Philippine Competition Act of 2015

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The enactment of Republic Act No. 10667 (RA 10667) or the Philippine Competition Act of 2015 (PCA) is a breakthrough legislation in the Philippines as it is the only law primarily focused on competition policies which are matters that are hardly discussed in any jurisprudence. Competition laws are anti-trust statutes developed to protect consumers from predatory business practices. These laws are enforced to adapt and evolve along with the market, vigilantly guard against outward monopolies and prevent disruptions to the flow of competition. Such laws are applied to a wide range of questionable business activities, including but not limited to market allocation, bid rigging, price fixing, and monopolies (Read more).

Enforcement of competition laws will help ensure that markets are open and free. It challenges anticompetitive business practices while maintaining an environment where businesses can compete based on the quality of their work. A competitive market means a market with multiple buyers and multiple sellers, driving market prices lower and offering consumers more choices. A truly competitive market encourages efficiency and innovation, and forces businesses to excel. The PCA mainly reflects the belief that competition promotes entrepreneurial spirit, encourages private investments, facilitates technology development and transfer, and enhances resource productivity (Read more). Correlatively, PCA seeks to prohibit anti-competitive agreements, abuse of dominant positions and anti-competitive mergers and acquisitions (Section 2 of RA. No. 10667).

Scope and Application

The provisions of PCA are enforceable against any person or entity engaged in any

trade, industry and commerce in the Philippines. It shall likewise be applicable to international trade having direct, substantial, and reasonably foreseeable effects in trade, industry, or commerce in the Philippines, including those that result from acts done outside the Philippines (Section 3 of RA.10667).

Significant Terms and its Definitions

Upon reading PCA, the terms acquisition, control and dominant position play a major role in interpreting its provisions.

The term Acquisition refers to the purchase of securities or assets, through contract or other means, for the purpose of obtaining control by:

One (1) entity of the whole or part of another;
Two (2) or more entities over another; or
One (1) or more entities over one (1) or more entities [Par. (a)].

It is also important to know the definition of the term Control. Control refers to the ability to substantially influence or direct the actions or decisions of an entity, whether by contract, agency or otherwise [Par. (f)]. This term is imperative since an entity that controls, is controlled by, or is under common control with another entity or entities, have common economic interests, and are not otherwise able to decide or act independently of each other, shall not be considered competitors for purposes of anti-competitive agreements.

On the other hand, Dominant position refers to a position of economic strength that an entity or entities hold which makes it capable of controlling the relevant market independently from any or a combination of competitors, customers, suppliers, or consumers [Par. (g)].

Prohibited Acts and its Penalties

Anti-Competitive Agreements (Section 14 of RA 10667)

Ant-Competitive Agreements are those agreements which substantially hamper or stifle competition (Sec. 14 (c) of RA 10667). PCA specifically provides two (2) types of anti-competitive agreements, these may be referred to as (1) Per se prohibited and (2) Agreements which have the object or effect of substantially preventing, restricting or lessening competition.

Per Se Prohibited Agreements are those which restricts competition as to price, or components thereof, or other terms of trade and/ or fixes the price at an auction or in any form of bidding including cover bidding, bid suppression, bid rotation and market allocation and other analogous practices of bid manipulation (Sec. 14 (a) of RA. 10667).

The second type of anti-competitive agreements are those which set, limit, or control production, markets, technical development or investment and/or divide or share the market, whether by volume of sales or purchases, territory, type of goods, services, buyers or sellers or any other means (Sec. 14 (b) of RA. 10667).

Entities found to be in violation of Section 14 RA 10667 may be held administratively, civilly and/or criminally liable.

The Philippine Competition Commission (PCC) may impose the following schedule of administrative fines on any entity found to have violated the said sections:

1. First offense: Fine of up to one hundred million pesos (P100,000,000.00);

2. Second offense: Fine of not less than one hundred million pesos (P100,000,000.00) but not more than two hundred fifty million pesos (P250,000,000.00). (Sec. 29 of RA 10667)

An entity that enters into any anti-competitive agreement as covered Section 14 (a) and 14(b) shall, for each and every violation, be penalized by imprisonment from two (2) to seven (7) years, and a fine of not less than fifty million pesos (P50,000,000.00) but not more than two hundred fifty million pesos (P250,000,000.00). The penalty of imprisonment shall be imposed upon the responsible officers, and directors of the entity. When the entities involved are juridical persons, the penalty of imprisonment shall be imposed on its officers, directors, or employees holding managerial positions, who are knowingly and willfully responsible for such violation (Sec. 30 of RA 10667).

Abuse of Dominant Position

As earlier mentioned, an entity or group of entities has a dominant position if it possesses economic strength which renders it capable of controlling the relevant market independently from competitors, customers, suppliers or consumers. Having a dominant position in a market or sector is not by itself prohibited as long as it was acquired or maintained through legitimate means. Section 15 of RA 10667 only prohibits acts of entity or entities which abuse their dominant position by engaging in conduct that would substantially prevent, restrict or lessen competition. Specifically, Abuse of Dominant Position may be committed through the following acts:

Selling goods or services below cost with the object of driving competition out of the relevant market;
Imposing barriers to entry or committing acts that prevent competitors from growing within the market in an anti-competitive manner;
Making a transaction subject to acceptance by the other parties of other obligations which, by their nature or according to commercial usage, have no connection with the transaction;
Setting prices or other terms or conditions that discriminate unreasonably between customers or sellers of the same goods or services, where such customers or sellers are contemporaneously trading on similar terms and conditions, where the effect may be to lessen competition substantially. However, the following shall be considered permissible price differentials:
1. Socialized pricing for the less fortunate sector of the economy;
2. Price differential which reasonably or approximately reflect differences in the cost of manufacture, sale, or delivery resulting from differing methods, technical conditions, or quantities in which the goods or services are sold or delivered to the buyers or sellers;
3. Price differential or terms of sale offered in response to the competitive price of payments, services or changes in the facilities furnished by a competitor; and
4. Price changes in response to changing market conditions, marketability of goods or services, or volume;
Imposing restrictions on the lease or contract for sale or trade of goods or services concerning where, to whom, or in what forms goods or services may be sold or traded, such as fixing prices, giving preferential discounts or rebate upon such price, or imposing conditions not to deal with competing entities, where the object or effect of the restrictions is to prevent, restrict or lessen competition substantially. However, this provision shall not cover the following:
1. Permissible franchising, licensing, exclusive merchandising or exclusive distributorship agreements such as those which give each party the right to unilaterally terminate the agreement; or
2. Agreements protecting intellectual property rights, confidential information, or trade secrets;
Making supply of particular goods or services dependent upon the purchase of other goods or services from the supplier which have no direct connection with the main goods or services to be supplied;
Directly or indirectly imposing unfairly low purchase prices for the goods or services of, among others, marginalized agricultural producers, fisherfolk, micro-, small-, medium-scale enterprises, and other marginalized service providers and producers;
Directly or indirectly imposing unfair purchase or selling price on their competitors, customers, suppliers or consumers, provided that prices that develop in the market as a result of or due to a superior product or process, business acumen or legal rights or laws shall not be considered unfair prices; and
Limiting production, markets or technical development to the prejudice of consumers, provided that limitations that develop in the market as a result of or due to a superior product or process.

For violation of Section 15, violator/s may be held liable for administrative fines ranging from Php 1,000,000.00 to Php 250,000,000.00 (Sec. 29 of RA 10667).

Any criminal action arising from a violation of any provision of PCA shall be forever barred unless commenced within five (5) years from the time the violation is discovered by the offended party, the authorities, or their agents; and for administrative and civil actions, from the time the cause of action accrues (Sec. 46 of RA 10667).

Compulsory Notification to the Philippine Competition Commission (PCC)

Aside from the mentioned prohibited acts which will restrict and prohibit anti-competitive acts, PCA also requires entities who engaged in mergers and/or acquisitions to notify the PCC before the execution of merger or acquisition agreements. The notification act of the parties is a pre-emptive measure to prevent likely exploitative abuse of resulting market dominance (Medalla, Erlinda M, Understanding the New Competition Act, Discussion paper Series No. 2017-14, Page 9, Philippine Institute for Development Studies). Merger or acquisition agreements that substantially prevent, restrict or lessen competition in the relevant market or in the market for goods or services as may be determined by the PCC are prohibited (Sec. 20 of RA 10667).

Particularly, entities to the merger or acquisition agreement are mandatorily required to notify the PCC if the value of the transaction exceeds one billion pesos (P1,000,000,000.00). Parties are prohibited from consummating their agreement until thirty (30) days after providing notification to the PCC in the form and containing the information specified in the regulations issued by the PCC. An agreement consummated in violation of this requirement to notify the Commission shall be considered void and subject the parties to an administrative fine of one percent (1%) to five percent (5%) of the value of the transaction (Sec. 17 of RA 10667).

Constitutional Goals for National Economy

The PCA is one of the measures taken by the State to liberalize key sectors in the economy, provide equal opportunities and prohibit or restrict monopolies when the public interest so requires and combinations in restraint of trade or unfair competition. The government believes that competition policies and laws are one step forward in attaining a more equitable distribution of opportunities, income, and wealth, sustain an increase in the amount of goods and services produced by the nation for the benefit of the people and expands the productivity which will raise the quality of life for all, especially the underprivileged (Sec. 2 of RA 10667).

OTHER SOURCES:

1. Bynun, Justin, What are Antitrust Laws?, Investopedia Official Website, https://web.archive.org/web/20190124204455/https://www.investopedia.com/ask/answers/09/antitrust-law.asp, Last Accessed: April, 22, 2019

2. Philippine Competition Commission Official Website, https://phcc.gov.ph/philippine-competition-law-r-10667/, Last Accessed: April 22, 2019

Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.

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