Before Congress went into recess about two
weeks ago, the Senate and the House of
Representatives ratified the bicameral
conference committee version of a new
antitrust law, to be officially known as the
Philippine Competition Act (PCA), for the
country. The bill is expected to be signed by
President Aquino before his State of the
Nation Address (Sona) in July.
It took Congress more than 20 years to pass
a competition law. I vividly remember having
attended Senate committee hearings
presided by former President GMA as a
senator in the early 1990s. Since then, I took
special interest and got involved in the
formulation of the law, having practiced
antitrust law when I worked in a law firm in
Washington, D.C. and being of the belief that
we need a good one for the country.
The antitrust bills that found their way in
Congress proposed to adopt different policy
approachesfrom the very strict ones to the
very liberal ones. After several Congresses,
our present Congress passed what I think is a
balanced version that takes into account the
welfare of the consumers without sacrificing
the need of our businesses to expand to
make them competitive with their
counterparts in the region.
Scope, application
The law applies not only to acts committed in
the Philippines but also to those done
offshore that have direct, substantial and
reasonably foreseeable effects in the
country.
The PCA creates a powerful independent
commission called the Philippine Competition
Commission (PCC), headed by a chair and
four commissioners who enjoy a seven-year
security of tenure. To attract competent staff
for the commission, the PCA exempts them
from the Salary Standardization Law and
grants them indemnity and immunity
privileges.
The PCC has to be organized within 60 days
from the effectivity of the law. Once
organized, the PCC has 180 days from the
effectivity of the law to promulgate the laws
implementing rules and regulations.
The law expressly grants the PCC original
and primary jurisdiction to enforce and
implement the law even with respect to
entities that are under the regulatory
jurisdiction of specialized government
agencies. It has the power to stop a merger
or acquisition, issue divestiture and
adjustment orders, and deputize government
agencies and enlist their assistance as well
as that of private institutions to implement
the law. Orders, rulings or decisions of the
PCC are immediately executory, unless
otherwise stayed or restrained by the Court
of Appeals or the Supreme Court.
To prevent entities from being subjected to
multiple investigations by different
government agencies endowed by other laws
with competition authority, the PCA adopts
what we called during the bicameral
conference proceedings as no parallel
action. It expressly states that the PCC shall
have sole and exclusive authority to initiate
and conduct fact finding or preliminary
inquiry on possible violations of the law. The
law limits the power of the Office of
Competition under the Department of Justice
to conducting preliminary investigation and
undertaking prosecution for criminal violation
of the law.
Anticompetitive conduct
The PCA adopts both the per se rule and rule
of reason analysis as the interpretative
mechanism for the law. However, the
principal interpretive mechanism is the rule
of reason analysis which admits of
justifications to explain away possible
violations of the law. Per se violations, or acts
that are deemed violations of the law by the
mere fact that they are committed, are
limited to price fixing and bid rigging
committed between or among competitors.
The law adopts the concepts of relevant
geographic market and relevant product
market to determine whether an entity
commits an anti-competitive conduct in
violation of the law.
Unlike antitrust laws in some countries, the
law does not prohibit monopolies or market
dominance. What it prohibits is anticompetitive agreements between or among
competitors and abuse of dominant
position. The law presumes entities with at
least 50 percent market share as dominant
players.
Examples of abuse of dominant position is
predatory pricing, which is selling goods or
services below cost with the object of driving
competition out of the market or imposing
barriers to prevent market entry of new
players or preventing existing players from
increasing their market share.
The law adopts the single economic entity
concept to determine whether related
entities (such as the parent company and its
subsidiary or between or among subsidiaries)
are competitors under the law.
according to commercial usage, have no
connection with the transaction.
Cognizant of the need for our businesses to
be internationally competitive, the law does
not prohibit existing dominant market
players from further increasing their market
share through superior services or processes,
quality products, exercise of legal rights and
the like. Noteworthy to mention is that the
law does not outlaw exclusive merchandising
or exclusive distributorship agreements
which are very popular in the Philippines.
Price discrimination is setting prices or other
terms or conditions (such as discounts,
rebates, allowances, or advertising
assistance) that discriminate unreasonably
between customers or sellers of the same
goods or services where the effect may be to
lessen competition substantially.
Violations of the Philippine Competition Act
may either be per se or non-per se violations.
But unlike many antitrust laws, the PCA limits
per se violations to two categories only.
The first category is price fixing between or
among competitors, which is not limited to
fixing the price of goods or services but
fixing other terms of trade (e.g., agreement
not to offer discounts or credit) as well.
The second category is bid rigging involving
competitors, which includes bid suppression,
cover bidding, bid rotation and market
allocation in bidding.
All other violations of the PCA are non-per se
violations and shall be subject to the rule of
reason analysis.
These include agreements other than those
by or among competitors which have the
object or effect of substantially preventing,
restricting or lessening competition, abuse
of market dominance and prohibited mergers
and acquisitions.
Per se violations are subject to criminal
sanctions while non-per se violations are not.
The sanctions for non-per se violations are
limited to administrative fines and civil
liability for damages.
Abuse of market dominance
The PCA prohibits entities to abuse their
dominant position by engaging in conduct
that substantially prevents, restricts or
lessens competition.
The law specifically enumerates the acts
considered as abuse of dominant position.
Aside from predatory pricing and barriers to
entry and expansion that were earlier
discussed, other examples of abuse of
dominant position are tying arrangements
and price discrimination.
Tying arrangement is making a transaction
subject to acceptance by the other party of
other obligations which, by their nature or
Of course, there are exceptions to unlawful
price discrimination such as socialized
pricing, pricing in response to competition or
market developments, and pricing that
reflect differences in the cost of the goods or
services.
Abuse of dominant position also includes
imposing unfair selling or purchase prices for
goods or services (exploitative or excessive
pricing) and limiting their production to the
prejudice of the consumers.
Exceptions to these prohibited practices are
those that develop in the market as a result
of superior products or processes, business
acumen or legal rights or laws.
Similarly, any conduct which contributes to
improving production or distribution of goods
or services within the relevant market, or
promoting technical and economic progress
while allowing consumers a fair share of the
resulting benefit may not necessarily be
considered an abuse of dominant position.
Mergers and acquisitions
The PCA prohibits mergers or acquisitions
that substantially prevent, restrict or lessen
competition in the relevant market.
There are exemptions from the prohibited
mergers or acquisitions.
Examples are mergers or acquisitions that
(a) have or are likely to bring about gains in
efficiencies that are greater than their anticompetitive effects, (b) represent the least
anti-competitive arrangement to save
financially distressed entity (known as
failing firm defense), and (c) took place
before the effectivity of the law. The law
puts the burden of proof on the party
claiming the exemption.
One big change that the PCA brings about is
that mergers and acquisitions with a
transaction value exceeding P1 billion will
require compulsory notification to the PCC.
The PCA gives the Philippine Competition
Commission an initial period of 30 days to
review the proposed merger or acquisition
during which period the parties cannot
consummate the transaction.
Should the PCC deem it necessary, it may
request, within the 30-day period, from the
parties further information that are
reasonably necessary and directly relevant
to help it determine whether the transaction
is a prohibited merger or acquisition.
If the PCC makes such request, the merger
or acquisition may not be consummated for
an additional 60 days, beginning on the day
after the request is received by the parties.
In no case, however, shall the total period for
review exceed 90 days from the initial
notification by the parties.
If no decision is promulgated by the PCC
within the 90-day period for whatever
reason, the merger or acquisition shall be
deemed approved and the parties may
proceed to implement or consummate it.
Failure to comply with the notification
requirement will make the transaction void.
It will also subject the parties to an
administrative fine of one to five percent of
the value of the transaction.
Significantly, the PCA does not dispense with
the favorable recommendation from
specialized regulatory agencies (e.g., Bangko
Sentral ng Pilipinas) required by Section 79
of the Corporation Code.
However, a favorable recommendation from
them shall give rise to a disputable
presumption that the proposed merger or
acquisition is not violative of the PCA.
The new Competition Law adopts voluntary
compliance (vs the tedious litigation process)
as its main implementing mechanism. It
seeks to do this by making available nonadversarial administrative remedies before
the PCC.
An example is a request for a binding ruling
where an entity that is in doubt whether its
contemplated act is in compliance or
violation of the law can request for a binding
ruling from the PCC. Another example is the
concept of consent order where an entity
which is in violation of the law can propose
to modify or restructure its act to make it
compliant with the law. Likewise, an entity
may provide justification to the commission
after receiving a show cause order why it
should not be made to cease and desist from
continuing with an identified business
conduct, or pay the administrative fine, or
readjust its business practices.
To prevent businesses from being unduly
harassed, the law provides that resort to
these non-adversarial administrative
remedies must first be made before any
administrative, civil and criminal actions are
filed against the parties concerned.
Forbearance and leniency
The law contains a forbearance provision
under which the commission can, under
certain conditions and for a limited period,
exempt certain acts from the provisions of
the law. It, however, requires the PCC to
conduct a public hearing to help determine
whether or not to give the exemptive relief
and if granted, the order granting it must be
made public. The commission may prescribe
conditions to the relief to ensure the longterm interest of consumers.
Also available is a leniency program in the
form of immunity from suit or reduction of
fine which would otherwise be imposed on a
participant in an anti-competitive agreement,
upon compliance with certain conditions
such as voluntary disclosure of information
regarding the anti-competitive agreement,
prompt and effective action to terminate
participation therein and cooperation with
the commission. The grant of leniency or
immunity is not limited to proceedings before
the commission but is also available before
the Office of Competition of the Department
of Justice in the event there is a preliminary
investigation pending before it.
Administrative fines
In lieu of criminal penalties, the law follows
the hit-where-it-hurts principle by
prescribing heavy administrative fines on
violators. For the first offense, the fine can be
as much as P100 million and up to P250
million for the second offense. The fines will
be increased every five years to maintain
their real value.
Where the violation is failure to comply with
the compulsory notification requirement for
mergers and acquisitions, the administrative
fine is between 5 and 20 percent of the
transaction value.
If the concerned party fails to comply with a
ruling, order or decision of the PCC within 45
days from receipt of thereof, a daily fine of
up to P2 million will be imposed.
Treble fine
There were proposals to follow the treble
damage concept adopted in the United
States where a violator of the law is liable to
a private party for triple the amount of
damages that he suffers as a result of the
violation. However, consistent with the laws
policy to adopt administrative remedies as
its main implementing mechanism, the law
opted for triple fine but only in instances
where the violation involves the trade or
movement of basic necessities and prime
commodities as defined by RA 7581, as
amended.
Criminal, civil liabilities
An entity that enters into anti-competitive
agreement prohibited by the law will be
subject to criminal and civil liability for
damages. The criminal penalty is
imprisonment from two to seven years, and a
fine of not less than P50 million but not more
than P250 million for each violation. When
the entity is a juridical person, the penalty of
imprisonment will be imposed on its officers,
directors or employees holding managerial
positions, who are knowingly and willfully
responsible for such violation.
Also, a private party who is injured by the
violation may file an independent civil action
for damages.
Unlike anti-competitive agreements which
are subject to criminal penalties, other
violations of the PCA are subject only to the
administrative fine and civil liabilities under
the law.
Transitory period
If there is any existing business structure,
conduct or practice that is in violation of the
law, the concerned entity is given two years
from the effectivity of the law to cure the
violation. Only if the violation continues after
the two-year curative period will the guilty
party be subjected to administrative, civil
and criminal liabilities under the law.
The PCA, which was signed to law by
President Aquino on July 21, 2015, provides a
delicate balance between promoting
consumer interest and level playing field in
the market and the need of our emerging
economy to respond to international
competition.
The PCA endows the PCC with vast powers.
While these powers must be used to achieve
the salutary objectives of the law, they can
also be abused by unscrupulous officials of
the PCC for their selfish ends. Now that the
President has succeeded in the herculean
task of persuading Congress to enact this law
after more than two decades in the drawing
board, the next challenge for him is to
choose the right people to wield the vast
powers and discharge the responsibilities
under the law.
These people must not only be morally
upright and technically competent, but must
also know how to deal with big business.
They must have credibility and the respect of
business to help achieve the laws salutary
objective of encouraging business to
voluntarily comply with the law as its main
implementing mechanism.
The law has lofty objectives but the big
question is whether it will really operate the
way Congress envisioned it to work.
