Competition, trade and foreign investment
Competition law seeks to safeguard free and fair competition between companies – creating competitive markets with lower prices, more choice and quality for customers and consumers, innovation, and low barriers to entry. Competition authorities worldwide are grappling with how to respond to the AI technological revolution. On the one hand, AI can create pro-competitive effects, greater innovation and economic efficiencies. For example, by facilitating targeted marketing based on evolving consumer preferences, and quick competitive responses to price changes, both of which may lead to more competition, lower prices and better services for customers. On the other hand, competition authorities are concerned that, unless action is taken, there is a risk of a few firms establishing market power in a relevant AI market, or leveraging market power in a neighboring core digital market, which could prevent the full benefits of AI from being felt across the economy and less competition globally. Competition authorities are also focusing on partnerships. Whilst the legal and regulatory landscape for AI is still developing, it is firmly on the radar of competition regulators across many jurisdictions.
Key legal risks / issues
1. Protecting innovation, market entry and expansion: Competition laws around the globe prohibit firms with market power from abusing their dominant position, for example, by exploiting customers (by charging excessive prices) or excluding rivals (by refusing to supply or agreeing to supply on unfair or discriminatory terms). Ensuring firms with market power do not block or restrict access to the key building blocks of AI such as capital, appropriately skilled employees, technical expertise, large and expensive amounts of computing power and data is critical to facilitating innovation and competitive AI markets. This risk is increased if those firms are able to use investments, partnerships, vertical integration or their market power in other markets to restrict competition and access to AI markets. Market power issues can be addressed through enforcement either under competition law or powers arising from new digital regimes or through market studies.
2. Algorithmic collusion: Competition law requires competitors to act independently from each other. Whilst exchanging information between competitors can be pro-competitive (e.g. legitimate benchmarking to promote innovation and best practice), it can also reduce or remove uncertainty and facilitate unlawful co-ordination and collusion. A number of potential anti-competitive risks emerge from both the use and provision of AI, e.g. ‘algorithmic collusion’, where automated software is used to knowingly or unknowingly share or monitor competitors’ prices and respond or adjust prices accordingly.
3. Merger Control: Competition authorities are actively examining deals between large digital companies and AI developers particularly with concerns that these could be “killer acquisitions”. Competition concerns also arise ‘horizontally’ (i.e. where a company acquires an actual or potential competitor), for example if the transaction results in knowledge, resources or data being combined, creating a powerful market position.
4. Foreign Direct Investment (FDI): Many jurisdictions globally are implementing or expanding regimes to review and intervene in transactions involving sensitive technology, where significant amounts of sensitive data is held, or where businesses are operating in areas of critical infrastructure. This can include, as is the case in the UK, a mandatory notification for acquisitions of businesses researching, developing or producing goods, technology or software that use AI, for tracking, advanced robotics or cyber security.
Actions for consideration
1. Risk assessment: Organizations should conduct risk assessments if implementing AI systems, or algorithmic pricing strategies, to identify potential competition law risks associated with the transparency of competitively sensitive information, and/or market power. Risks should be managed through careful design of systems, implementing policies, procedures, training and monitoring.
2. Consider regulatory filings early: With increasingly active competition authorities and governments alongside various mandatory notification requirements, considering merger control and FDI as early as possible is crucial for transaction timelines. Businesses using and developing AI are under particular scrutiny.
3. Be prepared for a dawn raid: With the resurgence of dawn raids by competition authorities around the globe, and an increased focus on AI, organizations should be prepared in case of a competition authority, or multiple authorities coordinating cross-border activity, initiate an unannounced inspection and investigation. This involves putting in place appropriate policies and procedures.
4. Help inform authorities’ views: Numerous competition authorities are already paying close attention to AI. For example, the UK CMA very recently published an update paper following its review of AI Foundation Models setting out its growing concerns as the market continues to develop rapidly, with Canada and South Korea also examining the AI sector. In market studies, competition authorities typically hold consultations and issue information requests to particular entities. With further market studies expected in the AI space, it presents opportunities for AI companies, or other stakeholders, to input and help inform competition authorities’ views.
Related contacts
Marjolein De Backer
Partner E: MarjoleinDeBacker@eversheds-sutherland.com T: +32 472 65 27 47 View profile
Julia Woodward-Carlton
Partner E: juliawoodwardcarlton@eversheds-sutherland.com T: +44 207 919 4770 View profile
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