The European Commission (“Commission”) has launched an antitrust sector inquiry into the Internet of Things (“IoT”) sector for consumer-related products and services within the European Union. The Commission is looking to develop a better understanding of how this fast-moving sector works and some of the potential issues that may arise from a competition law perspective. The regulator intends imminently to send requests for information to a range of players in this sector and already plans to publish a preliminary report on its findings in the spring of 2021. As such, the inquiry offers companies in the IoT sector an opportunity to steer the Commission’s approach to competition in this area.

On 16 July 2020, the Commission announced that it has launched an antitrust sector inquiry into the consumer IoT sector – a sector offering consumer-related products and services that allow users to control their surroundings through the internet – for example, through a voice assistant or a mobile device. A sector inquiry, based on Article 17 of Regulation 1/2003, is an investigation into a sector(s) of the economy that the Commission carries out when it has reason to believe that the sector in question is potentially not functioning properly from a competition law perspective. The IoT review follows other sector inquiries conducted in recent years by the Commission (in financial services, energy, pharmaceuticals and, most recently, in e-commerce).

What is the focus of the inquiry?

Although the IoT sector is relatively new, in certain instances it is characterised by strong network effects and economies of scale. As such, the Commission appears to be concerned that certain practices by market players have the potential structurally to distort competition. In particular, the Commission is looking into whether practices involving restrictions on data access and interoperability, forms of self-preferencing and the use of proprietary standards (among companies active in this space) might lead to less competitive markets. In addition, the Commission may be worried that the IoT space is at a so-called “tipping point” (ie. whereby an otherwise competitive market is at risk of being consolidated among fewer, stronger players and become irreversibly monopolized).

The inquiry will focus on products and services (and companies producing/providing them) such as wearable devices (smart watches or fitness trackers, among others) and smart home consumer devices (such as fridges, washing machines, smart TVs, smart speakers and lighting systems). These often rely on significant amounts of user data creating a risk, according to the Commission, that data-rich companies will be able to control parts of the digital market. The Commission will also gather more information on the services available via smart devices, such as music and video streaming as well as voice assistants, and will investigate whether such services limit the options available to customers.

Margrethe Vestager, Executive Vice-President of the Commission and Commissioner for Competition, confirmed that the Commission will be particularly interested in:

• The products sold and how the markets for those products work;
• How data is used, collected and monetised; and
• How products and services in this sector work together, including potential problems with making them interoperable.

Why this is significant for companies active in the IoT space?

The information gained from the inquiry will assist the Commission in understanding the nature, prevalence and effects of potential anti-competitive conduct, if any, in the IoT space. Should the Commission identify specific competition concerns as a result of the inquiry, it could open antitrust investigations (as it has in the past) to ensure that market players comply with Articles 101 and 102 of the Treaty on the Functioning of the European Union (relating to the prohibition of restrictive business practices and abuse of a dominant position respectively).

What’s next?

The Commission has announced that it will send requests for information to over 400 companies within the IoT sector for consumer-related products and services in Europe, Asia and America. Companies of particular interest to the Commission are thought to be smart device manufacturers, software developers and related service providers.

The Commission plans to publish a preliminary report on the replies for consultation in the spring of 2021 and a final report is expected to follow in the summer of 2022. Compared to other sector inquiries which usually take a number of years to complete, the Commission is pursuing a much tighter timeline than usual.

As outlined above, the Commission already seems to have a narrow idea of the issues and concerns it is looking to identify and potentially further investigate. By shortly sending requests for information to companies active at all levels of the IoT value chain, the Commission is looking for information to help it shape its approach to competition. This means that companies which are active in the IoT sector can play an important role in informing and steering the Commission’s approach.

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The new president of the European Commission, Ursula von der Leyen, committed to introducing a new European regulation for artificial intelligence (AI) in Europe during her first 100 days in office. While a fully fledged regulation is unlikely in that timeframe, we can expect to see a vision for a new regulatory framework for AI in Europe very soon, possibly this month.

What can we expect from such a regulation and what should AI developers and businesses be doing to prepare for it?

The EU is positioning itself as a leader in trustworthy, human-centric artificial intelligence. The European Commission set out its vision for AI, which supports “ethical, secure and cutting-edge AI made in Europe”.

Three pillars underpin the Commission’s vision: increasing public and private investments in AI to boost its uptake; preparing for socio-economic changes; and ensuring an appropriate ethical and legal framework to strengthen European values.

Trustworthy AI

To implement this vision, the Commission established the High-Level Expert Group on Artificial Intelligence (HLEG-AI), which published its Ethics Guidelines for Trustworthy AI in April 2019. These guidelines have received considerable international attention and are widely regarded as the most comprehensive framework for ethical and trustworthy AI in the world.

Trustworthiness is a prerequisite for people and societies to develop, deploy and use AI systems. If AI systems – and the human beings behind them – are not demonstrably worthy of trust, the uptake of AI will be hindered.

Why would this matter? AI offers vast social and economic benefits in health, in education, in transport and in sustainable development. Trust is key. Like many other settings, such as trust in aviation technologies, nuclear power or food safety, it is not simply the components of the AI system but the system in its overall context that may or may not inspire trust.

Lawful, ethical, robust

In its work, the European Commission’s HLEG-AI, building upon the EU’s Charter of Fundamental Rights, defined ‘trustworthy AI’ applications along three axes: they must be lawful, ethical and robust. To make the concept more practical, the HLEG-AI translated these three components into a set of requirements that AI systems must satisfy in order to be considered trustworthy.

Trustworthy AI systems must: protect human agency and ensure human oversight of their operation and impact; be technically and environmentally robust and safe to use; respect individual privacy and be based on good governance; ensure they are non-discriminatory and fair; protect societal and environmental wellbeing; and be transparent and accountable.

The operationalisation of trustworthy AI in practice is defined through an assessment list that the HLEG-AI has developed and is currently refining based on broad public consultation across Europe, as well as deep-dive interviews with representative stakeholder organisations.

We can expect that the upcoming regulatory context for artificial intelligence in the EU will be closely aligned with the principles of trustworthy AI, although it is important to note that the HLEG-AI has no role in drafting such regulation.

Facial recognition

There is a growing sense that rather than introducing a generic AI regulation, there will be a more nuanced risk-based approach, possibly one that is application and technology-specific. Some of the high-risk domains that generate a significant amount of debate include healthcare, judicial decision-making, and mass citizen surveillance.

For example, facial recognition raises issues such as a person’s right to privacy, the gathering of personal data without consent and the potential for discrimination. We are likely to see restrictions on the use of facial recognition, possibly even a ban for some period of time in specific settings.

Some of the technology-specific issues relate to how we can ensure that, for example, data-driven AI systems are trained and rigorously evaluated in order to be confident that they are free of harmful bias.

Irish opportunity

Ireland has a great opportunity to become a leader in trustworthy AI. Ireland is the European home to many of the world’s leading companies in data, AI and technology. There is significant national strength in the commercial, academic and civil society spheres. Trustworthy AI will become a commercial imperative.

Even if a new European AI regulatory framework was not to materialise, consumers are becoming highly sensitive to personal data privacy, the impact of technology on the integrity of democracy, and the influence of personalisation and targeting on individual autonomy. Trustworthy AI will become the de-facto standard for AI-based technologies to be accepted by consumers.

We can, and should, take a leadership role here. Ireland has an excellent reputation in artificial intelligence and we have the opportunity to make Ireland a beacon of best practice in trustworthy AI.

Businesses in Ireland can lead by stepping up and grasping this opportunity by developing protocols, tools and services to support the auditability and transparency of the AI systems they build and deploy.

Ireland is a country that is respected and trusted throughout the world because of our reputation in areas such as safe food production, our environment, our tradition of international peace-keeping and diplomacy, as well as our achievements in arts and culture. We should establish a world-leading reputation for trustworthy AI. We have the ingredients, the expertise and the ecosystem to make it happen.

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Artificial intelligence and automated decision making processes can pose certain threats to consumers. Find out how the European Parliament wants to protect them.

What is artificial intelligence and why can it be dangerous?

As learning algorithms can process data sets with precision and speed beyond human capacity, artificial intelligence (AI) applications have become increasingly common in finance, healthcare, education, the legal system and beyond. However, reliance on AI also carries risks, especially where decisions are made without human oversight. Machine learning relies on pattern-recognition within datasets. Problems arise when the available data reflects societal bias.

Artificial Intelligence in decision-making processes

AI is increasingly involved in algorithmic decision systems. In many situations, the impact of the decision on people can be significant, such as access to credit, employment, medical treatment, or judicial sentences. Automated decision-making can therefore perpetuate social divides. For example, some hiring algorithms have been found to be biased against women.

How to protect consumers in the era of AI

The development of AI and automated decision-making processes also presents challenges for consumer trust and welfare. When consumers are interacting with such a system, they should be properly informed about how it functions.

The position of the Parliament

In a resolution adopted on 23 January, the internal market and consumer protection committee urges the European Commission to examine whether additional measures are necessary in order to guarantee a strong set of rights to protect consumers in the context of AI and automated decision-making.

“We have to make sure that consumer protection and trust is ensured, that the EU’s rules on safety and liability for products and services are fit for purpose in the digital age,” said German Greens/EFA member Petra De Sutter., chair of the internal market and consumer protection committee.

Next steps

MEPs will vote on the  resolution in mid February. After that it will be transmitted to the Council and the Commission. The Commission should present its plans for a European approach to AI on 19 February.

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