Uncle Sam Wants to Protect Blockchain Technology

On August 27, 2020, the head of the U.S. Department of Justice’s Antitrust Division (“DOJ”), Makan Delrahim, spoke at the Thirteenth Annual Conference on Innovation Economics and emphasized that one of the DOJ’s top priorities is to protect innovation and ensure that antitrust laws do not act as an impediment to the burgeoning cryptocurrency market.  COVID-19 has illuminated the importance of innovative solutions, as businesses develop new ways to operate during the pandemic. In particular, Delrahim highlighted blockchain as an innovative technology that the DOJ seeks to protect because of its potential to topple existing monopoly structures. 

Blockchain technology is essentially a shared ledger of information and transactions that is distributed across a number of computers on the network, the ledger updates with every transaction on each computer and is viewable by anyone with access to that particular blockchain at any time.  In traditional networking solutions, the company that owns or controls the network infrastructure (the intermediary) may be able to raise the cost of doing business on the network as it becomes larger.  In contrast, blockchain technology can operate a network without a centralized intermediary, resulting in potentially lower networking costs and limiting the concentration of market power.

Although blockchain technology offers tremendous value, Delrahim also underscored the potential for abuse.  He noted that those with current market power could use blockchain technology in an anti-competitive manner. This is particularly a concern with closed or permissioned blockchain networks where only insiders are allowed to operate a computer on the network. For example, seafood harvesters could collusively condition access to a permissioned blockchain, which tracks useful supply chain data, on agreeing to certain prices or output.  Such collusive activity would cause tremendous harm to competition and consumers.

In an effort to combat such potentially anticompetitive activities, Delrahim noted that the DOJ is taking proactive measures to understand how emerging technologies work and how they can affect competition. The Antitrust Division has implemented a new initiative to train its attorneys and economists in innovative technologies such as blockchain technology, machine learning, and artificial intelligence, to prepare itself for monopolists who may take advantage of these new technologies.

Delrahim’s speech is an acknowledgement that the DOJ looks favorably on innovative technologies, in particular blockchain solutions.  The DOJ wants to protect and promote the growth of these technologies by combating anticompetitive behavior.  Delrahim’s speech is also an important signal that the DOJ is focused on potentially anti-competitive applications of blockchain technology.  Any group of firms that are considering working together in developing a blockchain technology solution in their industry should take appropriate precautions to make sure their activities do not constitute a violation of U.S. anti-trust laws.

© Polsinelli PC, Polsinelli LLP in California