Singapore Competition Regulator Issues Guidance on Business Collaborations

On December 28, 2021, Singapore’s competition regulator (the Competition and Consumer Commission (CCCS)) issued the Business Collaboration Guidance Note (the Guidance Note), which aims to provide clarity on how businesses can collaborate without breaching Section 34 of the Competition Act (Cap. 50B). Section 34 prohibits agreements that have the effect or object of restricting competition within Singapore.

The Guidance Note provides helpful clarification on the CCCS’s position on seven common types of “horizontal” business collaborations, or agreements between two or more competitors that operate at the same level of the supply chain. The CCCS acknowledges that while each of these types of business collaborations can be pro-competitive, competition concerns may nevertheless arise in certain situations.

It is advisable for companies considering entry into a business collaboration to take note of the additional detail provided by the CCCS as to the potentially problematic (and conversely, less controversial) elements of such arrangements.

This Update highlights some of the key features of the Guidance Note with respect to the seven business collaborations addressed in the Guidance Note.

(i)      Information sharing — Exchange of both price and nonprice information among businesses

The CCCS notes that generally, information sharing may be deemed anticompetitive if the information shared is commercially sensitive, recent or current, or shared frequently. Conversely, competition concerns are less likely to arise if businesses do not share information that is commercially sensitive or relates to price or other factors that affect how businesses compete. When anticompetitive information is shared (e.g., in a meeting), businesses are urged to publicly distance themselves from the anticompetitive information sharing, including having their objections noted in the minutes of the meeting, not attending subsequent meetings where similar information is expected to be shared and independently making market behavior decisions.

(ii)     Joint production — Collaboration to jointly produce a product, share production capacity or subcontract production

Joint production agreements may be used to facilitate collusion or anticompetitive conduct such as market sharing (e.g., agreements to divide or allocate customers, suppliers or geographic areas), bid-rigging (e.g., agreements to not compete for tenders), price-fixing or market output limitation (e.g., agreements to fix production levels).

The Guidance Note provides examples of joint production agreements that are higher-risk from a competition law perspective. For example, a reciprocal subcontracting agreement (where Competitor A continues to produce product X but subcontracts the production of product Y to Competitor B, and Competitor B continues to produce product Y but subcontracts the production of product X to Competitor A) may raise concerns because it decreases the total level or capacity of production in the market. In comparison, a subcontracting agreement to expand production (where a business subcontracts its competitor(s) to produce a product without ceasing or limiting its own production of that product) is likely to be less risky because it does not decrease market production capacity or the number of competitors in the market and does not lead to situations where businesses jointly agree on prices.

(iii)    Joint commercialization — Collaboration in the selling, tendering distribution or promotion of a product

Joint commercialization agreements, like joint production agreements, carry a risk of being held to facilitate collusion or anticompetitive conduct. The CCCS takes the view that competition is likely to be adversely affected when competitors’ independent decision making (such as determination of price) is limited or when their incentive to compete is eliminated (e.g., in a reciprocal distribution agreement where Company A agrees with Company B to divide the markets in which they sell their competitive products so that each has its own geographic area of control). On the other hand, an agreement whereby parties jointly advertise, promote or market products is less likely to restrict competition as the parties usually do not need to coordinate on commercially sensitive terms (e.g., product price) as part of the agreement.

(iv)    Joint purchasing — Collaboration to jointly purchase from one or more suppliers

In assessing joint purchasing agreements, the CCCS will consider the pro- and anticompetitive impact on both the purchasing market (where joint purchasers interact with suppliers) and downstream selling market (where joint purchasers act as sellers). For example, the regulator may consider the number of upstream suppliers in the purchasing market and the market power of the joint purchasers in the selling market — the fewer the number of upstream suppliers, the greater the risk from a competition perspective (as the businesses competing with the joint purchasing businesses in the purchasing market may find it more difficult to compete and obtain supplies). Similarly, if the joint purchasers have significant market power in the selling market, then the competition risks may be heightened as it is likely that any potential savings from the joint purchasing agreement will not translate into downstream efficiencies (such as lower prices or increased output).

(v)     Joint research & development (R&D) — Collaboration on R&D activities, such as joint investment

Joint R&D agreements may raise competition concerns because if companies capable of independently conducting R&D are instead collaborating, they may have less incentive to develop better products to compete with each other, therefore negatively affecting prices, output, quality and/or variety of the product or technology ultimately made available to consumers. However, if competitors are concurrently conducting R&D that may result in similar products to those that are the subject of the collaborative R&D, then this will present less of a risk from a competition perspective.

(vi)    Standards development — Setting of industry or technical standards

The CCCS notes that standards set at an industry-level by businesses and/or trade associations may raise competition concerns if the standards (i) foreclose innovation, (ii) prevent new competitors from obtaining licenses or effective access to the standardized technology or (iii) reduce competition by allowing for anticompetitive discussions (e.g., agreements to decrease quality collectively on the pretext of meeting standards, during the standard-setting process). The CCCS has stated that it will generally assess standardization processes based on their effect on competition: whether the standards are objectively set, whether the standards are accessible to all interested businesses and whether there are available market alternatives that members can choose from.

(vii)   Standard terms and conditions in contracts — Usage of terms shared among competitors establishing conditions of sale and purchase of goods and services between them and their customers

The CCCS notes that standard terms that stifle companies’ incentives to offer more competitive and differentiated products and/or compete in terms of price are likely to be regarded as anticompetitive in nature. For example, competition concerns may arise when terms prescribe prices or are overly prescriptive in establishing benchmarks on metrics of competition such as price, output and the scope of product for industrywide adoption.

The Guidance Note provides welcome clarity on the CCCS’s position with respect to business collaboration. This is particularly the case as other competition authorities have already issued their own guidance on horizontal co-operation agreements, most notably the EU Commission which published its guidelines in 2011, the contents of which are in substance very similar to the Guidance Note. More fundamentally, it is encouraging that the CCCS recognizes the value of these arrangements in the present economic climate and in certain circumstances encourages these arrangements as being pro-competitive. However, the Guidance Note is also clear in indicating which aspects of business collaboration the CCCS will closely scrutinize. Accordingly, companies intending to enter into a collaboration agreement with a competitor in relation to the provision of goods or services within Singapore should at an early stage consider the risks of collaboration from a competition law perspective.