The Data Act: a facilitator of competition in aftermarkets

The Data Act creates a cross-sectoral governance framework for data access and use by legislating on matters that affect relations between data economy actors. It also provides incentives for horizontal data sharing. This article’s contention is that the Data Act incentives for horizontal data sharing are likely to remove the barriers that hinder the application of competition law to data-driven aftermarkets, which in turn will also contribute to unlocking innovation.

The Data Act has removed several barriers that hinder the application of antitrust in data-driven aftermarkets. We shall consider the following three barriers removed:

• identification in a transparent and understandable manner of the parties entitled to have access to the data generated
• removal of IP protection in the form of Database rights
• rebalance the contestability of aftermarkets vs investment/development incentives in data driven markets

Rights and obligations of parties entitled to have access to data

Uncertainty about the rights and obligations of the various parties involved in the development of the data generated by an IoT product hinders the application of competition law because the manufacturer of the product typically appropriates control over the data to the detriment of the user that generated it.

If users of an IoT product are not aware of their rights over the data generated by their use, this is fertile ground for the manufacturer to appropriate such data contractually or otherwise.
This contractual stronghold by the manufacturer over data generated in the primary market will likely contribute to lock-in effects and hinder market entry by competing players in the aftermarket and even in the primary market (i.e., replacement of the original equipment). The Data Act rebalances the negotiation power of all parties involved in the generation of data and prevents the abuse of contractual imbalances by the party with a significantly stronger bargaining position, notably the manufacturer.

By reinforcing the right of the user of an IoT product to access the data generated and by limiting the freedom of contract of the manufacturer of that product, the Data Act facilitates the portability of the data by the user of the equipment to third parties, and thereby allows for the development of complementary products and a competitive offer of services.

Aftermarket services providers and users of IoT products whose rights under the Data Act are being restricted, may resort to competition law to ensure that their rights are respected. Attempts to hinder the portability of data generated by the users of IoT products are likely to constitute restrictions of competition in breach of Articles 101 or 102 of the Treaty on the Functioning of the EU (TFEU) because they limit the development of competitive aftermarkets.

Removal of IP protection in the form of database rights

If the data generated by IoT products were to be proprietary of one party, this would hinder any circulation of such data by anyone other than by the holder of such proprietary right. Therefore, competition law cannot apply where competition is not possible.

The Data Act reviews certain aspects of the Database Directive and clarifies that databases containing data from IoT products should not be subject to separate legal protection ensuring that they can be accessed and used.

Rebalancing the contestability of aftermarkets vs investment/development incentives in data driven markets

Economic theory posits that if companies could easily access an input, they would lack motivation to develop it. If they cannot fully benefit from their innovations due to competitors being granted access, they might be less likely to invest in developing such input.

The Data Act recognises that IoT product users are also developers of the data generated by their IoT products thus broadening the scope of data rights holders beyond manufacturers to include product owners. Accordingly, the number of rights holders of data is not limited to manufacturers of IoT products and also includes the owners of the IoT products that generate the data with their use.

The Data Act does not recognise a right of property in relation to data. Access and portability of data are more limited forms of rights than the right of property. Interfering with those limited rights for reasons of competition law (e.g. contestability of aftermarkets) would be a less draconian intervention. In order to sustain incentives for IoT manufacturers to invest in high-quality data and avoid excessive interference in their data co-generation rights, the Data Act imposes two restrictions on access to data:

• those seeking data access must cover transfer costs; and
• the use of shared data in direct competition in the primary market is not allowed

For more information contact José Rivas.

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