Blockchain, or distributed ledger technology, presents the greatest opportunity to transform business processes and generate commercial efficiencies and cost savings for decades. Mindful of the risks, and as long as antitrust law is considered from an early stage, it is perfectly possible to develop and implement a pro-competitive Blockchain platform. Above all though, a Blockchain platform must have a genuine, justifiable commercial purpose: an antitrust regulator will not be convinced by a solution without a problem.
Barely a week passes without yet another pioneering Blockchain initiative appearing in the news, ranging from the conventional – energy trading, notarisation services or travel insurance to the uniquely original – tracing turkeys, getting married and cryptonations, amongst others. Unquestionably, Blockchain can facilitate innovative solutions to a wide range of issues, but a careful consideration of the development and implementation of a Blockchain platform is crucial. Although there is much temptation to jump on the bandwagon and not miss the 'rush', doing so with an ill-thought out Blockchain solution to a questionable problem presents its risks. Chief among those, in light of eye-wateringly high fines recently dished out by the US Department of Justice, the European Commission, and other regulators around the globe, is that of antitrust.
To a certain extent, the antitrust risk relating to a Blockchain platform is no different to that of any other form of trading, exchange or two-sided platform, and these commercial models have recently attracted the scrutiny of competition regulators (see the Credit Default Swaps and Eturas cases, for example). However, the success of a Blockchain platform – especially a 'private' one – depends above all on collaboration and cooperation between parties, operating on unified rules and common processes. Where those parties are competitors, antitrust law deserves closer consideration.
In our view, the antitrust risk falls into two main categories: the way in which a Blockchain platform is designed, and the way in which it is subsequently used.
Without a genuinely objective justification, care should be taken not to exclude competitors from a Blockchain platform, whether directly or indirectly. A first question to ask is whether your proposed access rules discriminate against any possible users. Even if the rules don't discriminate, and your platform is fully 'open', the next question is whether the interoperability protocols or standardisation criteria effectively exclude users from participating. These sorts of concerns could give rise to antitrust complaints, especially if your platform becomes a 'go-to' hub and effectively becomes a victim of its own success, causing competing or incumbent platforms to lose market share. Unsurprisingly, any rules which require participants to commit exclusively to your platform may shut out other platforms from competing and can be high risk.
Even where a Blockchain platform is designed to minimise antitrust risk, it may still face the allegation that it facilitates anti-competitive collusion. An anonymous platform may function as a cover to exchange competitively sensitive information. Where a platform is transparent or open, attention should be given to the risk of so called 'price signalling' – tacit collusion over pricing strategy by way of coordinated pricing 'announcements'. Moreover, where a Blockchain platform is dependent on the 'mining' of individual data blocks by a majority of 'miners', certain parties who, between them, control a majority of the platform's mining capacity could collude to block a competitor's use of the platform, for example by blocking a major transaction. This is the so called '51% Attack' theory or, in antitrust terms, a collective boycott.
Perhaps the biggest concern is that Blockchain platforms could be used to mask, stabilise or prolong cartel behaviour. By their very nature, cartels are unstable. Cartelists must rely on imperfect information, without a complete picture of how each cartelist is behaving. Antitrust regulators have preyed on this instability, devising immunity programmes that encourage cartelists to inform on each other. Yet the whole purpose of Blockchain is to provide verifiable data to its participants on a transparent basis. The use of a Blockchain platform to facilitate cartel behaviour could allow cartelists to enforce the cartel rules and practices, and to verify that they are being followed. This may make cartels harder to detect, and where they are detected, these 'Blockchain cartels' could result in even higher fines.
Finally, the true value of Blockchain will almost certainly lie not just in standalone platforms, but in functioning in conjunction with integrated software based on artificial intelligence and smart contract technology. It remains to be seen how AI systems will 'learn' from data held in Blockchain platforms. However, we are already seeing antitrust enforcement in relation to pricing algorithms, and it is conceivable that AI systems will be used to optimise pricing based on data stored within the ledgers of Blockchain platforms in the very near future. We don't yet know how antitrust regulators may attribute antitrust offences to Blockchain platform participants where information has been collated by neutral software. Similarly, Blockchain platform participants could deploy smart contracts that, either in a standalone manner or as part of a wider arrangement, could be anticompetitive in intent or effect, raising further questions as to the attribution of liability.
Blockchain presents the greatest opportunity to transform business processes and generate commercial efficiencies and cost savings for decades. Mindful of the above risks, and as long as antitrust law is considered from an early stage, it is perfectly possible to develop and implement a pro-competitive Blockchain platform. Above all though, a Blockchain platform must have a genuine, justifiable commercial purpose: an antitrust regulator will not be convinced by a solution without a problem.