“The blockchain did it” is unlikely to be a winning defense in an antitrust suit. That, combined with the current enforcement (and legislative) trends targeting digital platforms, counsels that companies choosing to adopt blockchain as, or in, their business, be cognizant of how the antitrust laws may be applied. Perhaps even more so than other technologies since some degree of immutability is a primary feature of blockchain.
Before discussing specific antitrust proscriptions potentially applicable to blockchain, a word about the current rhetoric around the need to amend the antitrust laws to keep up with technology and today’s marketplace. Not the first time this assertion has been made, and certainly not the last. As the use of distributed ledger technologies become more and more prevalent, I am sure we will hear it again directed specifically at blockchain. But the fact is that the current antitrust laws are more than sufficient to deal with anticompetitive conduct involving blockchain or any other new technology.
In the end, antitrust comes down to injury and causation. It is this elegantly simple inquiry that protects the antitrust laws from obsolescence. And while we may debate the appropriate type of harm or injury addressable by the antitrust laws, (see, e.g., the current debate regarding the consumer welfare standard), antitrust asks no more of a court or jury than to determine (1) whether the requisite injury occurred, and (2) how. This may be a tad oversimplistic, but not by much.
Such an analysis can be applied as effectively to matters involving blockchain as it has been to matters involving plastic forks, tuna fish, or search engines. Of course, blockchain will no doubt create some interesting bumps in the road. Courts may need to assess new theories of relevant markets and measures of market power. Issues of control for purposes of imposing liability will be debated ala Copperweld. And there will no doubt be some head scratching over who exactly is liable when a public permissionless blockchain is used to facilitate some anticompetitive outcome, and to who? But these inquiries are only new in the sense that the antitrust laws are being applied to a new set of discernable facts—as they have been countless times already.
Therein lies the first lesson. What makes the application of the antitrust laws to a new technology difficult is not some failing of the antitrust laws, it is the learning curve for attorneys and courts about the new technology itself, the related markets, and the face of future competition to which the laws are being applied—i.e., the facts. (In apparent recognition of this, some Antitrust Division attorneys reportedly have already attended courses regarding blockchain.)
The good news for antitrust practitioners is that blockchain technology and applications are not half as complex as having to learn for the first time how an operating system or search engine works (or perhaps we have just become more tech savvy these past 20 years). And while there have been very few cases to date involving blockchain and antitrust or competition laws, we have decades of cases involving databases, industry organizations, and platforms that we can draw on to identify possible areas of mischief for blockchain.
I would suggest potential antitrust risks involving blockchain can be grouped into three baskets:
- Blockchain as a facilitating mechanism.
- Blockchain as a bad actor.
- Antitrust violations within a single blockchain.
Obviously as the use of blockchain evolves from relatively simple transactions and applications such as cryptocurrency trading or running smart contracts, to supporting all manner of social and business interactions, the factual scenarios falling into these baskets will become more complex. But the core analysis should remain the same.
Blockchain as Facilitating Mechanism
Most antitrust attorneys’ radar goes off when they hear the term “distributed ledger”—as it should. They have spent years counseling clients not to share certain competitively sensitive information with certain other market participants (most often rivals). Not because the sharing itself is a violation of the antitrust laws, but because of what the sharing might facilitate – e.g., price fixing, customer allocation, group boycotts, etc.
In a blockchain world, invariably some competitively sensitive data will find their way onto a shared ledger. They may be sufficiently anonymized, or they may not. Perhaps in the future such data milliseconds old will be viewed as sufficiently “historic” to render its sharing of marginal concern—or perhaps not. And there is a good chance that the data will not have been included with the intent of facilitating some conspiracy. Still, the fact that rivals have access to their competitors’ real-time prices, costs, capacity, production levels, or bids poses some risk.
There will, of course, be many blockchain-specific nuances. Is the blockchain public or private? Permissionless or permissioned? But the operative questions remain constant—will the blockchain give rivals access to competitively sensitive information about their competitors that they would not have but for the blockchain? And does it matter? Any such sharing may or may not be defensible and may or may not render the blockchain itself liable under the antitrust laws. Still, access to such information would seem to be a reasonable plus factor for an antitrust plaintiff to allege.
Relatedly, a blockchain also could be a handy mechanism for policing a price-fixing, production-limiting, or customer-allocation conspiracy. Some have suggested that smart contracts (an unfortunately misleading name), or some application or functionality, could be deployed via blockchain to monitor pricing and sales and react to transactions that fall outside the parameters of the illegal agreement—possibly redistributing profits earned via the cheating. I find this scenario somewhat unlikely as it essentially requires the conspirators to commit their agreement to writing—or in this case coding—both equally discoverable. Let us not forget, that no matter how secret (or encrypted) the plan or related communication, the effect will be necessarily visible enabling both detection and prosecution.
Other areas of potential mischief include:
A blockchain could facilitate the inadvertent (or intentional) creation of a standard—although the creation of a standard via a public permissionless blockchain might have some interesting defenses available.
Caution also should be taken to avoid actions that might support an allegation that the exclusion from a private blockchain amounts to a group boycott or refusal to deal.
The Blockchain as an Actor
Can a blockchain itself violate the antitrust laws much like a firm or company today? Say a blockchain influenced by its founders, developers, and users (and in some instances miners), enables some conduct or practice with the purpose and effect to exclude or raise the cost of a rival entity (e.g., a competing blockchain, or perhaps a competitor relying on a centralized control solution). Or the blockchain is used to implement rules that permit an exchange of data among its users that enables collusion to the mutual benefit of the conspirators and blockchain (a hub and spoke conspiracy).
I think it is safe to assume that the answer to that question is yes. This is not to say however that the prosecution of such claims will not pose some interesting questions. For example, is the blockchain a firm or person like a corporation for purposes of antitrust enforcement? Who is “the blockchain?” Is there some control group and what are its bounds? (See, Blockchain + Antitrust, Thibault Schrepel (2021) for an interesting and well-informed discussion of this and other potential antitrust-related issues in a blockchain world.) While questions such as these are today unanswered, I would suggest that they will be relatively simple issues for courts to deal with. Contrary to whimsical theoretic discussions, these issues will be decided in the cold light of facts – i.e., who did what to whom. Nothing courts haven’t been called on to do with every new technology and marketplace. What is the alleged injury? And who caused it?
Obviously, there are scenarios that might cause damage or injury primarily within a single blockchain that also give rise to antitrust liability. Most will involve some amalgamation of control among participants (and potentially outsiders) who then proceed to act to the detriment of other participants in the blockchain (and possibly outsiders impacted by the conduct). See, e.g., United American Corp. v. Bitmain Inc., et al., Case No. 1-18-cv-25106 (S.D. Fla.). I suspect key issues in most such cases will be defining the relevant market and whether the proffered harm amounts to antitrust injury.
There will no doubt continue to be countless articles, reports, and even books written about antitrust and blockchain. These books and articles will raise an array of interesting hypothetical scenarios that arguably may confound the antitrust laws. My point—I have yet to see a real world blockchain-related issue that can’t be resolved by the simple application of the current antitrust laws to the relevant facts—assuming, of course, your antitrust attorney knows the difference between a dApp and a DAO.