Is Your Business Collaboration Competition Law-Compliant?
What are Competition Laws?
Competitive markets are the bedrock of Singapore’s political and economic system. As a result, Singapore has enacted competition laws designed to keep markets competitive by penalising anti-competitive behaviour that can hurt consumers or other firms.
If you are doing business in Singapore, such as by engaging in collaborations with other businesses, it is important that you understand and comply with these competition laws that govern all non-state businesses and economic activities in the country.
Singapore’s competition laws are enshrined in the Competition Act (CA). Passed in 2004, the CA aims to promote the efficient functioning and enhance the competitiveness of Singapore’s economy, by prohibiting three types of anti-competitive conduct:
- Agreements that prevent, restrict or distort competition;
- Abuse of dominant position; and
- Mergers and acquisitions that substantially lessen competition.
The focus of this article is on the issues to be aware of when collaborating with other businesses so your business does not fall afoul of the first prohibition. It will cover:
Read on to find out how you can identify signs of anti-competitive conduct and ensure that your business collaboration does not run the risk of preventing, restricting or distorting competition.
How Could a Business Collaboration Breach Competition Laws?
Your business collaboration may risk violating the CA if it has engaged in any of the three types of anti-competitive conduct mentioned above, unless it is excluded or exempted under the CA. Exemptions under the CA include businesses and organisations that:
- Provide essential services;
- Help Singapore fulfil certain international obligations; or
- Boost net economic growth (without eliminating competition for a substantial part of the goods or services provided).
For example, entering into price-fixing agreements with your collaborator(s) is prohibited as it can prevent, restrict or distort competition. Meanwhile, if your business or business collaboration has a significant market share, you might risk contravening the CA if you use your dominant position to limit production or restrict entry to new market players.
Lastly, if your business is planning to merge with another business, and the merger causes prices to increase beyond the prevailing level or the quality of goods to drop, then the merger could be deemed to lessen competition and run afoul of the CA.
The Competition and Consumer Commission of Singapore (CCCS), the body responsible for the administration of the CA, has the authority to conduct investigations if there are reasonable grounds for suspecting an infringement of the CA.
What Guidance is There on Whether a Business Collaboration Might Breach Competition Laws in Singapore?
In December 2021, CCCS issued the Business Collaboration Guidance Note, which seeks to provide clarity on how businesses can collaborate without harming competition and violating the CA.
The Guidance Note applies to your business if it is involved in a horizontal business collaboration, which is an agreement between two or more businesses operating at the same level of the supply chain (i.e. competing retailers selling the same type of products, for instance, camping equipment or fitness apparel). In contrast, the Guidance Note does not cover vertical agreements, which are collaborations between businesses operating at different levels of the supply chain.
Although the Guidance Note provides guidance on how you can collaborate without harming competition, it is not exhaustive. Neither is it a substitute for the CA or its associated subsidiary legislation and guidelines. It is therefore not legally binding and serves only to guide you in your decision-making.
The Guidance Note provides guidance on seven common types of business collaborations:
1. Information sharing
While information sharing can often help businesses understand the market and plan their individual strategies, it can also become anti-competitive if the information shared reduces uncertainty and competitive pressure between competitors.
For example, sharing of pricing information may lead to price-fixing and other cartelistic behaviour, which may reduce or eliminate competition in a particular industry.
To determine if the information you are sharing with your business collaborators is anti-competitive, the general rule of thumb is that the more commercially sensitive, recent or current the information shared, or the more frequent the sharing, then the more likely that the information sharing is anti-competitive.
Such information can include:
- Both price and non-price information
- Pricing recommendations or guidelines by trade associations
- One-way disclosure of commercially sensitive information.
2. Joint production
Joint production refers to agreements between businesses to jointly produce a product, share production capacity or subcontract production. When engaging in joint productions, your business should ensure that the agreements you are entering into are not used to facilitate market sharing, bid-rigging, price-fixing or output limitation.
For instance, joint production agreements should not be used as a front to share the market and avoid competing with one another in certain products, as this can distort and reduce competition.
CCCS has identified three scenarios where competition concerns in joint production agreements are likely to arise:
- When collaborating businesses have significant aggregate market power exceeding 20%, as their pricing and other decisions are more likely to have an impact on reducing competition;
- When the collaboration allows collaborating businesses to share a large proportion of common costs, for this makes it easier for them to collude; and
- When the collaboration raises concerns on the types of information shared (note the above section for the types of information that should not be shared).
3. Joint commercialisation
Joint commercialisation refers to agreements between businesses to cooperate in the selling, distribution or promotion of their products. Before entering a joint commercialisation agreement, your business should ensure that your agreement is not used to facilitate collusion or harmful collusive outcomes in the market, such as through price-fixing, bid-rigging, market-sharing and output limitation.
The Guidance Note lays down further considerations for four specific types of joint commercialisation agreements:
- Joint advertising agreements are agreements to jointly advertise, promote or market a product. While these agreements generally do not restrict competition, your business should take note of any commercially sensitive terms before entering into such an agreement.
- Joint distribution agreements are agreements to jointly distribute, promote or sell products. While they are overall unlikely to restrict competition, concerns may arise when horizontal competitors agree to distribute each other’s competing products on a reciprocal basis.
- Joint bidding agreements involve businesses collaborating on joint bids in a tender. Where businesses in such collaborations are not actual or potential competitors to each other for that particular tender contract, competition concerns are unlikely to arise. However, your business should be mindful of entering into such agreements with actual or potential competitors, as the alignment of commercial interests with competitors can reduce each businesses’ independent decision-making.
- Joint selling agreements involve businesses jointly selling their products or services. When entering into such agreements, your business should remain cautious towards restrictions relating to prices and quantities to sell to customers, as they might curb competition.
4. Joint purchasing
Joint purchasing involves the agreement to jointly purchase from one or more suppliers. As with other types of collaborations, joint purchasing agreements must not be used to facilitate harmful collusive outcomes in the market, such as by engaging in price-fixing, bid-rigging, market-sharing and output limitation. For example, using a joint purchasing agreement as a front to collude on purchase prices can distort and restrict competition.
In assessing the effects of a joint production collaboration, CCCS will look at two relevant markets:
- In the purchasing market, where collaborating businesses interact with the suppliers, competition concerns may arise when businesses with significant market power collude to depress prices to an extreme. This can result in suppliers being unable to supply products without compromising on safety and quality.
- In the selling market, collaborating businesses are active as sellers. Competition concerns may arise in various ways. For example, if collaborating businesses engage in price coordination or do not translate savings accrued from a joint purchasing agreement into downstream efficiencies, such as lower prices or increased output, then the incentive for price competition in downstream markets may be reduced.
5. Joint Research and Development (R&D)
R&D collaborations can lead to newer or quicker improvements in products or technologies. For example, a small business with the necessary know-how to produce a product but not the resources to do so, and another business with the resources but not the ability to produce similar products, can benefit from R&D collaboration.
If your business is engaging in an R&D collaboration on existing products and technology, competition concerns may arise when:
- Collaborating businesses are actual or potential competitors in the R&D market and have some market power, or when
- A potential maverick from the market is removed.
These situations can potentially reduce competition as they may lower incentives to compete and raise prices, restrict output and reduce product variety.
For R&D collaboration on new products and technology, competition concerns may arise if the collaboration reduces the level of competition to innovate. For instance, significantly reducing the number of competing innovators, or removing a potential maverick, can negatively impact the quality and variety of future products or technologies and the speed of innovation.
6. Standards development
Standards refer to a set of specifications or procedures that define technical or quality requirements. While businesses can collaborate to develop standards that may be beneficial to all collaborating parties, CCCS has identified three main potential areas that may give rise to competition concerns:
- Foreclosure of innovation – standards may limit technical development and innovation when competing technologies are excluded during the standard-setting process.
- Exclusion or discrimination on use of the standards can hurt competition if certain businesses are prevented from obtaining licences or effective access to the standardised technology.
- Businesses that engage in anti-competitive discussions during the standard-setting process, such as agreeing to reduce quality and therefore production cost on the pretext of meeting standards, risk reducing or eliminating competition in the industry or markets concerned.
In determining whether competition has been restricted during standardisation, CCCS will primarily assess:
- Whether the standards were achieved objectively
- Whether access to the standard is provided fairly, as well as
- Whether the standards are used to exclude or discriminate unfairly against certain businesses.
7. Standard terms and conditions
Standard terms are used in certain industries where the sector regulator or trade association attempts to improve standards in the industry. The Guidance Note applies only to standard terms shared among competitors that establish the conditions of sale and purchase of goods and services between businesses and customers.
If your business or business collaboration is interested in establishing standard terms in your industry, be careful in complying with competition laws when doing so. CCCS urges businesses or organisations not to set overly extensive or prescriptive benchmarks, or standard price or non-price terms that can facilitate price-fixing, bid-rigging, market sharing or output limitation.
Businesses should also not be compelled to adopt the standard terms and should retain the ability to come up with their own terms if they wish to.
What Can You Do If You Suspect That a Business Collaboration Breaches Competition Laws?
1. Filing a complaint with CCCS
If you suspect that any business, company or organisation is engaging in or has been engaged in anti-competitive conduct that infringes the CA, you may file a complaint with CCCS. To do so, you should have the following information ready:
- Information about you and the organisation you represent (if applicable);
- Information about the party or parties involved;
- A brief description of the unfair practice, agreement, abusive conduct or merger that you are complaining about;
- Any other relevant information and supporting documents.
After conducting an investigation on the matter, CCCS will contact you by email and/or telephone in five working days, and thereafter keep you updated on the outcome of your complaint.
If CCCS finds that a prohibition has indeed been infringed, it may issue directions to the infringer as it deems appropriate, to eliminate the infringement or prevent its recurrence.
2. Bringing a legal suit
Alternatively, if your business has suffered loss or damage as a result of an infringement of the CA, you have a right of action for civil relief against the infringing party. A lawyer can advise you on your legal options and help you bring a legal suit against the infringing party to seek such relief.
While business collaborations can often result in win-win outcomes that benefit collaborating parties, it is crucial to ensure that your collaboration will not potentially engage in anti-competitive conduct. Not only will this ensure the continuity of your business collaboration, but adherence to market competition can also enhance your business’ credibility and public profile.
If you still have doubts on whether your business collaboration is compliant with the CA, you may approach CCCS for further guidance or seek independent legal advice.
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