Competition Law and Competition Governance in Cyber-Physical Systems

1. Introduction

Cyber-Physical Systems (CPS) are systems in which physical assets are continuously connected with software, sensors, communications networks, data platforms and automated decision-making. Examples include:

• smart grids and electricity-management systems;
• autonomous and connected vehicles;
• industrial robots and smart factories;
• IoT-enabled machinery;
• smart buildings and homes;
• automated logistics and warehouses;
• connected medical devices;
• drones and intelligent transport systems;
• agricultural automation;
• battery-management and charging systems.

CPS therefore creates a distinctive competition-law environment: competition no longer occurs only between physical products or traditional firms; it may occur between interconnected ecosystems, software layers, data infrastructures, standards, interfaces, algorithms and physical networks.

The European Commission has specifically examined competition issues in the consumer-IoT sector, including smart-home appliances, voice assistants and wearable devices, identifying concerns around data accumulation, access and platform power.

2. Meaning of Competition Governance in CPS

Competition governance means the institutional and legal mechanisms through which competition is preserved while CPS markets develop.

It goes beyond conventional antitrust enforcement and includes:

1. market-definition rules;
2. interoperability requirements;
3. access to essential infrastructure;
4. data portability and sharing;
5. technical standards;
6. algorithmic transparency;
7. control of ecosystem power;
8. merger review;
9. monitoring of automated pricing;
10. non-discriminatory access to platforms and networks.

Thus, CPS competition governance can be represented as:

Physical Infrastructure → Sensors → Connectivity → Data → Software → Algorithm → Platform → Automated Decision → Physical Outcome

Competition law must potentially intervene at any point where control of one layer allows an undertaking to exclude competitors at another layer.

3. Why CPS Creates New Competition Problems

A. Vertical integration

A CPS operator may simultaneously control:

• the physical device;
• operating system;
• cloud;
• data;
• application marketplace;
• connectivity;
• maintenance;
• replacement parts.

This creates opportunities for leveraging.

For example, a dominant smart-home platform could theoretically make competing sensors incompatible with its system while favouring its own sensors.

B. Ecosystem lock-in

CPS often involves substantial switching costs.

A customer purchasing:

smart vehicle + charging network + battery software + cloud subscription

may find it difficult to move to another provider.

Competition therefore concerns not merely the price of the initial product but the entire lifecycle ecosystem.

C. Interoperability

Interoperability is central to CPS.

A manufacturer may design its system so that:

• third-party devices cannot connect;
• competing software cannot communicate with hardware;
• independent repairers cannot access diagnostic information;
• competing applications cannot access APIs;
• rival platforms cannot communicate with sensors.

The EU's Digital Markets Act has developed interoperability obligations requiring certain gatekeepers to permit third parties access to relevant operating-system hardware and software functionality on equivalent terms.

4. Essential Facilities and CPS Infrastructure

Some CPS infrastructures can possess characteristics resembling an essential facility.

Examples may include:

• electricity distribution networks;
• charging networks;
• railway signalling systems;
• industrial communication protocols;
• dominant IoT platforms;
• cloud infrastructure;
• proprietary device-management systems.

However, mere importance is insufficient. Competition authorities generally examine whether the infrastructure is genuinely indispensable, whether duplication is feasible, and whether refusal or restriction has exclusionary effects.

Relevant principles

The classical European cases include:

1. Commercial Solvents v Commission

The Court recognised that a dominant undertaking's refusal to supply an input could constitute abuse where it excluded downstream competition.

CPS relevance: A vertically integrated CPS provider controlling an indispensable component could potentially use access refusal to eliminate downstream competitors.

2. United Brands v Commission

The case established important principles concerning dominance and abusive conduct.

CPS relevance: Control over a critical CPS ecosystem may need to be assessed by examining market power, substitutability, customer dependence and barriers to entry rather than physical market share alone.

3. Bronner v Commission

The Court adopted a restrictive approach to compulsory access to infrastructure, particularly where alternatives or duplication may be possible.

CPS relevance: Not every proprietary CPS network should automatically become an access obligation. Competition governance must distinguish between genuinely indispensable infrastructure and commercially valuable infrastructure.

5. Interoperability and Ecosystem Competition

Interoperability is arguably the most important competition issue in CPS.

A CPS may contain:

Hardware → Firmware → Operating System → API → Cloud → Application → User

If one undertaking controls several layers, it can potentially restrict rivals through technical design.

6. Google Android – Google LLC and Alphabet Inc. v European Commission

Case T-604/18, General Court, 14 September 2022

The case concerned Google's Android ecosystem, including:

• Android operating system;
• Google Play Store;
• Google Search;
• Chrome;
• agreements with device manufacturers;
• exclusivity arrangements;
• anti-fragmentation obligations.

The General Court examined the ecosystem as involving multiple interconnected markets and upheld the Commission's findings concerning several exclusionary practices, while modifying aspects of the Commission's reasoning and fine.

CPS significance

This is highly relevant to CPS because modern CPS similarly operates through interdependent ecosystems.

A dominant CPS operator could potentially use:

• hardware compatibility;
• operating-system access;
• APIs;
• certification;
• app stores;
• cloud services

to extend dominance from one layer into another.

7. Google Android – Competition Commission of India

The Indian Android proceedings are particularly relevant because the Competition Commission of India examined Google's ecosystem involving Android, Play Store, Google Search and device manufacturers.

The CCI considered the competitive relationship between Android and iOS ecosystems and examined restrictions imposed on OEMs, including requirements associated with Google's proprietary services and anti-fragmentation arrangements.

A later Indian proceeding concerning Android TV similarly raised allegations involving Play Store bundling and restrictions concerning competing Android forks.

CPS significance

The principles can extend beyond smartphones to:

• smart TVs;
• connected vehicles;
• industrial controllers;
• smart appliances;
• wearable devices;
• smart-home systems.

The important issue is whether control over one technological layer is being used to foreclose competition at another layer.

8. Qualcomm v European Commission

Case T-235/18, General Court, 15 June 2022

The European Commission had found Qualcomm's conduct in the LTE chipset market problematic, particularly concerning exclusivity payments.

The General Court examined whether Qualcomm's conduct was capable of producing exclusionary effects.

CPS significance

Connected devices depend heavily on communication technologies.

For CPS, comparable issues may arise in:

• 5G chipsets;
• vehicle communication modules;
• industrial connectivity;
• IoT radios;
• edge-computing hardware.

A dominant component supplier could potentially use contractual or financial arrangements to restrict customers from using competing technologies.

9. Qualcomm – United States

The U.S. Qualcomm litigation concerned Qualcomm's licensing practices and its relationship with modem-chip manufacturers and device manufacturers.

The Ninth Circuit ultimately rejected the FTC's federal antitrust theory concerning the challenged practices, illustrating the importance of distinguishing between competition law theories that sound plausible technologically and conduct that satisfies the applicable legal test.

CPS lesson

Competition governance should not automatically treat:

proprietary technology + high market share + vertical integration

as unlawful.

The legal analysis requires evidence concerning:

• market power;
• exclusionary conduct;
• competitive effects;
• efficiencies;
• alternatives;
• consumer harm.

10. Magill

RTE and ITP v Commission — Joined Cases C-241/91 P and C-242/91 P

The Magill litigation developed important principles concerning compulsory access to intellectual-property-protected information in exceptional circumstances.

CPS relevance

CPS depends heavily on:

• technical information;
• interoperability specifications;
• APIs;
• diagnostic data;
• software interfaces;
• sensor information.

A dominant undertaking might invoke intellectual property rights to restrict competitors.

Competition governance must therefore balance:

IP incentives + innovation

against

interoperability + market access + downstream competition.

11. IMS Health

IMS Health GmbH & Co. OHG v NDC Health — Case C-418/01

The Court further developed the exceptional circumstances under which refusal to license intellectual property may constitute an abuse of dominance.

CPS relevance

Suppose a dominant CPS supplier owns a proprietary:

• communication protocol;
• data structure;
• interface;
• software architecture;
• device-management technology.

A refusal to license cannot automatically constitute abuse. But where the stringent legal conditions are satisfied, competition law may become relevant.

12. Microsoft

Microsoft Corp. v Commission — Case T-201/04

The case concerned Microsoft's conduct relating to interoperability information and the relationship between its Windows operating system and other products.

The case is particularly important for CPS because interoperability can be a source of competitive advantage.

CPS application

The Microsoft principles are relevant to circumstances where a dominant CPS platform controls information necessary for competing products to communicate with the dominant system.

Examples:

• independent vehicle software communicating with vehicle hardware;
• third-party industrial software communicating with machines;
• competing smart-home applications communicating with appliances.

13. Data as a Competitive Asset

CPS produces enormous quantities of data.

Examples:

• vehicle telemetry;
• machine-performance data;
• electricity-consumption data;
• agricultural data;
• health-device data;
• building-management data;
• location data.

Data can become a competitive bottleneck.

A dominant undertaking may possess data that competitors cannot realistically reproduce.

Competition concerns include:

1. discriminatory data access;
2. refusal to share data;
3. tying data access to unrelated services;
4. exclusive data arrangements;
5. discriminatory API access;
6. excessive switching costs;
7. restrictions on data portability.

The European Commission's IoT work specifically identified data-use restrictions and accumulation of large datasets by platforms/gatekeepers as potential competition concerns.

14. Algorithmic Competition in CPS

CPS frequently uses algorithms to control physical processes.

Examples:

• electricity pricing;
• autonomous vehicle routing;
• warehouse robots;
• dynamic charging prices;
• logistics allocation;
• agricultural irrigation;
• industrial production.

This creates two forms of competition concern.

A. Algorithmic collusion

Competitors may independently use algorithms capable of observing and responding to rivals' prices.

The question becomes whether algorithms merely facilitate lawful independent conduct or whether firms have engaged in an unlawful agreement or coordinated practice.

B. Algorithmic exclusion

A dominant CPS platform could program algorithms to:

• favour its own devices;
• downgrade competing products;
• allocate fewer customers to rivals;
• restrict competitor visibility;
• discriminate in access to infrastructure.

15. Self-Preferencing

Self-preferencing occurs when a platform gives preferential treatment to its own products or services.

In CPS, examples could include:

Smart-home platform → own thermostat

Vehicle platform → own charging service

Industrial platform → own maintenance provider

Agricultural platform → own machinery marketplace

The competition question is whether such conduct leverages dominance from one market into another and produces exclusionary effects.

16. Tying and Bundling

CPS ecosystems create substantial possibilities for tying.

For example:

Smart vehicle software + compulsory cloud service

or

Industrial machine + compulsory analytics platform

or

Smart appliance + compulsory subscription service.

The legal analysis asks:

1. Are there separate products?
2. Is the undertaking dominant?
3. Is the tied product genuinely separate?
4. Is the customer compelled or strongly induced to accept it?
5. Does the practice foreclose competitors?
6. Are there objective justifications or efficiencies?

The Android litigation demonstrates how bundling and ecosystem arrangements can be analysed collectively rather than as isolated contractual provisions.

17. CPS and Merger Control

CPS markets create new merger issues.

Traditional merger analysis may focus on:

hardware market share.

But CPS merger analysis may also need to consider:

• datasets;
• interoperability;
• APIs;
• cloud infrastructure;
• patents;
• installed devices;
• network effects;
• switching costs;
• ecosystem expansion;
• vertical foreclosure.

Example

Suppose:

Company A = dominant smart-meter platform

Company B = major energy-data analytics provider

Even if their current horizontal market shares are modest, the transaction might create significant vertical or ecosystem effects.

18. Network Effects

CPS frequently exhibits network effects.

A platform becomes more valuable as more:

• devices;
• users;
• developers;
• manufacturers;
• service providers

join it.

This can produce a feedback loop:

More devices → more data → better algorithms → more users → more developers → more devices

Once established, this may create substantial entry barriers.

Competition governance must therefore consider dynamic competition, not merely current market shares.

19. Switching Costs and Lock-In

CPS customers may become dependent on proprietary ecosystems because switching requires:

• replacing hardware;
• retraining employees;
• migrating data;
• replacing software;
• changing APIs;
• recalibrating machines;
• obtaining new certifications.

This creates technological lock-in.

Competition authorities may therefore need to examine whether switching costs arise naturally from technology or are deliberately increased through exclusionary contractual or technical restrictions.

20. Standard-Setting and CPS

Standards are essential for CPS.

Examples include:

• communication standards;
• charging standards;
• cybersecurity protocols;
• industrial communication protocols;
• IoT standards.

Standards can promote competition because they allow interoperability.

But standard-setting can also create risks:

• exclusion of rivals;
• discriminatory participation;
• manipulation of standard-setting organisations;
• patent ambush;
• excessive licensing restrictions.

The development of common IoT interoperability standards has itself attracted competition-law analysis because standardisation can simultaneously facilitate interoperability and create risks concerning IP and market power.

21. Cybersecurity and Competition

Cybersecurity introduces a particularly difficult governance problem.

A CPS operator may argue:

"We cannot permit third-party access because of cybersecurity."

That justification may be legitimate.

However, cybersecurity can potentially also be used strategically to restrict competition.

Competition authorities therefore need to distinguish:

genuine security requirements

from

security claims functioning as exclusionary barriers.

A proportionate approach could require:

• certification;
• authentication;
• sandboxing;
• API security;
• access controls;

rather than complete exclusion of competitors.

22. Repair and Aftermarket Competition

CPS products often create significant aftermarket markets.

Examples:

• vehicle repair;
• industrial maintenance;
• battery servicing;
• diagnostic software;
• replacement sensors;
• firmware updates.

If manufacturers restrict independent repairers' access to:

• diagnostic data;
• software;
• spare parts;
• authentication tools;

they may potentially affect aftermarket competition.

The competition analysis can therefore extend beyond the original sale of the CPS product.

23. Essential CPS Competition-Governance Principles

A modern CPS competition framework can be organised around eight principles:

1. Interoperability

Competitors should, where legally and technically appropriate, be able to communicate with CPS infrastructures.

2. Non-discrimination

Access to APIs, data and networks should not be discriminatorily restricted without objective justification.

3. Data portability

Users should be able to move relevant data where applicable.

4. Open standards

Standardisation should facilitate interoperability rather than create artificial exclusion.

5. Algorithmic accountability

Automated systems should not become instruments for unlawful coordination or exclusion.

6. Ecosystem neutrality

Dominant firms should not automatically use control over one CPS layer to exclude rivals from adjacent markets.

7. Merger scrutiny

CPS acquisitions should be assessed for ecosystem, data and vertical effects, not simply current horizontal overlap.

8. Proportionate regulation

Competition intervention should preserve legitimate cybersecurity, safety, IP and innovation incentives.

24. Six+ Key Case Laws — Consolidated Table

The Google Android judgment expressly addressed an ecosystem consisting of operating systems, app stores, search and browser services, making it particularly useful when analysing CPS ecosystems.

25. Indian Competition-Law Framework

For India, CPS competition issues can principally arise under the Competition Act, 2002.

Important provisions include:

Section 3

Prohibits anti-competitive agreements.

Relevant CPS examples:

• coordination through automated systems;
• restrictive interoperability agreements;
• exclusive supply;
• market allocation;
• standard-setting arrangements.

Section 4

Deals with abuse of dominant position.

Potential CPS concerns:

• denial of market access;
• discriminatory access;
• tying and bundling;
• unfair conditions;
• leveraging dominance;
• refusal to provide essential technological access.

Sections 5 and 6

Merger/concentration regulation.

Relevant to:

• IoT acquisitions;
• connected-vehicle platforms;
• smart-grid software;
• industrial automation;
• data-driven CPS mergers.

Section 19

Provides the framework for investigation and assessment.

Market definition in CPS should consider:

• functionality;
• technology;
• substitutability;
• ecosystem effects;
• network effects;
• data;
• switching costs.

26. Competition Governance Model for CPS

A useful regulatory model is:

Stage 1 — Identify the CPS ecosystem

↓

Stage 2 — Identify physical and digital layers

↓

Stage 3 — Define relevant markets

↓

Stage 4 — Determine control points

↓

Stage 5 — Assess dominance

↓

Stage 6 — Examine interoperability and access

↓

Stage 7 — Analyse data and algorithmic advantages

↓

Stage 8 — Test exclusionary or coordinated conduct

↓

Stage 9 — Examine efficiency, safety and cybersecurity justifications

↓

Stage 10 — Select proportionate remedy

27. Possible Competition Remedies

Competition authorities may employ:

Structural remedies

• divestiture;
• separation of business units;
• prohibition of certain acquisitions.

Behavioural remedies

• non-discrimination;
• interoperability;
• API access;
• data portability;
• licensing obligations;
• prohibition of tying.

Technical remedies

• open interfaces;
• interoperability protocols;
• data portability mechanisms;
• technical separation;
• independent auditing.

Governance remedies

• compliance programmes;
• algorithmic monitoring;
• independent technical monitors;
• periodic reporting.

The appropriate remedy depends on the specific competitive harm; interoperability regulation, for example, should not automatically require disclosure of every security-sensitive or proprietary element.

28. Major Challenges for Competition Authorities

A. Defining the market

Is the relevant market:

• smart vehicles?
• vehicle operating systems?
• charging?
• connected-vehicle data?
• mobility platforms?

Traditional market-definition techniques may not adequately capture multi-layer CPS ecosystems.

B. Measuring dominance

Market share may underestimate power where:

• switching costs are high;
• data advantages are substantial;
• network effects are strong;
• interoperability is controlled by one undertaking.

C. Separating innovation from exclusion

A proprietary technology may be genuinely innovative.

Competition law should therefore distinguish:

innovation-based differentiation

from

strategic exclusion.

D. Technical complexity

Competition authorities increasingly require expertise in:

• software engineering;
• cybersecurity;
• AI;
• networking;
• embedded systems;
• data architecture.

29. Future Direction of CPS Competition Governance

The future model is likely to move from reactive antitrust toward a combination of:

Antitrust + interoperability regulation + data governance + digital-platform regulation + technical standards + sector regulation.

This is already visible in the EU's approach to interoperability for gatekeepers, where regulatory mechanisms address access to operating-system hardware and software capabilities.

The underlying idea is significant:

Competition in CPS cannot be protected solely by regulating prices; it must also protect the conditions under which competing technologies can connect, innovate and scale.

30. Conclusion

Cyber-Physical Systems fundamentally change the structure of competition because physical infrastructure, software, data, algorithms and platforms become economically interconnected.

The principal competition-law risks include:

• ecosystem dominance;
• vertical leveraging;
• interoperability restrictions;
• refusal to provide access;
• data foreclosure;
• algorithmic coordination;
• self-preferencing;
• tying and bundling;
• technological lock-in;
• discriminatory APIs;
• exclusionary standards;
• aftermarket restrictions;
• data-driven mergers.

The established jurisprudence on Commercial Solvents, Bronner, Magill, IMS Health, Microsoft, Qualcomm and Google Android provides the foundational legal principles. The Google Android and IoT developments are particularly useful because modern competition authorities increasingly analyse markets as interconnected technological ecosystems rather than isolated products.