Unveiling Anti-Competitive Concerns: The Intersection of Blockchain and Data

The author is Nishit Gokhru, a fourth year student at Maharashtra National Law University, Mumbai.

Introduction

It's captivating how, in this era dominated by technology and an economy centred around information, data has assumed a role reminiscent of that played by oil. Looking ahead, it's conceivable that blockchains might transform into the primary reservoirs of this data oil, bringing forth a range of implications for both the economy and the competitive landscape. It's important to emphasize that every individual block within these chains contains data that can provide consumers with enriched information, empowering them to make more knowledgeable choices regarding market purchases and investments. This, in turn, contributes to the advancement of more efficient markets. The emergence of such comprehensive markets could effectively enhance competitiveness and alleviate the risks associated with monopolistic behaviour. Despite various aspects of blockchain technology offering the potential to introduce outcomes that promote competition, facilitating more streamlined growth among market participants and thus nurturing a competitive environment, there's a significant concern surrounding the possible sharing of sensitive data and the likelihood of collusive practices. These factors have the potential to give rise to valid concerns about potential anti-competitive consequences.

Data-driven Developments

Massive datasets are formed through the accumulation of information, referred to as "big data." This vast amount of data is swiftly generated from various origins and is then channelled through robust processors and algorithms for management and examination. When this data is inputted into systems employing artificial intelligence, machine learning, and automated decision-making, it instigates substantial enhancements within these systems, bestowing upon them distinct competitive edges. It's worth noting that blockchains, which stock and analyse data to enhance service quality, could potentially pose a formidable challenge to competition law due to their data storage capabilities. Moreover, the intersection of technology and legal frameworks in this context reflects the complex interplay between innovation and regulatory compliance.

Furthermore, as outlined by the OECD (Organisation for Economic Co-operation and Development), substantial big data is a crucial financial advantage with the potential to confer significant competitive advantages to businesses. This can foster revolution and support business progress. Expanding on this idea, the perspective of the CCI (Competition Commission of India) in the Matrimony v. Google case emphasizes how data can be utilized to generate various revenue streams through innovative AI-driven breakthroughs. Many companies that prioritize data-centric approaches incorporate multifaceted platforms. These platforms are intended to appeal user engagement on one hand, while also deriving value from user behaviour data on the other hand. OECD also highlights the possibility of data-centric markets leading to the dominance of a single entity, causing market concentration.

Coordinated Activities and Issues of Privacy

Lately, the CCI has released a document discussing its inquiry into the market dynamics of the Telecom Sector (referred to as "Telecom Study"). The report touched on various subjects, including the interplay between data privacy and competition. It stressed the importance of privacy as a factor that influences competition. The unauthorized misuse of user data without explicit consent poses a risk to individuals' right to privacy. This matter, closely connected to the domain of competition law, has also captured the interest of the European Union.

There are two types of blockchains: public and private, and both can lead to concerns regarding unfair competition. Let's start with public blockchains, which are hosted without revealing the identity of the host. These public blockchains allow unrestricted access for verifying data. However, this openness might compromise the privacy of data owners, especially considering how privacy can offer a competitive edge. This issue, rooted in the importance of privacy, becomes a source of concern for anti-competitive behaviour.

On the contrary, private blockchains function within private servers and only allow authorized participants to enter. This setup raises suspicions about confidential data exchanges and collusive practices. These authorized participants have access to both public and private blockchains, giving them the ability to selectively leverage valuable information for their own purposes. This can influence data-driven changes and progress. Furthermore, private blockchains act as secure channels overseen by algorithms, creating an environment where internal activities remain hidden. This combination of extensive data availability and concealed operations creates a way to bypass competition regulations, highlighting the often-underestimated risks linked with blockchains.

Who holds greater dominance, CCI or Blockchain?

The Competition Commission of India (CCI) will face substantial challenges posed by the inherent pseudonymity and obscured impact of blockchain technology. These unique attributes of blockchain will impede the CCI's ability to take proactive actions due to the potential scarcity of data pertaining to ongoing or potential cases of anti-competitive practices that come to the commission's attention. This dearth of vital information could erode the effectiveness of the CCI's efforts. Moreover, the blockchain's dependence on automated algorithms rather than human intervention exacerbates this issue. Despite the authorities' eagerness to handle emerging disputes, the current regulatory framework for competition in India lacks the necessary provisions to adequately manage situations involving automated processes.

The requirement of human involvement is a crucial aspect mandated by the law when providing solutions in such circumstances. This principle becomes apparent in the case of Samir Agarwal v. ANI Technologies, where the Competition Commission of India (CCI) clarified that pricing decisions made through algorithms do not amount to collusion or cartel conduct under Competition law. It's noteworthy to emphasize that algorithms underpin all operations within a blockchain, potentially creating a complex scenario for the Indian competition regulatory authority. Furthermore, it's essential to highlight the increasing convergence of nascent technologies and legal structures. It's fascinating to observe how these two realms are becoming more intertwined.

Furthermore, the absence of an interim mechanism for identifying and acknowledging potential issues associated with unfair competition will create an additional obstacle when it comes to recognizing and addressing problems that might arise from the implementation of blockchain technology. An illustrative example that underscores this point can be seen in the case of Plasser India v. Harbour Sales Pvt. Ltd. In this case, the Competition Commission of India (CCI) determined that the mere possibility of collusion doesn't necessarily imply behaviour that goes against competition rules. As a result, this falls outside the scope of Section 3 (essentially prohibits agreements that negatively impact competition in various ways like including fixing prices, limiting production, or sharing markets, which can lead to unfair practices) of the Act. This ruling by the CCI emphasizes a lack of proactive strategies. It's crucial to note that even under the assumption that the CCI is exceptionally vigilant and forward-thinking, there remains a question of whether the organization is fully prepared to effectively handle the diverse range of challenges that could arise from the adoption of blockchain applications.

Difficulties in evaluating abuse faced by CCIs

● Defining and outlining the pertinent market - What constitutes the relevant market: a singular application utilizing blockchain technology or a collective of analogous blockchain applications? Additionally, could this encompass not only blockchain-based applications but also extend to applications beyond the realm of blockchain?

● Exerting control over international entities becomes crucial due to the seamless cross-border contractual facilitation enabled by this technology. Section 32 endows the Competition Commission of India (CCI) with the authority to scrutinize agreements that are anti-competitive or instances of dominant abuse occurring beyond India's borders, yet impacting the competitive landscape within the nation.

● Precisely establishing a dominant position proves intricate; an intricate task involving functioning autonomously within a given market.

Section 19(4) defines the factors that contribute to determining market dominance. These factors include market share, company size, customer reliance, competitor size, user count, transaction volume, and revenue. These factors are collectively used to assess whether a company has market dominance. The assessment is complex and takes into account both quantitative and qualitative factors. It is important to note that these factors not only reflect the company's size and market share, but also its impact on the industry ecosystem.

Evaluating misconduct involves examining instances where a dominant entity can engage in predatory pricing tactics by lowering transaction fees to levels below cost. This behaviour might serve as a means of erecting barriers to entry, practicing unequal pricing towards customers purchasing comparable amounts of a product or service. Additionally, it's worth noting that an illustration of this could also encompass mandating the utilization of a specific wallet through a dominant blockchain application. This facet holds significance as it sheds light on the potential strategies that powerful entities might employ to stifle competition and maintain their dominance.

The Way Forward

The commendable actions of the CCI in identifying potential issues arising from the use of blockchain technology are noteworthy. However, simply recognizing anti-competitive concerns is insufficient to resolve these issues. Therefore, it is crucial to establish a proactive mechanism that can prevent and discourage the emergence of such concerns. While it is clear that blockchain technology falls within the scope of the relevant Act, it's possible that the current provisions under Section 3 might not be adequate to satisfactorily handle disputes that may arise in this context. It's important to underscore that a comprehensive approach is needed to ensure fair competition and innovation in this rapidly evolving technology. Security audits and evaluation of blockchain systems should be tailored to the detailed features of smart contracts and other blockchain constructs. Research into smart contract security should be conducted to better understand the threat landscape and develop effective audit guidelines and developments.

The framework should allow for data to be stored within the country (Data Localisation). This can be done by hosting the blockchain infrastructure, data, and smart contracts within the country. In the future, infrastructure from various organizations and state data centres within the country may be contributed through crowdsourcing mechanisms to help implement the framework.

The CCI should take into account the potential competitive issues arising from algorithmic activities. Additionally, the transactions' pseudonymous characteristics offer a convenient loophole for these algorithms to evade regulatory scrutiny so CCI should expand the scope of Section 3 of the Act to oversee algorithm usage and eliminate the necessity of human element in assessing and classifying behaviours and actions as having anti-competitive qualities. Keeping regular sanity checks on the operation of blockchain, cooperation agreements, consensus mechanisms or smart contracts may help avoid anti-competitiveness.