DOJ Antitrust Signals Focus on Blockchain Competition
Blockchain competition may soon find itself in the antitrust crosshairs. In a recent speech on protecting innovation through antitrust,1 the head of the Department of Justice’s (“DOJ”) Antitrust Division, Assistant Attorney General Makan Delrahim, signaled that DOJ plans to focus some of its attention on blockchain technology. Delrahim noted the importance of the Antitrust Division understanding this emerging technology to avoid a situation where “entrenched monopolists have taken anticompetitive actions to eliminate the threat from blockchain technology to their business models.”
To get up to speed quickly, the Antitrust Division has launched a new training initiative through which Antitrust Division staff and the front office complete foundational blockchain technology coursework. Delrahim and some staff have already completed the course, which, according to Delrahim, has highlighted the “transformational effect that blockchain solutions may have on technology, businesses, and society in general over the coming years,” including “many industries and issues the Division analyzes, from financial services and credit monitoring to healthcare and health insurance.”
Delrahim touted the potential for blockchain-based platforms to prevent or limit market power by eliminating or reducing the role of the intermediary that typically operates between platform participants, thereby enabling “all the benefits of network effects, while minimizing or eliminating the market power that usually comes with those benefits.” But he also raised concerns about the potential for abuse of blockchain technology by firms already holding market power. Delrahim cited as a risk the potential for incumbent firms to use blockchains to collude or exclude competition, using a hypothetical in which a seafood harvester conditions access to a permissioned blockchain offering supply chain tracking and quality assurance on competitors agreeing to certain prices or output quantities. Companies could also use smart contracts to implement anticompetitive schemes, Delrahim suggested.
Delrahim’s comments make clear that the Antitrust Division is gearing up to closely scrutinize conduct and ventures that involve blockchain technology, to ensure that current companies are neither impeding the development and implementation of this new technology nor using blockchain technology to coordinate with competitors in violation of antitrust laws.
Given the new and nuanced antitrust risks that this technology may present, we recommend that companies seek the advice of antitrust counsel before engaging in blockchain projects with actual or potential competitors. Below, we have provided a few high-level implications of Delrahim’s recent comments.
- The Antitrust Division’s training initiative will equip staff with knowledge regarding legitimate business uses for blockchain technology. This means that the Antitrust Division will be more likely to accept legitimate business justifications for blockchain-based partnerships between industry competitors, but also will identify and scrutinize projects where the addition of blockchain technology appears to be a pretext for competitors to coordinate their activities.
- Permissioned blockchains are likely to receive closer scrutiny, as they create the potential for existing members to condition the admission of new members on their participation in anticompetitive conduct. Permissioned blockchains could also draw complaints from excluded competitors.
- The Antitrust Division is examining how blockchain technology will impact network effects and incentives to build and develop blockchain-based platforms. Developments here could impact arguments made in competition cases involving traditional digital services and platforms.
- Acquisitions of blockchain companies that are reportable under the Hart-Scott-Rodino Act may receive close attention.
1 Makan Delrahim, Assistant Attorney General, Dep’t of Justice, Never Break the Chain: Pursuing Antifragility in Antitrust Enforcement, Remarks at the Thirteenth Annual Conference on Innovation Economics (Aug. 27, 2020), https://www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahim-delivers-remarks-thirteenth-annual-conference.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.