Google held liable in Italy for abuse of economic dependence

abuse of economic dependenceAfter being investigated for an alleged breach of competition law, Google is now experiencing negative outcomes also in the context of private enforcement, as the Court of first instance of Milan held Big G liable for abuse of economic dependence. This concept is unknown to EU competition law and is a separate concept from the abuse of dominant position.

1. Parties, an Italian search engine which had been online since September 2011, with an average of 1.700.000 individual visitors per day, brought an action against Google for abuse of economic dependence, abuse of dominant position and breach of contract.

2. Facts of the dispute

Between July and September 2011, the two parties entered into Google AdWords and Google AdSense contracts. According to the AdWords contract, Attrakt could buy keywords to appear on top of Google’s search results as those words were entered. According to the AdSense contract, Attrakt allocated advertising spaces on its website to Google, upon payment of sums determined by Google in consideration of clicks and views.

In September 2012, Google inserted Attrakt among its “top AdWords partners” based on Attrakt’s huge investments in AdWords (more than 320k € only in December 2012; in the same month, it earned 335k € from AdSense). Google encouraged Attrakt to keep on investing and gave advise to improve the marketability of the website.

However, on 11 January 2013 Google notified Attrakt of a breach of the AdSense policy and invited the website to remove a link to adults’ content. Although Attrakt immediately removed the link, on 16 January 2013 Google disabled Attrakt’s AdSense account without justifying its decision, in spite of Attrakt’s insistent requests for clarification. Furthermore, Google did not pay to Attrakt the AdSense-related sums owed for the months of December and January (503k €). Few weeks later, Attrakt closed down for lack of funds and sued Google before the Court of Milan.

3. Decision of the Court

The Court found Google liable both for (i) breach of the AdSense contract concluded with Attrakt and for (ii) abuse of economic dependence. Furthermore, it found an (iii) invalid clause in the AdSense contract.

As a result, the Court condemned the defendant to fulfil its contractual obligation to Attrakt (payment of 503k € together with the interest) and to compensate damages (yet to be quantified, about 9 million euros according to the plaintiff’s expert).

a) Breach of contract

With reference to the contractual breach, the judges argued that even if the parties had the right to terminate the contract at any time, Google exercised this right in a disproportionate manner, taking into account its position of strength. Therefore, they found a violation of the principle of good faith in the execution of the contract which, in turn, gave rise to an infringement of the doctrine of “abuse of rights”, recognized by the Italian Civil Code.

b) Abuse of economic dependence

With regard to the notion of economic dependence, article 9 of Law 192/1998 defines it as a situation in which an undertaking is capable of bringing about, in its business dealings with another undertaking, an excessive imbalance of rights and obligations. The position of dependence is assessed by also taking into account the possibility for the dependent party to find alternatives in the market.

In the case at issue, Attrakt was economically dependent on Google, since the AdSense contract was its only source of revenue. Google arbitrarily terminated the contract without communicating the grounds for its decision and even retaining substantial amounts of money which, if paid, would have given Attrakt more time to find another commercial partner.

c) Invalid clause

Finally, the Court found that a clause of the AdSense contract where Google limited its liability to “maximum 125% of the net amount paid by Google to Attrakt over the last 12 months” was void. Indeed, in Italy such a limitation of liability is considered oppressive and needs to be specifically signed in accordance to art. 1341-1342 of the Civil Code.

4. What changes for the stakeholders?

The case is now pending before the Court of Appeal. However, should this decision be confirmed, it would lay the ground for further actions for damages by other affected companies and would oblige Google to amend AdSense’s contractual terms. Moreover, other European countries with comparable legislative provisions in regard of the abuse of economic dependence, like France and Germany, might reach similar outcomes.

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