Legal Update: Blockchain and Competition Law

Tags: Blockchain Digitalisation Rechtliches

Anyone trying to explore new business opportunities in the energy sector will carefully try to avoid potential conflicts with competition law: As is widely known, respective infringements can give rise to high fines of up to 10% of the groups’ annual turnover; respective agreements are void under civil law and the offending party may in addition be subject to claims for damages.

Blockchain undoubtedly offers an enormous business potential, especially in the energy sector. Recent articles by Carmen Schneider and by Matthias Stettler under this blog analysed the significance of blockchain in this regard and explained some of the legal and social challenges that go along with it. This article will analyse potential implications of blockchain from a competition law angle. It will kick off by briefly describing the relevant competition law rules (No. 1). It will then examine the underlying blockchain technology (No. 2) and look at potential areas of use (No. 3). We close by looking at some potential implications resulting from merger control law (No. 4).

1. Introduction

Competition Law in Germany and throughout the EU prohibits all agreements between undertakings and concerted practices which have as their object or effect the restriction of competition (Art. 101 TFEU, Art. 1 and 2 of the German Act against Restraints on Competition (ARC)). This includes among other things (i) directly or indirectly fixing purchase or selling prices or any other trading conditions, (ii) limiting, controlling or allocating production, markets, technical development, or investment, (iii) sharing markets or sources of supply. Overall, it is essential that competitors do not engage in the collusion of market behaviour. Such collusion may arise, for example, when strategically relevant information is exchanged, e.g. current or future information on prices (inclu¬ding rebates, costs, net or gross margins), quantities, R&D projects and the like. Cooperation agreements among competitors, e.g. on R&D or on standardization, also require competition law scrutiny.

Some types of collusive behaviour are hardly ever justifiable under German and EU competition law and therefore come close to per-se infringements. This applies, for example, to price fixing among competitors. Other types of behaviour are often problematic only if certain market share thresholds are exceeded. Joint purchasing among competitors, for example, will usually fall under a safe haven if (among other things) the parties’ joint market shares remain well below 15%1. All in all, the parties’ (single and/or joint) market shares are often crucial for the competition law assessment.

In some situations, companies hold particular high market shares and are in a position of strength. However, such a dominant position2 is not in itself anti-competitive. This is the case only if the company exploits its position. Examples of such abuse of dominance include among other things (i) charging unreasonably high prices, (ii) applying dissimilar conditions to equivalent transactions with other trading parties and thereby placing them at a competitive disadvantage or (iii) agreeing on exclusivity, i.e. on contractual obligations that require customers to purchase specific goods or services exclusively from a particular supplier as well as (iv) agreeing on rebates that induce exclusivity (Art. 102 TFEU, Artt. 19, 20 GWB).

2. Blockchain Technology in itself

We kick off, by asking whether the underlying blockchain technology in itself does trigger competition law concerns and then move on to specific fields of use. Our assessment will be based on EU and German competition law rules, while bearing in mind that the technology can easily be applied cross-border may therefore affect several jurisdictions in parallel, both inside and outside the EU.

The technical details of blockchain technology (especially if used for crypto currencies) have been described in great detail in numerous publications3: Blockchain offers a means to transact directly (peer to peer) without the involvement of any third-party intermediary, e.g. a financial institution. This is achieved via the use of proof-of-work to record a public history of transactions: Several transactions are combined into blocks. These blocks are then verified by the network participants. If the majority of the network verifies the information, the entire block is encrypted and stored unchangeable in the Blockchain. Each block contains the checksum, i.e. entire transactional history, of the previous block and is therefore “inseparably” connected to it. Through this process, the data stored in the Blockchain is expanded, but not changed or overwritten. It is practically tamper-proof.

All in all, this technology in itself does not seem to trigger competition law concerns, for the following reasons:

  • The exchange of blockchain data (i.e., of individual hashes forming a blockchain) via a multitude of participants does not seem to relate to “sensitive” or “strategically relevant” data, the exchange of which may qualify as illicit behaviour. On the contrary, blockchain operates on the very premise that the accuracy of individual transactions is confirmed by the majority of the network participants. In other words, the underlying (blockchain) data is public by its very nature and therefore cannot be viewed as “sensitive”. (This applies at least for public blockchains.) This applies irrespective of the fact that based on the underlying agreements between the participants, distinct transactions signified via blockchains may “represent” a sensitive piece of information (see below).
  • However, the fact that all participants, including actual or potential competitors, to (a distinct) blockchain tacitly agree on the uniform application of this technology (as otherwise the blockchain cannot operate) may suggest the presence of underlying standardization agreements. While such agreements are often pro-competitive since they ensure interoperability and compatibility, they can under certain circumstances unduly restrict competition – for example, through a reduction in price competition, foreclosure of innovative technologies and exclusion of, or discrimination against, companies by preventing access to the standard4. However, none of those concerns seem to play a role for blockchain. The technology as such is fully open and therefore agnostic to restrictive effects on competition.
  • Likewise, there appears to be no room for an abuse of market power as may occasionally occur where undertakings hold intellectual property rights to a distinct industry standard. Being open source, blockchain (in particular the initiation of new blockchains) is open to the entire public. Access to and reproduction of it is not limited due to contrary IP rights such as protected know how or patents.

Depending on the field of use of blockchain technology, however, there may be scenarios in which the underlying (explicit or tacit) agreements among the participants qualify as undue information exchange or unduly limit access to certain goods or services or otherwise adversely affect competition. However, those are questions that are not intrinsic to blockchain technology in itself but rather attributable to specific areas of use or to the limitations applied by the participants to a distinct blockchain.

3. Possible Competition Law Implications of some Areas of Use

Blockchains can be applied to a great variety of economic models and potential areas of use, e.g. to crypto currencies (such as Ethereum or Bitcoin), to peer-to-peer platform trading as well as to the tokenization of tangible and intangible assets, services and data. Please refer to a recent paper by the Bundesverband Blockchain for further details on and possible categorizations of tokens. The association suggests to distinguish between cryptocurrency tokens (such as Ether), utility tokens (i.e., tokens that are supposed to convey some functional utility to token holders, such as access to a distinct platform) and security tokens (which are comparable to conventional instruments described in the EU Markets in Financial Instruments Directive).

– Crypto Currencies and Cryptocurrency Tokens

We assume that crypto currencies instead of regular currencies such as the Euro are used to conduct transactions or payments in exchange for a share (i.e. a “token”) in tangible or intangible assets, shares, services or business models.

From a competition law angle, the above analysis on blockchain technology as such (see above) also applies to the introduction and usage of crypto currencies: No strategically relevant information is exchanged. There is also no room for an abuse of dominance. On the contrary, being a new payment method which is particularly suitable for miniscule transactions (impracticable via standard currencies), crypto currencies are very likely “competition-friendly”. They open or allow for the creation of new markets as well as entirely new marketing and investment models. This implies, of course, that the relevant regulatory frameworks, e.g. for financial instruments, are observed5.

However, the more common crypto currencies, ICOs and tokenization models become, the more emphasis should be put on the fact that they (may) substitute actual payments and therefore actual turnover generated by the parties. If those transactions are neglected, we run the risk of losing track of important business areas in which the parties involved are, in fact, active and which may in one way or the other carry both risks and chances to competition.

Under competition law in Germany and the EU, the parties’ annual “turnover” in a distinct business segment (“market”) is (still) viewed as an essential starting point to determine the parties’ market positions and to appraise potential restrictive effects on competition. For example: We assume that the EEA-wide market for the production and sale of cuckoo clocks amounts to EUR 50 million p.a. The two largest manufacturers of cuckoo clocks, A and B, each generate approx. EUR 12.5 million p.a. via the sale of those clocks. If A and B were to consider a joint production agreement, their significant joint market share of approx. 50% would likely pose a significant obstacle to such cooperation under competition law.

The very notion of turnover, however, is based on standard currencies such as the Euro. It does not cover transactions which have neither been converted to a standard currency nor are (so far) convertible because such conversion has not yet taken place and/or is not intended. Moreover, different to a standard currency that can be used uniformly across all types of transactions, each cyber currency (and tokenization model!) is designed for a specific field of use. It is intrinsic to those models that despite their general “openness” and “publicness”, each currency and tokenization model is limited by its scope. For this simple reason, no uniform and “absolute” conversion rate to a standard currency can be applied across all cyber currency or tokenization models existing in parallel. It is unclear how competition law should reflect on this fact in the future. The challenges implied in finding new non-turnover-related measurements to assess market power or in general to determine the typically admissible behaviour among certain parties are not new: This is demonstrated by the recent antitrust proceedings of the German Federal Cartel Office (FCO) against Facebook for abuse of market power due to the collection and use of data from third-party sources6.

– Utility Tokens

It is possible that in the future, entire industry segments or important assets (tangible and intangible) are tokenized.

As in the old economy, each of those business models will have to be examined separately irrespective of the label applied to it. The competition law assessment will have to start by examining the underlying agreements between the parties, their actual day-to-day implications in practice as well as the likely effects on other market participants and competition. To that end, the parties’ actual and potential market positions will play a decisive role. As in the old economy, the participants (token holders) will have to ensure that competitors do not and cannot engage in the exchange of sensitive information (e.g., on prices, margins, trading conditions, customers, projects) or otherwise collude – be it via the blockchain or otherwise. This applies in particular to tokenization models that aim at creating peer-to-peer trading platforms or other types of peer-to-peer exchange. The more important (“dominant”) individual platforms (threaten to) become, the more will the parties involved have to ensure that access to and participation in those platforms is based on the principles of non-discrimination and transparency. Extra caution also needs to be applied regarding the use of data generated on or gained via those platforms. Platform initiators will need to anticipate those points at an early project stage to avoid liability under competition law both for themselves and for token holders. It should be recalled that according to the European courts companies may also be held liable for antitrust infringements of third parties they employ (e.g. for commercial agents or for IT service providers).

To address the specifics of tokenization, new or refined criteria for the substantive competition law assessment may be required in future. They could help to evaluate the activities of token holders (investors) as well as to examine the set-up, operation and access to (at least some of) those tokenization models and platforms. Newly introduced Article 18 (3a) ARC shows a step in that direction: The provision deals with various phenomena of the digital economy, particularly in multi-sided markets (especially “platforms”), which should be relevant when assessing the market position of companies. It mentions indirect network effects, parallel usage of several services (“multi-homing”), switching costs and access to relevant data. Interestingly, it fully dispenses with quantitative criteria (i.e., any type of objective scale or measurement) but merely states that the criteria mentioned are relevant for the assessment. While this leaves the FCO with a significant margin of appreciation, the obvious downside to this is a significant lack of legal certainty. The parties will find it difficult to determine what is lawful and what is not. For this reason, informal consultations with the relevant antitrust authorities may become increasingly necessary in the future.

Given the effects-based approach of competition law, competition authorities in the EU and Germany will likely adopt jurisdiction in all cases which may actually or potentially affect markets in the EU. Of course, this won’t deter competition authorities outside the EU to initiate investigations based on their own competition law standards.

4. Some thoughts on merger control law

Depending on the business idea the parties have in mind, it cannot be excluded that some of the tokenization models (especially if used in a funding context) trigger merger filing requirements with one or several competition authorities. This seems particularly likely, in a situation where relatively few established token holders, e.g. large undertakings with significant turnover, (intend to) hold tokens from a single ICO are each provided with significant voting or even blocking rights. From a merger control law angle, this situation resembles the foundation of a jointly-controlled joint venture7. As is well known, depending on the parties’ actual turnover, their actual voting and participation rights and on the general structure of the platform (“full-functionality”), this may well trigger a filing requirement with the EU Commission, with the FCO and/or with other competition authorities. A similar question may also arise when platforms are installed by a few established players on which tokens are traded.

5. Conclusion

Our analysis has revealed that the underlying technology in itself is “agnostic” to competition law concerns. This also applies to the cryptocurrencies; depending on the field of use, however, competition law concerns may arise. The parties should be guided by the idea that what was not allowed under the “old economy” will not be allowed in a “tokenization” or “blockchain” context. The analysis further revealed that German and EU competition law is (intrinsically) built on a turnover-based test which renders it difficult to “translate” token-based activities. However, initial legislative approaches to overcoming this issue are already in place.



Dr. Daisy Walzel Partner, Head of Competition (Germany)
Daisy advises on all aspects of German and EU competition law, specialising in merger control and competition law compliance. She also represents clients in cartel proceedings before the EU Commission and the German Federal Cartel Office and in abuse of dominance cases.

Daisy has navigated numerous transactions through merger control proceedings before the German Federal Cartel Office and/or the EU Commission. She also helps businesses resolve competition law issues in their day-to-day businesses, in distribution contracts (e.g., regarding questions of resale price maintenance, limitations to online or cross-border trading, non-compete clauses or sole supply/trading clauses).

If you have any questions regarding this article, please feel free to contact Dr. Daisy Walzel.

DWF Germany
Rechtsanwaltsgesellschaft mbH
Habsburgerring 2
50674 Köln

T + 49 (0) 221 534098 0

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1Commission Horizontal Guidelines of 2011, No. 208.
2In Germany, single market dominance is assumed if one undertaking holds a market share of at least 40% (Art. 18 para. 4 ARC). Under European Law, pursuant to ECJ case law, single market dominance is assumed if one undertaking holds a market share of at least 50% (based on ECJ case law).
3Please refer, for example, to Daniel Drescher, Blockchain Basics, A non-technical introduction in 25 steps, 2017; Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System
4Commission Horizontal Guidelines of 2011, Section 7.
5See, for example, the BaFin’s publications on this point:
6Please refer to the FCO’s press release of 19 December 2017.
7Certain transactions, including in particular the acquisition of (de facto or de jure) control or (in Germany) the acquisition of 25% or more of the shares or voting rights in another entity, trigger a merger filing requirement with the FCO, other national competition authorities or the EU Commission if certain turnover thresholds are met. In Germany, for example, the relevant turnover thresholds are met if the undertakings concerned in their last financial year jointly generated a worldwide turnover of more than EUR 500 million, one undertaking concerned generated a domestic (= German) turnover of more than EUR 25 million and another undertaking concerned generated a domestic turnover or more than EUR 5 million (Art. 35 para. 1 ARC). In the plain case of a 100%-acquisition undertakings concerned are the Acquirer (to whom the entire acquirer’s group turnover is attributed) as well as the Target (including any controlled subsidiaries). However, in case a joint venture (JV) is established (or created via the partial sale of shares), in which several parties exercise control, all parties exercising control post transaction (including the seller, as the case may be) as well as the JV itself are viewed us undertakings concerned. For this reason, the mere establishment of a jointly controlled JV between “large” companies may in itself trigger a merger filing requirement in Germany despite the fact that the JV as such is small or a greenfield operation which does not yet generate turnover.


Dr. Daisy Walzel, Partner DWF Germany, Head of Competition (Germany)

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greenmatch is the leading web-based financial software for renewable energies. The highly flexible application models the complete financial project lifecycle of your wind, photovoltaic, hydro and biomass projects and optimizes your workflow. Its collaborative and integrative approach allows projects & portfolios to be analyzed and executed more efficiently, comprehensibly and reliably. Our solutions empower project developers, investors and banks in making reliable decisions and in increasing the success of their transactions. greenmatch is an innovative model to limited traditional spreadsheet applications.