Because blockchains are multi-party databases, many applications depend on multiple parties (often competitors) collaborating, contributing, or accessing shared digital commercial information. As a result, the use of blockchain technology raises potential antitrust concerns and is likely to come under increased scrutiny from enforcers around the world. An example of blockchain collaboration in the shipping industry provides a timely reminder for those working on similar projects in financial services.
Shipping case study for blockchain collaboration
Global maritime trade is worth an estimated USD 12 trillion. Like other industries which involve complex supply chains, businesses can frequently experience problems like manufacturing delays and tracking problems. This has led some shipping companies to explore whether blockchain could help manage these issues.
Example of TradeLens
Shipping supply chain
Maersk GTD Inc. and International Business Machines Corporation have been working to create a blockchain shipping information platform called TradeLens. TradeLens participants include container liners, port authorities, terminal operators, and customs agencies. The platform is intended to modernise shipping supply chains by replacing peer-to-peer information exchanges with a platform that enables participants to connect, collaborate and share information digitally.
Blockchain collaboration agreement
Under rules on collaboration under U.S. shipping law, a number of competing shipping companies filed their proposed Working Agreement with the Federal Maritime Commission for their participation in TradeLens. The Working Agreement permits the shipping companies to co-ordinate and agree on the types of data they would provide to the TradeLens platform, as well as various terms concerning the use of such data, and provides a good example of a blockchain collaboration in practice.
The Working Agreement specifically prohibits the parties from discussing competitively sensitive information, such as vessel capacity, shipping rates, and customer terms and conditions. It also states that the parties’ activities would be implemented consistent with applicable laws, including European antitrust law and its prohibition of anticompetitive agreements. The Working Agreement came into force on 6 February 2020.
The Agreement provides antitrust immunity under U.S. Shipping law to the shipping companies for their work on TradeLens. However, it does not protect the parties if they choose not to adhere to the terms or to participate in an anti-competitive practices in the future.
The TradeLens platform arises in the unique context of maritime shipping, which has been the subject of multiple antitrust investigations and civil actions in recent years. However, any company considering a blockchain collaboration or participating in a consortium (in any industry) needs to exercise vigilance relating to antitrust concerns and potential liabilities. These include:
- Companies must ensure that the blockchain collaboration, including the provision of data, does not become a means for illegal co-ordination such as price fixing, customer or market allocation, or bid rigging.
- Such violations are pursued aggressively by U.S. and EU enforcers and can be punished with stiff penalties, including fines, potential damages claims from aggrieved private parties, and in some jurisdictions, jail time for implicated individuals.
- Companies should impose strict policies concerning permissible activities under a blockchain consortium or other collaboration and monitor compliance on an ongoing basis.
Exchange of competitively sensitive information
- Given the potentially open and transparent nature of distributed ledger technology, it is important to ensure that a blockchain is not designed in a manner which facilitates the sharing of competitively sensitive information.
- In the U.S. sharing competitively sensitive information, such as unaggregated pricing or other customer terms, with competitors may violate Section 5 of the Federal Trade Commission Act. The FTC can stop such information flows by pursuing injunctive relief and assessing civil penalties.
- In the EU, the exchange of competitively sensitive information is sometimes considered as a hardcore restriction and is presumed illegal. The European Commission can impose substantial fines on companies that violate this prohibition. In addition, improper information exchange can facilitate illegal co-ordination.
- Companies can manage these risks by putting in place appropriate safeguards limiting the scope of the information disclosed, as well as the recipients of such information.
Discriminatory terms of access
- As with TradeLens, blockchain consortia and collaborations may bring together several industry participants. To avoid infringing antitrust laws based on discriminatory treatment, companies must consider the purpose of the collaboration, including which entities are invited (or excluded) to it.
- They must also consider any restrictions imposed on collaborators. For instance, a collaboration may develop rules concerning its operation and member interactions. Depending on the underlying market structure, restraints that are not reasonably necessary to achieve the collaboration’s purpose may be problematic from an antitrust perspective.
- To ensure antitrust compliance, any disparate treatment of various players, including with respect to access restrictions to blockchain-enabled platforms, must be objectively justified.
- Participation in blockchain collaborations should not be unduly restricted, particularly if the blockchain technology is intended to become an industry standard.
- Standardisation procedures need to be transparent and access should generally be provided to all industry participants on fair, reasonable and non-discriminatory terms (FRAND).
- Participants that exclude certain other competitors from the standard-setting discussions could attract antitrust scrutiny.
The primary use of blockchain originated in and still remains the fintech arena with deployments relating to both financial products and financial infrastructure. Nevertheless, firms must exercise caution when considering participation in a blockchain consortium or other collaboration and remember that longstanding antitrust principles apply to new technology.
Antitrust’s enforcement posture toward blockchain is still evolving and cannot be predicted easily. Please get in touch with us if you would like to discuss the potential antitrust risks of participating in a blockchain collaboration.