Philippine Competition Law (Republic Act No. 10667)

SALIENT POINTS

The enforcing agency

The Philippine Competition Commission (PCC) is given broad powers under the PCA to ensure that the law is effective and able to respond to market needs. It has the broad powers of:

  1. Investigation to, amongst others, conduct unannounced inspections of company premises (dawn raids), investigate suspected violations, etc.,
  2. Merger Control to review mergers and acquisitions,
  3. Remedies imposition by issuing injunctions, requiring divestment and disgorgement of excess profits, and imposing penalties on companies and individuals that have violated the PCA,
  4. Policy Advocacy and Advisory by issuing advisory opinions and guidelines on competition matters, promoting capacity building, and the sharing of best practices with other competition-related bodies, and advocating pro-competitive policies of the government, and
  5. Market Surveillance by monitoring and undertaking consultation with stakeholders and agencies for purpose of understanding market behavior, monitoring or analyzing practice of competition in markets affecting Philippine economy
MAIN PROHIBITIONS: 3 PILLARS
  1. Anti-competitive agreements
  2. Abuse of dominant position
  3. Anti-competitive mergers and acquisitions or M&As that substantially prevent, restrict, or lessen competition

Prescription of action

The PCA provides that any action arising from a violation of any of its provision must commenced within five (5) years from:

  1. For criminal actions, the time the violation is discovered by the offended party, the authorities, or their agents; and
  2. For administrative and civil actions, the time the cause of action accrues; otherwise, the action shall be barred. (Section 46, PCA)
PENALTIES

Section 29. Administrative Penalties

In any investigation under Chapter III, Sections 14 and 15, and Chapter IV, Sections 17 and 20 of this Act, after due notice and hearing, the Commission may impose the following schedule of administrative fines on any entity found to have violated the said sections:

    Fines

  1. 1st Offense: Up to ₱100M
  2. Offense: ₱100M-250M

  3. Failure to Comply
  4. ₱50,000 to ₱2 million

  5. False or Misleading Information
  6. Up to ₱1 million

The schedule of fines shall be increased by the Commission every 5 years to maintain their real value from the time it was set.


Section 30. Criminal Penalties

An entity that enters into any anti-competitive agreement as covered by Chapter III, Section 14(a) and 14(b) under this Act shall, for each and every violation, be penalized by imprisonment from 2 to 7 years, and a fine of not less than P50 million but not more than P250 million. The penalty of imprisonment shall be imposed upon the responsible officers, and directors of the entity.

Section 41. Basic Necessities and Prime Commodities

If the violation involves the trade or movement of basic necessities and prime commodities as defined by Republic Act No. 7581, as amended, the fine imposed by the Commission or the courts, as the case may be, shall be tripled.

Private Action

A private party may institute a separate and independent civil action if it suffers direct injury for violations of the PCA by the other entity. However, under Section 45 of the PCA, the right to file a verified complaint by an interested party may only accrue or be exercised after the PCC has completed its preliminary inquiry as mandated under Section 31.

Repealing Clause

The following laws, and all other laws, decrees, executive orders and regulations, or parts thereof inconsistent with any provision of this Act, are hereby repealed, amended or otherwise modified accordingly:

  1. Article 186 (Monopolies & Combinations in Restraint of Trade) of the Revised Penal Code
  2. Section 4 of Commonwealth Act No. 138 (An Act to Give Native Products and Domestic Entities the Preference in the Purchase of Articles for the Government)
  3. Section 43(u) (original and exclusive jurisdiction of the ERC over all disputes in the energy sector) of the Electric Power Industry Reform Act
  4. Sections 24 & 25 (Illegal Acts of Price Manipulation) of the Cheaper Medicines Act
  5. Executive Order creating the Office for Competition under DOJ
Leniency for self-reporting a violation

The Leniency Program in the form of immunity from suit or reduction of any fine which would otherwise be imposed on a participant in an anti-competitive agreements (any Type 1 or Type 2 agreements) under the PCA may be granted in exchange for the voluntary disclosure of information regarding such an agreement which satisfies specific criteria prior to or during the fact-finding or preliminary inquiry stage of the case. Additionally, the leniency programme grants immunity from third party damages actions and criminal prosecutions. (Section 35)

Nolo Contendere Pleas

Entities facing criminal prosecution pursuant to Section 14(a) and 14(b) of the PCA may advance a plea of Nolo Contendere, in which he does not accept nor deny responsibility for the charges but agrees to accept punishment as if he had pleaded guilty. The plea cannot be used against the defendant entity to prove liability in a civil suit arising from the criminal action nor in another cause of. The plea may be entered only up to arraignment and subsequently, only with the permission of the court, upon weighing its effect on the parties, the public and the administration of justice. (Section 36)

REBUTTABLE PRESUMPTION OF ABUSE OF DOMINANCE

Prohibition on abuse of a dominant position: There is a rebuttable presumption of dominance if the market share of an entity in the relevant market is at least 50%. The concept of dominant position also seem to resemble the EU notion (with dominance arising when a company can act independently of customers and competitors). (See Section 27 for markers of dominant position in the market)

New mandatory merger control rules

I. Size of Party

At least one ultimate parent entity, including all entities it controls, exceeds PhP 1 Billion:

  1. aggregate annual gross revenues in, into or from the Philippines OR
  2. value of assets in the Philippines

(Rule 4, Section 3 (a), PCA IRR; Section 17, PCA)

II. Size of Transaction

Rule 4, Section 3 (a), PCA IRR

Value of assets being acquired depending on the type of transaction

Rule 4, Section 3(b)(1) to (3), PCA IRR

Size of Transaction Test - Rule 4, Section 3(b)(1) to (3)

Merger or acquisitions of assets “in”, ”outside”, and “inside and outside” the Philippines:

Types of M&A Review

Section 1, Rule IV of the Implementing Rules and Regulations

A. COMPULSORY NOTIFICATION

Section 17, PCA Section 5, PCC Rules on Merger Procedure

i.e. thresholds are met

Standard: Substantially Lessen Competition (SLC )

Thresholds:

PhP 5.6 B (size of party)

PhP 2.2 b (size of transaction)

B. MOTU PROPRIO REVIEW BY PCC

Section 16, PCA Section 14, PCC Rules on Merger Procedure

TRIGGERS FOR MOTU PROPRIO REVIEW

A. Reasonable Grounds (Section 13.2, PCC Rules on Merger Procedure)

  1. Preliminary indications that customers may be adversely affected.
  2. Possibilities for foreclosure (of competition, e.g. barriers to entry) — In the context of competition law, the closing of potential opportunities to actual or potential competitors by means of exclusivity arrangements (so that, for example, a party who agrees to purchase all his requirements for products of a particular range from one supplier denies other suppliers the opportunity of supplying him). There will be foreclosure where such arrangements make it difficult to enter the market and where there are no concrete possibilities for bypassing those arrangements, for example, by acquiring or using other distribution formats. (Kluwer Law)
  3. Existence of high degree of market concentration
  4. Either of the merger parties has high market shares
  5. The merger takes place in a critical industry.

B. Third Party Complaints (Section 13.4, PCC Rules on Merger Procedure)

  1. Concerned parties may file a written complaint with the PCC.
  2. Considered as input in determining whether or not it will open an investigation.
CONCEPT OF VOLUNTARY COMMITMENTS
  • At any stage of the Phase 1 or 2 review, merger parties may propose commitments that will remedy, mitigate, or prevent the competition concerns identified by the PCC as arising from the merger. However, proposals for commitments after PCC has rendered a decision will not be allowed.
  • (Section 12.3, PCC Rules on Merger Procedure Section 2.13, PCC Rules on Merger Procedure)

    Decision on Voluntary Commitments

  • On the basis of commitments proposed by the parties, the Commission may issue a commitment decision that is binding without concluding whether the merger is prohibited.
  • In the event that parties fail to abide by their commitment, the PCC may impose fines, additional remedies, and such other measures as it may deem necessary, including nullifying the commitment decision.

  • PROHIBITED MERGERS AND ACQUISITIONS, EXEMPTIONS

    Section 21.

  • Anti-competitive mergers may be exempt from prohibition by the Commission when the parties establish that the merger 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 are likely to result from the merger or acquisition; or
  • A party to the merger or acquisition agreement is faced with actual or imminent financial failure, and the agreement represents the least anti-competitive arrangement among the known alternative uses for the failing entity’s assets.

  • CONCEPT OF EFFICIENCIES

    A. Static Efficiencies – effect typically occurs only once; cost reductions from eliminating redundant staff or production plants

    B. Dynamic Efficiencies – recurring effects; more abstract in nature and so harder to quantify; synergies that enhance the ability or incentive to innovate (e.g. learning by doing, eliminating redundant R&D, and achieving economies of scale in R&D)

    WHO PROVES EXEMPTION APPLIES?

    Section 22. Burden of Proof

  • The burden of proof under Section 21 lies with the parties seeking the exemption. A party seeking to rely on an efficiencies justification must demonstrate that if the proposed merger or acquisition were implemented, significant efficiency gains would be realized.

  • PHILIPPINE CASES OF M&A REVIEWED BY THE PCC

    THEORIES OF HARM

    — What is a theory of harm?

    Broadly, a theory of harm in a competition law case explains why a particular type of conduct constitutes a breach of competition law with reference to the relevant legal tests, and explains in particular why that conduct causes harm to competition that should be prohibited.

    If you intend to take further steps in relation to conduct that you suspect may constitute a breach of EU competition law, it is likely that you will need to explain your theory of harm as part of engaging with one (or both) of the two means of enforcement of competition law, namely public enforcement and private enforcement.

    Why is a theory of harm important in competition law cases?

    A theory of harm in a competition law case has two main purposes. It helps to explain:

    1. Why a particular type of conduct satisfies the relevant legal tests in order to constitute an infringement of competition law, and in particular why it causes harm to competition that should be prohibited.
    2. Why a competition authority should devote its resources to investigating this conduct.
    3. What types of effects on competition could be included in a theory of harm?

      It is important that a theory of harm explains how competition has been harmed as a result of the conduct at issue. In particular, it is likely to be helpful to explain how the that conduct harms consumers. The types of effects on competition that could be relied upon as part of a theory of harm might include:

      Negative effects on price (i.e. higher prices charged to consumers); and/or

      Negative effects on quality, innovation or consumer choice.



    A. Grab-Uber Acquisition

    Grab acquired Uber’s Southeast Asia business, in exchange for 27.5% stake

    Theories of Harm

    • Loss of Actual Competition – Elimination of Grab’s competitor

    Pre-merger: Grab and Uber were the two dominant firms

    Post-merger: Merged firm will have 93% joint market share of total registered TNVS

    • Unilateral effects: ability and incentive of Grab to raise prices or to reduce the quality

    • Increase in price – data indicated that average prices climbed at an increased rate post-Transaction

      Reduced quality of service - increased driver cancellation, forced cancellation of rides, and longer waiting times

    B. Ursal Robina Corp. (URC)-Central Azucarera Don Pedro, Inc. (CADPI) Acquisition

    Acquisition by URC of assets of CADPI and Roxas Holdings, Inc (RHI). Both own sugar mills and refineries in Batangas.

    Theories of Harm

    • Loss of actual competition – Transaction leads to SLC in market for milling services in Batangas, Cavite, Laguna, and Quezon
    • Merger-to-monopoly, through elimination of URC’s only competitor
    • Unilateral effects: ability and incentive of URC to reduce: planter-milling sharing agreement
    • sugar recovery rates quoted to planters
    • incentives provided to planters

    C. Asahi Flat Glass-TQMP Acquisition

    Theories of Harm





  • Input foreclosure - Asahi is the sole flat glass manufacturer in the PH. Transaction enhances ability of merged firm to foreclose access of downstream rivals to manufactured flat glass, an input to clear and bronze float glass (TQMP) and processed glass (PGPSI)
  • Merged entity would have 78.2% market share in market for clear float glass, and 81.4% in market for bronze float glass

    D. SM-Goldilocks Acquisition

    Acquisition by SM Retail Inc., a subsidiary of SM Investments, of shares in Goldilocks Bakeshop

    Theories of Harm

  • Input foreclosure
  • Lease space in SM Malls → location, rental, lease terms
  • Coordinated effects
  • Sales data in possession of merged entity may exacerbate opportunity for Goldilocks and competitors to coordinate, leading to higher prices


  • - FIN -