Is the Consumer IoT Market Anti-Competitive? The European Commission Launches an Inquiry

July 28, 2020

On 16 July 2020, the European Commission (“Commission”) announced that it has, under Article 17 of Regulation 1/2003, launched a sector inquiry into the consumer Internet of Things (IoT) sector, in part to establish a market baseline for, it believes, a significant growth market and also to correct stakeholder behaviour it deems anti-competitive for the market.

The specific focus of the enquiry concerns consumer-related products and services that are connected to a network and can be controlled at a distance, for example via a voice assistant or mobile device. These include smart home appliances and wearable devices.”

WHAT IS A SECTOR ENQUIRY?

The Commission begins a sector enquiry to investigate and address aspects of a market it believes restricts competition, thus affecting consumers. At the end of a sector inquiry, it will understand better the functioning of a specific market, allow it to uncover things like distortions of competition and market abuse, and respond accordingly using Articles 101 and/or 102 of the Treaty on the Functioning of the European Union (TFEU). Definitions of each are as follows:

Article 101 – “prohibits agreements between companies which prevent, restrict or distort competition”

Article 102 – guards against “any abuse by one or more undertakings of a dominant position”.

While the Commission itself does not have the power to impose remedies to address any market-wide concerns, sector inquiries may lead to policy changes or enforcement action if breaches of the competition rules are found.

WHAT CAUSED THIS SECTOR INQUIRY TO BE LAUNCHED?

The Commission believes that the consumer IoT market will significantly grow and will soon become “commonplace in the daily lives of European consumers”. In fact, they believe that, for the market, “the possibilities are endless”.

Driven by the collection and utilisation of data, the point has come to ensure “market players are not using their control over such data to distort competition”. In this respect, the Commission is seeking to better understand the nature and nuances of this data-driven market, so it may protect against possible anti-competitive effects and practices within this burgeoning market – deliberate or otherwise.

The Commission believes that certain company practices may be structurally distorting competition, such as:

Restrictions to data access and interoperability;
Self-preferential policies and practices regarding the use of proprietary standards; and
Dominant market networks combined with economies of scale creating gatekeepers and barriers to entry.

WHAT HAPPENS NEXT?

Through the sector inquiry the Commission will gather market information to better understand the nature, prevalence and effects of these potential competition issues, and to assess them in light of EU antitrust rules.

The sector inquiry will cover products such as:

Wearable devices (e.g. smartwatches or fitness trackers); and
Connected consumer devices used in the smart home context, such as fridges, washing machines, smart TVs, smart speakers, and lighting systems.

The sector inquiry will also collect information about the services available via smart devices, such as music and video streaming services, and about the voice assistants used to access them.

If, after analysing the results, the Commission identified specific competition concerns, it could open case investigations to ensure compliance with EU rules on restrictive business practices and abuse of dominant market positions (Articles 101 and 102).

As part of the inquiry, the Commission will get in contact with stakeholders across the spectrum from:

Smart device manufacturers;
Software developers; to
Related service providers, and more

Should the inquiry find the existence of anti-competitive agreements or practices then the Commission or member states could open investigations into individual stakeholders and demand corrective action/behaviour. This can mean divestiture of operational divisions/services, prohibition on commercial activity and/or financial penalties.

FURTHER COMMENT

The fact that the consumer IoT market has been deemed significantly large and important enough to warrant the main competition body in Europe’s attention is by itself noteworthy. When coupled with the identified market practices it can be read as pro-active and mitigating measures by the Commission to protect a burgeoning and ever more important market affecting millions of consumers globally.
For those who are operating in the space and who are likely to be affected by the Commission’s investigation (either way) there are a few options available:
- Submission of evidence to the Commission highlighting anti-competitive agreements/practices as per EU/UK competition law;
- Review of existing product/service agreements and processes with regard to data collection and subsequent distribution; and
- Market analysis of likely structural market implications resulting from a pro-consumer inquiry conclusion and new market openings because of it. This could be new products/services, new client opportunities and interoperability imperatives (due to Commission divestiture demands).

GET IN TOUCH

Should you have any questions on the topics covered in this Client Briefing, please get in touch with your usual Rooney Nimmo contact or any of the persons below.