European Commission launches inquiry into Internet of Things

The inquiry will focus on how IoT ecosystems handle personal data, whether they facilitate “self-preferencing”, as well as questions over interoperability, exclusivity, and the use of proprietary standards. It will examine a range of IoT tools, from intelligent virtual assistants, like Amazon’s Alexa, to 'wearables' and smart appliances.

Announcing the inquiry, the Commission said the IoT sector had already acquired characteristics that indicate the possible existence of company practices that may structurally distort competition.

Competition law expert Robert Vidal of Pinsent Masons, the law firm behind Out-Law, said: “This inquiry is not surprising; the Commission is keen to be seen as proactive given the accusation that competition law regulators have been slow to understand concerns arising in the tech sector.

“It wants to acquire an up-to-date understanding of a rapidly evolving area so it can identify and target potential competition law infringements. The Commission is determined to influence the IoT's evolution, instilling good practices in terms of competition, consumer protection and privacy,” Vidal said.

Vidal said the Commission’s focuses reflected a convergence of concerns over privacy, consumer protection, competition and intellectual property, and that the inquiry should be seen as only the newest front in the Commission's campaign to more closely regulate the EU's digital market. He said businesses operating in digital markets should pay close attention to the results of the inquiry and the potential ramifications for them, he said.

The Commission has begun its work by sending questionnaires to manufacturers of smart appliances, online service providers, and manufacturers of wearables. The surveys address issues such as the nature and extent of the interactions with intelligent virtual assistants, with other questions addressing exclusivity arrangements and how personal data is handled.

Other themes include the standards and protocols that govern the use and operation of the various products and services, as well as how the services are integrated into devices – whether an application is downloaded or preinstalled, and whether devices can function independently or require an internet connection.

The inquiry will focus heavily on privacy and data concerns with the aim of finding out more about the nature of the data collected, whether through voice recognition, facial recognition, devices that collect data through motion control, as well as data that is collected through the use of apps and other tracking such as online purchases or search habits.

Under the EU’s General Data Protection Regulation there is a requirement that devices should only collect data that is necessary for use and the inquiry should obtain information about how clearly and concisely IoT devices are providing information to consumers about the data collected and how it is used.

The Commission is seeking to understand the five “most frequent use” cases and whether the data is aggregated, anonymised or otherwise processed.

Data protection expert Michele Voznick of Pinsent Masons said: “The responses concerning the use cases and interoperability should be interesting and provide insight as to whether consumers will be able to exercise their data rights, including for 'data portability' which may go some way to ensuring there is fair competition within the market, and that consumers won’t be locked in to one provider."

“No doubt once the inquiry is completed, the data protection authorities will update their guidance to assist device makers, and others in the IoT eco-system to ensure rights of consumers are protected,” she said.

The initial questionnaires also cover the relevance of standard-essential patents (SEPs) to the IoT sector. SEPs are patents that protect technology believed to be essential to implementing a standard. These standards are developed by businesses working together under the auspices of standardisation bodies.

Intellectual property law expert Mark Marfé of Pinsent Masons said the Commission wanted to understand what standardised technologies were relevant to the sector and therefore what royalty rates might be payable by users of those technologies.

“Notably, standardised communication technologies such as cellular, necessary to connect IoT devices to each other, are excluded from the inquiry. However, other technologies such as video and audio compression are also standardised and central to the exploitation of consumer-facing IoT products and services,” Marfé said.

“Such technologies have also been the subject of patent licensing disputes in recent years. We can expect the courts to continue to play a central role in protecting against the potentially harmful effects of abusive patent assertion,” Marfé said.

The Commission is seeking input from global companies in an attempt to understand how their products and services will have an impact within the EU. The inquiry will not examine the activities of companies providing the infrastructure underpinning the IoT, such as internet service providers and telecommunication companies.

The IoT inquiry is the ninth sector inquiry to be undertaken by the Commission and is the continuation of its work in pursuit of its ‘Shaping the Digital Single Market’ strategy, following the e-commerce sector inquiry that concluded in 2017 and set against the backdrop of the impending Digital Services Act package.

A preliminary report on the IoT inquiry is scheduled for spring 2021, with a final report due in summer 2022.