Commission launches inquiry into the Internet of Things

• European Commission has launched an anti-trust competition inquiry into the Internet of Things (press release).
• The inquiry will focus on consumer products and services that connect to a network, including voice assistants, mobile devices, smart home appliances and wearables.
• Information requests will be sent out to a wide range of players in the sector.
• Inquiry may well result in investigations into potential breaches of competition law uncovered by the inquiry, as well as informing the Commission’s proposals for the specific regulation of platforms.
• Part of the Commission’s wider and on-going focus on digital markets and the impact of big data on competition in consumer markets.

On 16 July, the European Commission (Commission) launched an antitrust competition inquiry into the Internet of Things (IoT) for consumer-related products and services in the EU. The inquiry will focus on web connected devices such as voice assistants, wearables (smart watches/fitness trackers), as well as entertainment products such as smart speakers and smart TVs, and smart home appliances such as fridges, washing machines and lighting systems.

What’s the Commission worried about?

The IoT is an ever growing ecosystem, and provides enormous convenience. However, the Commission is concerned that aspects of the IoT, including how data is collected and used to influence consumer behaviour, may be distortive of competition. The Commission’s press release cites concerns with data access and interoperability, self-preferencing, network effects and economies of scale.

These factors, the Commission suggests might “lead to the fast emergence of dominant digital ecosystems and gatekeepers and might present tipping risks” : essentially that a small number of businesses will be able to corner the markets opened up by the IoT and make it difficult for new entrants and innovators to get a foothold.

As Commissioner Margrethe Vestager put it in a statement launching the inquiry, “One of the key issues here is data. Voice assistance and smart devices can collect vast amounts of data about our habits,” she told reporters on Thursday. “There is a risk that companies can misuse this data that they collect through such devices to cement their position in the marketplace.”

“They might even misuse their knowledge of how we access our services, to enter the market of those services and take it over.”

What’s going to happen?

The Commission’s sector inquiries cannot end in the authority imposing structural or behavioural remedies in the absence of a breach of competition law. Even where it identifies a breach of competition law, it must first launch an enforcement investigation into that breach. However, the Commission has all of the powers available to it during an inquiry into an alleged breach of competition law, including the ability to require information be provided, to take oral statements (albeit only from consenting interviewees) and even to conduct “dawn raids” to gather information.

The Commission will often use the intelligence gathered from its sector inquiries to subsequently pursue competition enforcement cases. For example, the Commission’s e-commerce sector inquiry (launched in 2015 with the final report being adopted on 10 May 2017) was largely responsible for it launching several investigations: including into four consumer electronics manufacturers, five video games publishers, the Steam distribution platform and Guess (the jeans manufacturer). Fines have been imposed in some cases, while other cases still continue.

As well as a platform from which to launch infringement cases, the Commission’s goal for the inquiry may also be to assess whether certain IoT platforms should be included in its proposals for new regulatory tools for internet platforms. The idea of formal regulation for internet platforms in the EU is currently being consulted on , as is the possibility of a tougher merger control regime (potentially with retrospective powers to unwind long-completed tie-ups if the Commission experiences regulator’s remorse).

What can we learn from previous investigations?

Relatedly, the CMA published its Final Report in its market study into online platforms and digital advertising on 1 July 2020. While the Final Report did not address the IoT directly (the term does not appear once), the CMA did touch on the use of search engines being used by smart speakers.

Whilst the specific issues and businesses likely to be the focus of the Commission’s inquiry are cutting-edge, there are clear themes and echoes here of the Commission’s past investigations, for example those into Google, in particular its investigation into the Android operating system and the default programs which were required to be pre-installed on a phone running Android. In that case (which is currently under appeal), the Commission concluded that this bundling amounted to an abuse of dominance, despite the ability of users to install different programs and switch search engines.

Going back even further to the 1990s one can see parallels with the Commission’s abuse of dominance investigations into Windows Media Player and Internet Explorer. The Microsoft cases, as well as the Commission’s unsuccessful attempts to agree satisfactory commitments with Google in its Google Shopping investigation (complainants repeatedly rejected the proposed solutions) demonstrates that identifying the competition issues is often the “easy” part of a technology sector case.

So while the IoT technology may be new, the competition law concerns being raised by the Commission in opening this inquiry have always been with us and that the steps taken to remedy these concerns can have far-reaching consequences for businesses active in this industry.

What’s the Commission’s next move?

The Commission will be sending formal requests for information in the coming weeks to a range of players active (around 400) in the IoT for consumer-related products and services throughout the EU. Publication of the Commission’s preliminary report is expected in spring 2021 with the final report being published in summer 2022. While the UK’s transition period following its exit from the EU will have likely concluded, in practice UK businesses active in the IoT are likely to be active in the EU as well (or wish to be) and will accordingly be affected by the Commission’s conclusions.

The Commission is also investigating Google’s proposed purchase of Fitbit and is due to clear the merger, or refer it to an in-depth Phase 2 investigation on 4 August. The issues identified by the Commission with this transaction (if any) are likely to be pursued and investigated across the wider IoT ecosystem, meaning that the Commission’s decision in this case will be a useful indicator of what to expect.