Digital Product Authenticity Systems And Supply Chain Gatekeeping

Introduction

Digital product authenticity systems are technological systems used to verify whether a product is genuine, authorized, compliant, or traceable throughout its supply chain. They may include QR codes, RFID tags, NFC chips, blockchain-based provenance records, digital product passports, serialization databases, authentication APIs, cloud-based registries, AI-powered image verification, and platform-controlled trust scores.

These systems can significantly reduce counterfeiting, fraud, diversion, warranty abuse, and unsafe products. However, they can also create competition-law concerns when the operator of an authentication infrastructure becomes a gatekeeper to market access.

The central competition-law question is:

When does a legitimate product-authentication system become a mechanism through which its operator can control who may manufacture, distribute, sell, repair, resell, or access a market?

The issue is particularly important where authenticity verification becomes technically indispensable. If retailers, marketplaces, customs authorities, insurers, consumers, or regulators accept only one digital authentication system, the system can evolve from a verification tool into critical market infrastructure.

1. Meaning of Digital Product Authenticity Systems

A digital authenticity system creates a digital representation of a product and associates it with information capable of verifying its status.

Typical architecture may involve:

1. Physical identifier
   • QR code
   • RFID
   • NFC
   • serial number
   • cryptographic chip
2. Digital identity
   • unique product ID
   • manufacturer's certificate
   • blockchain entry
   • cloud record
3. Authentication infrastructure
   • verification API
   • centralized database
   • blockchain network
   • authentication application
4. Supply-chain participants
   • manufacturers
   • wholesalers
   • distributors
   • retailers
   • marketplaces
   • logistics providers
   • customs authorities
5. Decision mechanism
   • "authentic"
   • "unauthorized"
   • "counterfeit"
   • "expired"
   • "recall"
   • "not recognized"

The technological system therefore potentially controls a digital permission layer for physical commerce.

2. What Is Supply-Chain Gatekeeping?

Supply-chain gatekeeping occurs when an undertaking obtains the ability to determine whether another undertaking can access customers, distributors, platforms, logistics networks, or other essential commercial channels.

Traditional gatekeepers included:

• ports;
• railways;
• wholesalers;
• dominant distributors;
• payment networks;
• telecommunications networks.

Digital authenticity systems introduce a new form:

authentication gatekeeping.

A seller may possess a genuine physical product but still be unable to sell it if the digital authentication system refuses to recognize the product.

This creates an important distinction:

Physical ownership ≠ digital market access.

3. How Authentication Can Become a Competition Bottleneck

Consider a market in which a dominant platform requires every product to carry an authentication token issued by Platform A.

The system may initially be beneficial because it prevents counterfeits.

But suppose Platform A subsequently:

• refuses authentication to competing suppliers;
• charges excessive authentication fees;
• requires sellers to purchase other services;
• uses authentication data to disadvantage rivals;
• gives preferential verification to affiliated sellers;
• prevents interoperability;
• blocks parallel imports;
• prevents independent repairers from accessing verification;
• changes technical standards without reasonable notice.

The authentication system can then become a competitive bottleneck.

4. Relevant Competition-Law Theories

A. Article 102 TFEU / Dominance

Under EU competition law, a dominant undertaking has a special responsibility not to undermine effective competition.

A digital authenticity platform may become dominant where it controls an important authentication infrastructure and competitors cannot reasonably replicate or bypass it.

Potential abuses include:

• refusal to supply;
• discriminatory access;
• exclusionary technical standards;
• tying;
• leveraging;
• self-preferencing;
• excessive pricing;
• margin squeeze;
• interoperability restrictions.

B. Article 101 TFEU

Where manufacturers, distributors, authentication providers, and marketplaces coordinate authentication requirements, agreements may restrict competition.

Potential concerns include:

• collective exclusion of non-certified distributors;
• agreements restricting parallel trade;
• mandatory authentication arrangements;
• information exchange;
• resale restrictions;
• coordinated refusal to deal.

5. Essential-Facility Considerations

The most difficult question is whether an authentication infrastructure constitutes an essential facility.

The basic economic argument is:

If access to the authentication infrastructure is indispensable for effective participation in a downstream market, refusing access may exclude competitors.

Factors potentially relevant include:

1. indispensability;
2. lack of realistic alternatives;
3. technical feasibility of access;
4. whether duplication is economically feasible;
5. discriminatory treatment;
6. foreclosure effects;
7. legitimate security justification.

The concept must be applied cautiously because competition law does not generally require dominant firms to assist every competitor.

6. Case Law

1. Commercial Solvents Corp. v Commission

The European Court of Justice established an important principle concerning refusal to supply by a dominant undertaking.

The case involved a dominant supplier that refused to supply an input to a downstream competitor.

Relevance

The case is useful by analogy for digital authenticity infrastructure.

If an authentication provider controls an indispensable verification input and deliberately refuses access to downstream competitors, the refusal may raise Article 102 concerns.

Principle: A dominant undertaking controlling an indispensable input cannot necessarily use that control to eliminate downstream competition.

2. United Brands v Commission

United Brands v Commission (Case 27/76) is a foundational EU dominance case.

The Court examined the conduct of a dominant undertaking and emphasized that dominance can involve substantial market power allowing an undertaking to behave independently of competitors and customers.

Relevance

A digital authentication provider may acquire substantial market power where:

• retailers depend upon its verification;
• marketplaces require its certification;
• consumers trust its authentication;
• competitors cannot obtain equivalent recognition.

The system's importance can therefore contribute to market power even where authentication itself is technically only one part of the supply chain.

3. Oscar Bronner v Mediaprint

Oscar Bronner GmbH & Co. KG v Mediaprint is one of the leading EU cases concerning refusal of access to infrastructure.

The Court adopted a demanding standard for compulsory access under the essential-facilities doctrine.

Relevance

Suppose an authentication platform argues:

"Competitors can simply create their own authentication database."

The Bronner analysis makes the question of realistic alternatives and duplication critical.

A competitor should not automatically obtain access merely because an incumbent's infrastructure is more convenient.

But where:

• the system has become industry-wide;
• alternative authentication cannot obtain recognition;
• interoperability is technically possible;
• duplication is economically unrealistic;

the case becomes much more significant.

4. IMS Health GmbH & Co. KG v NDC Health

IMS Health v NDC Health is particularly relevant to digital infrastructure.

The dispute concerned access to a proprietary data structure that had become important for competition in the pharmaceutical information market.

The Court developed stringent conditions for compelling access to intellectual-property-related infrastructure.

Relevance

A digital authenticity system may contain:

• proprietary product identifiers;
• databases;
• authentication protocols;
• APIs;
• proprietary schemas.

The owner may argue that these constitute intellectual property or proprietary technology.

However, if the system becomes indispensable for effective downstream competition, IMS Health provides an important framework for analysing whether refusal of access can constitute abuse.

5. Microsoft Corp. v Commission

Microsoft Corp. v Commission (T-201/04) is one of the most important cases concerning interoperability and exclusionary conduct.

The European Commission found that Microsoft had abused its dominant position partly by restricting interoperability information.

Relevance

This has strong implications for digital authenticity ecosystems.

Imagine a dominant authentication provider refusing to provide interoperability information to:

• competing authentication systems;
• independent retailers;
• logistics providers;
• repair networks;
• competing marketplaces.

The refusal can potentially transform a technical standard into an exclusionary barrier.

The lesson is particularly important where interoperability is necessary to prevent technological lock-in.

6. Slovak Telekom v Commission

Slovak Telekom v Commission (Joined Cases C-152/19 P and C-165/19 P) concerned exclusionary conduct involving access to telecommunications infrastructure.

The case is important because it illustrates how control over infrastructure can create downstream competitive advantages.

Relevance

A dominant digital authentication platform may similarly occupy two levels:

Upstream: authentication infrastructure

↓

Downstream: authentication-dependent commercial services.

If the platform operates in both levels, it could potentially manipulate authentication access to disadvantage downstream competitors.

Examples include:

• authenticating affiliated sellers faster;
• providing better verification data to affiliated retailers;
• imposing discriminatory technical requirements on rivals;
• withholding APIs from competing marketplaces.

7. Google Shopping

Google Search (Shopping) provides an important precedent for discrimination and self-preferencing in digital ecosystems.

The European Commission found that Google had used its dominant position in general search to favour its own comparison-shopping service.

Relevance

A product-authentication platform could potentially create analogous problems.

For example:

Platform-controlled authentication → higher visibility for platform-affiliated sellers → reduced visibility for independent sellers.

Authentication data could become an instrument of vertical leveraging.

The competition concern would not necessarily be the authentication technology itself but the use of control over that technology to distort competition in an adjacent market.

7. Self-Preferencing Through Authentication

One particularly significant risk is authentication self-preferencing.

Suppose a dominant marketplace owns the authentication system.

Its own products receive:

• instant authentication;
• lower authentication fees;
• higher trust scores;
• better search ranking.

Third-party sellers receive:

• delayed authentication;
• additional documentation requirements;
• higher fees;
• lower ranking.

The authentication system then ceases to be a neutral trust mechanism.

It becomes a competitive discrimination mechanism.

8. Parallel Imports

Digital authenticity systems can also affect parallel trade.

A manufacturer may legitimately want to prevent counterfeit products.

However, digital authentication can be designed so that:

only products sold through an authorized distribution channel receive valid authentication.

This could make genuine products imported through independent distributors appear "unauthorized."

That creates tension between:

counterfeit protection

and

protection of intra-brand competition and parallel trade.

Competition authorities may therefore examine whether authentication restrictions are genuinely necessary for combating counterfeiting or are being used to reinforce territorial distribution restrictions.

9. Vertical Foreclosure

Authentication can create vertical foreclosure where access to one level of the supply chain is used to exclude competitors at another.

For example:

Manufacturer

↓

Authentication platform

↓

Retailers

↓

Consumers

If the manufacturer controls authentication and refuses certification to independent distributors, downstream distribution competition may be weakened.

Conversely, if a dominant retailer controls authentication, it may discriminate against competing retailers.

10. Tying and Bundling

Authentication may also become a tying mechanism.

For example:

"To obtain product authentication, the manufacturer must purchase our cloud logistics service."

Or:

"Products will receive valid authentication only if sellers use our payment and distribution system."

This can create competition concerns where the undertaking possesses substantial market power in authentication and uses that power to expand into adjacent markets.

Possible tied services include:

• logistics;
• payments;
• insurance;
• warranty management;
• advertising;
• marketplace access;
• cloud storage;
• repair authorization.

11. Data Advantages

Digital authenticity systems generate highly valuable data.

The platform may learn:

• production volumes;
• distributor identities;
• geographic flows;
• retail prices;
• inventory;
• product returns;
• consumer verification activity;
• counterfeit patterns.

If the authentication provider also competes downstream, this creates a major competitive asymmetry.

For example:

Independent retailers → authentication platform → market intelligence → platform-owned retail business.

The platform may obtain commercially sensitive information about competitors that they cannot obtain themselves.

This raises concerns involving both data advantage and vertical integration.

12. Interoperability as a Competition Remedy

A major solution is interoperability.

An authentication system could permit:

• standardized product identifiers;
• open APIs;
• interoperable verification protocols;
• data portability;
• third-party authentication;
• multiple certification providers.

Instead of:

One product → One mandatory authentication provider

the system could permit:

One product identity → Multiple interoperable verification services.

This reduces gatekeeper power.

13. Digital Product Passports

Digital Product Passports may intensify these questions.

A digital product passport could contain information concerning:

• origin;
• materials;
• manufacturing;
• carbon footprint;
• repairs;
• recycling;
• ownership;
• authenticity.

If one company controls the passport infrastructure, access to the product's digital identity could become essential for participation in certain markets.

Therefore, regulatory design should distinguish between:

mandatory product information infrastructure

and

commercially controlled proprietary infrastructure.

14. Blockchain Does Not Automatically Eliminate Gatekeeping

Blockchain-based authentication is sometimes presented as inherently decentralized.

That assumption can be misleading.

Gatekeeping can simply migrate to:

• validators;
• permissioned nodes;
• wallet providers;
• identity providers;
• API operators;
• certification authorities;
• governance organizations.

Thus:

Decentralized database ≠ decentralized market power.

The economically relevant question is who controls the entry point, standards, credentials, and recognition mechanism.

15. Security Justifications

Authentication providers have legitimate reasons to restrict access.

These may include:

• cybersecurity;
• fraud prevention;
• counterfeit prevention;
• consumer safety;
• intellectual-property protection;
• privacy;
• regulatory compliance.

Competition law should not require an authentication platform to compromise genuine security.

The key question is therefore:

Is the restriction necessary and proportionate to the legitimate security objective?

A restriction that is technically unnecessary but commercially exclusionary is more problematic.

16. Discriminatory Certification

Another major concern arises where certification requirements differ between competitors.

For example:

Such discrimination can materially affect downstream competition.

Where the authentication provider is dominant, discriminatory treatment may raise Article 102 concerns.

17. Switching Costs and Lock-In

Once retailers and consumers become accustomed to one authentication system, switching may become difficult.

Participants may accumulate:

• historical authentication records;
• customer trust scores;
• warranty information;
• product histories;
• repair records;
• transaction data.

The resulting network effects can create authentication lock-in.

A competing authentication provider may technically be able to enter but economically struggle because consumers and retailers recognize only the incumbent's credentials.

18. Network Effects

The system becomes more valuable as more participants use it:

More manufacturers

→ more authenticated products

→ more retailers

→ more consumers

→ greater trust

→ more manufacturers compelled to join.

This can produce a self-reinforcing network effect.

Eventually, a voluntary authentication system may become a de facto mandatory infrastructure.

That transition is important from a competition perspective.

19. Competition Between Authentication Providers

Competition is healthier where several providers can coexist.

Possible market structure:

• Manufacturer A → Authentication Provider X
• Manufacturer B → Authentication Provider Y
• Manufacturer C → Authentication Provider Z

with interoperable verification.

Problems arise when:

Authentication Provider X becomes the only credential recognized by major marketplaces and retailers.

At that point, authentication may become a bottleneck facility.

20. Potential Remedies

Competition authorities could consider several remedies.

Structural remedies

• separation of authentication and downstream commercial activities;
• divestiture of certain databases;
• independent governance.

Behavioural remedies

• non-discriminatory access;
• transparent certification criteria;
• reasonable authentication fees;
• API access;
• interoperability obligations;
• data-access rules.

Technical remedies

• open standards;
• portable product identifiers;
• interoperable digital passports;
• cryptographically verifiable credentials.

Procedural remedies

• appeal mechanisms for rejected products;
• independent review;
• notice before suspension;
• explanation of authentication decisions.

21. Competition-Law Risk Matrix

22. Key Legal Test

A useful analytical framework is:

Step 1 — Define the relevant market

Possible markets include:

• product authentication;
• digital identity services;
• supply-chain traceability;
• certification;
• marketplace authentication;
• downstream product markets.

Step 2 — Determine market power

Examine:

• market share;
• switching costs;
• network effects;
• technical barriers;
• data advantages;
• regulatory recognition;
• interoperability.

Step 3 — Determine whether authentication is indispensable

Ask:

• Are alternatives available?
• Can competitors replicate the system?
• Is the system recognized by major marketplaces?
• Is duplication economically feasible?

Step 4 — Examine exclusionary conduct

Identify:

• refusal;
• discrimination;
• tying;
• self-preferencing;
• excessive fees;
• interoperability restrictions.

Step 5 — Examine objective justification

Consider:

• security;
• fraud prevention;
• consumer protection;
• cybersecurity;
• regulatory obligations.

Step 6 — Assess foreclosure

The decisive question is whether the system substantially reduces competitors' ability to compete.

Conclusion

Digital product authenticity systems can provide enormous benefits by combating counterfeit products, improving traceability, protecting consumers, and increasing supply-chain transparency. However, once authentication becomes a condition for commercial participation, its operator may acquire substantial gatekeeping power.

The competition-law danger is therefore not simply that an authentication platform is large. It is that:

control over digital authenticity can become control over access to physical markets.

The most important legal issues are dominance, essential-facility access, interoperability, discriminatory certification, self-preferencing, tying, parallel-import restrictions, data leveraging, and vertical foreclosure.

The case law of Commercial Solvents, United Brands, Bronner, IMS Health, Microsoft, Slovak Telekom, and Google Shopping demonstrates the principal legal foundations for analysing these problems. The emerging challenge is to apply those doctrines to an environment in which the "essential facility" may no longer be a railway, telecommunications network, or physical distribution system, but a digital trust and authentication layer embedded throughout the supply chain.