Art collector's court case signals potential legal and contractual issues with NFTs
Out-Law Analysis | 13 Nov 2020 | 9:47 am | 6 min. read
Without access to the necessary data, independent service providers, such as repair shops, can struggle to compete against OEMs and their approved networks, potentially resulting in higher prices, reduced choice, and less innovation. As a result, OEMs are being actively encouraged to openly share their data to encourage competition in existing and emerging markets.
However, the exchange of information can pose a competition law risk and illegal exchanges are regularly investigated by competition law authorities. The line between a permitted and prohibited information exchange is not always clear. Future regulation will need to find a balance between these conflicting positions.
There have been a number of regulatory interventions aimed at addressing competition concerns in automotive 'after-care' markets, for example the Motor Vehicle Block Exemption and the EU Type Approval Regulation. However, with respect to the sharing of data, these regulations have largely focused on repair and maintenance services.
In the future, it will not only be repair and maintenance industries that are reliant on effective access to data, but a wide variety of existing and innovative industries in adjacent markets, such as charging networks, parking providers or insurers. The current industry-specific regulation is arguably not fit for where the industry is heading.
There is an ongoing review of the EU Type Approval Regulation to broaden its scope to other automotive data-based services, with the outcomes due to be announced in 2021. The essential question is how future regulation will be shaped to encourage competition, whilst protecting consumer data, and vehicle owner rights, and not result in any unintended outcomes which would otherwise conflict with competition law principles.
Competition law provides an overarching regulatory regime which is concerned with the exchange of data by OEMs, or the refusal to supply data, where this constitutes an anti-competitive agreement and/or an abuse of a dominant market position.
The prohibition on anti-competitive agreements seeks to prevent agreements which have as their 'object' or 'effect' the prevention, restriction or distortion of competition.
Competition authorities are primarily concerned with restrictions by 'object', with examples including price fixing, market sharing and bid-rigging between competitors, but the exchange of commercially sensitive information, such as future pricing information, is also an enforcement priority. This can cause certain issues in the context of data sharing, in particular between competing OEMs.
There might be a fine line between discussing what is/is not required by law and determining how best to lobby the EU for the best outcome for manufacturers, which would be permissible; and jointly agreeing not to grant access to certain third parties to data and/or agreeing the terms of access, which would not
For example, if there is an agreement or understanding between OEMs, including via a trade body, not to grant data access to third parties or as to the price/terms on which access could be granted, there could be an anti-competitive agreement. Likewise, if multiple OEMs are part of the same data sharing arrangement, caution is required to ensure that the data shared is not competitively sensitive.
Care should be taken at any meeting with competitors to ensure that those attending cannot be accused of engaging in anti-competitive discussions or agreements between themselves by virtue of their meetings. For example, there might be a fine line between:
Other commercial restrictions, such as exclusive agreements, can create issues where they have the 'effect' of appreciably restricting or eliminating competition.
'Effects-based' cases require a detailed examination of the market including market shares and the scope of the restrictions.
Exclusively granting data access to a third party will not automatically constitute an infringement – it would only do so if it had the effect of appreciably restricting competition. This will depend on how important the data is to allow service providers to compete, the duration and scope of the exclusivity, and whether the benefits created by the exclusivity – such as greater investment in new technology – outweigh the negative impacts on competition.
The prohibition on abuses of a dominant position seeks to prevent companies with substantial individual or collective market power from abusing that position.
Dominance is a position of economic strength enjoyed by an undertaking which enables it to act independently of competitive pressures on the market. Whether an OEM is considered 'dominant' will be heavily influenced by the type of data in question – see below
OEMs that refuse to supply data could be considered to be abusing a dominant market position even if they are not themselves active in the downstream market
Holding a dominant position is not illegal, but dominant companies have a 'special responsibility' not to abuse that position and restrict or distort competition as a result by either exploiting customers or excluding competitors.
A dominant company must not act in a way to restrict or distort competition on any market, even where it is not present. It is irrelevant whether the dominant company actually receives any benefit as a result of its actions. This can pose issues for companies who act as a gatekeeper to an asset to which access is indispensable for third parties to compete, known as 'essential facilities', regardless of whether the gatekeeper is also active in the downstream market.
OEMs that refuse to supply data could be considered to be abusing a dominant market position even if they are not themselves active in the downstream market. A breach could arise in this context if:
The competition law risk associated with sharing data or refusing to share data often depends on the context of the market on which the data sharing occurs and on the type of data. In this respect, a distinction can be made between OEM-specific data and non-OEM specific data.
Data related to repair and maintenance will be OEM specific and not substitutable or interchangeable with other OEM data. Consumers are effectively locked in for a sustained period of time after they have purchased a vehicle and therefore each OEM is likely to have its own aftermarket.
Competition authorities are concerned that this gives each OEM a degree of market power within its own ecosystem, and competition between OEMs is not sufficient to guarantee effective competition in the after-care market.
Competition law can require that access to such data must be granted on fair, reasonable and non-discriminatory (FRAND) terms in order to promote effective competition.
Pricing should not discriminate between different parties being granted access for the same application, and the terms of access should be reasonable – for example, where real-time access is required, it should be granted and any charges should not be excessive.
In determining whether the charge is reasonable, the use for which the data is required should be borne in mind and the value of the data for that application can be taken into account.
Much of the data that will be produced by connected vehicles which could be relevant to other ancillary markets will be less OEM specific. Establishing market power for such data will require a more detailed assessment of the facts in each individual case. Where market power is not established, the OEM would have greater flexibility with regards to access pricing and other terms of access.
A fundamental question remains as to how to address the vast quantities of data being produced by connected vehicles.
The essential question is how future regulation will be shaped to encourage competition, whilst protecting consumer data, and vehicle owner rights, and not result in any unintended outcomes which would otherwise conflict with competition law principles
For example, there an ongoing debate as to how prescriptive a future regulatory regime should be, or whether markets should be left to find their own solutions and use general competition law on a reactive basis where issues arise.
Current regulatory proposals include mandating that all essential data is shared in a single shared server. If this step is taken, the terms of disclosure and access would require careful consideration from a competition law perspective to ensure that no company gained an unfair advantage or was put at a disadvantage in comparison to its competitors.
Elsewhere, the European Commission opened a sectoral inquiry into the 'internet of things' in July 2020, focusing on how access to data can be used to distort competition or otherwise close off markets to competitors in a wide variety of sectors. This further emphasises that access to data is a core focus for competition authorities and we can expect much more activity in this area over the coming years.
Co-written by Richard Snape of Pinsent Masons.
Art collector's court case signals potential legal and contractual issues with NFTs