13th Jun 2018
Philippine Competition Law at a Glance
13 June 2018
On 21 July 2015, Republic Act No. 10667, otherwise known as the Philippine Competition Act was finally enacted and became effective on 08 August 2015. However, a transitional period was provided by the law whereby an existing business structure, conduct, practice or any act that may be in violation of this law shall be subject to the administrative, civil and criminal penalties only if it is not cured or is continuing upon the expiration of two years after the effectivity of the Philippine Competition Act[i]. Nevertheless, merger review is not covered by the said transitory period. The transitory period of the Philippine Competition Act expired on 08 August 2017.
Generally, acts committed by any person or entity engaged in any trade, industry and commerce in the Philippines are covered by the Philippine Competition Act. However, following the US extraterritorial application of competition laws, the Philippine Competition Act is likewise applicable to international trade having direct, substantial, and reasonably foreseeable effects in trade, industry, or commerce in the Republic of the Philippines, including those that result from acts done outside the Republic of the Philippines.[ii]
2. The Philippine Competition Commission (“PCC”)
The PCC, an independent quasi-judicial body, is tasked to implement the national competition policy. It is composed of a Chairperson and four (4) Commissioners[iii] who shall serve for a term of seven years without reappointment[iv].
The PCC shall have original and primary jurisdiction over the enforcement and implementation of the Philippine Competition Act.[v] It also has the power to conduct inquiries, investigate, and hear and decide on cases involving any violation of Philippine Competition Act as well as institute the appropriate civil or criminal proceedings. Pertinently, the PCC has the power to review and/or prohibit proposed mergers and acquisitions. As a quasi-judicial body, it can conduct administrative proceedings, impose sanctions, fines or penalties for any noncompliance with or breach of the law, punish for contempt, issue subpoenas for the production of documents and personal appearance before it and issue injunctions.
3. Prohibited Acts
Per se prohibitions consist of restricting competition as to price, component and terms of trade as well as price-fixing in any auction or any form of bid rigging and bid manipulation.[vi]
Agreements between or among competitors which have the object or effect of substantially preventing, restricting or lessening competition are likewise prohibited. However, acts which contribute to improving the production or distribution of goods and services or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefits, may not necessarily be deemed a violation.[vii]
Furthermore, abuse of dominant position by engaging in conduct that would substantially prevent, restrict or lessen competition is also prohibited. However, price differential resulting from socialized pricing for the less fortunate, reflection of differences in the cost due to differing methods and technical conditions, response to the competitive price of payments, services or changes of the facilities furnished by the competitor, and response to changing market conditions are considered as permissible price differentials.[viii] Moreover, franchising, licensing, exclusive merchandising or exclusive distributorship agreements such as those which give each party the right to unilaterally terminate the agreement; or agreements protecting intellectual property rights, confidential information, or trade secrets are considered as lawful.[ix] In addition, if the dominant position was acquired or maintained through legitimate means that do not substantially restrict competition or the conduct contributes to improving production or distribution of goods or services promotes technical and economic progress while allowing consumers a fair share of the resulting benefit, the same are not classified as abuse of dominant position.[x]
4. Mergers and acquisitions
Originally, under the Philippine Competition Act, mergers and acquisitions wherein the value of the transaction exceeds One Billion Pesos (P1,000,000,000.00 or approximately US$19.2 million) are subject to compulsory notification and review by the PCC. However, effective 20 March 2018 and pursuant to the power of the PCC to determine thresholds for notification, it increased the threshold to Five Billion Pesos (P5,000,000,000.00 or approximately US$96.1 million) for the size of person and Two Billion Pesos (P2,000,000,000.00 or approximately US$38.4 million) for the size of transaction.[xi] The Size of Person refers to the aggregate annual gross revenues or value of assets in the Philippines of the ultimate parent entity of at least one of the parties, while Size of Transaction refers to the value of the assets or revenues of the acquired entity. [xii]
It must be noted that even if a merger or acquisition is prohibited, it can thereby be exempted if the parties establish that the concentration has brought or will bring about gains in efficiencies that are greater than the effects of any limitation on competition or a party to the merger is faced with actual or imminent financial failure and that the agreement represents the least anti-competitive arrangement among the alternative uses of the assets.[xiii]
Violations of the provisions of the Philippine Competition Act pertaining to cartels, price fixing, anti-competitive agreements, abuse of dominant position, failure to comply with the merger compulsory notification and classification as a prohibited merger can result in the imposition of administrative fines of up to One Hundred Million Pesos (P100,000,000.00 or approximately US$1.9 Million) for the first offense; and not less than One Hundred Million Pesos (P100,000,000.00 or approximately US$1.9 Million) but not more than Two Hundred Fifty Million Pesos (P250,000,000.00 or approximately US$4.8 Million) for the second offense.
Criminal penalties may also be meted out consisting of imprisonment ranging from two (2) years to seven (7) years and a fine not less than Fifty Million Pesos (P50,000,000.00 or approximately US$961,000) but not more than Two Hundred Fifty Million Pesos (P250,000,000.00 or approximately US$4.8 Million) for each and every violation of the following acts:
1. Per se prohibitions consist of restricting competition as to price, component and terms of trade as well as price-fixing in any auction or any form of bid rigging and bid manipulation; and
2. Agreements, between or among competitors which have the object or effect of substantially preventing, restricting or lessening competition setting, limiting, or controlling production, markets, technical development, or investment; or dividing or sharing the market, whether by volume of sales or purchases, territory, type of goods or services, buyers or sellers or any other means.
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[i] Philippine Competition Act 2015 ch IX s 53.
[ii] Ibid ch I s 3.
[iii] Ibid ch II s 6.
[iv] Ibid ch II s 7.
[v] Ibid ch II s 12.
[vi] Ibid ch III s 14(a).
[vii] Ibid ch III s 14(b).
[viii] Ibid ch III s 15(d).
[ix] Ibid ch III s 15(e).
[x] Ibid ch III s 15.
[xi] PCC Memorandum Circular No. 18-001, 01 March 2018.
[xii] Ibid s 3.
[xiii] Philippine Competition Act 2015 ch IV s 21.