Insights
Publications

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.

Firm Highlights

Publication

Copyright Law for Influencers and Brands: How Content Creators and Companies Hiring Them Can Navigate Copyright Law for a Successful Partnership

In recent years, the advent of the social media “influencer” has revolutionized advertising. Companies often partner with influencers to market their products, hoping to tap into the influencer’s devoted audience. Likewise, influencers create certain content...

Read More
News

JPMorgan Chase Accuses TransUnion of Stealing 'Trade Secrets'

Intellectual property practice chair Eugene Mar provided expert commentary to American Banker for the article "JPMorgan Chase Accuses TransUnion of Stealing 'Trade Secrets'." In the article, he said: "By filing this as a trade...

Read More
News

Winston Liaw Named a Leadership Council on Legal Diversity Fellow

Northern California legal powerhouse Farella Braun + Martel is proud to announce that Winston Liaw has been named a Leadership Council on Legal Diversity (LCLD) Fellow for 2024. Winston joins a select group of...

Read More
Publication

Will the Supreme Court Limit Copyright Damages? Implications of Warner Chappell Music, Inc. et al. v. Sherman Nealy et al.

The U.S. Supreme Court heard oral arguments in Warner Chappell Music, Inc. et al. v. Sherman Nealy et al. (Case No. 22-1078) on February 21, 2024. On the surface, the case presents the opportunity...

Read More
Publication

7 Ways Companies and Content Creators Can Navigate Copyright Law for a Successful Partnership

In recent years, the advent of the social media “influencer” has revolutionized advertising. Companies often partner with influencers to market their products, hoping to tap into the influencer’s devoted audience. Likewise, influencers create certain content...

Read More
News

Chambers USA 2024 Recognizes Farella Braun + Martel Lawyers, Practices

Farella Braun + Martel is pleased to announce that Chambers USA has recognized 16 lawyers and six practice areas in the legal directory’s 2024 edition. Individual California and Western U.S. Rankings: Sarah Bell &ndash...

Read More
Publication

No Three-Year Bar on Copyright Damages (For Now): SCOTUS Issues Opinion in Warner Chappell Music, Inc. et al. v. Sherman Nealy et al.

In a 6-3 majority decision in Warner Chappell Music, Inc. et al. v. Sherman Nealy et al. , the Supreme Court held that the Copyright Act entitles a copyright owner to recover damages for any...

Read More
Publication

Hsu Untied Interview With Dan Callaway

Dan Callaway, a partner specializing in intellectual property litigation, was a guest on Hsu Untied , an award-winning podcast hosted and produced by Richard Hsu featuring entrepreneurs, venture capitalists, best-selling authors, and more.  During...

Read More
Publication

Major Decision Affects Law of Scraping and Online Data Collection, Meta Platforms v. Bright Data

On January 23, 2024, the court in Meta Platforms Inc. v. Bright Data Ltd. , Case No. 3:23-cv-00077-EMC (N.D. Cal.), issued a summary judgment ruling with potentially wide-ranging ramifications for the law of scraping and...

Read More
News

Scraping Battles: Meta Loses Legal Effort to Halt Harvesting of Personal Profiles

Alex Reese spoke to Matt Fleischer-Black of  Cybersecurity Law Report about the Meta v. Bright Data decision and its impact on U.S. scraping case law. Read the article here (paywall or trial).

Read More