Philippine Competition Act

 Competition Law
 Seeks to protect competition by controlling the exercise of market power, either by
single firms or by firms acting together, which leads to higher prices, less choices,
and lower quality and less innovation in products and services
 Market – a group composed of buyers and sellers of a particular good or service.
(aside from public markets and groceries, there are market for cars, medicine,
investment products, etc.

Five Kinds of Markets

1. Perfectly Competitive
 there are large numbers of participants interacting with each other in the economy
 No particular buyer or seller is exercising too much influence over the price or the
amount of goods and services are traded
 Firms in a perfectly competitive market are referred to as “price takers”
 Law of Supply and Demand – explains how supply and demand are related to each
other and how the relationship affects the price of goods and services
 Upward Sloping Curve = Supply Curve
 Downward Sloping Curve = Demand Curve
 S > D = Prices Fall
 D > S = Prices Rise
 Quantity supplies of a good rises when the price of the good rises
 If the price falls, quantity supplied falls as well
 Quantity demanded of a good falls when the price of the good rises
 When the price falls, quantity demanded rises
 Supply and demand rise and fall until an equilibrium point is attained
 Factors that influence the supply – technology, input prices, prices of related goods,
government policy, special influences
 Factors that influence demand – average income, population, prices of related
goods, tastes, special influences
 Gold standard – a competitive marker is one with multitude buyers and sellers. It
drives market prices lower and offers consumers a wider range of choices. A truly
competitive market encourages efficiency and innovation, motivating businesses to
excel.
2. Monopoly
 There is only one firm in the market which produces a particular good or service
 “price makers”
 Causes inefficiency market because
- Monopolists produce less than the socially efficient quantity
 - Monopolists charge prices way above the costs of production
 Natural monopoly – exist on a particular market if a single firm can serve that
market at lower costs than any combination of two or more firms (ex. Water
distribution, electrical distribution

3. Oligopoly
 A situation where there is more than one but only few firms in the industry
 Problem: sellers, who are few, do not always compete with each other, they
sometimes collude with each other to create a cartel (group of firms acting as one)
 Duopoly – special kind of oligopoly wherein two firms have dominant control over a
particular market.

4. Monopolistic competition
 Resembles a perfectly competitive market
 Difference:
- Perfectly competitive market: products are identical with each other
- Monopolistic competition: Products are differentiated
 a firm in a monopolistic competition is more a “price maker” than a “price taker”

5. Monopsony
 Flipside of monopoly
 Monopolist: seller with no rivals
 Monopsonist: buyer with no rivals; can easily dictate the price of a particular good or
service being sold by firms in a market

Historical Background of Competition Law

 Antitrust Law in the United stated
 The Sherman Act of 1890 to dismantle “trusts” during the 19 th century
 Federal Trade Commission and Antitrust Division of the US DOJ – primary
government agencies tasked to enforce federal antitrust laws in the United States
 The counterpart agency of the Federal Trade Commission and the Philippine
Competition in Europe is the European Commission

Competition Law in the Philippines

Statutes Treating Anticompetitive Conducts
1. Article 186, RPC
 Prohibit monopolist and combinations which restrain free market competition
 2. Article 28, NCC
 Gives a plaintiff sufficient cause of action for damages against the defendant who
committed unfair competition
3. Consumer Act, Price Act, General Banking Law of 2000, etc.

Philippine Competition Act

 Signed into law by President Aquino on July 21, 205
 Aims to enhance economic efficiency and promote free and fair competition in
trade, industry, and all commercial economic activities
 Aims to prevent economic concentration which will control the production,
distribution, trade or industry
 Aims to penalize all forms of anticompetitive agreements, acquisitions, with the
objective of protecting consumer welfare and advancing domestic and international
trade and economic development.

Welfare Standard/Goals of the PCA

a. Economic welfare goals
 Consumer welfare
 Producer welfare
 Total welfare
b. Economic welfare goals
 Nationalism/protectionism
 Helping the marginalized sectors
 The competition policy regime in the Philippines currently uses a somewhat eclectic
approach, which involves the promotion of a combination of all three forms of economic
welfare and in addition, the promotion of various non-economic welfare goals. This
approach takes into consideration the country’s peculiar socio-economic and cultural
dimensions to ensure the promotion of social justice, as enshrined in the Philippine
Constitution

Philippine Competition Commission

 Extrajudicial body attached to the office of the president
Composition
 Shall be composed of a chairperson and four commissioners
 Citizens and residents of the Philippines
  Of good moral character, or recognized probity and independence and must have
distinguished themselves professionally in any of the following fields: economics,
law, finance, commerce, or engineering
 Out of 5 member, at least one shall be a member of the bar with at least 10 years of
experience in the active practice of law and at least one shall be an economist
 Three members shall constitute a quorum and the affirmative vote of three
members shall be necessary for the adoption of any rule, ruling, order, resolution,
decision, etc.

Present Members of the PCC:

1. Chairman Arsenio M. Balisacan, economist
2. Commissioner Amabelle C. Asuncion, lawyer
3. Commissioner Johannes Benjamin R. Bernabe, lawyer
4. Commissioner Macario R. de Claro Jr., CPA lawyer
5. Commissioner Emerson B. Aquende, lawyer

Scope and Jurisdiction of the PCA

 Section 3, PCA
- This act shall be 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 outside the Philippines.

Exterritorial Application in the US

Conditions before the Sherman Act becomes applicable:
1. The activity has a direct, substantial, and reasonably foreseeable effect on American
domestic, import or export commerce
- The effect is direct if the nature or ordinary course of events, the alleged
anticompetitive conduct would produce an effect on commerce
- The substantial requirement does not provide a minimum pecuniary threshold,
nor does it require that the effects be quantified
- The reasonable foreseeability requirement is an objective test which requires
that the effect be foreseeable to a reasonable person making practical business
judgements
 2. The activity has effect that gives rise to an antitrust claim
3. The activity would not adversely affect international comity

Extraterritorial Application in the EU

 The European union have come up with two doctrines in order to guide it in its
determination as to whether validly take cognizance of case although the same
involves extraterritorial application
2 Doctrines in the European Union
1. Implementation Doctrine
- Allows the EU commission to assert jurisdiction over non-Eu companies that sell
directly into the Eu irrespective of the companies’ physical presence in the EU
2. Qualified Effects Doctrine
- Permits the European Commission to extend to any conduct that has an
immediate, foreseeable, and substantial effect on competition in the EU

Extraterritorial Application under the PCA

1. The PCA and US antitrust laws and jurisprudence share the same terminology or
nomenclature: “direct, substantial, and reasonably foreseeable effects”
2. Civil procedure as well as private international law in the Philippines are US inspired
3. The US approach takes into consideration international comity
4. The US approach is more well developed with parameters and guidelines, as
compared to the EU approach
 Since the EU approach actually converges with the US approach, the interpretation
as to the extraterritoriality application of the PCA could benefit from both.

Other Jurisdictional Limitations of the PCA

1. Non-application to Activities of Employees
 Example: collective bargaining agreements entered into by employees’ union and
the employer cannot be held as anti-competitive
2. Non-application to trade associations
 Trade associations are not immune from antitrust scrutiny
 Examples of trade associations: Bankers Association of the Philippines, Management
Association of the Philippines, Philippine Chamber of Commerce and Industry
3. Non-Retroactive Application
 4. Statute of Limitations
5. Date of Effectivity (April 8, 2015)
6. Application to Governmental Actions: Rule on suability (Governmental v. Proprietary)

Original and Primary Jurisdiction of the PCA

Powers and functions of the PCC
1. Conduct inquiry, investigate, and hear and decide on cases involving any violation of the
PCA and other existing competition laws motu propio or upon existing receipt of a
verified complaint from an interested party or upon referral by the concerned
regulatory agency, and institute the appropriate civil or criminal proceedings
- PCC may conduct these activities motu propio or upon existing receipt of a
verified complaint
- PCC has the sole and exclusive authority to initiate and conduct these activities
based on reasonable grounds
- The purpose of fact fiding or preliminary inquiry is to ascertain whether there are
reasonable grounds to conduct a “Full Administrative Investigation” for any
violation of the PCA, its implementing rules, or other competition laws
- Full administrative may be:
a. Administrative in nature
b. Criminal in nature
2. Review proposed mergers and acquisitions, determine tresholds for notification,
determine the requirements and procedures for notification, and upon exercise of its
powers to review, prohibit mergers and acquisitions that will substantially prevent,
restrict, or lessen the competition in the relevant market
3. Upon finding, based on substantial evidence, that an entity has entered into an
anticompetitive agreement or has abused its dominant position after due notice and
hearing, stop or redress the same, by applying remedies, such as, but not limited to
issuance of injunction, requirement of divestment, and disgorgement of excess profits
under such reasonable parameters that shall be prescribed by the rules and regulations
implementing the PCA
4. Upon order of the Court, undertake inspections of business premises and other offices,
land and vehicles, as used by the entity, where it reasonably suspects that relevant
books, tax records, or other documents which relate to any matter relevant to the
investigation are kept, in order to prevent the removal, concealment, tampering with, or
destruction of the books, records, or other documents
5. Issue adjustment or divesture orders including orders for corporate reorganization or
divestment in the manner and under such terms and conditions as may be prescribed in
the rules and regulations implementing the PCA
PCC’s power to hear and decide cases
 Decisions of the PCA are appealable to the CA
 As a general rule, the appeal shall not stay the order, ruling, or decision
RTC Jurisdiction
 The RTC of the city or province where the entity or any of the entities whose
business act or conduct constitutes the subject matter of a case, conducts its
principal place of business, shall have original and exclusive jurisdiction, regardless
of the penalties and fines imposed, of all criminal and civil cases involving violations
of the PCA and other competition-related laws.
Private Actions
 Any person who suffers direct injury by reason of any violation of the PCA may
institute a separate and independent civil action after the Commission has
completed the preliminary inquiry

Prohibitions under the PCA

1. Anticompetitive agreements
- Includes any form of contract. Arrangement or understanding or among
businesses to fix process, manipulate bids, allocate markets, or restrict outputs
- It may be formal or informal, explicit or tacit, and written or verbal
- SEC 14, PCA discusses the agreements per se prohibited by the Philippine
Competition Act namely:
a. Price-fixing
- Competitors collude with one another to fix prices of goods or services
rather than allow prices to be determined by market forces
b. bid rigging
- parties participating in a tender process coordinate their bids, rather than
submit independent bid prices
c. Output-Limitations
- Agreements, which among others, limit output or control production by
fixing production levels or setting quotas, or agreements which deal with
structural overcapacity or coordination of future investment plans
d. Market-sharing
- Producers restrict their sales of goods or services to certain geographic
areas, developing local monopolies.
Anticompetitive Agreements
- The first step in antitrust investigations usually involves the determination of whether
the agreement in question is horizontal or vertical.
 Horizontal Agreement – If the parties involved are competing sellers of the same
product at the same level of distribution. Example of horizontal agreement is the
relationship of Apple and Samsung.
 Vertical Agreement – The parties are not actually competing with each other, as one
party is classified as an upstream participant for a certain good and relies on the other
to distribute the good. Example of vertical agreement is the relationship of Apple to
Globe, and Samsung to Smart.

- The second step requires a determination if the agreement is subject to the Rule of per
se illegality or the rule of reason.
 Per Se Illegal – Refer to those agreements that are clearly and irrefutably illegal.
Examples of this are price-fixing, restrictions as to supply or production, market sharing,
market allocation, and bid-rigging.
 Rule of Reason Analysis – Describes a system of analysis utilized to assess the legality of
allegedly anticompetitive conduct.

Possible Justifications or Exceptions in Horizontal Agreement

 Justified Horizontal Agreements – Which contribute to improving the production or

distribution of goods and services or to promoting technical or economic progress.
 Joint Ventures – An association of persons or companies jointly undertaking some
commercial enterprise with all of them generally contributing assets and sharing risks.
Two kinds of Joint Ventures are the Contractual and Incorporated. Wherein the
contractual doesn’t have separate juridical personality from the joint venture while the
incorporated has it.
 Single Economic Doctrine – An entity that controls, is controlled by, or is under the
common control with another entity have common interests, and are not otherwise
able to decide or act independently of each other, shall not be considered as
competitors.

2. Abuse of dominant position

- A 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.
 - Dominance can exist on the part of one entity also known as single dominance and two
or more entities also known as collective dominance.
- Having a dominant position is not treated as anticompetitive under the PCA. What is
prohibited is the abuse by one or more entities of its dominant position.

Signs or remarks that there is an abuse of dominant position

 Predatory Pricing: Selling goods or services below cost with the object of driving
competition out on the market – A method of pricing in which a seller sets a price so low
that other suppliers cannot compete and are forced to exit the market.
 Imposing Barriers to Entry – Committing accts that prevent competitors from growing
within the market in an anticompetitive manner. The higher the entry barriers are, the
more circumspect a competition authority will be.
 Tying – 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.
 Price Discrimination – Price discrimination pertains to the pricing strategy of firms to
charge different prices to different consumers for the same good or service.
 Exploitative Behavior toward Customers or Competitors - Dominant companies use this
position to exploit consumers and competitors by charging excessive or unfair purchase
or sales prices, or by setting unfair trading conditions.
 Restrictions or Refusals to Supply or Refusals to Deal - When the dominant business
undermines its competitor’s operations by refusing to provide them goods or services.
 Blocking Competitors’ Access to Goods and Resources – A dominant business may
purchase goods and resources that its competitor needs. By removing this access to
much-needed materials, a dominant business can force its competitors out of the
market.

Possible Justifications or Exceptions Under the PCA in Abuse of Dominant Position

- Having a dominant position in a relevant market or on acquiring, maintaining and
increasing market share through legitimate means that do not substantially prevent,
restrict or lessen competition.
- Permissible franchising, licensing, exclusive merchandising or exclusive distributorship
agreements such as those which give party the right to unilaterally terminate the
agreement, where the object or effect of the restrictions is not to prevent, restrict or
lessen competition substantially.
- Agreements protecting intellectual property rights, confidential information, or trade
secrets.
 3. Anticompetitive M&As
 Merger - Mergers are the joining of two or more entities into an existing entity or to
form a new entity. Acquisitions are the purchase or transfer of a company’s assets or
securities which results in the change of control over the acquired company or a part of
it.
 Acquisition – Refers to the purchase by one firm of shares of another firm.

Kinds of Mergers:
1. Horizontal Merger – Involves the merger between or among competitors.
2. Vertical Merger – Involves the merger between a supplier and a customer.
3. Conglomerate Merger – Involves the merger of firms whose businesses are
unrelated.

- The PCC conducts a merger review to determine if the merger will substantially lessen
competition. If it finds that a deal between companies will result in consumer harm, the
PCC can block the merger or impose behavioral or structural remedies on the merging
parties. Even mergers and acquisitions worth less than the amount of the thresholds
may be subject to review by the Commission if the transaction may result in substantial
lessening of competition.

Compulsory Notification
- Size of person test refers to the value of assets or revenues of the ultimate parent entity
of at least one of the parties.
- Size of transaction test refers to the value of assets or revenues of the acquired entity.

Possible Justifications or Exceptions in Merger and Acquisition

The concentration has brought about or is likely to bring about gains in efficiencies
that are greater than the effects of any limitation on competition that result or likely
result from the merger or acquisition agreement or a party to the merger or
acquisition agreement is faced with actual or imminent financial failure, and the
agreement represents the least anticompetitive arrangement among the known
alternative uses for the failing entity’s assets