This blog is authored by Amogh Mittal , Associate Editor, at Law and Tech Times, RGNUL.
1.INTRODUCTION
Blockchain technology is a decentralized, digitally distributed ledger that stores information in blocks or nodes. Blockchain has been dubbed as the most prominent technological advancement in the history of mankind, which could change the way business is carried out in the world. However, with the increasing popularity of blockchain, certain anti-competitive concerns have also emerged. With a severe dearth of judgements, the interplay between competition law and blockchain is at a very nascent stage. Thereby, it becomes imperative to examine the competition concerns which might arise with the widespread usage of the blockchain technology.
2. The Emerging Anti-Competitive Practices
The Competition Commission of India [“CCI”] in collaboration with Ernst and Young have released a paper on the applicability of competition law aspects on blockchain. The paper identifies possible anti-competitive practices which might emerge with the application of the blockchain technology including the possible anti-competitive agreements and abuse of dominance, as discussed below.
- Blockchain and Anti-Competitive Agreements
Section 3 of the Competition Act, 2002 [“Act”] prohibits an enterprise from entering into any anti-competitive practice related to production, supply, distribution, storage etc. Enterprises using the same network of blockchain technology might act in collusion to gain an unfair market advantage. Competitiors may interact with each and arrive at a mutually agreeable strategy. Moreover, the absence of a centralized regulatory authority might facilitate the collusive behaviour amongst competitors. Such collusion takes place through the use of smart contracts and the sensitive data that is being exchanged between competitors, as discussed hereunder.
- Smart Contracts
Smart contracts are automatic, self-executory documents which are entered into between two parties without any human intervention. The blockchain often makes use of such smart contracts for carrying on various transactions, which can facilitate collusive behaviour among competitors. The lack of human regulation and supervision allows the competitors to determine and implement a punitive measure against any competitor who tries to deviate from the terms of the collusive behaviour. The smart contracts also make use of certain algorithms that allow for automatic creation of agreements upon automatic satisfaction of conditions, which might attract the application of competition law principles. However, the CCI held that the mere use of an algorithm by itself does not amount to an anti-competitive practice. Since the smart contracts apply complex and dynamic algorithms, it would be interesting to see whether they warrant any anti-competitive action or not.
- Exchange of Information and Compliance with Privacy Laws
The most important benefit of the blockchain technology is its ability to share transaction related data into blocks. Moreover, the absence of a central regulatory body helps in building trust amongst the users. However, this mass exchange of information also presents anti-trust privacy concerns. The CCI discourages enterprises from sharing any information about matters including inter alia prices, quantities, condition of goods. Moreover, the mere availability of commercially sensitive information might attract the application of Section 3 of the Act. The blockchain technology might encourage competitiors to share such commercially sensitive information. In addition to competitive concerns, the mass exchange of information also presents some privacy concerns. Public blockchains which host data allow any individual to access and process the information available. Moreover, the CCI has also raised doubts over the possibility of hacking into a private blockchain which might result in the breach of privacy and the leakage of commercially sensitive information.
- Blockchain and Abuse of Dominance
Section 4 of the Act prohibits an enterprise from abusing its dominant position in a relevant market. It calls for the commission to determine the relevant product market and assess the market power that the enterprise under investigation holds. Moreover, the CCI must examine the consequences of the actions of the dominant enterprise and whether it leads to market foreclosure. For blockchain technology, the relevant product market might include each blockchain application as a separate market, or similar blockchain applications as a single market. The market power of blockchain and its impact can be assessed through various possible indicators. One of the commonly used indicators are the barriers to the entry of new competitors in the market. There exists a very high risk of exclusionary conduct in private blockchain as it requires permission or invitation to participate. Thereby, the CCI must look at possible abuse of dominance as it hampers competition and deters new entrants from the markets.
3. WAY FORWARD
The biggest challenge faced by regulatory authorities is the scarcity of established practice while dealing with blockchain technology. The identification and detection of anti-competitive practices involved in blockchain is the major hurdle faced by the regulatory bodies. Moreover, the regulatory bodies haven’t received any judicial clarity from the courts as no such opportunity has been presented before Indian courts. On the other hand, the US courts, in Gallagher v. Bitcointalk.org[1] and United American Corp. v. Bitmain[2] have dealt with blockchain antitrust litigation. While the courts dismissed all the claims, they identified the possible anti-competitive challenges presented by blockchain technology.
As discussed, the blockchain technology might attract the principles of competition law. On the other hand, it also has the potential to bolster and strengthen the implementation and enforcement of competition law. The necessary information required by the CCI to investigate claims can be made readily available to the CCI through the ledger maintained in blockchain technology. Thereby, while the CCI needs to remain watchful and vigilant to preclude the practical application of such anti-trust concerns, it must seize the opportunity presented by the blockchain technology to advance the competition law regime in the country.
[1] Gallagher v. Bitcointalk.org 3:2018cv05892.
[2] United American Corp. v. Bitmain, 1:2018cv25106.
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