Summary Under the proposed Cloud and AI Development Act (CADA), Article 11(2) would require Member States to ensure that the allocation and use of resources within data centre acceleration zones takes place on fair, reasonable and non-discriminatory (FRAND) terms and does not give rise to speculative reservation or foreclosure practices capable of impeding effective competition or the effective development or use of those zones. For in-house counsel, this would create a compliance obligation to ensure that land, energy and connectivity are not hoarded or locked up to block market entry, with Member States required to enforce these rules. CADA is a proposal and not yet in force.

Detail

CADA proposes a framework to accelerate the deployment of sustainable computing capacity across the EU. A central pillar is the designation of "data centre acceleration zones" by Member States under Article 10 - geographic areas where data centre development is facilitated through streamlined permitting, grid planning and regulatory support.

While Article 10 governs the designation and characteristics of zones, Article 11 sets the conditions within them. The provision on resource allocation is Article 11(2), which provides:

"Member States shall ensure that the allocation and use of resources within acceleration zones takes place on fair, reasonable and non-discriminatory terms and does not give rise to speculative reservation or foreclosure practices capable of impeding effective competition or the effective development or use of those zones."

This is reinforced by Recital 39, which frames the obligation as ensuring fair, reasonable and non-discriminatory access that preserves effective competition and supports the timely and efficient development of acceleration zones.

The FRAND obligation in acceleration zones

The term "fair, reasonable and non-discriminatory" (FRAND) is traditionally associated with standard-essential patents. As proposed, CADA applies the principle to the physical and operational resources of data centre infrastructure within acceleration zones. The CADA text does not enumerate which "resources" are covered, but in context they would plausibly include power grid access and clean-energy generation, network connectivity, and physical space within the designated zone - the inputs Article 10 directs Member States to consider when designating zones.

Fairness and reasonableness: As proposed, the criteria for allocating these resources would need to be transparent and objectively justified, free from undue bias or arbitrary hurdles that disproportionately affect certain market participants.

Non-discrimination: All eligible operators, regardless of size, origin or market share, would have to be treated equally when competing for resources within a zone. Allocation rules could not be designed to inherently disadvantage new entrants or smaller players in favour of incumbents. This supports CADA's broader goal of reducing dependence on a limited pool of third-country providers by fostering a more diverse European cloud ecosystem.

Prohibition of speculative reservation and foreclosure

The second limb of Article 11(2) targets "speculative reservation" and "foreclosure practices." CADA does not define these terms, so the descriptions below are general competition-law concepts, not statutory definitions.

Speculative reservation: broadly, securing land, energy contracts or grid connections not for near-term deployment but to hold them in anticipation of price increases or to create artificial scarcity. In zones designed to rapidly expand EU compute capacity, this would delay actual construction and exacerbate the capacity gap.

Foreclosure practices: broadly, where a player uses control over essential resources to exclude competitors - for instance, controlling all available grid connections in a zone and refusing access or offering it only on prohibitive terms. Article 11(2) would require Member States to prevent such practices where they impede effective competition or the effective development or use of the zone.

Member State responsibilities

As proposed, the Article 11(2) obligation rests on Member States as active regulators of resource allocation within their zones. In practice this would imply:

  1. Clear allocation rules: transparent mechanisms for awarding land, energy and connectivity rights that incorporate FRAND principles and safeguards against speculation.
  2. Monitoring and enforcement: overseeing that allocated resources are developed, and being able to act where resources are reserved but not developed.
  3. Preventing anti-competitive barriers: coordinating competition and sectoral authorities to identify and block foreclosure, including scrutiny of long-term PPAs or land leases that effectively lock out competitors.

Note that Article 11(2) sets the obligation but does not, on its own text, prescribe specific enforcement powers such as reallocation; those would depend on national implementation and existing competition law.

Relationship with other CADA provisions

  • Article 10 (designation): directs Member States to consider grid and connectivity capacity when designating zones; Article 11(2) then ensures access to that capacity is not monopolised.
  • Article 13 (facilitating processes): mandates streamlined permitting; Article 11(2) acts as a check so that speed does not let large players secure all resources at the expense of fairness.
  • Article 14 (strategic projects): allows designation of strategic projects that may receive support; the FRAND principle helps ensure strategic status does not translate into unfair foreclosure of competitors.

What this means for you

For in-house counsel and compliance officers at cloud providers, data centre operators and public-sector entities, Article 11(2) would introduce several considerations.

1. Due diligence in resource acquisition: When bidding for land, energy or connectivity in a zone, demonstrate a credible development timeline. Securing resources purely for speculative purposes could attract regulatory scrutiny. Document intent to develop within a reasonable timeframe.

2. Review of existing contracts: Review long-term leases, PPAs and connectivity agreements for clauses that could be characterised as foreclosure - for example, exclusive grid-access clauses that prevent competitors from operating in the same zone. Keep exclusivity to what is strictly necessary.

3. Engagement with Member State authorities: As Member States develop implementation rules, engage early to advocate for transparent, merit-based allocation criteria and to help define "reasonable" timelines and "fair" pricing in local conditions.

4. Risk of regulatory intervention: Member States would be expected to address speculative or foreclosure practices. Approaches may vary between Member States, so monitor national guidance closely.

5. Competitive strategy: The FRAND requirement can be a lever - if competitors engage in speculative hoarding or foreclosure, those practices can be raised with national authorities.

Common misconceptions

1. FRAND only applies to intellectual property. As proposed, CADA extends the FRAND principle to the physical and operational resources of acceleration zones, as a market-access principle for critical infrastructure.

2. Speculative reservation is always illegal. Not all forward-looking investment is speculative. Securing resources for a project with a clear, phased development plan would be permissible. The text targets practices that impede effective competition or the development of the zone; the key is a credible development timeline.

3. Only large hyperscalers are affected. Larger players are more likely to be able to foreclose, but smaller operators can also be affected by discriminatory allocation rules - and FRAND applies to all participants.

4. Member States have no discretion. The FRAND principle and the prohibition on speculation would be mandatory, but Member States would retain discretion in implementation within national legal frameworks, consistent with EU competition law and CADA's objectives.

Related

This is general information about a draft EU regulation, not legal advice.