The rise of Artificial Intelligence (AI) is transforming businesses around the world, offering unprecedented opportunities for innovation and economic prosperity. However, it also presents unique challenges for competition authorities tasked with ensuring fair and efficient markets. In response, the competition authorities such as the Canadian Competition Bureau, the UK Competition and Market Authority (CMA), the European Commission – DG Competition (EC) and the U.S. Federal Trade Commission (FTC) have been actively engaging in consultations and research to understand the implications of AI on competition policy. This blog highlights some of these agencies' efforts to adapt competition policy to evolving digital markets as well as noting some of the key legal antitrust risks for business.
Canadian Competition Bureau Consultation on AI
The Competition Bureau launched a public consultation in March 2024 with the release of a discussion paper on AI and competition policy. The Bureau publication aims to promote discussion and grow its own understanding of: (i) how competition is developing in AI markets; (ii) how the Bureau can protect and promote competition in AI markets; and (iii) how the Bureau can be prepared to address any competitive harm arising from AI. The Bureau is seeking feedback by May 4, 2024 primarily from those who do business in AI markets and those who have expertise or experience with AI technologies and their potential impacts.1 Some notable Canadian specific AI developments and observations include: (i) the Federal Budget 2024 will allocate $2.4 billion to AI infrastructure in a new AI Compute Access fund for companies and scientists to use the processing power they require2; (ii) there are numerous AI model developers operating in Canada from well-know companies such as Microsoft, Meta, Amazon, NVIDIA and Google as well as numerous innovative start-ups such Cohere, Element AI, Integrate AI, Scale AI, ROSS Intelligence and Uber's self-driving car research group; and (iii) there is no scarcity of requisite AI talent, as Canada leads the developed world in AI talent concentration.3
UK Competition and Markets Authority initial and updated report of AI Foundation Models
Following extensive public consultation, the CMA published its initial report (the "Report") on AI Foundation Models (FM) in September 2023. The key takeaways from the Report include:
(i) the FM landscape is nascent and emerging with a wide range of FMs available through varying levels of access; (ii) a number of organizations are investing and developing FMs, with a diversity of business models, including both open and closed; (iii) regulation is not required at this stage and such regulation could make it unnecessarily difficult for competition and innovation to flourish, and (iv) the CMA's plan to introduce flexible guiding principles designed to help ensure that competition and consumer protection remains an effective driving force as the development and deployment of FMs evolves.
In the updated paper4 released in April 2024, the CMA reversed course signalling heightened concern with the potential for AI to radically alter economic landscapes. The updated paper outlined three principle threats that AI presents to competition including: (i) dominant digital firms ability to limit access to essential inputs such as compute resources, data, and expertise; (ii) incumbents could misuse their market position to unfairly influence consumer choices in FM services; and (iii) extensive networks of strategic partnerships might further solidify the influence of the major tech players. The CMA plans to leverage its full suite of regulatory powers, both advocacy and enforcement, to foster a competitive landscape that not only encourages innovation but also guards against the misuse of market power. It is noteworthy that the CMA last week opened an investigation into AI related agreements between a number of large digital platform firms.5
The European Commission DG Competition's Response to AI Market Power Concerns
The EC has identified several key concerns related to AI and market power. One of the primary concerns is the potential for AI algorithms to facilitate collusion or anticompetitive behavior among firms. Additionally, the increasing prevalence of AI-powered platforms and ecosystems raises questions about data access, interoperability, and the emergence of dominant players that could distort competition and hinder market entry for smaller firms.
In response to these concerns, the EC has initiated several actions to address the unique challenges posed by AI. First, the EC launched in January two calls for contributions on competition in virtual worlds and generative artificial intelligence and sent requests for information to several large digital players.6 Stakeholders were invited to share their experience and provide feedback on the level of competition in the context of virtual worlds and generative AI, and their insights on how competition law can help ensure that these new markets remain competitive. Following the review of submissions, the EC may organize a workshop in the second quarter of 2024. Second, the EC is examining some of the agreements that have been concluded between large digital market players and generative AI developers and providers. Third, the EC is actively monitoring mergers and acquisitions involving AI companies, with special attention to "killer acquisitions" that harm potential competition and "ecosystem effects" which may create or strengthen dominance in one or more of a business' core markets. Furthermore, as the EC monitors the development of the AI sector, it stands ready to address competition concerns by adding new core AI platform services to the Digital Market Act regulations if warranted.7
U.S. Federal Trade Commission Raises AI Competition Concerns
In June 2023, the FTC published a technology blog post titled "Generative AI Raises Competition Concerns"8 which analyzed the AI industry structure. The FTC found the AI industry prone to high market concentration and provided examples of how firms may engage in anti-competitive conduct to exercise market power. The reasons AI firms tends towards high market shares according to the FTC are: (i) generative AI requires large amounts of high-quality data to train its algorithms, which provides incumbent tech companies with a head start over new entrants and also allows incumbents (with their superior AI models) to prevent start-ups from entering the market; (ii) generative AI requires large amounts of computational resources, which forces new entrants to rely upon the incumbents' pre-trained "open-sourced" generative AI models which are cheaper to train thereby leading to a few incumbents controlling the highest-quality pre-trained models; and (iii) network and platform effects could provide incumbents with a first mover advantage leading to their entrenchment. The FTC flagged several types of anti-competitive conduct, including: (i) incumbents controlling key inputs or adjacent markets (for example, controlling the cloud computing market, combined with with unfair methods of competition such as bundling and tying, to gain control over a new generative AI market), (ii) incumbent digital firms using merger and acquisitions to consolidate market power (as large firms could buy up critical applications and cut off rivals' access to core products or buy up nascent rivals); and (iii) restraining the specialized work force required for AI development through non-compete agreements.
President Biden issued an Executive Order on "Safe, Secure, and Trustworthy Artificial Intelligence" in October 2023 which expressly refers to "promoting innovation and competition" highlighting the need to promote a fair, open and competitive AI ecosystem through providing small developers with access to technical assistance and resources, and encouraging the FTC to exercise its authorities.9
In January 2024, the FTC hosted a Tech Summit10 to discuss key developments in AI. The event brought together leaders from the AI industry to consider how to foster a fair and inclusive AI marketplace. The summit highlighted the FTC's interest in curtailing the risks and harms posed by AI to consumers. The FTC has recently brought the first enforcement case against Rite-Aid for using AI in a discriminatory fashion11, and has issued guidance warning businesses about the risks of AI marketing deception by chat bots, deep fakes and voice clones.12
Key Takeaways for Business
Based on the foregoing, several key implications and takeaways emerge for business. The Competition Authorities (the "Authorities")) recognize the importance of competition in driving innovation, protecting consumer interests, and ensuring a vibrant generative AI market. Their studies and analysis serve as a call to increase scrutiny and monitoring of market concentration, anti-competitive behaviour, and potential security risks associated with generative AI systems. The key AI specific concerns raised by the Authorities are as follows:
- Price Collusion
Competitors using pricing algorithms to monitor and adjust their prices or competitors engaging the same third-party pricing tool resulting in an exchange of commercially sensitive information. - Abuse of Market Power
Competition enforcement regarding, for instance, tying and bundling by incumbent gateway firms with other products, denying AI competitors access to key inputs needed to compete, and preventing customer switching will likely be a priority for the Authorities. Companies active in this space should be mindful of the Authorities developing views regarding competition and consumer protection to ensure that their business models do not subsequently come under investigation. - Anti-Competitive Mergers and Acquisitions
(M&A)
Companies should expect increased merger control enforcement in markets involving AI with heightened focus on killer acquisitions and adjacent market effects. Parties to M&A transactions involving AI should ensure that they appropriately address the potentially increased risk of an in-depth review by the relevant Authorities.
Fasken's remains committed to staying abreast of these developments and supporting our clients in navigating the evolving legal landscape surrounding generative AI. If you have questions or concerns, you can reach out to any member of Fasken's Competition, Marketing & Foreign Investment group. With more former enforcers than any other Canadian law firm, no team is better equipped to help you succeed before competition, consumer protection and foreign investment authorities.
Footnotes
1. https://lnkd.in/gaw2agaB, Aidan Macnab, "Competition Bureau discussion paper seeks input on Al's potential anti-and pro-competitive impact", Canadian Lawyer magazine, April 1, 2024.
2. https://financialpost.com/news/economy/canada-budget-2024-key-highlights
4. https://assets.publishing.service.gov.uk/media/661941a6c1d297c6ad1dfeed/Update_Paper__1_.pdf
5. https://www.gov.uk/government/news/cma-seeks-views-on-ai-partnerships-and-other-arrangements
6. https://ec.europa.eu/commission/presscorner/detail/en/ip_24_85
10. https://www.ftc.gov/news-events/events/2024/01/ftc-tech-summit
12. https://www.ftc.gov/business-guidance/blog/2023/03/chatbots-deepfakes-voice-clones-ai-deception-sale
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