Not just smart fridges, but competitive too! The Internet of Things European Commission Sector Inquiry

Summary

  • On 16 July 2020, the European Commission (the Commission) launched a sector inquiry into the markets for consumer products and services linked to the Internet of Things (IoT).
  • The sector inquiry will focus on consumer-related products and services that are connected to a network and can be controlled at a distance (e.g. via a voice assistant or mobile device), including smart home appliances and wearable devices.
  • Businesses active in the IoT for consumer-related products and services throughout the EU may receive requests for information from the Commission in the near future (e.g. smart device manufacturers, software developers and related service providers).
  • The Commission has the power to compel businesses (and trade associations) to supply information, documents or statements as part of a sector inquiry.
  • Knowledge about the market gained through the inquiry will contribute to the Commission's enforcement of competition law in the sector.

"The consumer Internet of Things is expected to grow significantly in the coming years and become commonplace in the daily lives of European consumers […] But access to large amounts of user data appears to be the key for success in this sector, so we have to make sure that market players are not using their control over such data to distort competition, or otherwise close off these markets for competitors.”

– Statement by Executive Vice-President of the European Commission Margrethe Vestager on the launch of a Sector Inquiry on the Consumer Internet of Things, Brussels, 16 July 2020

The IoT sector inquiry and the emerging digital regulatory landscape

The IoT sector inquiry – more detail on which is set out below – is the latest in a number of initiatives launched by the Commission as part of its European Digital Strategy. In early June, the Commission also launched a consultation in relation to its proposal for a New Competition Tool. In parallel with this, the Commission launched dual consultations in regard to the two strands of its proposed Digital Services Act package: the first relating to its proposal for an ex ante regulatory instrument of very large online platforms acting as gatekeepers; and the second relating to deepening the internal market and clarifying responsibilities for digital services. This all follows the introduction of the Platform-to-Business Regulation (EU) 2019/11501, which entered into force in June 2019 (and has applied as of 12 July 2020), and that creates horizontal standards for transparency and offers redress for SMEs that may be using online platforms/online intermediation services.

Focus of the IoT sector inquiry

On 16 July 2020, the Commission launched a sector inquiry into the markets for consumer products and services linked to the IoT. The sector inquiry will focus on consumer-related products and services that are connected to a network and can be controlled at a distance (e.g. via a voice assistant or mobile device), including smart home appliances (e.g. fridges, washing machines, smart TVs, smart speakers and lighting systems) and wearable devices. (e.g. smart watches or fitness trackers).

Purpose of the IoT sector inquiry

Having formed a view that some businesses are engaging in behaviour that could structurally distort competition both in and for this sector, the Commission aims to use the sector inquiry to 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. In addition, the Commission aims to 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.

Scope of the IoT sector inquiry

As mentioned, the Commission states that it has already seen indications of businesses behaving in ways that it views as conducive to structurally distorting competition in and for the IoT sector. Specific behaviour and practices highlighted by the Commission Specific behaviour and practices highlighted by the Commission include:

  • Contractual restrictions and restrictive practices relating to data access and interoperability
  • Certain forms of self-preferencing (i.e. a platform business giving preferential treatment to its own products or services when they are in competition with products and services provided by other entities using the platform)
  • The emergence of digital ecosystems and gatekeepers
  • Practices linked to the use of proprietary standards that could represent barriers to entry and innovation, and could lead to restrictions of market access for competitors (thereby restricting and/or distorting competition in the sector)

Further background and reasons behind the IoT sector inquiry

The Commission is acutely aware of the projected explosion of growth in the IoT sector, with IoT products and services predicted to become even more commonplace in the daily lives of European consumers in the near future. The collection of significant amounts of user data (including personal data) by certain IoT related products and services is highlighted by the Commission. It states that access to this data may be an important contributing factor to market power both in the sector for consumer IoTs related products and services, and the competitive structures thereof. This focus on access to data and its effect on competition (combined with other characteristics of digital markets) both in the market and for the market echoes the analytical approach the Commission is taking to competitive distortions in its parallel proposal for a New Competition Tool. The importance of data as a key input for businesses looking to compete in the area of artificial intelligence is also highlighted by the Commission. According to Executive Vice-President of the Commission, Margrethe Vestager, in charge of competition policy, consumers will only receive the full range of benefits promised by the sector if the markets for IoT devices stay open and competitive. A primary concern for the Commission (borne out of both its sector specific research and enforcement experience in digital markets up to now) is that big companies (already established in terms of access to data, network effects and economies of scale and scope) will abuse their power and very quickly push markets beyond the tipping point, where competition is likely to turn to monopoly.

Next steps and possible outcomes of the IoT sector inquiry

Businesses active in the IoT for consumer-related products and services throughout the EU may receive requests for information from the Commission in the near future (e.g. smart device manufacturers, software developers and related service providers). Businesses will likely be given several weeks within which to respond. The Commission has the power to compel businesses (and trade associations) to supply information, documents or statements as part of a sector inquiry.  The Commission expects to publish: (i) a preliminary report on the replies for public consultation in the spring of 2021; and (ii) the final report in the summer of 2022. If the inquiry results in specific competition concerns being identified, the Commission could open case investigations to ensure compliance with EU rules on anti-competitive agreements and abuse of dominance (Articles 101 and 102 of the Treaty on the Functioning of the European Union).

If you require advice on the possible impacts on your business of the European Commission sector inquiry into the consumer Internet of Things (IoT), or if you require advice on the European Commission’s various initiatives relating to the regulation of digital markets now and in the future, please do not hesitate to contact Thomas O’Donnell, Solicitor or any member of the ALG EU, Competition and Procurement team.

Date published: 29 July 2020