Competition Law and Protocol-Level Competition Restrictions

1. Introduction

Protocol-level competition restrictions arise when the rules embedded in a technological protocol, network architecture, smart-contract system, digital standard, or decentralized infrastructure restrict how participants compete with one another.

In conventional markets, restrictions are normally imposed through contracts, corporate policies, licences, or commercial decisions. In protocol-based markets, however, restrictions may be incorporated directly into technical rules. A protocol can determine who may participate, which transactions are permitted, what fees can be charged, which applications can interoperate, how users are ranked, and whether competing services can access essential functionality.

Competition law therefore has to examine not merely the conduct of individual firms but also the competitive consequences of protocol design and governance.

The central question is not whether a protocol contains restrictive rules. The legal question is whether those rules are attributable to one or more economic actors and whether, in their particular market context, they have the object or effect of restricting competition or constitute an abuse of market power.

2. Meaning of Protocol-Level Competition Restrictions

A protocol is a set of technical rules governing interaction within a digital or technological network. Examples include:

blockchain protocols;

payment protocols;

interoperability protocols;

communications standards;

cloud or API protocols;

digital identity systems;

distributed ledger protocols;

smart-contract platforms;

machine-to-machine commerce protocols;

tokenized financial infrastructures.

A protocol-level competition restriction occurs where technical or governance rules make it materially harder for competing undertakings, applications, developers, validators, users, or complementary services to compete.

Examples include:

restricting access to the protocol;

excluding competing applications;

imposing discriminatory technical conditions;

preventing interoperability;

restricting portability of users or data;

favouring applications controlled by the protocol operator;

imposing excessive or discriminatory transaction fees;

restricting competing validators;

preventing users from interacting with competing protocols;

requiring use of particular complementary services;

using protocol governance to disadvantage rivals;

coordinating commercially sensitive information through the protocol.

3. Protocol Rules and Competition Law

Competition law generally does not prohibit technical standardization merely because it limits some forms of commercial freedom.

A protocol may create substantial efficiencies through:

interoperability;

security;

fraud prevention;

common technical standards;

reduced transaction costs;

compatibility;

faster settlement;

network reliability.

The concern arises when these legitimate functions are used as mechanisms for foreclosure, exclusion, discrimination or coordination.

Thus, the analytical sequence should be:

Protocol rule → economic actor/control → relevant market → market power → restrictive conduct → competitive effects → efficiencies/justifications → remedy.

4. Relevant Product Market

The first question is often identifying the market affected by the protocol.

Possible markets include:

blockchain infrastructure;

cryptocurrency exchange services;

smart-contract platforms;

payment processing;

digital wallets;

cloud infrastructure;

API services;

digital identity services;

decentralized finance infrastructure;

validator services;

tokenized financial services.

A protocol may participate simultaneously in several related markets.

For example, a dominant smart-contract protocol may provide:

base-layer infrastructure → developer tools → applications → wallet services → transaction validation.

A restriction at the infrastructure level may therefore have consequences in downstream markets.

5. Multi-Sided Nature of Protocol Markets

Many protocols operate as multi-sided markets.

A blockchain, for example, may connect:

users;

developers;

validators;

liquidity providers;

exchanges;

application providers;

advertisers;

token holders.

Consequently, a restriction benefiting one group may harm another.

This makes conventional market-definition analysis more complicated.

The reasoning in Ohio v. American Express Co., 585 U.S. 529 (2018) is relevant by analogy because the Supreme Court emphasized that two-sided transaction platforms may need to be analysed by considering competitive conditions across both sides of the platform.

6. Network Effects

Protocol markets frequently exhibit strong network effects.

The value of a protocol may increase as:

more users join;

more developers build applications;

more liquidity becomes available;

more validators participate;

more merchants accept the protocol;

more complementary services become compatible.

This can create a self-reinforcing competitive advantage.

A restrictive protocol rule can therefore have effects considerably beyond its immediate technical operation.

For example:

Protocol A prohibits interoperability with competing Protocol B.

Initially, the restriction may affect only interoperability. But if Protocol A already has a large installed user base, developers may increasingly build exclusively around A, making entry by B substantially more difficult.

7. Protocol-Level Exclusion

One of the most important competition concerns is exclusion of rivals through technical rules.

Exclusion may occur through:

A. Access restrictions

A protocol may establish technical requirements that competing undertakings cannot reasonably satisfy.

B. Interoperability restrictions

The protocol may prevent competitors from connecting with its infrastructure.

C. API restrictions

Access to APIs can be limited, degraded, delayed or offered on discriminatory terms.

D. Validation restrictions

A governance structure may make participation as a validator economically or technically difficult.

E. Application restrictions

The protocol may prevent particular categories of applications from operating.

F. Token restrictions

Rules may prevent competing tokens or assets from interacting with the ecosystem.

8. Self-Preferencing

Protocol governance can also facilitate self-preferencing.

Suppose a protocol operator controls both:

the underlying infrastructure; and

applications operating on that infrastructure.

It could design protocol rules that:

give its own application priority;

reduce transaction costs for its own service;

provide competitors with inferior access;

give its own application superior technical information;

impose additional verification requirements on competitors.

The competition concern resembles the issues considered in Google Shopping, where the European Commission's theory concerned preferential treatment of Google's own comparison-shopping service within its search results.

The technological mechanism differs, but the underlying concern can be similar:

control of infrastructure being used to favour an affiliated downstream service.

9. Interoperability Restrictions

Interoperability is particularly important in protocol markets.

A dominant protocol may have incentives to prevent users from easily switching to alternative networks.

Restrictions may involve:

technical incompatibility;

restricted APIs;

proprietary standards;

limitations on bridges;

restrictions on data export;

denial of authentication;

limitations on cross-protocol transactions.

However, interoperability restrictions are not automatically unlawful.

They may be justified by:

cybersecurity;

fraud prevention;

privacy;

technical reliability;

protection against malicious transactions.

The competition analysis therefore requires examination of whether the restriction is necessary and proportionate to a legitimate technical objective.

10. Refusal to Provide Access

A dominant protocol can potentially raise refusal-to-deal concerns when it controls infrastructure that rivals cannot reasonably duplicate.

The classic European cases are:

Oscar Bronner GmbH & Co. KG v Mediaprint, C-7/97

The Court of Justice adopted a stringent approach to compulsory access to infrastructure, emphasizing factors including indispensability and the absence of realistic alternatives.

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

The Court recognized that refusal to license intellectual property can, in exceptional circumstances, constitute abuse where the refusal prevents the emergence of a new product, lacks objective justification, and concerns indispensable infrastructure.

These principles can become relevant to a protocol where access to the underlying infrastructure is genuinely indispensable.

11. Protocol Governance as a Competitive Variable

Protocol governance itself can influence competition.

Governance may be controlled by:

a company;

a foundation;

developers;

token holders;

validators;

miners;

a consortium;

institutional participants;

a combination of these groups.

A protocol that appears decentralized may nevertheless have effective concentration of decision-making power.

For example, a small group might control:

software upgrades;

validator admission;

transaction rules;

fee structures;

token issuance;

application permissions;

interoperability;

dispute resolution.

Competition authorities may therefore need to examine effective control rather than formal ownership alone.

12. Information Exchange Through Protocols

Protocol systems can also facilitate information exchange among competitors.

For example, competing firms may use a common protocol to exchange:

prices;

inventory;

transaction volumes;

customer information;

production data;

capacity information;

future commercial strategies.

Information sharing can become problematic where it reduces strategic uncertainty and facilitates coordination.

The traditional cartel principles under competition law remain relevant even if information exchange occurs automatically through technology.

The fact that an algorithm or protocol performs the exchange does not necessarily remove the underlying competition concern.

13. Algorithmic Coordination

Protocols can facilitate algorithmic coordination.

Suppose competing firms use a common automated protocol that:

collects market data;

determines prices;

observes competitors' behaviour;

automatically adjusts commercial terms.

The technical architecture may make coordination faster and more stable.

Competition authorities would need to distinguish:

independent algorithmic decision-making;

conscious coordination;

exchange of competitively sensitive information;

explicit agreement;

tacit adaptation to market conditions.

The technology does not itself determine the legal characterization.

14. Tying and Bundling

Protocol operators may also engage in technical tying.

For example:

Access to Protocol A is conditional upon using Wallet B.

or:

Participation in a blockchain infrastructure is conditional upon purchasing a particular validation, identity or payment service.

If the operator has substantial market power, such arrangements may raise concerns analogous to traditional tying and bundling.

The relevant Indian framework is particularly important under Section 4(2)(d) of the Competition Act, 2002, which addresses leveraging dominance in one relevant market to enter into or protect another market.

15. Case Law

1. United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001)

Facts

Microsoft possessed substantial power in the market for Intel-compatible PC operating systems and engaged in several practices involving browser distribution and control of the operating-system platform.

Principle

The case demonstrated that control over a technological platform can be used to restrict competition in adjacent markets.

Relevance to protocols

A dominant protocol may similarly function as an infrastructure layer through which downstream applications must operate.

If protocol rules deliberately disadvantage competing applications, the Microsoft reasoning provides an important analytical analogy.

2. American Needle, Inc. v. NFL, 560 U.S. 183 (2010)

Facts

NFL teams jointly operated aspects of commercial licensing while remaining independently owned economic entities.

Principle

The Supreme Court emphasized that entities cannot avoid Section 1 scrutiny merely by coordinating through a formally organized structure where they remain separate economic actors capable of competing.

Relevance

This is particularly significant for:

DAOs;

validator groups;

protocol consortia;

token-holder organizations;

blockchain governance bodies.

A technological or organizational structure does not automatically eliminate the possibility of coordinated conduct.

3. Broadcast Music, Inc. v. CBS, 441 U.S. 1 (1979)

Facts

BMI and ASCAP operated collective licensing systems for copyrighted musical works.

Principle

The Supreme Court held that collective arrangements must be evaluated in their economic context. The existence of coordinated conduct does not automatically establish an unlawful restraint.

Relevance

Protocol governance similarly may involve collective rules that produce efficiencies.

Common standards can reduce transaction costs and increase interoperability. Therefore, competition analysis must distinguish efficient coordination from exclusionary coordination.

4. Ohio v. American Express Co., 585 U.S. 529 (2018)

Facts

American Express operated a two-sided payment platform connecting merchants and cardholders.

Principle

The Supreme Court emphasized the importance of considering both sides of a transaction platform when assessing competitive effects.

Relevance

Many protocols are multi-sided.

For example:

users ↔ protocol ↔ developers

or

buyers ↔ blockchain ↔ sellers/liquidity providers.

A protocol restriction may benefit one side while imposing costs on another. Competition analysis therefore should not examine only one participant group.

5. Oscar Bronner GmbH & Co. KG v. Mediaprint, C-7/97

Facts

Bronner sought access to Mediaprint's newspaper distribution system.

Principle

The Court imposed demanding conditions before a dominant undertaking could be required to provide access to infrastructure.

Relevance

The case is relevant where a dominant protocol operator controls infrastructure that competitors claim they must access.

The important question is whether the infrastructure is genuinely indispensable and whether alternative methods of competing exist.

6. IMS Health GmbH & Co. OHG v. NDC Health, C-418/01

Facts

IMS controlled a pharmaceutical sales-data structure that competitors claimed was necessary to compete.

Principle

The Court developed an exceptional framework for compulsory access involving indispensable infrastructure and prevention of the emergence of a new product.

Relevance

The analogy is important for:

proprietary protocol architecture;

critical APIs;

interoperability interfaces;

essential data structures;

technical standards.

However, access to a protocol should not automatically be characterized as an essential-facilities case.

7. Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004)

Facts

The case concerned allegations that Verizon failed to provide competitors with adequate access under telecommunications regulation.

Principle

The Supreme Court treated unilateral refusal-to-deal claims cautiously and emphasized that competition law does not generally impose a broad obligation on firms to assist competitors.

Relevance

This provides an important counterbalance to arguments that every protocol must be interoperable with every competing system.

A protocol operator's refusal to connect with another protocol will require a fact-specific competition analysis.

8. Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985)

Facts

A dominant ski operator discontinued a cooperative ticketing arrangement with a smaller competitor despite a history of profitable cooperation.

Principle

Under exceptional circumstances, termination of a profitable course of dealing can contribute to a finding of unlawful monopolization.

Relevance

In protocol markets, a comparable issue could arise where an established platform historically permits interoperability but suddenly disables it in order to disadvantage an emerging rival.

The factual analogy must be treated cautiously because the Supreme Court has subsequently emphasized the narrowness of refusal-to-deal theories.

9. NCAA v. Alston, 594 U.S. 69 (2021)

Facts

The NCAA imposed restrictions affecting compensation and education-related benefits for college athletes.

Principle

The Supreme Court applied antitrust scrutiny to rules established collectively by an organization governing participants in a competitive ecosystem.

Relevance

The case illustrates that collectively adopted rules can remain subject to competition law even when characterized as governance rules.

This is highly relevant to protocol organizations that establish common commercial or technical restrictions among otherwise competing participants.

10. Google Shopping — European Commission, Case AT.39740

Facts

Google was found to have given preferential positioning to its comparison-shopping service while applying ranking mechanisms that disadvantaged competing comparison-shopping services.

Principle

The case illustrates the competition concerns that can arise when an undertaking with control over an important digital infrastructure gives preferential treatment to its own downstream service.

Relevance

A protocol operator controlling infrastructure and participating in downstream markets could potentially create analogous self-preferencing concerns through:

transaction ordering;

fee discounts;

validator priority;

API privileges;

application whitelisting;

protocol-level ranking.

16. Indian Competition Law Framework

The Competition Act, 2002 provides several potentially relevant provisions.

Section 3 — Anti-Competitive Agreements

Protocol governance arrangements may potentially fall within Section 3 where independent enterprises coordinate in a manner that restricts competition.

Potential issues include:

price coordination;

output restrictions;

market allocation;

bid manipulation;

information exchange;

restrictive vertical arrangements.

The technological implementation of an agreement does not inherently change its legal character.

Section 4 — Abuse of Dominant Position

Section 4 may become particularly important where a protocol or its controlling enterprise possesses substantial market power.

Relevant conduct can include:

imposing unfair or discriminatory conditions;

imposing unfair prices;

denial of market access;

tying;

leveraging dominance;

discriminatory access to infrastructure.

A finding of dominance must precede an abuse-of-dominance analysis.

Sections 5 and 6 — Combinations

Acquisitions involving:

protocol developers;

blockchain infrastructure;

major validators;

exchanges;

wallet providers;

interoperability providers;

competing protocols

may raise merger-control questions where the statutory thresholds and other applicable requirements are satisfied.

The competitive significance may be greater where an established ecosystem acquires a nascent competing protocol.

17. Protocol Restrictions and Essential Facilities

A protocol may resemble an essential facility where:

access is indispensable;

duplication is impracticable or uneconomic;

refusal prevents effective competition;

access can technically be provided;

the restriction lacks adequate objective justification.

But technical importance alone is insufficient.

A protocol may be highly popular without being legally indispensable.

This distinction is critical because imposing compulsory access obligations can itself reduce incentives for investment and innovation.

18. Legitimate Protocol Restrictions

Not every restriction is anticompetitive.

Protocol restrictions may be justified by:

Security

Preventing malicious transactions or attacks.

Privacy

Limiting access to sensitive information.

Technical stability

Preventing incompatible software from destabilizing the network.

Fraud prevention

Restricting suspicious transactions or participants.

Standardization

Creating uniform technical rules.

Consumer protection

Preventing unsafe applications from interacting with users.

Network integrity

Maintaining consensus and preventing manipulation.

Competition law should therefore distinguish genuine technical necessities from restrictions whose principal economic function is foreclosure.

19. Key Competition Theories

Protocol-level restrictions can generate several distinct theories of harm:

20. Challenges for Competition Authorities

1. Identifying the relevant economic actor

A protocol may involve a foundation, developers, token holders and validators simultaneously.

2. Distinguishing code from conduct

Not every technical feature represents a commercially motivated restriction.

3. Measuring market power

Token capitalization does not necessarily equal economic market power.

4. Assessing decentralization

Formal decentralization may differ from effective governance control.

5. Establishing causation

Authorities must connect the protocol rule to actual or likely competitive effects.

6. Balancing innovation

Over-regulation can discourage development of new technological infrastructure.

7. Cross-border enforcement

Protocols frequently operate internationally without a conventional headquarters.

21. Important Distinction: Protocol Concentration vs. Protocol Restriction

These concepts should not be confused.

Protocol concentration asks:

Who controls the protocol?

Protocol restriction asks:

What competitive conduct does the protocol rule permit or prevent?

A protocol may be highly concentrated but not impose an unlawful restriction.

Conversely, several formally decentralized participants may collectively establish restrictive rules.

Therefore:

Concentration ≠ infringement.

The competition inquiry requires examination of the actual conduct and its effects.

22. Possible Remedies

Where an infringement is established, potential remedies could include:

non-discriminatory access;

interoperability obligations;

removal of exclusionary protocol rules;

API access;

data portability;

transparent governance procedures;

restrictions on self-preferencing;

separation of infrastructure and downstream functions;

behavioural commitments;

merger remedies;

monitoring of protocol governance.

Remedies should nevertheless preserve legitimate security and technical functions.

23. Conclusion

Protocol-level competition restrictions represent a significant evolution in competition-law analysis because technical architecture can function as an instrument of market power.

The important legal inquiry is not simply whether a protocol restricts behaviour. Competition authorities must determine:

who controls the protocol;

which relevant market is affected;

whether the relevant actors possess market power;

whether the protocol rule restricts access or interoperability;

whether it disadvantages competing undertakings;

whether it facilitates coordination;

whether legitimate technical efficiencies justify the restriction; and

whether the restriction produces or is likely to produce appreciable harm to competition.

The principles developed in Microsoft, American Needle, Broadcast Music, American Express, Bronner, IMS Health, Trinko, Aspen Skiing, NCAA v. Alston and Google Shopping provide useful comparative frameworks, although most are analogical rather than direct precedents concerning blockchain or protocol governance.

The emerging principle is therefore that competition law should examine protocol architecture as an economic mechanism without treating technological standardization, decentralization, or collective governance as inherently unlawful or inherently immune from antitrust scrutiny.