Given that Blockchain applications are currently on the proof-of-concept stage, it is important for companies looking to be early beneficiaries of this technology to be aware of the potential competition risks.
By Vaibhav Choukse
Blockchain technology, often dubbed as next major digital revolution began to gain traction after the dramatic rise of Bitcoin in 2017. The technology is now at the forefront of innovation in multiple industries, ranging from financial services, retail, and real estate to healthcare. It is therefore no surprise that companies looking to remain relevant in the global economy are examining and testing potential uses for Blockchain.
Looking at its meteoric rise, legal commentators have raised questions on a myriad issue, ranging from competition, and privacy concerns to questions of liability and jurisdiction in the event of a dispute or fraud. Antitrust authorities on both sides of the Atlantic are also increasingly showing interest in this topic. To keep pace with the new trend, the Competition Commission of India (CCI), in collaboration with Ernst & Young, last week issued a discussion paper on the interplay between Blockchain technology and competition law.
Blockchains are decentralized and distributed databases or ledgers where data of transactions between different individuals (known as ‘nodes’) are recorded and stored in ‘blocks’ in chronological order in a chain which can be traced back to the first block of the Blockchain. The ‘blocks’ can store data such as sales records, payment transactions, purchase orders, pricing history, and account details. The technology differs from an ordinary ledger by making the stored information unalterable, secured, and decentralized, i.e., each member of the network has access to it as opposed to a single authority. It is like a scoreboard of a sports game at a playground where everyone knows the score because it on the scoreboard, visible to all on the field and cannot be altered without a player’s action.
While it is believed that most Blockchains are efficiency-enhancing and pro-competitive, concerns arise with regard to accessibility of information on the Blockchain to everybody alike within the peer-to-peer network, regardless of whether it is open for all or permission-based. The unfettered access or denial to sensitive/essential information by competing companies puts Blockchains firmly into the crosshairs of competition law enforcement.
The paper (CCI and EY) focuses on the various forms of possible anti-competitive practices, which can be implemented by using Blockchain technology. These include information exchange, restrictions placed on accessing Blockchains and industry standards, and the imposition of unfair and discriminatory conditions in contact for use of this technology.
The first and key issue with Blockchain technology is its information-sharing aspect. In general, the current or future prices or other competitively sensitive information should not be shared between competitors as this may reduce competition or even facilitate a price-fixing cartel. A ledger can instantly record a sizeable amount of transactional information which is accessible (to a greater or lesser degree) to each member of a Blockchain network. Where competitors are present on the same network, this could potentially give unprecedented, almost real-time access to information in respect of their competitors’ activities which could be viewed as an unlawful exchange of information in certain circumstances.
The second issue is with regard to a standard-setting exercise that creates compatibility between competing technology platforms, which are generally considered to be pro-competitive. As the potential uses for Blockchain technology expand, industry agreements on common technical standards will become increasingly important. The Blockchain members will have to ensure that participation in the consortium is not unduly restricted; that the procedure for setting a relevant standard is transparent; and that access to the adopted standard should be on fair, reasonable, and non-discriminatory (FRAND) terms.
The third issue relates to access to Blockchain technology itself. While access to Blockchain applications may be restricted for a variety of economic and technical reasons, this restriction may raise competition issues in the event the Blockchain itself is deemed to be an essential facility and the refusal to access is unjustified. If access to the network is a requirement for activity on the market, participants who abuse their dominant position by attempting to exclude certain competitors from accessing the distributed ledger should consider whether such a deterrent may violate competition laws.
The CCI’s move to delve deeper into the intricacies of this technology is in line with its peers like the European Commission, US Federal Trade Commission and Japan Fair Trade Commission which are also actively studying similar issues involving this technology. The Courts in Australia and the United States have already investigated allegations of cartel and leveraging in the Blockchain arena.
Given that Blockchain applications are currently on the proof-of-concept stage, it is important for companies looking to be early beneficiaries of this technology to be aware of the potential competition risks. After all, if any transactions breach the law, the Blockchain itself will maintain an immutable record of these breaches. It is also advisable for the CCI to proactively engage with Blockchain stakeholders (miners, developers, users, etc.) at an early stage while the technology is still being developed, making them aware of the law.
(Vaibhav Choukse is a Partner at J Sagar Associates. The views expressed are the author’s own)