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BLOCKCHAIN AND COMPETITION LAW

Author: Sameer Afzal Ansari, III year of B.A.,LL.B. from Guru Gobind Singh Indraprastha University


Introduction

Block tchain ttechnology tis tthe tnew-age, tdigital ttechnology tthat tis bringing paradigm tshift tin tbusiness tmodels tacross tsectors tover tthe tworld. tThis distributed tledger ttechnology tis tinherently tneither tpro- tnor anticompetitive tin tnature. tIt tdoes thave tthe tpotential tto tbe tboth. tGiven the tsignificance tof tthis temerging ttechnology, tthe tcompetition tlaw timpacts of tblock tchain tare tworthy tof texploration. t


Firstly, tit tis tthe trisk tof tcollusion. tIn torder tto tadd ta tblock tof ttransaction to tthe tchain tit thas tto tbe tverified tthrough tthe tconsensus tMechanism. tIt is again tmanipulated tin torder tto tprioritise tthe tverification tof ttransactions by favouring tcertain tmembers tof ta tconsortium tonly. tSecondly, tall tthe potentially tcommercially tsensitive tinformation tin tblock tchain tby competing tcompanies tis teither tavailable tfor teveryone tor tis tpermission based. tThis tmay tlead tto tprice tfixing, ttact tcollusion tand tcan talso treduce competition tif tthe tcompetitors tgetting taccess tto tthe tinformation tare from same tfield. tBut tall tinformation tsharing tmay tnot tbe trisky. tIf tit tis tshared between tthe tregulators tand tthe tagencies tthen tit tmay tdrastically tcut down the tmonitoring tcosts. tIt tmay tpromote tcompetition tand tinnovation tin tthe market. tThirdly, tthere tcan tbe tabuse tof tdominance. tIf tany tnew tentity seeking tentry tin tthe tindustry trequires taccess tto tthe tblock tchain tin torder to tbe ta tcompetitive tforce. tThe tentity tcan tbe trefused tby tthe tdominating ones tthereby tindulging tthemselves tin tanti-competitive tbehaviour tand liming tthe tchoice tof tconsumers twith tthe tdominant tones tonly.


Fourthly, tthe tstandard tsetting tfor tthe tuse tof tblock tchain ttechnology tand review tby tcompetition tauthorities tin tPublic tblock tchains tcan tdetect tanti competitive tpractices tas tthe tauthorities tcan treview tprevious ttransactions also. tWhereas twhen tit tcomes tto tprivate tblock tchain tthe tauthorities cannot check tthe tanti tcompetitive tconduct tby tthemselves talone. tTherefore there tis ta tneed tthat tall tthe tauthorities tand tagencies tshould thave taccess to tall tblock tchain tnetworks tincluding tthe tpermission tbased tones tin order to tdetect tand tinvestigate tcartels. tAnd tthe tcompetition tlaw tperspective tis emphasised twith tits tvarious tlegal, tsocial, tpolitical tand teconomic implications tthe tblock tchain ttechnology tis twarmed tup twith tcaution. t


Definition

Block tchain twas tfirst tintroduced tfrom tSatoshi tNakamoto’s twhite tpapers on tbitcoins tin t2009. tBeing tone tof tthe tmost tinnovative tinformation technologies twhich thave tthe tability tto tconvert tthe tway tbusiness tis carried out tin tthe tworld. tThis tdecentralised tand ttransparent tdistributed tledger technology trecords tboth ttransactional tand tnon-transactional tdata. tThis efficiency tenhancing ttechnology tis tnot tonly tused tfor tcryptocurrency transfers tbut tis talso tused tfor tpurpose tof trecording tvotes, teducation, tand healthcare, tinsurance tand tfinance tand tasset tregistry. tIt tcombats tthe problem tof tuncertainty twhich tin tturn tcreates ta tuser tcontrol tportable identity, twhich tbringsttransparency tand tpromotes tthe tfunctioning tof markets tbecause tyou tdon’t tknow twho tyou tare tdealing twith. tHence, eliminates tthe tneed tand tintervention tof tintermediaries.


Competition Law perspective

Whereas, tCompetition tLaw ton tthe tother thand taims tto tpromote competition tand tensure tfreedom tof ttrade tin tthe tmarkets. tThe tlaw governing tin tthis taspect tis tThe tCompetition tAct, t2002 twhich tprimarily seeks tto tprohibit tthe tactivities twhich tcreates tan timpact ton tcompetition within tthe tmarket.


However, tthe tancient tpotential tcompetition tlaw tchallenges tcannot tbe deprived teven tby tadopting tblock tchain ttechnology. tVarious timportant issues tarose twith tthis ttechnology tand tit tuses tsuch tas tthe tenforceability of smart tcontracts, tanti tmoney tlaundering tissues, tsecurities tregulations, privacy tissues. tA tsignificant tquestion tthat treceived tvery tmuch tminimal attention tis tthat tcan tthe tuse tof tthis tcontemporary ttechnology traise tany competition tlaw trelated tissues. tThe tsame twas tdiscussed tby tOrganisation for tEconomic tCo-operation tand tDevelopment t(OECD) ton t26 tApril t2018.


For tthe tefficient tfunctioning tof tblock tchains tit twill talways tbe tset tup tin peer tnetworks. tAnd tall tthe tcompeting tcompanies thave taccess tto potentially tcommercially tsensitive tinformation twhich tputs tblock tchain firmly tinto tthe tcrosshairs tof tcompetition tlaw. The tfundamental competition tlaw tissues tthat tblock tchain traises tare tregarding tthe membership trules, tSharing tInformation tstandardisation tand tthe trules which tare tapplicable tto tJVs tsuch tas tmerger tcontrol. tViewed tfrom atcompetition tpolicy tperspective tthis tfeatures tcan tbe tboth tan topportunity to tpromote tcompetition tand trisk tof tanticompetitive tconduct. t


There tis ta tdifference tbetween tcompetition tin tmarket tand tcompetition for market. tTheoretically, tcompetition tgives tgood toutcomes twhen tthere tare various tentities tcompeting tin tthe tmarket. tBut, tany tsingle tentity dominating tthe tblock tchain tin tthat tparticular tsector tcan tbe tconstrained by tcompetition tlaw tfrom tchallenging tpricing tand toffering tother tterms because tit twould talso taffect tthe tsmaller tor tpotential tcompetitors tof tthat particular tsector.


However tthe tcompetition trules tin tgeneral tdoes tnot tprevent tcompanies from tbeing tdominant tbecause tthat tis tthe treward tof tthe tprocess tof competition tin ta tmarket. tDue tto tthe tdevelopment tof ttechnologies tand various tother tmerger tcontrol trules twhich trestricts tbusiness tcombining because tthis twould tlead tto tanti tcompetitive tmarket tstructures.


The tunderlying tintent tof tthe tCompetition tAct, t2002 tis tneither tby making teasy tways tfor tthe tsmaller tcompetitors tnor tby trequiring tthe more profitable tbusiness tto tgive tup ttheir tmarket tshare. tThe tact taims tto compete ton tmerits tand tnot twith tany tanti tcompetitive tagreements tor conducts. tThis tIndian tstatute tclearly tprohibits tany tactivity twhich tamounts to tabuse tof tdominance twhich tin tturn twill thave tan tadverse teffect ton competition tin tany tmarket tin tIndia.


In tthe trelevant tmarket tin tIndia, twhich tenables tit tto: toperate independently tof tcompetitive tforces tprevailing tin tthe trelevant tmarket; tor affect tits tcompetitors tor tconsumers tor tthe trelevant tmarket tin tits tfavour.” t

Block tchain tusers tare tnot tthe tonly tone twhose tconduct tcan tbreach competition tlaw tbut tothers tblock tchain tminers tor tentire tblock tchain tcan be tbrought tunder tthe tpurview tof tviolating tcompetition tlaw. t


Standard tsetting twhich tis ta tpart tof tthis tinnovative tinformation technology can thave tpro-competitive teffects tand tpromote tefficiencies. tIt tis timportant to tcomply twith tcompetition tlaw twhen tnew tstandards tare tbeing tset tup between tcompetitors. tThe tstandards tmust tbe ttransparent tand taccess should tbe tfair, treasonable tand tnon-discriminatory. tIf tany trestrictions tit should tbe tshown tthat tthey treasonably trequired tto tallow tthe tblock tchain users tto tachieve ttheir tobjectives.


Presently, tthe tInternational tStandards tOrganisation thave t8 tstandard settings tregarding tblock tchain ttechnology twhich tinteroperability. tIf tthe block tchain tis tpermission tbased tthen taccess tto tstandards tarises twhen tit is tfor tcommercialisation tof tblock tchain. tThis tgating teffect tin participating should tcomply twith tcompetition tlaw tand tthe tgatekeepers t(users) tshould consider twhere trefusing taccess tcannot tbe tobjectively tjustified. t


The tmost timportant tissue tis tregarding tthe texchange tof tsensitive information. tInformation tlike ttrading tvolumes, tpart tnames, tterms tof contract tand tpricing tdata tis treduced tto twriting tand tincluded tand tcan tbe accessed tby tany tnodes tthen tit tcan tbe tused tby tany tcompetitors tcan traise competition tconcerns tdepending tupon tthe tquality tof tinformation exchanged tand tthe tstructure tof tthat tparticular tmarket. t


The ttransparent tnature tof tblock tchain tmight tbe tused tas ta tmode tto facilitate tcollusion twhich tcan tcreate tboth tpositive tand tnegative teffects ton competition. tAccordingly tthe tblock tchain tusers tare trequired tto trestrict the texchange tof tcertain tcommercial tsensitive tinformation twhich tleads tto price tfixing tand tother tanti tcompetitive tpractices. tAn textra tencrypted layer of tprivacy tcan tbe tadded tto tprotect tthe tinformation tby tputting tit toutside the tblock tchain tand tonly tstore tdata tin tthe tblock tchain. t


Also tthe tjurisprudential taspect tas tmindful tof tAdam tSmith’s tfamous suspicion tthat t“people tof tthe tsame ttrade tseldom tmeet ttogether, teven tfor merriment tand tdiversion, tbut tthe tconversation tends tin ta tconspiracy against tthe tpubic, tor tin tso tcontrivance tto traise tprices. tAnti-competitive agreements tbetween trivals tcould tbe talgorithmically tcontrolled, tand pseudonymous tparticipants twould tbe tharder tto ttrace.”


The tpositive teffect tof tthis tis tthat tdata tis timportant tto tprovide ttrust among tmarket tparticipants. tMostly tthe tdata tstored tis tthe thistoric transaction tdata twhich tonly tproves tthe townership tof tassets tthe tcollusion risks tare tlow. tThis tdistributive tledger ttechnologytcompetes twith tother traditional tways twhen tit tis tused tfor tcompleting ttransactions tlike tsmart contracts. t


The tfollowing tare tsituations twhere tthere tis ta tpotential tabuse tof dominance. tFor texample, ta tcompany tdeliberately ttry tto tdelay tor tprevent adoption tof tsimilar tblock tchain ttechnology twhich tcould tenhance competition tin tIndia. tAlso, tthe texisting tprivate tblock tchain tcan texclude companies tfrom tusing tor traising tcosts tfor tfurther tparticipation tis talso abusing tuse tof tdominance. t


For texample, tif ta twell testablished tbank twants tto tjoin tin ta texisting tblock chain tfor tinterbank tpayments tand tis tdenied ton tdiscriminating tand unreasonable tgrounds. tHence tcreating tharm tby tlowering tthe tparticipation are tall texamples tof tconduct ttrying tto tprevent talternative tblock tchains from toperating tin tthe tsame tparticular tcompetition tmarket. t


Proving tof tdominance tin tthe tblock tchain tarea tis tdifficult. tThe tearly adopters tof tthat tparticular ttechnology tdo tnot tautomatically tbe tthe tmost dominant tplayers. tBlock tchain tis ta tdistributed tledger ttechnology tand tnot a tmarket. tAny tblock tchain tused tby tany tentity thas tto tcompete tother cryptocurrencies tand tvarious telectronic tmodes tof tpayments. tMoreover, smart tcontracts tface tcompetition tagainst tthe ttraditional tmeans tof agreeing transactions. tSo, tthe trelevant tmarket tcannot tbe tdecided ttoo tnarrowly tat this tearly tstage tof tdevelopment tof tmarket t


According tto tEuropean tCommission’s tguidelines ton thorizontal cooperation agreements, tAdopting tcommon tstandards tof toperations tby tparticipants tin a tmarket tpromotes teconomic tinteroperability…increases tcompetition tand lower toutput tand tsales tcosts, tbenefiting teconomies tas ta twhole. t


Even tthough tthere tis tabuse tof tdominance tthe tonly trequirement tis tto ensure tcompliance twith tthe tstandard tof tfair, treasonable tand tnon discriminatory tterms. t


The tmajor tquestion tas tto twhether tcompetition tauthorities tshould tbe given tpermission tto taccess tall tthe tdata tavailable tin ta tblock tchain. tIf tthe authorities tare tgiven taccess tthen tthey tcan tmonitor tthe ttrading tprices and spot tsuspicious ttrade twhich tin tturn tmeans tcomplying twith tthe tnorms tof competition tlaw. tThis tcan talso tbe tan talternative tfor tburdening tthe requests tof tinformation ton tparties. tBut tgiving taccess tto tall tdata twould raise tthe tconcerns tregarding tprinciple tof tproportionality. tSo tif tthere tis rarest tof trare tcase tthen tthe trequest tto tthat ttransactional tand tnon transactional tdata tcan tbe tprovided tthat tto tfor tonly tinvestigation purposes. This twould tbe tonly tfor tpermission tbased tnon tpublic tblock tchains because tas tfar tas tnon tpermission tbased tblock tchains tare tconcerned everyone tcan taccess tthe tdata tpublicly. t


Also, teach tcompany tmust tdetermine ttheir tpolicies twhich tthey tintend tto adopt ton tmarkets tand trules tor trequirements twhich tthey tintend tto toffer its tcustomers trespectively. tThe tcompetition tlaw tprohibits tany tdirect tor indirect tcontact tbetween tcompetitors tof ta tparticular tfield twhich tcreates these tconditions tof tcompetition tand tdo tnot tcomply twith tnormal competitive tconditions tor telse tthe tresult tshould tpro tcompetitive tin nature.


Present scenario

Over tthese tcontemporary tyears tboth tmarket toperators tand tcompetition law tenforcers tare tventuring toff tthe tbeaten tcompetition tpaths. tThe market operators tare tembracing tthe tnew ttechnologies tin ttheir tmarket tstrategies whereas tthe tcompletion tlaw tenforcers tare tready tto tchallenge tthose tnew strategies. tThis tnew tledger ttechnology tis tlikely tto ttrigger tthere technology driven tjourney. t


There tis tgoing tto tbe ta tshift tfrom tLawrence tLessig’s tfamous t‘code tis law’ notion tin twhich tthe tsystem tdevelopers tuse tto tplay ta tvital trole tin forming tof tconditions tby twhich tthe tsystem truns.


Because tthe ttechnology tin titself tis tneither tanti-competitive tnor tpro-competitive tin tnature, tso tthe ttechnologies tlike tblock tchain tand tother digital ttechnologies tshould tprevent tpotential tharm tto tcompetition tand should tantitrust tby tdesign. tAlso tthe tdata tavailable tin tblock tchain tcannot be ttampered tby tindividual tparticipants. tIt tis topen tsource tsoftware tand contributes tto tits treliability twhenever tany tuser tis table tto tcheck tthe underlying tcode tfor tsecurity tissues. tBoth tup tto tdate tand ttraceable decentralised tdata tof tblock tchain tforms ta tperfect taudit ttrail. tThe tdata tis automatically tmodified tand tupdated ton tblock tchains tby tsmart tcontracts that tare tdigital tprotocols. tThis tinvolves tminimal thuman tintervention.