Other stakeholders already have or will have touch points with a customer’s car — for example, Uber, Apple and Zipcar. Each stake relates to the car or to the customer. For example, a customer will have her iPhone with her during the journey and may be streaming similar data to Apple as the car is streaming to the OEM.
The competition-law issues
Competition laws address three aspects of doing business, namely:
- The ability of a business to buy another business or enter into a joint venture or similar strategic partnerships (transaction review).
- The extent to which two or more businesses can agree to cooperate or do business with each other (anticompetitive agreements review).
- The ability of a business that is dominant to undertake business practices that may negatively impact the competitive position of third parties or abuse or exploit customers (abuse of dominance review).
It should be noted that in some countries the concepts of and application of competition laws overlap with consumer protection laws and broader commercial laws relating to unfair competition.
In relation to the points raised here, the following competition-law issues and potential solutions are identified. While we don’t address the issue here, it must be underlined that an important issue is the extent to which a customer may automatically have rights over that data, or at least have rights in relation to that data that are protected. Such data protection rights must be addressed by the OEM.
Two or more stakeholders may seek to gain the advantage by requiring the customer to recognize that all data generated by the car belongs to the stakeholder. This could be the case, for example, when an OEM sells a car that is acquired using third-party finance. Here, both the OEM and the finance company may wish to monetize the data.4
In this scenario, it would likely be important for the OEM to be able to provide finance through its captive finance arm and to offer a finance deal that on a stand-alone basis beats the competition. Care should be taken as to “how low” the captive finance company goes; meeting the competition is a valid strategy under competition law, but lowballing can raise issues.
An alternative to consider takes advantage of the fact that digital data is replicable, so the data generated by the customer’s car can be given both to the OEM and to the finance company. It would then be for each to seek to monetize the data in the best way possible.
Under this alternative, the agreement with the customer would be nonexclusive, or more accurately, in the case of the OEM, exclusive with the exception of the specifically identified finance company, and vice versa. Such a partial exclusive agreement should receive little attention under competition law.
A hybrid is for the OEM to have such a partial exclusive agreement, but in relation only to a preferred finance company. This may allow the OEM to enter into a stable commercial relationship with a third-party finance company, and so avoid the transaction cost of frequently having to negotiate with many individual finance companies. Such an agreement will require a detailed anticompetitive agreement review.
An OEM may decide to pool the data generated. Data pooling has the commercial advantage of creating “big data” and thus recognizably a greater ability to monetize the data. Data pooling agreements, particularly with competitors, would be subject to an anticompetitive agreement review, and care should be taken to avoid such relationships being channels for collusive conduct. But properly constructed, data pools, even with competitors, are compatible with competition law.
Selling a car for US$1?
To date, commentators’ studies have focused on the value of product packages that enable a car to be connected and provide a specific functionality as a result — for example, a motorway pilot that automatically drives the car while it is on a motorway. One commentator estimates a total value of EUR140 billion by 2022.5 There are no supported estimates of the revenue that could be generated from the data itself. However, a 2013 study by GSMA and SBD estimated that global revenue from connected cars would be EUR40 billion in 2018.6
For the most valuable customers (metrics to be determined), an OEM might sell a car with a very high absolute discount in return for the customer’s agreement that all data generated belongs to the OEM. Such a high absolute discount might more readily be offered at the rollout phase, when the OEM is seeking to obtain scale and thus greater value for its data.
While a very high absolute discount might seem speculative for OEMs with a high average unit revenue, such as Mercedes Benz (EUR40,621), it may be less speculative for an OEM with a relatively low average unit revenue, such as Suzuki (EUR8,288).7
The question then is whether selling cars at materially below market price for comparable cars raises competition issues. In brief, and perhaps surprisingly, it likely is not an issue because low pricing, even pricing below the OEM’s cost of manufacture, would only be a concern if an OEM was in a dominant position.
Given that even the largest OEM in its strongest markets has not to date been found to hold a dominant position, the preliminary view is that such pricing would be acceptable. Should such pricing become common in a market, such as a particular country, there may be allegations of collusive conduct designed to keep out new entrants, so keeping an eye on what the competition is doing would be necessary for compliance purposes.
In addition, similar conduct by the leading OEMs can prompt competition authorities to conduct an investigation into the sector on the suspicion that the market is “broken” because competitive outcomes are not naturally occurring. Also, leading OEMs acting in a similar manner could be subject to an abuse of dominance review on the basis that the conduct of this collective of OEMs is an abuse. Regular competition law checks on the actions of competitors will enable flagging potential issues before they become real issues.
In relation to sharing revenue with customers, competition issues should not arise. However, the contracts would need to be drafted carefully so customers understand what they were signing to avoid a breach of consumer laws designed to protect “vulnerable” customers from sophisticated businesses.