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DISCUSSION OUTLINE
(April 2018)
The title of the law is: “An act providing for a national competition policy
prohibiting ant-competitive agreements, abuse of dominant position and anti-
competitive mergers and acquisitions, establishing the Philippine Competition
Commission and appropriating funds therefor.”
The effective date of the law is August 8, 2015. The subsequent implementing
rules and regulations went into effect on June 18, 2016 after its publication on
June 13, 2016.
1. The prohibited acts under the law are; (a) Anti-Competitive Agreements
under Section 14, and (b) Abuse of Dominant Position under Section 15.
2. In addition to the prohibited acts, the PCC shall have the power to review
Mergers and Acquisitions that substantially prevent, restrict or lessen competition
in the relevant market or in the market for goods or services.
3. The ultimate aim of the law is to protect the competitive process. When
competition is eliminated, the competitive process is brought to an end as
competitors are excluded from the market (exclusionary effect) and consumers
are exploited (exploitative effect).
4. On the other hand, the law will permit an agreement or an act if it has: (a)
efficiency gains, and (b) consumer benefits. The agreement or act in this case
has the object or effect of “improving production or distribution of goods and
services within the relevant market, or promoting technical and economic
progress, while allowing consumers a fair share of the economic benefit. This is
the rule of reason or efficiency gains with consumer benefits justification.
ANTI-COMPETITIVE AGREEMENTS
c. Agreement other than those specified in (a) and (b) of this section which
have the object or effect of substantially preventing, restricting or lessening
competition shall also be prohibited: Provided, Those which contribute to
improving the production or distribution of goods and services or to promoting
technical or economic progress, while allowing consumers a fair share of the
resulting benefits, may not necessarily be deemed a violation of this Act.
An entity that controls, is controlled by, or is under common control with 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.
1.1 Anti-competitive acts are those agreements undertaken with the object or
effect of substantially preventing, restricting or lessening competition. This means
that competitors are inhibited from competing, or from growing, or staying in the
market. When these occur, the agreement is said to have a foreclosure object
or effect on competition.
1.2 Foreclosure can be in the horizontal market, where the entity and its
competitors operate, or in the vertical market, the upstream or vertical market.
In this case there is vertical integration. However, there is no necessity for the
entity to have market dominance in both markets.
1.3 There is no need for actual foreclosure to occur as the law allows
intervention even before the act of the entity can have an effect on the market.
2. Section 14 has three subsections. Subsections (a) and (b) prohibit anti-
competitive agreements between or among competitors, while Subsection (c)
prohibits agreements other than those specified under (a) or (b).
2.1 The distinction is material as a violation of Subsections (a) and (b) are
criminal in nature, while that of Subsection (c) is not.
3.1 The control required being the ability to substantially influence or direct the
actions or decisions of an entity, whether by contract, agency or otherwise.” This
is known as “decisive influence.”
Section 25 mandates that the PCC to presume control when: “the parent owns
directly or indirectly, through subsidiaries, more than one half (1/2) of the voting
power of an entity, unless in exceptional circumstances, it can clearly be
demonstrated that such ownership does not constitute control.”
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) There is power over more than one half (1/2)
of the voting rights by virtue of an agreement with investors; (b) There is power to
direct or govern the financial and operating policies of the entity under a statute
or agreement; (c) There is power to appoint or remove the majority of the
members of the board of directors or equivalent governing body; (d) There is
power to cast the majority votes at meetings of the board of directors or
equivalent governing body; (e) There exists ownership over or the right to use all
or a significant part of the assets of the entity; (f) There exist rights or contracts
which confer decisive influence on the decision of the entity.
3.3 Under Rule 4, Section 2, Par. (b) of the IRR for purposes of merger control,
the reorganization of several legal entities belonging to a single economic entity
will not be covered since there can be no “acquiring and acquired pre-
acquisition ultimate parent entities.” Consequently, they are not subject to the
notification requirement.
3.4 For purposes of applying Section 15, the single economic entity shall be
considered collectively in relation to the definition of dominant position, referring
to “a position of economic strength that an entity or entities hold which makes it
capable of controlling the relevant market independently from any combination
of the following: competitors, customers, suppliers or consumers.” Since a
competitor is defined as an entity outside of a single economic entity.
Consequently, a parent company cannot be accused of impermissible conduct
towards its subsidiaries and affiliates.
4.1 Administrative penalties will range from PHP 50,000.00 to 2,000,000.00 per
violation.
It shall prohibited for one or more entities to abuse their dominant position by
engaging in conduct that would substantially prevent, restrict or lessen
competition:
(a) Selling goods or services below cost with the object of driving competition
our of the relevant market: Provided, that in the Commission’s evaluation of this
fact, it shall consider whether the entity or entities have no such object and the
price established was in good 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;
(b) Imposing barriers to entry or committing acts that prevent competitors from
growing within the market in an anti-competitive manner except those that
develop in the market as a result of or arising from a superior product or process,
business acumen, or legal rights or laws;
(e) Imposing restrictions on the lease or contract for sale or trade of goods or
services concerning where, to whom, or in what forms goods or services may be
sold or traded, such as fixing prices, giving preferential 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 prevent, restrict or lessen competition
substantially. Provided, that nothing contained in this Act shall prohibit or render
unlawful:
(f) Making supply of particular goods or services dependent upon the purchase
of other goods or services from the supplier which have no direct connection
with the main goods or services to be supplied;
(g) Directly or indirectly imposing unfairly low purchase prices for the goods or
services of, among others, marginalized agricultural producers, fisherfolk, micro-,
small-, medium-scale enterprises, and other marginalized service providers and
producers;
Provided, finally, that the foregoing shall not constrain the Commission or the
relevant regulator from pursuing measures that would promote fair competition
or more competition as provided in this Act.
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 the quoted section that
allows it to maintain and increase market share through legitimate means that
do not substantially prevent, restrict or lessen competition.
1. Section 16 gives the PCC the power to review mergers and acquisitions
based on factors which they deem to be relevant.
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 from or assets in the
Philippines worth PHP 1,000,000,000.00. This has been increased to PHP
5,000,000,000.00 under PCC Policy Statement 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.
2.5 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 venture exceeds the threshold.