On to the next? European Commission launches consultation on competition in virtual worlds and GenAI

You might think that with less than two months to go until compliance with the Digital Markets Act (DMA) becomes mandatory on 6 March, the European Commission (EC) would have enough on its plate. But not content to rest on its laurels, the EC kicked off the new year by launching a new call for information into two nascent technology spaces, in particular artificial intelligence (AI) and virtual worlds (aka metaverses). We explore the key messages from the EC and potential implications for players in these areas. 

Technologies of tomorrow in the spotlight

For all its future proofing, the DMA and the core platform services it covers are by their very nature a reflection of technology as it was when the text of the legislation was settled and that is where initial enforcement will necessarily be focused. In this new consultation, the EC is looking to the future and considering how competition might evolve in more nascent technologies. 

In its consultation announcement, the EC uses the term “virtual worlds” to refer to persistent, immersive environments, based on technologies such as 3D and extended reality, which make it possible to blend physical and digital worlds in real-time. Virtual worlds can exist for a variety of purposes such as designing, making simulations, collaborating, learning, socialising, carrying out transactions or providing entertainment. As we’ve seen in our previous post, metaverses are largely uncharted territory for competition law and it seems the EC is quite keen to ensure this space does not remain unregulated (particularly given the size of this market in Europe, which the EC estimates at more than €11 billion in 2023). 

Generative AI is also in the spotlight, as users rely more and more on GenAI systems to generate “fake” images or well-crafted texts, or simply to get responses to their burning questions on “you name it” subjects. Competition between tech players (including some tech giants) is fierce, as rivals seek to get a foothold in this nascent sector by investments in AI companies. The EC mentions in its consultation announcement that venture capital investment in AI in the EU is estimated at more than €7.2 billion in 2023.  

The EC (and pretty much everyone else) expects that both technologies will grow exponentially in the next years and are likely to have a major impact on how businesses compete.

Competition law has entered the ChatG… 

The EC has hardly been a shrinking violet on AI and virtual worlds. On 11 July 2023 the EC published a Communication, setting out its vision, strategy and proposed actions to lay the foundations for the long-term transition towards Web 4.0 and the development of Virtual Worlds. Similarly, in December 2023, the European Parliament and the Council reached a political agreement on the Commission's proposal for an AI Act, which the European institutions envisage to be the first-ever comprehensive framework on AI, ensuring AI is safe and respects fundamental rights, while fostering innovation.

The present consultation focuses on these two nascent areas from a different (competition law) lens. The call for contributions contains various questions on both components: 

• Regarding virtual worlds - the questions focus on market structure, (e.g., barriers to entry, drivers of competition, and the potential role of standard setting in this area), existing key players and potential entrants, whether it is likely that existing market power will translate into market power in virtual worlds and how operators will monetise virtual world experiences.
   
• Regarding Generative AI - the EC is interested in structural factors (e.g., components required to build AI systems, barriers to entry, drivers of competition), whether open-source AI systems and/or components compete effectively with proprietary ones, the role of data, interoperability, and vertical integration, monetisation, as well as the rationale of the investments and/or acquisitions of large companies in small providers of generative AI systems and/or components.

The EC wants to engage in a forward-looking analysis of these markets, thinking how competitive dynamics may develop and how competition rules and their enforcement might need to adjust to that. 

A concern that is already evident in the EC’s questions might relate to the potential leveraging of existing market power in the technology sector to solidify such companies’ presence in virtual worlds / generative AI. A similar point could relate to the nature itself of these markets and whether open source / interoperable technologies will ultimately prevail over proprietary technologies / closed ecosystems.

Next steps 

The EC has asked for responses to the questions by 11 March and has indicated that it may then run a workshop with key stakeholders. 

It is at this stage unclear what the end product of this consultation could be, but even if it is only a policy paper, it could prove highly influential on future regulation in the EU and beyond. 

What we can tell is that the increasing interest in the sector will bring in the antitrust foreground companies engaged in these nascent technologies and at the same time could ultimately impact heavily on their future development.  This could be particularly relevant for companies active, for instance, in the games sector – a sector that has not been a direct focus of the DMA but which has been closely tied to the development of virtual worlds. 

Linklaters will be preparing a response to the call for information and will publish more detail in the coming months.