Competition Law and Smart Manufacturing Competition Issues

1. Introduction

Smart manufacturing refers to manufacturing systems that integrate industrial Internet of Things (IIoT), artificial intelligence, robotics, cloud computing, sensors, digital twins, industrial software, automated decision-making, predictive maintenance, connected machinery and real-time production data.

These technologies can generate substantial efficiencies, but they also create new competition-law risks. A manufacturer may simultaneously control machinery, industrial software, data, cloud infrastructure, maintenance services, spare parts and distribution channels. This can allow traditional market power to be reinforced through digital ecosystems.

Competition law therefore examines not only traditional price competition, but also data access, interoperability, algorithmic coordination, software tying, technological lock-in, exclusive arrangements, refusal of access and acquisitions of emerging technologies.

2. Major Competition Issues in Smart Manufacturing

A. Market Definition

Smart manufacturing can create several overlapping markets:

1. Industrial machinery;
2. Industrial automation systems;
3. Robotics;
4. Industrial software;
5. Manufacturing execution systems (MES);
6. Cloud-based industrial platforms;
7. Predictive-maintenance services;
8. Industrial data services;
9. Sensors and control systems;
10. Aftermarket spare parts and maintenance.

A competition authority may therefore examine whether a firm has dominance in a primary equipment market, while simultaneously possessing market power in an associated software, data or aftermarket market.

Example

A company supplying industrial robots could require purchasers to use its proprietary:

• operating software;
• cloud platform;
• maintenance system;
• sensors; and
• spare parts.

The relevant competition question becomes whether customers can realistically switch to competing software or service providers.

3. Data as a Source of Market Power

Smart factories continuously generate:

• machine-performance data;
• production data;
• maintenance information;
• energy-consumption data;
• quality-control data;
• customer information;
• predictive-failure information.

Where one company controls access to commercially important industrial data, competition concerns may arise.

A dominant industrial-platform operator could potentially:

• deny access to competitors;
• provide data on discriminatory terms;
• impose excessive data-access conditions;
• use customers' data to compete against them;
• combine data from several markets;
• prevent interoperability with rival systems.

The competition analysis must distinguish legitimate protection of confidential information and intellectual property from exclusionary conduct.

4. Algorithmic Collusion

Smart manufacturing increasingly relies upon algorithms to determine:

• production levels;
• inventory;
• pricing;
• procurement;
• transportation;
• capacity utilisation;
• supply allocation.

If competing manufacturers use algorithms that independently learn from market information, prices can potentially become more coordinated even without a conventional agreement.

Competition authorities therefore examine whether algorithms are:

• merely independently optimising;
• deliberately programmed to coordinate;
• facilitating information exchange; or
• implementing an underlying agreement between competitors.

5. Information Exchange Between Manufacturers

Smart factories make real-time information exchange much easier.

Competitors could potentially obtain information concerning:

• production capacity;
• inventory;
• future prices;
• supply shortages;
• customer demand;
• production schedules.

Exchange of competitively sensitive information can reduce uncertainty between competitors and facilitate coordination.

This is particularly significant where an industrial-data platform serves several competing manufacturers.

6. Hub-and-Spoke Concerns

An industrial platform may become a hub connecting several competing manufacturers.

For example:

Manufacturer A →
Manufacturer B → Industrial Platform → Common Data/Algorithm
Manufacturer C →

If the platform collects competitively sensitive information from each manufacturer and makes that information available to competitors, competition concerns can arise.

The legal analysis will depend upon the structure of the information exchange, knowledge of the participants and whether there is an agreement or coordinated practice.

7. Vertical Restraints

Smart manufacturing often involves complex vertical relationships between:

• equipment manufacturers;
• component suppliers;
• software providers;
• distributors;
• system integrators;
• maintenance providers.

Potentially problematic arrangements include:

• exclusive supply;
• exclusive distribution;
• territorial restrictions;
• customer allocation;
• resale-price restrictions;
• minimum purchase requirements;
• technology restrictions;
• restrictions on using competing software.

The effects depend upon market power, duration, coverage and the ability of rivals to compete.

8. Tying and Bundling

A dominant industrial-equipment manufacturer might sell:

Industrial machine + proprietary software + cloud service + maintenance

and require customers to purchase all components from the same supplier.

Competition concerns become stronger where:

1. the supplier is dominant in the tying product;
2. the products are capable of being purchased separately;
3. customers are effectively forced to accept the tied product;
4. competitors are excluded; and
5. consumers or industrial customers suffer competitive harm.

9. Interoperability

Interoperability is particularly important in smart manufacturing.

A factory may need different systems to communicate:

Robot → PLC → MES → ERP → Cloud → Analytics

If a dominant supplier deliberately prevents rival systems from communicating with its equipment, competitors may be excluded.

Potential remedies can include:

• technical interoperability;
• API access;
• data portability;
• open standards;
• non-discriminatory access;
• separation of software and hardware functions.

10. Aftermarket Competition

Smart manufacturing equipment can have a very long operational life.

Once a customer purchases a machine, it may become dependent on the original manufacturer for:

• software updates;
• spare parts;
• diagnostics;
• calibration;
• maintenance;
• cybersecurity patches;
• technical data.

A manufacturer that faces substantial competition when selling the original equipment may nevertheless acquire significant power in the aftermarket.

This raises an important competition-law question:

Can a customer realistically switch suppliers after purchasing the original machine?

If switching is technically or economically difficult, aftermarket conduct deserves particular scrutiny.

11. Exclusive Dealing and Lock-In

Industrial customers may sign long-term contracts requiring them to obtain:

• software;
• maintenance;
• spare parts;
• cloud services;
• technical support

exclusively from the equipment manufacturer.

Such agreements may foreclose competing service providers where the manufacturer has significant market power.

The analysis should consider:

• contract duration;
• percentage of the market covered;
• switching costs;
• availability of alternative suppliers;
• technological compatibility;
• customer bargaining power.

12. Refusal to Supply or Provide Access

A dominant industrial platform may control an indispensable:

• API;
• technical standard;
• machine interface;
• data set;
• certification system;
• diagnostic tool.

A refusal to provide access can potentially constitute abusive conduct where the stringent legal requirements for refusal-to-deal/essential-facility liability are satisfied.

However, not every refusal to license intellectual property or disclose data violates competition law. Legitimate security, confidentiality, innovation and intellectual-property interests must also be considered.

13. Mergers and Acquisitions

Smart manufacturing encourages acquisitions of companies possessing:

• AI technology;
• industrial software;
• robotics;
• sensor technology;
• manufacturing data;
• cybersecurity systems;
• digital-twin technology.

Competition authorities may examine whether an acquisition eliminates an emerging competitor or enables the acquiring company to combine complementary assets in a way that forecloses rivals.

Important theories include:

Horizontal effects

Two competing robotics or industrial-software suppliers combine.

Vertical effects

A machinery manufacturer acquires an industrial-data platform.

Conglomerate effects

A company combines machinery, software, cloud and maintenance services.

Data-driven effects

The transaction combines datasets that competitors cannot replicate.

14. Six Important Case Laws

1. European Commission — Trucks Cartel

European Commission v Daimler, DAF, Iveco, Volvo/Renault and MAN

The European Commission found coordination among major truck manufacturers concerning pricing and the timing and pass-on of costs associated with emission technologies.

Relevance to smart manufacturing

The case demonstrates that sophisticated technological markets remain subject to the traditional prohibition against cartel coordination.

In a smart-manufacturing environment, similar coordination could occur through:

• automated pricing;
• shared platforms;
• common algorithms;
• industry data systems; or
• digital communications.

Principle: Digitalisation does not transform cartel conduct into lawful conduct.

2. European Commission — Car Emissions / Daimler, BMW and Volkswagen

The European Commission investigated coordination concerning emissions-control technology among major automobile manufacturers.

The case is important because competitors can potentially coordinate not only prices, but also technological development and product characteristics.

Smart-manufacturing significance

Competition law can therefore apply to coordination concerning:

• technical specifications;
• innovation;
• product technology;
• environmental technology;
• production standards.

Principle: Competition law protects innovation and technological rivalry as well as price competition.

3. European Commission — Auto Parts Cartels

The European Commission investigated and sanctioned multiple cartels involving suppliers of automobile components.

The cases involved products such as:

• bearings;
• wire harnesses;
• thermal systems;
• safety components;
• braking systems and other automobile parts.

Smart-manufacturing significance

Modern manufacturing frequently involves interconnected supplier ecosystems. A cartel at the component level can affect competition throughout the manufacturing chain.

This demonstrates the importance of examining competition at multiple levels of a smart manufacturing ecosystem rather than focusing only on final products.

4. T-Mobile Netherlands BV v Raad van bestuur van de Nederlandse Mededingingsautoriteit

Court of Justice of the European Union, Case C-8/08

The Court addressed the treatment of information exchange between competitors and explained that certain exchanges of competitively sensitive information can constitute a restriction of competition by object.

Smart-manufacturing relevance

An industrial-data platform could potentially create similar risks if competing manufacturers exchange information concerning:

• future prices;
• capacity;
• output;
• production plans;
• market strategy.

Principle: Information exchange can itself undermine competitive independence where it reduces strategic uncertainty between competitors.

5. Eturas UAB and Others v Lietuvos Respublikos konkurencijos taryba

CJEU, Case C-74/14

The case concerned an electronic booking platform through which a system message could facilitate coordinated restrictions on discounts.

Smart-manufacturing significance

This is particularly relevant to digital manufacturing platforms because competition law can apply where a common technological system facilitates coordinated conduct among independent businesses.

A platform does not necessarily become competition-law neutral merely because the coordination occurs electronically.

Principle: Digital platforms can provide mechanisms through which concerted practices are implemented.

6. AC-Treuhand AG v European Commission

CJEU, Case C-194/14 P

The case concerned the liability of an undertaking that facilitated cartel conduct without itself operating at the same level of the market as the cartel participants.

Smart-manufacturing significance

A third-party industrial platform, technology provider or data intermediary could potentially become involved in anticompetitive coordination.

For example, a software provider that knowingly designs or facilitates a system for competitors to coordinate could attract competition-law scrutiny.

Principle: Competition-law liability can extend beyond traditional sellers and buyers where an undertaking intentionally contributes to an anticompetitive arrangement.

7. United States v. Apple Inc.

Although arising in the e-books sector rather than manufacturing, the case provides an important framework for analysing coordination through a technological platform.

The U.S. courts examined arrangements involving competitors, pricing and an intermediary platform.

Smart-manufacturing relevance

The underlying lesson is relevant where an industrial platform:

• coordinates several suppliers;
• structures contractual relationships between competitors;
• facilitates common pricing mechanisms; or
• restricts independent commercial decision-making.

Principle: The presence of an intermediary or technological platform does not automatically eliminate antitrust responsibility.

8. Ohio v. American Express Co.

U.S. Supreme Court, 2018

The case concerned a two-sided transaction platform and the treatment of competitive effects across both sides of a platform.

Smart-manufacturing relevance

Industrial platforms can also be multi-sided:

Equipment manufacturers ↔ Industrial platform ↔ Factory customers

Software providers ↔ Industrial platform ↔ Manufacturers

Competition authorities may therefore need to examine effects across interconnected sides of the ecosystem rather than analysing only one transaction.

Principle: Platform markets can require analysis of interactions between multiple participant groups.

15. Competition Issues by Smart-Manufacturing Technology

16. Smart Manufacturing and Essential Facilities

In certain circumstances, competition concerns may arise where a dominant undertaking controls infrastructure that rivals cannot reasonably reproduce.

Possible examples include:

• unique industrial data;
• proprietary interfaces;
• dominant machine-control systems;
• essential certification systems;
• critical industrial platforms.

However, an undertaking is not automatically required to provide competitors access simply because its technology is commercially important.

The legal threshold for an essential-facility or refusal-to-deal theory remains significant.

17. Consumer and Industrial Customer Effects

Competition authorities may examine effects such as:

Price effects

Higher prices for machines, software or maintenance.

Quality effects

Lower service quality or reduced reliability.

Innovation effects

Reduced incentives to develop competing industrial technology.

Choice effects

Fewer compatible software or maintenance providers.

Data effects

Reduced ability of customers to control or transfer their industrial data.

Switching costs

Greater dependence on one technological ecosystem.

18. Possible Competition-Law Remedies

Where unlawful conduct is established, remedies may include:

1. prohibition of cartel arrangements;
2. termination of exclusive agreements;
3. non-discriminatory API access;
4. interoperability obligations;
5. data-access commitments;
6. prohibition of tying;
7. behavioural commitments;
8. structural divestiture in appropriate merger cases;
9. licensing commitments;
10. compliance programmes;
11. monitoring requirements;
12. fines and other statutory sanctions.

19. Compliance Framework for Smart Manufacturers

A smart-manufacturing company should establish controls covering:

Data governance

Identify what competitively sensitive information is collected and who can access it.

Algorithm governance

Audit algorithms for mechanisms that could facilitate competitor coordination.

Contract review

Review exclusivity, tying, bundling and minimum-purchase provisions.

Interoperability

Assess whether technical restrictions unnecessarily prevent rival systems from functioning.

Platform governance

Separate legitimate platform management from discriminatory treatment of competing businesses.

M&A review

Assess acquisitions involving AI, robotics, industrial software and data.

Employee training

Train sales, procurement, engineering and data teams regarding competition law.

20. Conclusion

Smart manufacturing does not create a separate exemption from competition law. Instead, it introduces new mechanisms through which traditional competition problems can arise.

The principal risks are:

• algorithmic collusion;
• industrial-data concentration;
• software tying and bundling;
• platform dominance;
• interoperability restrictions;
• aftermarket power;
• exclusive dealing;
• refusal of access;
• vertical foreclosure; and
• data-driven mergers.

The central competition-law challenge is therefore to distinguish genuine technological integration and efficiency from conduct that uses technological control to restrict rivals or reduce competitive choice.