In this meeting, the OECD’s Competition Committee will consider whether the rise of blockchain technology is relevant to the work of competition authorities and, if so, how.

It can be expected that this hearing will be the first step of a discussion that competition law authorities and other regulators around the globe are likely to have on blockchain.

These topics are relevant for blockchain players as they could be the first to come under scrutiny should an authority decide to initiate an investigation in this field.

The OECD’s hearing is also a chance for stakeholders to present their views of the market and to raise awareness of aspects not yet covered by the issues paper.

The OECD paper identifies, among other things, the following issues as relevant for the debate.

Access to data for competition authorities

The paper raises the question as to whether competition agencies should be given permission to access blockchains to enable them to monitor trading prices in real-time and spot suspicious trends.

Whether it be investigations of mergers, abusive conduct or markets more generally, full access to a blockchain could provide the authorities immediate access to the necessary data.

The issues paper considers that this would be an alternative to burdensome information requests on parties.

However, giving access to an excessive amount of data to authorities raises concerns regarding its proportionality.

As for non-permissioned blockchains, everyone can access the data.

Such an access right becomes only relevant for non-permissioned, non-public blockchains.

Granting competition agencies an access right to such a network can be compared with access to an Enterprise Resource Planning (ERP) system of a company or all data generated on a stock exchange trading platform.

Such a general monitoring right for competition authorities would seem excessive.

Even in the context of a sector inquiry (e.g. pursuant to Article 17 of EU Regulation 1/2003), authorities need to respect the principle of proportionality.

Only in rare circumstances, where there is an indication of anti-competitive conduct, might such far-reaching data requests may be justified (and even then only to the extent required for the purpose of the investigation).

In the majority of cases a more targeted and proportionate request for information, for instance under Article 18 of EU Regulation 1/2003, seems appropriate. 

Blockchain and collusion

The collusion concern has been raised in the blockchain context from the very outset.

The OECD issues paper questions whether the transparency within a blockchain and that benefits all market participants might, nevertheless, foster collusion – insofar as it helps to identify any deviation by cartel participants (with smart contracts potentially specifying automated punishments for such deviations).

The question, it seems, is whether market players can tacitly coordinate through a blockchain?

Again, it appears that this theory would not apply in the context of all blockchain use.

The mere fact that transaction data is available to all participants does not automatically suggest competition concerns.

Transparency can have positive and negative effects on competition and there should, as such, not be a presumption that the transparent nature of a blockchain is problematic.

As the OECD paper points out, the key enabling factor of a blockchain is authentication – e.g. identifying the ownership of assets for a digital transfer.

Such data is important to provide trust between market participants but it does not constitute per se competitively significant data.

If for instance the data stored in the blockchain is historic transaction data proving only the ownership of assets, the risk of collusion is clearly lower.

By contrast, in the field of smart contracts, blockchains may be used to monitor market behaviour and, in particular, flag any deviation from the agreed conduct by colluding parties.

Blockchain thus could be an electronic means of setting up a cartel, which would not be the first time the use of an algorithm has run foul of competition law (see the UK’s poster pricing case).

Abuse of dominance

The OECD issues paper also addresses several theories of harm regarding a potential abuse of dominance.

Problematic conduct in the OECD’s view could include cases where incumbents seek to prevent or delay the efficient adoption of blockchain technology.

It might also involve permissioned blockchain consortia excluding or raising the costs of rivals outside of the consortium.

Refusing access to the blockchain might be used to foreclose new entrants.

Already last year the European Securities and Markets Authority (ESMA) raised the same concerns in its report

“The Distributed Ledger Technology Applied to Securities Markets” (paragraph 37).

Another issue identified by the OECD is whether cryptocurrencies could exploit a dominant position by charging excessive transaction fees.

The interesting aspect in the context of blockchain is that, due to the decentralised setup, the miners and the mining pools could come within the scope of an antitrust investigation.

Similar to the debate about net neutrality, the setting of fees and any potential paid prioritisation of certain transactions may trigger both regulatory and antitrust intervention.

The key issue with any unilateral conduct theory in the blockchain area nevertheless remains open – namely, how does one prove dominance?

Blockchain is a technology not a market as such (as there is not a general ‘software’ market).

Any blockchain used for payments competes not only with all other cryptocurrencies, but probably even with a wide range of other electronic payments.

Similarly, smart contracts based on blockchain face competition from traditional means of agreeing transactions.

Therefore, the relevant markets should not be defined too narrowly at this early stage of the market development such that the early adopters of the technology do not automatically become dominant players.

Standard setting

In terms of the competition law aspects, the OECD paper considers whether there might be a need for a technical standard for interoperability so that blockchains used by different companies or organisations can interact with one another.

The International Standards Organisation currently has eight standards regarding blockchain and distributed ledger technology under development, including interoperability. 

Blockchain and remedies

Lastly, the OECD raises the interesting question as to whether there is scope for competition agencies to use blockchain technology within the remedy packages they apply.

The use of APIs (application programming interfaces) has already been introduced by the European Commission in its commitments decision in the Microsoft/LinkedIn merger.

They have also been used by the UK with respect to remedies implemented in the retail banking and electricity markets.

Competition authorities in the past expressed a clear preference for structural remedies – i.e. divestitures of businesses (see EU Commission notice on remedies).

However, with more and more cases involving tech companies, it will become increasingly difficult for parties or authorities to identify suitable divestiture packages as the most relevant assets are digital.

Hence, the neutral and decentralised nature of the blockchain technology may indeed make them a suitable choice for future remedies. 

Conclusion

Blockchain technology is increasingly attracting the attention of competition authorities.

The OECD issues paper serves as an important contribution to structuring the debate, although not all aspects identified in the paper as potential competition issues should, indeed, be viewed as problematic per se.

Companies with an interest in blockchain should carefully monitor the outcome of the OECD Competition Committee on 6-8 June 2018 as well as any further steps taken by competition authorities in the field of blockchain.