers are paying with their attention when it comes to the digital economy – appears to have turned into- consumers are being paid for their attention- in the case of Unlockd .

Unfortunately for Unlockd, however, Google plans to remove Unlockd’s apps from the Play Store and AdMob advertising marketplace due to an alleged violation of the terms and conditions of these platforms. Removing Unlocked’s apps, which only work on Android OS, from the Play Store would evidently have a significant detrimental effect on the viability of the company. Android phone users will still be able to download Unlockd’s apps from other sources. Nevertheless, the Google Play Store is evidently a principal outlet for any Android app. Therefore, Unlockd launched an injunction procedure in the UK requesting to suspend its removal from the Google platforms. In this procedure Unlocked claimed the plan of Google to remove its apps from the Play Store and AdMob platforms constitutes anti-competitive practice. In light of such claims of anti-competitive behavior, Unlockd requested the UK courts to prohibit Google to undertake any steps concerning the removal of Unlockd’s apps until a thorough competition law assessment has been conducted. On Wednesday,9th of May,  this interim injunction was granted by Judge Peter Roth for Unlockd’s apps made for the UK market.

Although there is very limited information on the case beyond the statements made by both Google and Unlockd in the press, the circumstances alone are sufficient to understand that this case can be a meaningful one. The legal analysis of Google’s plans will inevitably require addressing the matter of dominance and governance of two-sided platforms under the scope of Art. 102 TFEU, and possibly even include a discussion on the essential facility doctrine in the digital economy.

Online platforms and dominance

Due to the fact that the claims in this case concern the unilateral behavior of Google, establishing the existence of any anti-competitive behavior of its behalf essentially entails finding an abuse of dominance. Finding such an abuse firstly requires assessing whether the concerned undertaking, in this case Google, is dominant. Establishing dominance requires defining the relevant market as a prerequisite to reaching such final conclusion (Case T-62/98 Volkswagen v Commission). In this particular case the dominance of Google, and therefore the market definition, will concern the Google Play Store which constitutes a two-sided online platform.

Defining the relevant market in this case would normally first require establishing how many markets need to be defined (on this matter see also the Dutch Funda case). In the case of two-sided (online) platforms, the choice boils down to defining a single relevant market for the platform or two separate relevant markets with regard to the customer groups participating on the platform, in this case consumers and app developers. While making that choice entails many complexities and has been the subject of extensive debate, the case of the Google Play Store is rather straightforward. The relevant market in such situation should a single one including both sides of the platform (consumers and app developers). Although apps can be distributed and downloaded via non-platform outlets, namely the developers’ own website, such an option is not likely to be considered interchangeable with the Google Play Store from the perspective of both consumers and developers. Consequently the relevant market should consist of all other platforms where consumers can download android apps (and developers can upload them) such as other app stores, which offer their services to the EU market (or at least the UK market). Although a proper analysis remains to be performed, it is quite likely that Google would possess a dominant position on such market. Having a dominant position on the market creates special obligations for the concerned undertakings. However, it is not prohibited as such under competition law. It is only the abuse of such a position which requires intervention. In this case, assessing whether an abuse occurred involves an interesting discussion with regard to the governance of (dominant) online platforms.

(Online) Platform Governance and Exclusion

Generally speaking, all two-multisided (online) platforms face the same chicken-and-egg problem, namely, they must convince one user group to join the platform before members of the other group(s) necessary for the interaction facilitated by the platform also join. The belief is that once this initial launch phase is successful, scalability and critical mass will be quickly achieved due to indirect network effects thus making the platform viable. Accordingly, various launching strategies have been adopted by online platforms based on the nature of the value they seek to create and monetize. In the life cycle of an online platform it is not only the launching strategy is crucial to its success but also its governance. The governance constitutes the rules which determine how platform participation should take places, in other words the do’s and don’ts for the platforms’ user groups. The governance helps the platform eradicate undesired activity and thus determines to a great extent the quality and value of the service it provides its user groups. If the platform’s governance is not on point, the indirect network effects that helped the platform scale up may work in reverse and be the cause of its fall rather than rise. With this in mind, it is rather evident that at some point in time every online platform is bound to exclude/remove or refuse the access of certain participants on the platform based on its governance considerations. When the platform has a dominant position, however, such exclusion may raise a few doubts with regard to its compatibility with competition law.

This is roughly the situation in the case on Unlockd and Google, where Google seeks to remove Unlockd’s app from the Play Store due to an alleged violation of its terms and conditions (i.e. based on the governance of Google with regard to the Play Store). In this situation the question is not only whether Unlockd was indeed in breach of such terms and conditions, but also whether the exclusion of Unlockd based on such breach is abusive in this particular case. If no breach of terms occurred then the exclusion of Unlockd would be unlawful (not only from a competition law perspective). However, if a breach were to be established, the situation becomes a bit more complex depending on the relationship between Unlockd’s business model and that of the Google Play Store. Accordingly, if the presence of Unlockd on the Google Play Store undermines growth of the Play Store and/or reduces the quality of the Play Store in the eyes of its other participants, exclusion from the Play Store may be justified. The removal of the Amazon App Store, Disconnect and Grooveshark applications from the Play Store are examples of such situations. In these cases the removed applications interfered with the success of the Play Store itself. The Amazon app allowed for the purchasing of other apps through it, thus diverting users from the Play Store to the Amazon app; the Disconnect app allowed users to block advertisements and tracking activities by other applications, thus interfering with the business models of most apps offered in the Play Store; and Grooveshark was facing IP rights/ piracy claims. Therefore, excluding such apps from the platform seemed to make sense in these previous cases. Although dominant undertakings may have a special responsibility not to interfere with competition, this does not go as far as obliging such undertakings to consciously undermine their own success. However, if the breach of terms and conditions is one that is not capable of interfering with the business model of the platform, removal from the platform (which has a dominant position) may prove to be abusive. This is because such removal will inevitably have an impact on competition but cannot be considered to have the aim of protecting legitimate business practices. Consequently, under such circumstances questions concerning refusal to deal and the essential facility doctrine may become relevant.

Refusal to deal with a pinch of tying

Refusal to deal cases always entail striking a balance between the freedom of each undertaking to conduct its business according to its preferences and the promotion of competition. There is no doubt that obliging undertakings, even dominant ones, to deal with rivals or customers against their will is a scenario which needs to be avoided as much as possible. Consequently, the case law regulating this matter introduced a very strict legal test for imposing such an obligation on a dominant undertaking. The legal test, often referred to as the ‘essential facility test’, requires dominant undertaking to deal with rivals when (i) a refusal is only abusive when it concerns input that is indispensable for carrying out business on a related market; (ii) the refusal is capable of eliminating effective competition; (iii) the refusal prevents the emergence of new products for which there is potential consumer demand; and (iv) the refusal is not objectively justified.

The difficulty with this test lies primarily with the indispensability criterion, which is applied very strictly in current case law. In order for a facility, such as the Google Play Store, to be indispensable there must not be other available alternatives and reproducing such a facility cannot be done in an economically viable manner from an objective point of view [See CJEU and AG Jacobs in Bronner ]. In the case of the Play Store this criterion appears impossible to meet since there are already other alternative Android app stores. The fact that the Google Play Store may be more preferred by users is not sufficient to change this. While normally the discussion on the concept of indispensability and the application of the essential facility doctrine would simply end here, the case of Google has another layer of complexity. This complexity relates to the fact that the Google Play Store is by default pre-installed on most, if not all, android devices sold in the EU. This practice is already the subject of other competition law investigations but might also be relevant in this case. Accordingly, the question is whether this pre-installation, which is not necessarily a reflection of consumer choice but rather the lack of it, can make the google Play Store de facto indispensable. Other app stores can of course be installed later by consumers but it is evident that such pre-installation may reduce multi-homing tendencies, thus diminishing the substitution potential of alternative app stores for both users and developers. Finally, it is important to note that although the thought experiment in this post is focused on the Google Play Store, similar considerations may equally apply to the removal of Unlockd from the AdMob advertisement marketplace.

Conclusion

Although there is very little information on the facts of this case at this moment this battle between Google and Unlockd is certainly worth following (so expect more posts). Whether the discussion in practice will go as far as discussed here remains to be seen. The case can just as easily turn out to be a case of abusive discrimination in the way the terms and conditions of the Google Play store are applied, or no abuse at all. However, at some point in time the matters discussed here will have to be addressed to some extent with regard to platform refusals or removals so why not get a head start with the most interesting scenario?

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Daniel Mandrescu

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Ph.D. Fellow, Europa Institute, Leiden University

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