An Italian start-up under Google's abuse of economic dependence
As ruled by Court of first instance of Milan on June 17th 2017 with decision n. 7638/2016 R.G., Google has terminated the GoogleAdSense's agreeement with Attrakt without justification and demonstrating lack of fairness.
It violates also the general principle of good faith, to the extent Attrakt took immediate measures to remedy the illicit activity in violation of AdSense’s term of use that Google detected. That said, Google must be considered liable for abuse of economic dependence pursuant to article 9 of Law 192/1998 ascertained its considerable contract power and the economic sacrifice imposed to Attrakt, whose business totally depended on the revenue flow generated by AdSense.
For these reasons, Google is condemned to the payment of Euro 503.400,95 plus interest for late payment ex D. Lgs. 231/2002 for the anticipatory breach of contract and to the payment of to be quantified damages too.
Ascertained that Attrakt s.r.l. kept on enforcing the AdWords agreement for months after January 2013 so that there is a credit left for Google, it is condemned to the payment of USD 20.212,28 to Google plus interest for late payment ex D. Lgs. 231/2002.
Any other claim rejected.
Does really Google use to push small undertakings up against the wall?
Take some young entrepreneurs in Florence. On a bright day of 2011, they decide to launch online a start-up, calling it with the fascinating name of “Attrakt s.r.l.”.
It operates in the design, development and provision of online advertising and website management services, and runs its own proprietary search engine too.
When Attrakt.com managed to reach an average of almost 2 million visitors per day, these guys become aware that an update in their running business is needed and enter into double agreement with Google.
AdWords and AdSense on the path toward success for Attrakt
Thanks to the AdWords contract, Attrakt now can buy keywords and whenever one of these keywords is entered by a user, its name appears on top of Google’s search results.
Meanwhile, AdSense contract makes Attrakt able to allocate to Google advertising spaces on its website upon payment per click.
The 15th of each month, Google is depositing revenues of AdSense on Attrakt’s account withholding the commission rate and, on its turn, Attrakt’s is spending more and more of that money in AdWords campaigns.
A breakthrough is made. Huge investments in AdWords alongside with incoming earnings from AdSense and the little Italian start-up is now one of the “top Adwords partners” of Google, which looks as if it is to light the way in Attrakt’s path toward success.
Alas, challenges are around the corner, and Attrakt’s destiny lies along a different path. The young entrepreneurs hardly ever forget January 11th 2013, when Google notified a request to remove a link to adults’ content from Attrakt’s website. They quickly obey but can’t figure that this false step would have been the last one. Three days after, they find that Google abruptly disabled Attrakt’s AdSense account and, in response to all their desperate requests, Google not only leave this decision unjustified, but is retaining Attrakt’s millions of euro related revenues.
Attrakt is doomed. Just a few weeks later, the lack of fund kills the little start-up. Like an epitaph, the Attrakt.com homepage is now welcoming curious and visitors with this sentence: “we are small, but brave”.
The lawsuit steps
Attrakt s.r.l. sues Google requesting a statement of liability for contractual breach, abuse of dominant position and/or economic dependence, unfair competition actions and, consequently, the payment of compensate damages.
Google submits dismissal of the claims and counter-claims Attrakt’s liability for breach of AdSense contract and payment of the due amounts.
Once plaintiff and defense evidences have been presented and after the closing arguments hearing, the deliberation is issued. The case in now pending before the Court of Appeal of Milan.
Attrakt’s claims and Google’s counter-claims
The plaintiff claims that AdSense contract into which entered the parties, granted Google wide control powers on Attrakt.
It could check ads, search results and links on Attrakt’s website, it could even discretionary define the amount of revenues on the ads of advertisers, and it could terminate the contract in any moment without prior notice.
Upon these circumstances, Google’s communication of contractual breach should be considered an abuse of dominant position, an economic dependence, an unfair competition act and an infringement of civil law good faith principle.
In fact, even if the adults’ content was immediately removed and the pages amended within the ordered terms, Google notified Attrakt that its AdSense account have been disabled and refused to provide further explanations against repeated requests. Moreover, it retained all the revenues owed to Attrakt for last two months under AdSense contract, causing the Italian society damages for over 500.000 euro.
“Google acted in the best interest of users and advisors”, the defendant said
Contesting plaintiff’s charges, defendant counter-argues that Google was fully allowed to terminate the contract, underlining that Attrakt infringed the terms of AdSense by showing adults’ content on its webpages and by an illicit click bait activity, purchasing a lot of cheap keywords under AdWords arrangements in order to appear on top of Google’s search engine results and obtain more viewers on its website.
Google’s defence claims that no sum is due to Attrakt, since they have been paid by Google directly to advertisers. As a counter-claim, Google requests the amount of revenues Attrakt obtained from invalid click activities and the unpaid sums upon AdSense contract.
Liability of abuse of economic dependence and illicit anticipatory breach of contract
The Milan Court of first instance, Entreprise Matters Specialized Section, after a three years’ trial issues an interim decision of Google’s liability and lays the ground for a follow-on quantifying damage action to be brought against Google.
The abuse of rights
In respect of the first plaintiff’s claim, Google is found liable for breach of AdSense contract. It’s true that both the parties are allowed to terminate the contract at any time without prior notice.
But, by terminating the contract without any further justification and rejecting any clarification, Google demonstrated to took advantage of its economic and contractual strength. In fact, Google’s benefit and Attrakt’s loss in this contractual breach event are unjustifiably disproportionate, and it amounts to an abuse of rights.
The Court outlines that this commercial conduct is condemnable under general contractual law provisions of act fairly pursuant to article 1175 of the Civil Code (Comportamento secondo correttezza: il debitore e il creditore devono comportarsi secondo le regole della correttezza) and of good faith pursuant to article 1375 of the Civil Code (Esecuzione di buona fede: il contratto deve essere eseguito secondo buona fede).
At this point should be specified that, although the abuse of rights is not a codified principle, it is commonly recalled by case law as the prohibition to act with the sole intention to harm the other party, as well provided about real property by article 833 of Civil Code that prohibits the owner to perform activities that have no other purpose than that to harm and causing annoyance to others.
The abuse of economic dependence
Regarding the abusive issues, the Court finds that Attrakt was economically dependent on Google because its only source of revenue was the AdSense contract.
There was no way Attrakt could have saved itself without the AdSense sums Google retained, for that money would have granted the start-up the time to find another commercial partner or an alternative income source. For the Court, this behavior is an abuse of economic dependence pursuant the article 9 of law 192/1998.
Accordingly, the Court finds a connection between the Attrakt’s case and this law provision on the basis that the situation of dependence can be inferred when the business dealings between two undertakings show an excessive imbalance of rights and obligations and, once the dependence is ascertained, its extent can be measured upon the reduced or negative ability to find alternatives in the market.
The additional claim of abuse of dominant position brought by Attrakt has been considered absorbed by the finding of abuse of economic dependence.
The void clause of AdSense
Furthermore, the Court examines the AdSense contract and finds that one of its clauses is invalid. In the detail, the clause limiting Google’s liability maximum to 125% of the net revenue of Attrakt paid by Google in the last 12 months is considered oppressive under article 1341 and article 1342 of Civil Code.
The first is regarding standard contract containing unliterally formulated clauses and provides that unfair clauses weakening assenting party’s position must be accepted by separate signature to be effective, and the second is regarding standard contract concluded through signing forms whose established clauses succumb to supplementing clause if conflicting or unless otherwise agreed upon.
Condemn to payment for both parties
Upon these arguments and evidences, the Court sentences Google to pay to Attrakt the sums owed from AdSense’s revenues and an amount of compensatory damages yet to be quantified with a following expertise, plus interests for late payment.
As for AdWords contract, the Court rules that Attrakt decision to continue it despite all the AdSense matter, bounded the start-up to pay the sum owed to Google even if the latter retained the AdSense money, being two independent contracts.
For this reason, the Court dismisses the Attrakt request of AdWords money caution, since there is evidence that Attrakt asked Google to cover some invoices with that sum, and grants Google’s request to obtain the sum owed for the prosecution of AdWords contract.
Analyzing the effects of the decision both on Google’s and on its contracting parties side
Should this decision be confirmed by the Court of Appeal of Milan, it could be essential under an Italian law perspective, since the liability of Google has been framed within private enforcement of contract law and for its conduct of abuse of economic dependence and not of abuse of dominant position.
In addition, the commercial relationship between Google and Attrakt lasted one-and-a-half-year, not exactly a long-term agreement we may say. Then, it could happen that from now on companies would be allowed to file a claim for abuse of economic dependence on the basis of suffering consequences arising from a short-lived contract too, against the long-term situation that court law usually requires in order to give evidence to this abusive conduct.
And, furthermore, this decision could lay the ground to an oblige for Google to reconsider its AdSense contractual terms, at least regarding its Italian contracting parties.
Other cases of breach of AdSense contract
Attrakt is obviously not the first firm to sue Google for breach of contract.
Before the Northern District of California San Josè Division is under scrutiny a large array of cases regarding Google. In eOnline Global Inc. v Google, California based advertisers filed a class-action against Google for the suffered loss of revenue coming from ads, abruptly interrupted for unspecified non-compliance actions with AdSense.
As well as in the Attrakt’s lawsuit, Google allegedly violated US civil covenant of good faith and fair dealing. In Free Range Content Inc. v Google, the Hagens Berman firm has filed a suit against Google claiming that Google is abruptly canceling website owners’ AdSense accounts without explanation, retaining all the revenues coming from the ads that ran before the cancelation.