Thanks to Marianna Riedo for collaborating on this article
On July 16, 2020 the European Commission (“Commission”) launched an inquiry into the sector of the Internet of Things for consumer-related products and services (“IoTs”) in the European Union pursuant to Article 17 of Regulation 1/2003. The inquiry is aimed at detecting possible competition concerns in the functioning of the IoTs markets and determining whether undertakings operating in such markets infringe EU competition rules. According to article 17, circumstances such as the level of trade between Member States and the rigidity of prices may suggest that a restriction or distortion of competition is occurring within the internal market.
This is particularly likely to happen in newly developed and rapidly growing sectors such as the consumer IoTs sector: as is reported in the Commission decision initiating the inquiry, at the end of 2019 the total number of smart home devices in the European Union reached a new high of 108 million devices, and there are expected to be 184 million devices by 2023.
The sector inquiry covers consumer-related products and services that are connected to a network and can be controlled from a distance, such as voice assistants, wearable devices (smart watches, smart jewelry, or fitness trackers), and smart home appliances (smart refrigerators, washing machines, televisions, audio systems, and lighting systems). It also includes services that consumers can access via such tools or via similar user interfaces.
As part of the “Shaping Europe’s Digital Future” strategy, the investigation focuses in particular on understanding the “development, deployment, and uptake of technology that makes a real difference to people’s daily life” in what is designed to be “a frictionless single market, where companies of all sizes and in any sector can compete on equal terms.” The goal of the inquiry is to gather information directly from the operators in the IoTs markets (more than 400 companies have received questionnaires) and to assess the current status of this business sector, the interests at stake, and the potential competition issues, as well as to anticipate future developments and challenges, for both market players and consumers.
More specifically, the Commission is looking at the presence of potential “gatekeepers” and “dominant ecosystems” that could restrict data access and interoperability, for example by carrying out certain forms of self-preferencing and misusing proprietary standards. Such practices, which are often observed in sectors characterized by large economies of scale and strong network effects, could prevent the development of a fair and open market pursuant to European antitrust rules.
The success of this fact-finding antitrust investigation depends very much on the participation of the players involved, which include smart device manufacturers, software developers, and related service providers. Once the inquiry is concluded, if the Commission finds grounds for doing so (e.g., evidence of lack of new entrants in the market, price rigidity, or limited trade between Member States), it may decide to open specific investigations against individual companies to ensure the respect of EU rules on restrictive agreements and abuse of dominant position (Articles 101 and 102 of the Treaty on the Functioning of the European Union – TFEU). However, it is conceivable that by the time the inquiry is concluded the EU will have issued the “New Competition Tool”, which would give the Commission the power to impose ex ante sector-wide behavioral and structural remedies to all or certain undertakings even without finding infringement of said competition rules (and thus without issuing any sanctions).
The deadline for the recipients of the questionnaire to submit their replies is set for October 15, 2020. According to the roadmap, a preliminary report on the public consultation should be expected in the spring of 2021, while the final report is expected to be published in summer 2022. In the meantime, it will be interesting to follow the evolution of the entire “Digital Strategy” of the European Commission, which also consists of regulatory initiatives related to artificial intelligence (AI), data economy, and digital platforms (the Digital Services Act package).