How Antitrust and Unfair Competition Laws Affect Platform Providers’ Relationships With ISVs, API Developers, and Scrapers

July 13, 2020 Articles
Legaltech News

A wide variety of business and consumer platforms host mutually beneficial ecosystems. But these ecosystems are also fraught with antitrust risk that arises when platforms try to terminate or modify the terms of third-party platform access.

Virtually all of today’s large software platforms are open ecosystems that allow third parties to build applications to improve the base platform under a variety of models. For example, “independent software vendor” (ISV) or application programming interface (API) access contracts govern how third-party developers may interact with technology platforms. “Scrapers” also access platform information without any contract to develop analytics products. Adding to the complexity, platforms may be on both sides of these relationships, acting as ISVs to integrate their products with other platforms, or scraping competitor data to develop new products.

A wide variety of platforms host these mutually beneficial ecosystems, from business-oriented platforms such as Salesforce to consumer-facing products such as Instagram. But these ecosystems are also fraught with antitrust risk that arises when platforms try to terminate or modify the terms of third-party platform access, especially when a change in access is accompanied by the platform offering a competing product.

ISV agreements are typically term limited, API agreements usually allow platforms to terminate access without cause, and scrapers access platforms without platform permission. So it may seem counterintuitive that antitrust law can intrude on a platform’s decision to change an ISV contract’s terms, terminate an API access agreement, or block a scraper (usually by threatening a CFAA violation). It’s commonly accepted that parties have “no duty to deal,” and platforms may believe they don’t have high enough market share to be a monopolist. For example, see Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, which restates the “no duty to deal” norm, and United States v. Aluminum Co. of Am., setting the floor for antitrust liability at 65% market share or more.

In our experience representing parties on both sides of these disputes, however, companies facing loss of platform access rely on two antitrust doctrines to circumvent the “no duty to deal” and market power rules: the “essential facilities” doctrine originated by United States v. Terminal R.R. Ass’n and lock-in theories based on Eastman Kodak Co. v. Image Technical Servs., Inc. Parties also frequently assert claims under California’s broad Unfair Competition Law (Bus. & Prof. Code § 17200), under which conduct may be “unfair” if it merely “violates the policy or spirit” of antitrust law, such as in Cel-Tech Commc’ns, Inc. v. Los Angeles Cellular Tel. Co.

The widely accepted test (MCI Commc’ns Corp. v. Am. Tel. & Tel. Co.) for an essential facilities claim requires “(1) control of the essential facility by a monopolist,” (2) a competitor’s inability “to duplicate” the essential facility, (3) denial of access to the facility, and (4) the “feasibility of providing the facility.”

A platform shutoff claim could easily arise under this theory. For example, it’s fairly common for platforms to support several ISV or API developer apps that all offer similar services, and for the platform to eventually acquire the most successful version of the app. At that point, the platform becomes a direct competitor with the non-acquired ISVs and API developers. If the platform increases costs to the remaining ISVs during contract renewal, or inhibits API access for the other developers, the developers may claim this is a de facto denial of access to the “essential” platform.

Under a lock-in theory, a firm leverages monopoly power in one market to gain power in a related, derivative market. Per Newcal Indus., Inc. v. Ikon Office Sol., these claims typically require (1) “two separate but related markets,” (2) illegal conduct affecting only “the aftermarket,” (3) leveraging the consumer relationship in the first market to achieve power in the aftermarket, and (4) “market imperfections” preventing consumers from realizing that their choice in the first market will constrain their choices in the aftermarket. Platform access claims could arise under this theory if an API developer or scraper believes that a platform’s decision to terminate access is an unlawful attempt to leverage dominance in the primary, platform-related market into aftermarket analytics or other services. Importantly, under a lock-in theory, market share may be irrelevant because plaintiffs can successfully define the market as the defendant itself. Eastman Kodak rejected the argument that “a single brand of a product or service can never be a relevant market.”

Parties are still navigating which bodies of law govern these platform-based relationships, so there are few public cases testing antitrust theories in this new landscape (though there have been many private disputes). But alleged violations of antitrust laws have played a substantial role in the few cases that have been filed, including cases where courts granted TROs blocking platform’s from terminating access. For example, see hiQ Labs, Inc. v. LinkedIn Corp.In re Dealer Mgmt. Sys. Antitrust LitigPeopleBrowsr v. Twitter; and cf. Stackla, Inc. v. Facebook Inc.

Disputes between platforms and ISVs, API developers, and scrapers often involve a variety of legal theories, including interference with contract, promissory estoppel, the CFAA, and more. But antitrust theories often set the tone for these disputes, particularly because the platform is usually much larger and more powerful than the developers and often provides related or directly competing products. Recent cases show that platforms should carefully weigh antitrust risk when deciding whether to modify or terminate access to their platforms.