Published — October 1, 2018
The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.
Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
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In recognition of market competition as a means of allocating goods and services to attain a more equitable distribution of opportunities, income, and wealth, the State undertakes to eliminate monopolies when the public interest so requires. This is to achieve the State’s purpose of protecting consumer welfare, and advancing domestic and international trade and economic development [See: Sec. 2, R.A. No. 10667].
True to said objectives, R.A. No. 10667, also known as the Philippine Competition Act, was passed, which shall be applicable to any person or entity engaged in trade, industry and commerce within the Philippines. The said law shall likewise be applicable to international trade having direct, substantial, and reasonably foreseeable effects in Philippine commerce [See: Sec. 3].
Eliminating monopolies
According to Timothy Draper, “[m]onopolies are bad because people get bad service for high prices. Competition is good because people get good service for competitive prices.” Though monopoly may bring some advantages, like stability of prices (because only one provider is dictating the price), consumers are being exploited by getting inferior quality and quantity in their deals, at more expensive prices due to lack of competition.
Since the objective of the law is to eliminate business monopolies, certain acts aimed at stopping competition are prohibited. These acts may be classified into three main categories, namely:
- Anti-competitive agreements;
- Abuse of dominant position; and
- Anti-competitive mergers and acquisitions.
Anti-competitive agreements
Anti-competitive agreements are entered into between or among competitors. But because of the actual or potential adverse impact on the relevant market that may result from such agreements, the law prohibits them. In this regard, the following are outright declared as anti-competitive agreements:
- Restricting competition as to price, components, or other terms of trade;
- Fixing price at an auction or in any bidding activity, or other practices of bid manipulation [See: Sec. 14(a)].
Other agreements between or among competitors are likewise prohibited when the object or effect of such agreement is to substantially prevent, restrict, or lessen competition within the relevant market [See: Sec. 14(b)].
Abuse of dominant position
Business entities are prohibited from abusing their dominant position by engaging in conduct that would substantially prevent, restrict or lessen competition. Among the most common acts that would exemplify this is the selling of goods or services below its real value, with the aim of driving out of the relevant market the smaller competitors who cannot cope with the very low selling prices of the dominant entity. This, however, would still be subject to the evaluation of the Philippine Competition Commission (the “Commission”) as to whether the concerned entity lowered its price in good faith to meet or compete with the lower price of an existing competitor in the same market who is selling comparable products or services [See: Sec. 15(a)].
Anti-competitive mergers and acquisitions
Mergers between or among competitors, or acquisition by a competitor of his other competitor(s) for purposes of eliminating, restricting or lessening competition are likewise prohibited by law [See: Sec. 20]. However, the merger or acquisition shall not be considered anti-competitive if it was made under the following circumstances:
- If it will result in more efficient delivery of goods or services; or
- If one of the parties is facing actual or imminent financial losses, and the merger or acquisition represents the least anti-competitive arrangement among other alternatives [See: Sec. 21].
In case of merger or acquisition where the value of the transaction exceeds Php 1 billion, the parties are prohibited from carrying out their agreement without providing at least 30 days notice to the Commission in the form specified in the regulations [See: Sec. 17].
Penalties for violation
Entering into any anti-competitive agreement as shall, for each and every violation, be penalized by imprisonment from 2 to 7 years, and a fine ranging from Php 50 million to Php 250 million. 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 [See: Sec. 30].
Administrative penalties may likewise be imposed on any entity found to have committed such violation(s).
- First offense – Fine of up to Php 100 million;
- Second offense – Fine ranging from Php 100 million to Php 250 million [See: Sec. 29(a)].
Failure to observe the compulsory notice requirement in mergers or acquisition shall likewise subject the violating entity to an administrative fine ranging from 1% to 5% of the value of the transaction [See: Sec. 17].
In a country run by free enterprise such as the Philippines, the price and quality of services and commodities are very much affected by the existence of competition, or by the lack of it. But because of the evils brought about by monopolies in a free enterprise, it is for the best interest of the public in general to promote and sustain a competitive market. Entrepreneurs should thus be encouraged to go into business, or to remain in business, to maintain a fertile ground for competition to blossom. Indeed, the thrust of the law is to kill monopolies so that the market will stay alive and healthy.
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding marketing and sales laws, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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