Unlockd and loaded: A startup takes on Google
Analysis June 1, 2018 10:21 pm By Christine Caulfield | Melbourne

Unlockd’s case against Google is the first action in Australia to test a revamped law prohibiting misuse of market power, and one of the first private cases in the world to challenge Google’s dominance in court. For both sides, the stakes couldn’t be higher.

Google has faced allegations before that it misuses its substantial power by blocking rivals from competing in the same markets, but it has so far emerged unscathed. The company was fined a record €2.4 billion by the European Union last year for promoting its own comparison shopping service over rivals, but that penalty is being appealed, and it could be years before the EU’s General Court rules one way or the other.

Unlockd, an Australian digital advertising startup backed by Lachlan Murdoch, is also challenging Google in the UK courts, but Google wants the showdown to happen in Australia first — ideally in August.

The case, brought last week, alleges Google’s threats to block Unlockd’s access to its Play Store and AdMob services is anticompetitive under a recently reformed section 46 of Australia’s Competition and Consumer Act of 2010.

The amended law, which came into effect in November, lowers the bar for proving that a company has misused it market power by allowing claims that offending conduct merely has the effect of substantially lessening competition. The old law required that a competitor in a civil suit, or a regulator in an enforcement action, establish the conduct had that purpose, not just the effect.

Lobbying hard for the reforms to the law was the Australian Competition and Consumer Commission, which has been eager to bring a case under the new monopoly provision, but has yet to do so. ACCC chairman Rod Sims told Lawyerly in October that it had the likes of Google in its sights, and that it was “going to move pretty quickly”.

The commission has even set up a dedicated Substantially Lessening Competition unit to investigate misuse-of-market-power cases, headed by Cameron McKean, the former director of the ACCC’s merger investigations branch.

Unlockd beat the ACCC to the punch, but the action — a landmark one that will establish the case law for future section 46 proceedings — may well bring the regulator to its side, experts say.

The ACCC has said it would look into Google’s blocking of Unlockd as part of the agency’s wide-ranging digital media inquiry, but it declined to comment Friday when asked whether it would consider seeking leave to join Unlockd in its case, saying it generally doesn’t comment on “potential investigations or complaints received”.

A spokesperson for Unlockd said only that it was keeping the ACCC informed as it progressed.

Former ACCC chairman Graeme Samuel told Lawyerly the competition watchdog has joined civil suits when an important issue of law was being examined. But it would be cautious before joining a section 46 case, he said.

“The ACCC would want to be reasonably confident that there was a strong case – it would not want to lose its first test case on the section it so strongly proposed,” Samuel said.

King & Wood Mallesons partner Peta Stevenson said companies usually welcome the ACCC’s intervention because of the regulator’s resources and its powers to compel the production of documents. But unless the case is bigger than just Unlockd, the ACCC might not touch it.

“The ACCC may not in fact intervene unless there is a sense that entities other than Unlockd are affected – that is, if it’s a systemic issue they are more likely to,” Stevenson said.

The ACCC is currently running a consumer law case in tandem with several private class actions against Volkswagen over the car maker’s diesel emissions cheating.

It has also joined a section 46 case in recent times, successfully intervening in a 2001 High Court appeal of a case alleging monopoly abuse by street directory giant Melway. The ACCC intervened to push an interpretation of the ‘taking advantage’ provision of section 46 that had not been argued by either party in the case.

“It is important to note that in this case the ACCC sought to draw the court’s attention to a new issue of statutory interpretation,” the regulator said in a paper summarising its interventions in private proceedings. “Generally speaking, the ACCC will not intervene in private litigation if its role is confined to reiterating the views of a party to the proceedings.”

Whether the ACCC joins or not, Unlockd has heavy-hitters on its side. Minter Ellison, which has one of Australia’s biggest competition law practices, is representing the company.

Unlockd’s barrister, Michael O’Bryan, QC, is a veteran of competition cases. He is, Samuel noted, the legal member of the Harper Committee that advocated for the amendments to section 46.

“That in itself creates an interesting dynamic,” Samuel said.

The amendments mean Google will have to do more than argue that Unlockd’s app — which allows the eight million members of Wesfarmers’ Flybuys scheme to earn points for viewing ads — violated its terms and conditions and that Google was behaving the way any company in its position would. If Unlockd intends to argue that Google’s conduct had an anticompetitive effect, Google can’t run that case.

Instead, Google will have to argue that its rules are reasonable because Unlockd’s business doesn’t promote competition. What Unlockd wants to do, it will have to argue, is not a reasonable or tenable form of competition.

O’Bryan told the Federal Court during last week’s successful emergency hearing for an interim injunction against Google that the company’s chief complaint against Unlockd is that its apps do not have sufficient content apart from advertising.

The Unlockd apps provide targeted advertising to users when their phones are unlocked in exchange for points that can be redeemed on things like mobile credit and data, entertainment or loyalty points.

A spokesperson for Google said Unlockd continued to breach its AdMob and Google Play policies after Google suggested fixes.

“We explained our concerns to Unlockd, outlined how they could fix the problems or use alternatives, and gave them time to make changes. And despite having agreed at the outset to comply with our product policies, apps using their technology remain in infringement today,” the spokesperson said.

Unlockd argues Google is simply trying to shut down a potential competitor that could threaten its advertising revenue.

“There is a course of conduct we say is problematic,” O’Bryan said. “Google’s actions threaten its survival.”

That Google potentially has a profit motive for wanting to disrupt the disruptor could prove to be a sore spot for the tech giant in its defence. The Federal Court will want to know whether Google is targeting Unlockd and whether there is a business rationale for it. Even in a case alleging only that Google’s conduct has the effect, and not the purpose, of chilling competition, it’s a strong argument and one that Unlockd will likely seek to push.

If Unlockd’s business model — to pay people for viewing ads — takes hold, Google’s dominance in the digital ad space is at risk. It stands to lose business if Unlockd succeeds in the market. And if Google loses the case, there’s even more at stake, not least a permanent injunction and potentially sky-high damages.

A ruling that Google has abused its dominance paves the way for other monopoly suits against the behemoth, which already has a target on its back. It might also expose the company to oversight for the first time.

Both parties are seeking to have Unlockd’s case heard on an expedited timetable, which could put the trial date some time in August, a month before the UK hearing is slated to start, and less than a year after the new competition law amendments took effect in Australia. Whatever the outcome, it promises to be a case to watch.

“[It] will be a cracker,” said Stevenson.

Unlockd is represented by Minter Ellison.

Google is represented by Ashurst.

The case is Unlockd Limited & Ors v Google Asia Pacific & Anor.

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Christine Caulfield

Christine Caulfield has been a journalist for 18 years. She was most recently the Co-Managing Editor at US legal news publication Law360. Prior to that she worked as the County Court reporter for The Herald Sun. She is Co-Founder and Editor of Lawyerly.