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On 16 July 2020, the European Commission announced the launch of a sector inquiry into the market for consumer products and services linked to the Internet of Things (IoT).

The Commission defines IoT broadly. The sector inquiry is likely to cover any consumer facing system connecting physical or virtual objects to other objects or the internet. This includes smart home appliances and wearables (e.g., fitness trackers or smart watches). Commissioner Vestager says voice assistants are at the centre of this: theyre a new interface between consumers and products/services, and there is a question as to how choices are presented to consumers over this medium. Connected cars are not in scope (the Commission is considering Standard Essential Patents in that area, but separately).

The Commission believes consumers will only see the full benefits of IoT if markets stay open and competitive. The Commission wants to act quickly before tipping points are reached, although arguments exist that a market tipping may be beneficial if it results in more efficient products. This is an area of key concern for the Commission, and a concept being used to support the need for a New Competition Tool. The Commission views data as a key ingredient for competition in the wider technology sector. The Commission is concerned that producers of devices and assistants can collect vast amounts of data, and firms may then misuse this data to cement their market power, or otherwise harm competition to the detriment of consumers, through e.g., self-preferencing (directing users to their own products), or exclusive deals (sending consumers to preferred partners and limiting choice). Interoperability between devices will also be crucial.

What are Sector Inquiries?

Sector inquiries are in-depth reviews of particular markets with significant opportunities for stakeholder participation through consultations and working groups. Our experience of the recent e-commerce sector inquiry is that it led to a widespread re-examination of industry practices and is credited as the source of a major renaissance in enforcement against distribution arrangements. The Commissions new Vertical Agreements Guidelines will also be heavily influenced by the outcome of that study.

Lengthy questionnaires and tight deadlines

The Commission will invite comments from both businesses selling smart products and those selling services that can be accessed through these devices. Questionnaires are currently being sent out to approximately 400 companies worldwide asking about products they sell, how the market works, how data is collected/used/monetized, how products and services work together and any problems with making them interoperable. The questionnaires are lengthy which is also consistent with our experience advising clients on the e-commerce inquiry. Deadlines will be tight and companies should monitor mailboxes including generic mailboxes that the Commission may have found on company websites that may not ordinarily be monitored. We expect the Commission to follow up with companies that do not respond.

Report Process and the Potential for Future Enforcement Action

A preliminary report will be published in Spring next year, with a final report published in 2022. The sector inquiry will identify potential competition law breaches, but will also identify information that will feed into regulatory initiatives affecting IoT, as well as sending a powerful message to companies that the Commission is watching them. Commissioner Vestager noted in the press conference that the Commission may take enforcement action in certain areas before the inquiry is concluded where speed is of the essence.

The Commission has the ability to undertake unannounced inspections against companies in the context of sector inquiries, as such companies who receive questionnaires as part of the IoT sector inquiry should make sure their dawn raid guidance and internal processes are up to date. In addition, companies should expect to see targeted investigations under either Article 101 and/or 102. Whilst these individual investigations often start after the conclusion of the sector inquiry, as we have seen in the ecommerce sector inquiry, the Commission has previously launched investigations whilst the sector inquiry is ongoing. It is therefore a very important opportunity for companies to review their existing business practices to verify antitrust compliance.

Background and the Commissions Wider Policy Initiatives

The Commissions focus on IoT complements its broader Digital Single Market and Data Strategies, at the heart of which lie an ambition to ensure European businesses and citizens can take full advantage of the benefits of increased digitalisation and data collection. The Commissions Digital Strategy, published in February, forewarns a fitness check of existing competition rules to ensure their appropriateness to the digital economy. Problems are intended to be addressed through a Digital Services Act Package. The sector inquiry will complement the newly launched consultations on revising e-commerce rules, introducing new powers to govern platforms and introduction of a New Competition Tool (links to these consultations can be found on the Commission Digital Single Market landing page hyperlinked above). The package of proposals in their current form advocate ex ante regulation potentially compelling broader data sharing by stronger market players.

The Commission thinks there are significant advantages to data being pooled and shared widely, including facilitating the development of new products and services, of data analytics and machine learning, and allowing the emergence of data-driven ecosystems. The Commission wants to examine whether European businesses are being locked out of this new market. Other questions which will be addressed by the present inquiry will include practical points around the degree of interoperability between devices collecting data, standard setting, and licensing.

The inquiry also dovetails with the Commissions White Paper on AI, published in February, and which provides insight into the Commissions view on introducing a legislative regime to govern AI, which might include requirements to ensure quality and verifiability of underlying datasets (BM insight here).

The launch also comes days after the publication of the UK Consumer and Markets Authoritys final report in its online platforms and digital advertising market study. While IoT was not a specific focus of that study, the underlying theories of harm and concerns around concentration of market power along with themes such as the balancing act between protection of personal data and the need for businesses to access more data in order to compete will likely also be central to this new sector inquiry.

The rest is here:
European Union: European Commission Launches a Sector Inquiry into the Consumer Internet of Things - Lexology