Ever since the incoming EU competition commissioner said that information is the new currency of the Internet, antitrust commentators began to spill ink on Big Data. The topic now seems to occupy a place on the agenda of many antitrust conferences and the US Council Of Economic Advisers (to the president) recently flagged it as a potential area for further exploration to enhance competition.(1) An executive order followed, asking all executive agencies and departments to take steps to address competition concerns.
When it comes to Big Data, in one camp there are antitrust commentators who worry that, much like a 'free lunch', there is no such thing as a 'free' internet service and that rules and regulations must exist to prevent consumer harm. This camp does not worry about an apparent overlap with data privacy and transparency concerns and laws. It instead points to such cases as Libor, which have been the subject of both regulatory and antitrust scrutiny. However, the legislative/antitrust interface has been seen in the tech space before (eg, the right to interoperability in the EU Software Directive and data portability provisions in the new General Data Protection Regulation).
In the other camp are those who assert that big datasets are not that different from other types of strategic assets/inputs and that existing rules and procedures can easily address any antitrust issues that arise.
- Big Data seems to raise issues in three areas where agencies have plenty of experience and case law:
- Big datasets are like assets – company mergers with big datasets could raise foreclosure and consumer harm issues (and such mergers seem to be on the increase).
- A firm's attitude to data collection and privacy could be a parameter of non-price competition. If this is lost as a result of a merger, it could become a concern. However, such a case has yet to happen. It is possible to imagine how internal documents could get a merger into difficulties in this area, although it is hard to imagine how it could be measured – in the same way that it might be hard to analyse whether the merger of two oilfield service firms might reduce health and safety efforts.
Holding a large dataset could in theory give rise to market power, barriers to entry and essential facility-type arguments in EU-style jurisdictions. But there are challenges around market definition (even with EU rules that allow the upstream input market to be fairly theoretical), which highlight the need for access for downstream competition.
Internet of Things
Less has been written about the (potential) antitrust aspects of the Internet of Things (IoT). The IoT is the network of physical objects – such as devices, vehicles, buildings and other items embedded with electronics, software, sensors and network connectivity – that enables these objects to collect and exchange data.
This is obviously a growth area for companies producing these connected things.
Some old friends
It is natural for security and privacy issues to be at the forefront of the minds of governments and regulators when considering smart cities or power plants, but it is also possible that antitrust agencies will take an interest before long.
Looking at IoT market characteristics, there are some familiar factors and issues from recent high-profile antitrust enforcement worth considering:
- apparent dependence on Internet, interoperability and standards (with potential for disputes around disclosure and licensing of standard-essential patents);
- open source versus proprietary models and ecosystems;
- direct and indirect network effects;
- blurred product markets (improvements to existing products versus new products);
- close interaction between physical devices and data analytics; and
- an instinct to protect valuable datasets through exclusivity or prevention of data portability.
Aside from market power and foreclosure issues, it is conceivable that agencies might one day wish to check whether the interconnection of devices facilitates competitor-competitor contacts (whether directly or through a common 'hub' supplier/customer). Collaboration between competitors in sharing data from IoT products may also need upfront consideration. If the analytics could reveal things about rivals that are competitively sensitive, the usual safeguards of aggregation/use of third parties may be appropriate.
Care must be taken where there is automation or algorithms developing a life of their own.
IoT market characteristics may be familiar to antitrust practitioners, but this does not mean that the issues require less thought. For example, sometimes closed systems are better for competition than open systems. It is also important to remember that the IoT is based on the open standards of the Internet, so the risk of any proprietary data pool may be fewer than in other sectors.
Even seminal cases regarding access and foreclosure need a second look. In the context of the ongoing debate regarding platform regulation, the Competition and Markets Authority recently emphasised(2) that the 'essential facilities' doctrine was developed in the context of infrastructure assets that are difficult to replicate. It might be troublesome to transpose concepts applying to ports into the digital world, where high fixed costs and large infrastructure requirements may give rise to market power.
Regulatory intervention should follow an evidence-based assessment of potential adverse effects. Blanket solutions aimed at a sector or practice (eg, the IoT) are to be avoided. According to the Competition and Markets Authority, there is "no need to reinvent the regulatory wheel". This is particularly relevant given the risk of inhibiting further welcome innovations by premature or unprincipled regulatory intervention.
It is too early for companies or agencies to be scared into taking action in such a fast-moving area. However, in much the same way that the Federal Trade Commission(3) urged device manufacturers to think about security and data privacy principles and hardwire them into their engineering products, it might be prudent for companies to be aware of the antitrust issues that could be thrown up as the range of IoT devices is developed.
For further information on this topic please contact Bill Batchelor or Grant Murray at Baker & McKenzie by telephone (+32 2 639 36 11) or email (firstname.lastname@example.org or email@example.com). The Baker & McKenzie website can be accessed at www.bakermckenzie.com.
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