Competition Law
| Published date | 01 December 2016 |
| Author | Kala ANANDARAJAH LLB (Hons) (National University of Singapore), MBA (Banking and Finance) (Nanyang Technological University of Singapore); Advocate and Solicitor (Singapore); Partner, Head, Competition & Antitrust and Trade Practice, Rajah & Tann Singapore LLP. |
| Citation | (2016) 17 SAL Ann Rev 257 |
| Publication year | 2016 |
| Date | 01 December 2016 |
10.1 The year 2016 was an important year for the Competition Commission of Singapore (“CCS”). It marked its tenth year of enforcement, with the Competition Act1 (“Act”) coming into force in 2006. CCS also hosted the annual conference of the International Competition Network (“ICN”), which saw enforcers and competition professionals congregate in Singapore. Various papers were presented including discussions on government advocacy and disruptive innovation.
10.2 The year 2016 also saw CCS breaking new grounds in its enforcement work. In March 2016, CCS issued an infringement decision against ten financial advisory companies, the first ever finding of infringement under s 34 of the Act involving an anti-competitive agreement to prevent a potential competitor from entering a market. CCS also commenced several investigations into potential abuses of dominance under s 7 of the Act, with two being made public. One of the investigations pertained to an investigation in the online food-delivery industry in Singapore – the very first investigation within the e-commerce space. This investigation perhaps should have come as less of a surprise, since CCS had indicated its interest in the e-commerce market in Singapore through a study conducted in 2015. The investigation was eventually closed by CCS.
10.3 CCS received several merger notifications throughout the year, and in 2016, it cleared a total of seven mergers (some of which were notified earlier in 2015) with one merger still pending clearance as at the end of 2016. In addition, CCS had made extensive revisions to its existing guidelines, and the revised guidelines had come into effect on 1 December 2016. Of particular note is the new fast track procedure introduced by CCS for ss 34 and 47 cases, which allows entities under investigation to enter into agreements with CCS to admit their liability
10.4 In 2016, CCS hosted the 15th annual conference of ICN, which saw more than 500 participants from over 80 jurisdictions. During the ICN conference, the ICN special project team 2016 from CCS presented a report titled Government Advocacy and Disruptive Innovations2 (“report”). The report presented survey results based on responses received from ICN members on their perspectives on disruptive innovation and government advocacy experiences in relation to the same (one of the themes of the ICN conference). Disruptive innovation is a term coined by Prof Clayton M Christensen of Harvard Business School in his book, The Innovator's Dilemma,3 and is used to describe innovation that creates new markets by finding new types of customers, partly through the use of modern technology and partly through devising new business models and exploiting old technology in novel ways.
10.5 The report identified three key challenges in disruptive innovation-related government advocacy efforts. Firstly, government agencies may not regularly assess the effects of their proposed policies on competition. Hence, they should be made aware of the importance of competition and keep it in mind throughout the policy-making process. Secondly, there are insufficient information and studies on disruptive innovation to provide evidential support for advocacy efforts. The current practice is to obtain such information through enforcement work, market studies, and collaborations with government agencies. Lastly, government agencies and competition authorities face political pressures over disruptive innovation, which could lead to defensive behaviour from incumbents. Therefore, advocacy must be targeted at key decision-makers in order to be effective.
10.6 The report further summarised the learning points from the survey responses in relation to government advocacy efforts in disruptive innovation. The content of the such advocacy must be clear, with well-defined competition objectives that are supported by adequate
10.7 Many businesses may feel intimidated or restricted in their conduct, when they are being monitored by competition authorities or when they learn about the heavy penalties imposed against their counterparts for infringing competition law. However, these are crucial elements of the regulatory framework for competition law, with the ultimate aim of creating a level playing field for the development of competitive markets and innovative businesses. Competition authorities are fully aware of the need of keeping up with the evolving business landscape and have demonstrated their eagerness in doing so, for instance, by exploring the relatively new concept of disruptive innovation during the ICN conference. As what Mr Lim Hng Kiang, Minister for Trade and Industry, highlighted during his opening address at the ICN conference, it may only be a matter of time before people begin to see “competition policy and law as a key enabler for economic growth”.
10.8 Agreements between undertakings, decisions by associations of undertakings, and concerted practices which have as their “object or effect the prevention, restriction or distortion of competition within Singapore” are considered anti-competitive under s 34 of the Act. Typical examples of arrangements between competitors which are by their very nature anti-competitive include price-fixing, market-sharing, output control, and bid-rigging agreements.
10.9 In January 2016, the Competition Appeal Board (“CAB”) handed down its decision4 on an appeal filed by Nachi-Fujikoshi Corporation and its subsidiary (collectively, “the appellants”) against an infringement decision issued by CCS in CCS Imposes Penalties on Ball Bearings Manufacturers Involved in International Cartel,5 which relates to a price-fixing agreement between various ball bearings manufacturers. In its appeal before CAB, the appellants contended that CCS should have imposed a lower penalty on them for two reasons:
(a) CCS had erroneously applied the turnover of the appellants for fiscal year (“FY”) 2013 instead of FY 2012 to determine the appropriate financial penalty; and
(b) having regard to the appellants' unique business model, CCS should have excluded their turnover from export sales by their exclusive local distributor.
10.10 In relation to argument (a), CAB noted that para 2.5 of the CCS Guidelines on the Appropriate Amount of Penalty (note that this refers to the old guidelines from 2007,6 which have now been amended), as well as para 3(1) of the Competition (Financial Penalties) Order 2007,7 provide that the turnover to be used for the calculation of financial penalty is the financial year “preceding the date on which the decision of [CCS] is taken or, if figures are not available for that business year, the [one] immediately preceding it” [emphasis added]. CAB clarified that the word “decision”, as it is used in the aforesaid provisions, refers to an infringement decision (in this case, issued in 2014) rather than a proposed infringement decision (which was issued in 2013) by CCS. Thus, it agreed with the appellants that CCS should have relied on their turnover for FY 2013 in calculating the appropriate financial penalty, this being the financial year immediately preceding the date of the infringement decision.
10.11 However, CAB rejected argument (b), which was grounded on the fact that the appellants operated a different business model from the other companies which were also the subject of the infringement decision. The appellants sold their ball bearings to an exclusive distributor in Singapore, which in turn sold them to customers in Singapore and elsewhere; and, these sales had accounted for the whole turnover figure used by CCS in calculating the financial penalty for the appellants. In view of the fact that the appellants' exclusive distributor was a victim of their anti-competitive conduct, CAB held that CCS did not err in using the turnover figure from the sale of ball bearings by the appellants to their exclusive distributor to derive the financial penalty imposed on them. Ultimately, CAB reduced the amount of financial penalty imposed on the appellants from S$7,564,950 to S$4,773,423, as their turnover for FY 2013 was lower than that for FY 2012, which was used by CCS in its previous calculation.
10.12 In February 2016, CCS received an application for a decision8 pursuant to s 44 of the Act from Singapore Airlines Limited (“SIA”) and Deutsche Lufthansa AG (“Lufthansa”), for CCS to decide whether a joint venture between SIA and Lufthansa (“SIA–Lufthansa Proposed JV”) would infringe the s 34 prohibition. Under the SIA–Lufthansa Proposed JV, SIA and Lufthansa would collaborate with each other on pricing, inventory management, sales, and marketing. The SIA–Lufthansa Proposed JV also involved co-ordination between the parties on schedule and capacity, as well as revenue-sharing on the following routes: Singapore–Frankfurt; Singapore–Munich; Singapore–Dusseldorf; and Singapore–Zurich.
10.13 During its assessment of the SIA–Lufthansa Proposed JV, CCS discovered that the parties were the only airlines operating direct flights on the Singapore–Frankfurt and Singapore–Zurich routes (“routes”), with a combined...
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