Blockchains and competition law

Transporters developing or using blockchain technology in South Africa must ensure that they do not breach competition law and do not create platforms for collusion among rivals, warns MALCOLM HARTWELL, Durban-based director of law firm Norton Rose Fullbright

Distributed ledger (DL) technology in the form of blockchains, smart contracts and cryptocurrencies are revolutionising trade and transport. This is partly due to the efficiencies DL technologies create by automatically managing processes, and by enhancing cooperation between all of the parties involved in international trade and transport.

Transporters and logistics companies in South Africa contemplating blockchain solutions with competitors need to ensure that their improved cooperation is not in breach of competition law systems in the countries in which they provide a service. In the larger transport solutions, there will be greater efficiencies, more information, greater cooperation and a higher risk of being in breach of the law.

The Federal Maritime Commission (FMC) in the United States has reminded us of the importance of testing DL solutions against competition law by publishing a working document, which, if agreed, will grant immunity for collaboration on the development of TradeLens. TradeLens is a container booking platform used by all the major container lines and was originally set up by IBM and Maersk.

The agreement published by the FMC will allow ship owners participating in TradeLens to discuss what data they will provide to TradeLens and the terms under which that data will be used without being subject to liability for breach of competition law.

The agreement expressly prohibits ship owners from sharing information on issues such as the tonnage they will commit to the system, or the rates they intend charging. It seems likely that the agreement will be approved by the FMC.

DL technology and its application in every aspect of the transport and trade environment will continue to evolve. The underlying characteristics that make it so powerful will remain, however, namely that it is decentralised and transparent. This may run contrary to requirements of competition law that prefers competitors to operate independently of one another and, in particular, to limit any exchange of competitively sensitive information.

Decentralisation and transparency may make markets more efficient and competitive, but where competitors participate in DL solutions they need to be aware of their competition law obligations. Issues they need to deal with will include membership rules, information exchange and the adoption of technical standards that may have an exclusionary or standardising effect.

The South African Competition Commission has issued draft guidelines on the exchange of information among competitors. The guidelines acknowledge that information exchange can be efficiency enhancing and pro-competitive, however the circumstances where this is so can be quite limited.

Following amendments to the Competition Act in 2019, non-compliance with guidelines from the Commission can be an aggravating factor in the determination of administrative penalties, which have now increased to a maximum of 25 percent of South African turnover and exports for repeat offenders.   

As such, any entity involved in DLs that involve competitors must ensure that there are appropriate measures in place to safeguard the information that needs to be exchanged, making certain it complies with the Commission’s guidelines and does not expose parties to competition law risk and hefty penalties.