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Act.

PHILIPPINE COMPETITION ACT-RA 10667 An entity that controls, is controlled by, or is under common control with
DISCUSSION OUTLINE (April 2018) 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 this section.
TITLE OF THE LAW
1.1 Anti-competitive acts are those agreements undertaken with
The title of the law is: “An act providing for a national competition policy the object or effect of substantially preventing, restricting or lessening
prohibiting ant-competitive agreements, abuse of dominant position and competition. This means that competitors are inhibited from competing, or
anti- competitive mergers and acquisitions, establishing the Philippine from growing, or staying in the market. When these occur, the agreement
Competition Commission and appropriating funds therefor.” is said to have a foreclosure object or effect on competition.

EFFECTIVE DATE OF THE LAW 1.2 Foreclosure can be in the horizontal market, where the entity
and its competitors operate, or in the vertical market, the upstream or
The effective date of the law is August 8, 2015. The subsequent vertical market. In this case there is vertical integration. However, there
implementing rules and regulations went into effect on June 18, 2016 is no necessity for the entity to have market dominance in both markets.
after its publication on June 13, 2016.
1.3 There is no need for actual foreclosure to occur as the law
PROHIBITED ACTS UNDER THE LAW allows intervention even before the act of the entity can have an effect on
the market.
1. The prohibited acts under the law are;
2. Section 14 has three subsections.
(a) Anti-Competitive Agreements under Section 14, and
(b) Abuse of Dominant Position under Section 15. Subsections (a) and (b) prohibit while Subsection (c) prohibits
anti- competitive agreements agreements other than those
between or among competitors specified under (a) or (b).
2. In addition to the prohibited acts, the PCC shall have the
The distinction is material as a while that of Subsection (c) is not.
power to review Mergers and Acquisitions that substantially prevent,
violation of Subsections (a) and
restrict or lessen competition in the relevant market or in the market for
(b) are criminal in nature
goods or services.

3. The ultimate aim of the law is to protect the competitive


3. To resolve the issue as to whether a: (a) parent company and
process. When competition is eliminated, the competitive process is
a subsidiary, or (b) parent company and an affiliate company, or (c)
brought to an end as competitors are excluded from the market
subsidiaries or affiliates will be considered as competitors, the law
(exclusionary effect) and consumers are exploited (exploitative effect).
adopted the single economic entity doctrine which is defined under the
last paragraph of Section 14.
4. On the other hand, the law will permit an agreement or an act
if it has: In essence, the entities that are part of the single economic
(a) efficiency gains, and entity are under the control of the ultimate parent entity.
(b) consumer benefits.
3.1 The control required being the ability to substantially influence or
The agreement or act in this case has the object or effect of “improving direct the actions or decisions of an entity, whether by contract,
production or distribution of goods and services within the relevant agency or otherwise.” Thisis known as “decisive influence.”
market, or promoting technical and economic progress, while allowing
consumers a fair share of the economic benefit. This is the rule of Section 25 mandates that the PCC to presume control when: “the parent
reason or efficiency gains with consumer benefits justification. owns directly or indirectly, through subsidiaries, more than one half (1/2)
of the voting power of an entity, unless in exceptional circumstances, it
ANTI-COMPETITIVE AGREEMENTS can clearly be demonstrated that such ownership does not constitute
control.”
1. The anti-competitive agreements are enumerated under Section
14: It can also be presumed even if the entity owns one half (1/2) or less of the
voting power of another entity when:
a. The following agreements, between or among competitors,
(a) There is power over more than one half (1/2) of the voting
are per se prohibited:
rights by virtue of an agreement with investors;
(1) Restricting competition as to price, or components thereof,
(b) There is power to direct or govern the financial and
or other terms of trade;
operating policies of the entity under a statute or agreement;
(2) Fixing price at an auction or in any form of bidding
(c) There is power to appoint or remove the majority of the
including cover bidding, bid suppression, bid rotation and
members of the board of directors or equivalent governing body;
market allocation and other analogous practices of bid
(d) There is power to cast the majority votes at meetings of the
manipulation;
board of directors or equivalent governing body;
(e) There exists ownership over or the right to use all or a
b. The following agreements, between or among competitors significant part of the assets of the entity;
which have the object or effect of substantially preventing, restricting (f) There exist rights or contracts which confer decisive
or lessening competition shall be prohibited: (1) Setting, limiting or influence on the decision of the entity.
controlling production, markets, technical development, or
investment; (2) Dividing or sharing the market, whether by volume of 3.2 As a consequence, it must be realized that while affiliated
sales or purchases, territory, type of goods or services, buyers or companies may be shielded from the consequences of their agreements
sellers or any other means; as they are not competitors, the parent company and related companies
may be bound by the act of a subsidiary or an affiliate if it enters into a
c. Agreement other than those specified in (a) and (b) of this prohibited agreement with a competitor.
section which have the object or effect of substantially preventing,
restricting or lessening competition shall also be prohibited: 3.3 Under Rule 4, Section 2, Par. (b) of the IRR for purposes of
Provided, Those which contribute to improving the production or merger control, the reorganization of several legal entities belonging to a
distribution of goods and services or to promoting technical or single economic entity will not be covered since there can be no
economic progress, while allowing consumers a fair share of the “acquiring and acquired pre- acquisition ultimate parent entities.”
resulting benefits, may not necessarily be deemed a violation of this Consequently, they are not subject to the notification requirement.
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3.4 For purposes of applying Section 15, the single economic (f) Making supply of particular goods or services dependent upon the
entity shall be considered collectively in relation to the definition of purchase of other goods or services from the supplier which have no
dominant position, referring to “a position of economic strength that an direct connection with the main goods or services to be supplied;
entity or entities hold which makes it capable of controlling the relevant
(g) Directly or indirectly imposing unfairly low purchase prices for the
market independently from any combination of the following: competitors,
goods or services of, among others, marginalized agricultural producers,
customers, suppliers or consumers.”
fisherfolk, micro-, small-, medium-scale enterprises, and other
Since a competitor is defined as an entity outside of a single
marginalized service providers and producers;
economic entity. Consequently, a parent company cannot be accused of
impermissible conduct towards its subsidiaries and affiliates.
(h) Directly of indirectly imposing unfair purchase or selling price on
their competitors, customers, suppliers or consumers, provided that
4. The penal sanction is imprisonment from 2 to 7 years, and a prices that develop in the market as a result of or due to a superior
fine of no less than PHP 50,000,000.00 but not more than PHP product or process, business acumen or legal rights or laws shall not be
250,000,000.00. considered unfair prices; and

4.1 Administrative penalties will range from PHP 50,000.00 to (i) Limiting production, markets or technical development to the
2,000,000.00 per violation. prejudice of consumers, provided that limitations that develop in the
market as a result of or due to a superior product or process, business
ABUSE OF A DOMINANT POSITION acumen or legal rights or laws shall not be a violation of this Act:

1. Abuse of Dominant Position is provided for under Section 15: Provided, that nothing in this Act shall be construed or interpreted as a
prohibition on having a dominant position in a relevant market or on
It shall prohibited for one or more entities to abuse their dominant acquiring, maintaining and increasing market share through legitimate
position by engaging in conduct that would substantially prevent, restrict means that do not substantially prevent, restrict or lessen competition.
or lessen competition:
Provided, further, that any conduct which contributes to improving
(a) Selling goods or services below cost with the object of driving production or distribution of goods or services within the relevant market,
competition or of the relevant market: Provided, that in the or promoting technical and economic progress while allowing consumers
Commission’s evaluation of this fact, it shall consider whether the entity a fair share of the resulting benefit may not necessarily be considered an
or entities have no such object and the price established was in good abuse of dominant position.
faith to meet or compete with the lower price of a competitor in the same
market selling the same or comparable product or service of like quality; Provided, finally, that the foregoing shall not constrain the Commission
or the relevant regulator from pursuing measures that would promote fair
(b) Imposing barriers to entry or committing acts that prevent competition or more competition as provided in this Act.
competitors from growing within the market in an anti-competitive
manner except those that develop in the market as a result of or 2. What Section 15 forbids is abusive conduct by a coercive
arising from a superior product or process, business acumen, or legal monopolist. These has the following elements:
rights or laws; (a) The entity must have market power or market dominance.
This refers to a situation where the entity has the capacity to control the
(c) Making a transaction subject to acceptance by the other parties market or stop competitors from entering the market. Under Section
of other obligations which, by their nature or according to commercial 27, this can be presumed if the market share of the entity is at least
usage, have no connection with the transaction; 50% unless a new market threshold is determined by the PCC.
(b) The entity commits abusive conduct.
(d) Setting prices or other terms or conditions that discriminate (c) The conduct must have substantial foreclosure effect on
unreasonably between customers or sellers of the same goods or the relevant market.
services, where such customers or sellers are contemporaneously (d) There is no objective justification for the conduct.
trading on similar terms and conditions, where the effect may be to 2.1 Dominant position need not be enjoyed by a single entity. The
lessen competition substantially: Provided, that the following shall be law will also be called to apply under the concept of collective dominance.
considered permissible differentials:
This is a situation where several entities demonstrate a
collective behavior towards the accomplishment of a particular object
1. Socialized pricing for the less fortunate sector of the economy;
that is prohibited. If they possess the ability to control the relevant market,
2. Price differential which reasonably or approximately reflect the entities will have collective dominance. It must be noted though that
differences in the cost of manufacture, sale or delivery resulting the IRR does not specifically address the matter.
from differing methods, technical conditions, or quantities in
which the goods or services are sold or delivered to the buyers or 2.2 In an oligopoly, a market dominated by a few entities, there is
sellers; diminished competition and it may be normal for oligopolists to have
3. Price differential or terms of sale offered in response to the parallel behavior. This does not translate to ant-competitive behavior by
competitive price of payments, services or changes in the those enjoying collective dominance unless the behavior is the only
facilities furnished by a competitor; and reason for parallel behavior.
4. Price changes in response to changing market conditions,
marketability of goods or services, or volume: 2.3 Section 15 does not forbid a monopoly. What it seeks to
address is the abuse of a monopoly as per the qualifying statements in
(e) Imposing restrictions on the lease or contract for sale or trade of the quoted section that allows it to maintain and increase market share
goods or services concerning where, to whom, or in what forms goods or through legitimate means that do not substantially prevent, restrict or
services may be sold or traded, such as fixing prices, giving preferential lessen competition.
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 3. Potential abusive conduct as provided by Section 15 are:
prevent, restrict or lessen competition substantially. Provided, that (a) Predatory Pricing, which refers to the selling of goods or
nothing contained in this Act shall prohibit or render unlawful: services below cost with the object of driving competition out of the
relevant market.
1. Permissible franchising, licensing, exclusive merchandising or (b) Imposing Barriers to Competition, which refers to barriers
exclusive distributorship agreements such as those which give to entry or committing acts that prevent competitors from growing
each party the right to unilaterally terminate the agreement; or within the market in an anti-competitive manner.
2. Agreements protecting intellectual property rights, confidential (c) Bundling or Tying, which refers to a situation where the
information, or trade secrets; consumer is offered two or more products with inducements to take

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both, rather than separately or where the sale of the second product is venture exceeds the threshold.
used as a condition for the sale of the first product.
(d) Discriminatory Pricing, which refers to setting prices or 3. Section 17 requires compulsory notification at least 30 days
other terms and conditions that discriminate unreasonably between prior to the consummation of the transaction. This will have the effect of
customers or sellers of the same goods or services, prohibiting the parties from consummating the transaction until 30 days
(e) Restrictive Vertical Agreements, which refers to distribution after the PCC was provided notification. This gives the PCC the
and supply agreements providing prima facie restrictive clauses, such opportunity to issue a decision, or if necessary, to request additional
as exclusive dealing, minimum quantity obligations, resale price information. In the latter case, the transaction cannot be consummated
maintenance, formal or de facto restriction on parallel trade, and online for an additional 60 days, beginning on the day the request for additional
sales bans. information is received. Provided, that in no case shall the total period of
Resale Price Maintenance, refers to restrictions on the contract review exceed 90 days from initial notification.
of sale concerning where, to whom or in what forms goods and
services may be sold or traded such as fixing prices or the giving of 3.1 For creeping transactions, referring to merger or acquisitions
preferential rebates or discounts. consisting of successive transactions or acquisition of parts of one or
(f) Imposing Unfair Price, which refers to a price that is higher more entities wich shall take place with a 1 year period, it shall be
or lower than what could objectively be justified insofar as its treated as one transaction. Notification must be on the basis of the
contract with a marginalized supplier, who is one engaged in a preliminary binding agreement, or if none, when the parties execute the
subsistence activity (i.e farmer) and whose annual net income does agreement relating to the last transaction which, when taken together
not exceed the NEDA poverty line for his region. with the preceding transactions, satisfies the threshold.
(g) Limiting production, markets or technical development
which results in prejudice to consumers, and is not the result of “a 4. If there is a failure to give notification, the law will impose an
superior product or process, business acumen, or legal rights or laws.” administrative fine ranging from 1% to 5% of the transaction value. This
may also result in gun- jumping or premature consummation of the
transaction without the requisite clearance from the PCC.
REVIEW OF MERGERS AND ACQUISITIONS
5. The PCC can permit an otherwise prohibited merger or
1. Section 16 gives the PCC the power to review mergers and acquisition under a rule of reason and/or white knight justification. The
acquisitions based on factors which they deem to be relevant. former holds that the M & A has brought about or is likely to bring about
gains in efficiencies that are greater than the effects of any limitation on
2. Section 17 provides for compulsory notification if the competition, while the latter is a situation where a party is faced with
transaction has met the set threshold of PHP 1,000,000,000.00 under the actual or imminent financial failure and the agreement is represents the
size of the person test and the size of the transaction test. least competitive arrangement among known alternative uses for the
failing entity’s assets.
2.1 The size of the person test refers to the acquiring or target
entity, at least one of which must have gross annual revenues in, into or 6. A favorable ruling acquires a no-look back protection as the
from or assets in the Philippines worth PHP 1,000,000,000.00. This has PCC ruling cannot be challenged or reversed by the PCC except when it
been increased to PHP 5,000,000,000.00 under PCC Policy Statement is obtained through fraud or false material information.
18-01 effective March 20, 2018.

2.2 The size of the transaction test refers to object of transaction


and must be worth PHP 2,000,000,000.00 as likewise revised under PVV
Policy Statement 18-01.

2.3 In case of acquisitions, to include de facto mergers or


consolidations, compliance with the size of the transaction test will
require an inquiry as to the place of the subject assets, as:
(a) where all the subject assets are in the Philippines, the
gross annual revenues or value of assets must meet the threshold,
(b) where all the subject assets are outside of the Philippines,
the gross annual revenues of such assets generated in or into the
Philippines and the value of assets in the Philippines of the acquiring
entity must meet the threshold, and
(c) where some of the subject assets are inside and some are
outside the Philippines, the gross annual revenues generated in or
into the Philippines by assets acquired in the Philippines and assets
acquired outside of the Philippines must collectively meet the
threshold and the value of assets in the Philippines of the acquiring
entity must similarly meet the threshold.

2.4 In statutory mergers or consolidations, the size of the


transaction test requires that the enterprise value test and the control
test be hurdled.
In the enterprise value test, the gross annual revenues from
sales in, into or from the Philippines or the value of the assets in the
Philippines must meet the threshold. In the control test, the acquiring
entity must directly or indirectly gain control or further control of the
subject enterprise. Both are subject to separate notifications.

2.5 In case of a joint venture, the contributing entities are deemed


acquiring entities and the joint venture the acquired entity.
Under Rule 4, Section 3, Par. (d), the acquiring entity in the
transaction will be subject to notification if either:

(a) the aggregate value of assets combined in the Philippines


or contributed into the joint venture exceeds the threshold, or
(b) the gross revenues generated in the Philippines by assets
combined in the Philippines of contributed into the proposed joint
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