Competition Law - PALS Lecture PDF

5/7/20
Introduction to
Competition
Law: Philippines in
Context
Dean prof Alizedney M Ditucalan
Ditucalan - Introduction to Competition Law 1
Outline
• General principles
• Overview of U.S. and E.U. competition law systems
• Brief historical background of the evolution of Philippine competition law
• Substantive liability provisions of the Philippine Competition Act
• Institutional enforcement framework of the Philippine Competition Commission
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General • Competition law and competition policy

• Used interchangeably, but the two are not
identical.
Overview • Competition law is a body of legal rules
and standards which aim at protecting the
process of competition: dealing with
market imperfections and restoring
desirable competitive conditions in the
market.
• Competition policy is concerned with the
formulation of a competition law in the
first place.
• Competition vs. Regulation
Competition Law
(or Antitrust Law)
… consists of rules that are intended to protect the process of
competition in order to maximize consumer welfare. (Whish and Bailey,
2015) .
… is concerned with ensuring that firms (undertakings) operating in the
free market economy do not restrict or distort competition in a way that
prevents the market from functioning optimally. (Jones and Sufrin, 2014),
… is the study of competition. It is a body of law that seeks to ensure
competitive markets through the interaction of sellers and buyers in the
dynamic process of exchange. (Sullivan and Harrison, 2013).
… concerned with maintaining competition in the private market.
(Hovenkamp, 2005).
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Gokongwei Jr. vs. Securities and

Exchange Commission, et al,
[G.R. No. L-45911 (April 11, 1979)]
• The Court took note that these anti-trust law or laws

against monopolies or combinations in restraint of trade
are aimed at raising levels of competition by improving
the consumers' effectiveness as the final arbiter in free
markets.
• These laws are designed to preserve free and
unfettered competition as the rule of trade.
The concept of competition law
In a market economy, the

Competition law is
consumer, not the state, Consumer demand drives
generally negative and
dictates what goods and production.
prohibitory.
services are provided.
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Goals of competition law
Economic Social Political
Economic efficiency and

maximization of consumer
welfare
Economic
Goal
Considered today the main
goals of competition law
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Safeguarding
Dispersions of
Social Goal the consumer
from undue
socio-economic
exercise of power of large
market power firms
Ensuring market
The protection fairness and
of democratic equity mainly
values and through wealth
principles distribution in
society.
Political Goal
• Many competition authorities may find themselves influenced in their decisions by

political considerations.
• These goals relate to wider over-riding political aims, such process of integration in
communities and the promotion of national interests
10
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Goals of
Philippine The Philippine Competition Act (PCA) manifests
all three goals of of competition law as expressed
competition in §2.
law
11
Prohibition
Regulation
Characteristics
of competition Exemption and exclusion
law
Penalties
Interdisciplinary
12
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• Public policy aims

Politics • Consumer welfare
Factors that only
influence the • Structural approach

Economics
shape of • Market-self correct
competition • Independent agency
law Institutions • Decisions by the

government
13
Common/typical provisions
Prohibition on ‘
Prohibition on Regulating
collusion’ in
abuse of Mergers
horizontal and
dominance
vertical situations.
14
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Scope of
competition Agreements affecting competition
law • Horizontal agreements

• Vertical agreements
• Concentrations
Unilateral conduct affecting competition
15
Hardcore agreements
• Price fixing
• Output restrictions
Examples of • Territorial division
horizontal
agreements Cooperation agreements
• Research and development (R&D)

• Joint buying agreements
• Specialisation agreements
16
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Examples of Vertical price fixing agreements
vertical • Minimum retail price

agreements • Maximum retail price
Vertical non-price fixing agreements
• Exclusive distribution agreements

• Exclusive purchasing agreements
• Selective distribution agreements
17
Price discrimination
Tying
Examples of
unilateral
conduct Refusal to deal
Predatory pricing
18
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Earlier competition law regimes
• Canada’s 1889 Wallace Act

• Modern word’s first antitrust statute
• Replaced successively by three competition laws: (1) Combines Investigations
Act in 1910, (2) Combines and Fair Prices Act in 1919, (3) Combines
Investigation Act in 1923
• In 1986, a modern Competition Act was enacted.
• Spanish Codigo Penal of 1870

• Contained few provisions with limited application
• Spain competition law is now both governed by EU competition law and
Spanish Competition Act
19
US Antitrust Laws
• Sherman Act of 1890

• Clayton Act (1914)
Earlier • Amended by Robinson-Patman Act in 1936;

Celler-Kefauver Act in 1950; and Hart-Scott-Rodino
competition
Act in 1976
• Federal Trade Commission (1914)
law regimes Competition Law in the European Union
• National competition laws, e.g., German Law against

Restraints of Competition (‘GWB’)
• European Union Competition law under TFEU
20
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United States Antitrust Laws
• Based on common law

• Consumer welfare standard
Comparison of • Economic school of thoughts or ideologies
• Harvard School and the Chicago School
E.U. and U.S
competition European Union Competition Law
laws
• Based on the constitution of the European
Union
• Protecting the internal market
• Ordoliberalism
21
E.U. vs U.S: Substantive Antitrust Provisions

United States Antitrust Laws
• Sherman Act, §1: cartels and market division agreements; boycotts; vertical restrictions, typically imposed by an
“upstream” firm (manufacturer) on a “downstream” firm (dealer)
• Sherman Act, §2: “monopolization,” or exclusionary practices.
• Clayton Act, §2, as amended in 1936 by the Robinson-Patman Act
• Clayton Act §3: “tying” and “exclusive dealing”
• Clayton Act §4: providing treble damages and attorney’s fees to prevailing antitrust plaintiffs.
• Clayton Act §7: mergers
European Union Competition Law
• Art. 101, TFEU: anticompetitive agreements

• Horizontal and vertical agreement that prevent, restrict, or distort competition
• By object (Object Box) or by effect (Effect Box)
• Bifurcation of Article 101
• Art. 101 (3) as defense
• Art. 102, TFEU: abuse of dominance
• Exploitative abuses
• Exclusionary abuses
• EU Merger Regulation
22
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E.U. vs U.S: Analytical Framework

United States Antitrust Laws European Union Competition Law
• Per se illegality rule • Restriction by object (Object Box)
• Rule of Reason • Restriction by effect (Effect Box)
• Role of intent • Article 101 (3) Criteria
• Merger test: Substantially Lessing of • Effect-based analysis and the concept of
Competition (SLC) Test dominance
• Role of intent
• Merger tests: The substantive test, SLC,
dominance test, Significantly impede
effective competition (SIEC) test
23
Earlier competition law

regimes in ASIA
• Philippines
• Penal Code
• Act No. 3247 (Philippine Sherman law)
• Corporation Law (Act 1459) - Section 20 of Act 3518
• Art. 186 of the Revised Penal Code
• § 2, Art XIV (1973 Philippine Constitution)
• § 19, Art XII (1987 Philippine Constitution)
• Japan
• Antimonopoly Act (1947)
24
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Evolution of Philippine
Competition Law System
25
Stages of transformation (pre-PCA regime)
01 02 03 04
Union of common Transplanting of Modernization of the Constitutionalization
law and civil law American laws penal code
26
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The Marriage of Civil Law and Common Law Traditions

(Spanish Occupation)
1565–1898
Spanish Period (1565 – 1898) and the Penal Code
Legacies
•Siete Partida
•Nueva Recopilación
•Recopilación de las Leyes de las Indias.
•Royal Audiencia
•M onopolies (real hacienda system , plowm aking, cockfighting, ect.)
Penal Code of 1887 (July 14, 1887)

•Articles 542, 543, and 544
1887
27
Penal Code relevant provisions
28
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The Marriage of Civil Law and Common

Law Traditions (American Occupation)
• American Period and the Common Law Legacies

• Interactions of common law and civil law
• Earlier application of Anglo-American jurisprudence
• Alzua v. Johnson, G.R. No. 7317 [January 31, 1912]
• In re Shoop [Nov., 29, 1920]
• United States v. Abiog, 37 Phil. 137
29
The entry of American laws and common law

principles didn’t supplant, but it rather
supplement, the major laws left by the
Spaniards.
Interactions of common law and civil law
30
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Common Law Contracts in Restraint of

Trade
• Under common law, a contract in restraint of trade embraced agreements restricting
a party from engaging in a particular trade or occupation or restricting the time,
place, or manner in which that trade could or occupation could be engaged.
• John Dyer Case [1414 ]
• Mitchel v. Reynolds [ 1711]
31
Transplanting
Ferrazzini v. Gsell, G.R. No.
10712
Common Law
Contracts in 13 Sep. 1918
Restraint of 10 Aug. 1916
Trade
Ollendorff vs. Abrahamson,
G.R. No. 13228
32
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Transplanting the
Sherman Act
• Act No. 3247, Dec. 1, 1925

• Like the Sherman Act, Act
No. 3247 was written in
brief, broad and
comprehensive, yet
exceedingly vague,
language, requiring
judicial construction.
• It is exceedingly vague as
it does not clearly specify
what conduct it outlaws.
33
The Revised Penal Code Regime
• Based on the Codigo Penal de 1870

• October 27, 1927, the then Acting Secretary of Justice, Hon. Luis F. Torres issued Administrative Order No. 94 creating a
committee tasked to prepare a revised draft of the Penal Code.
• The Committee completed its work in ten months, submitted to the House of Representatives as Bill No. 577, substituted
by Bill No. 3366, which the Committee introduced on October 31, 1930.
• Approved by Governor General Dwight F. Davis on December 8, 1930
• Took effect on January 1, 1932
• Consolidation of penal statutes
• 367 articles were taken from the old Penal Code, most of them rewritten
• Fiver Principal sources: (1) the contribution of the Committee; (2) the Spanish Penal Code of 1870; (3) the Proposed
Correctional Code of 1916; (4) Enactments of the Philippine Commission and the Philippine Legislature; and (5) the New
Spanish Penal Code of 1928.
34
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Features of the RPC
• Consolidation of penal statutes

• 367 articles were taken from the old Penal Code, most of them rewritten
• Fiver Principal sources: (1) the contribution of the Committee; (2) the Spanish Penal
Code of 1870; (3) the Proposed Correctional Code of 1916; (4) Enactments of the
Philippine Commission and the Philippine Legislature; and (5) the New Spanish
Penal Code of 1928.
• Articles (Articles 542, 543, and 544) not retained
• Article 524 rewritten as Article 185 placed under Chapter Three (Frauds)
• Article 186 introduced
35
Article 186,
RPC
36
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Constitutionalizing
competition law
• First introduced in §2 of Article XIV of the 1973 Ph
Constitution
• Gokongwei Jr. vs. Securities and Exchange
Commission, et al [G.R. No. L-45911, [April 11,
1979].
• Public interest standard
• Section 10 of Article XII , 1987 Ph Constitution
• §11, Art. XVI, 1987 Ph Constitution
37
§19 to be interpreted in the

context of antitrust legislation
Reading Art. or the jurisprudence on
186 of RPC to antirust legislation.
the
Competition
Antitrust
Clause §19 be read in the context of
the Revised Penal Code.
38
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Competition law as constitutional standard
• Tatad v. The Secretary of the Department of Energy (1997)

• “Section 19, Article XII of our Constitution is anti-trust in history and in spirit. It espouses
competition. The desirability of competition is the reason for the prohibition against restraint of trade, the
reason for the interdiction of unfair competition, and the reason for regulation of unmitigated monopolies.
Competition is thus the underlying principle of section 19, Article XII of our Constitution which cannot be
violated by R.A. No. 8180. We subscribe to the observation of Prof. Gellhorn that the objective of anti-trust
law is "to assure a competitive economy, based upon the belief that through competition producers will
strive to satisfy consumer wants at the lowest price with the sacrifice of the fewest resources. Competition
among producers allows consumers to bid for goods and services, and thus matches their desires with
society's opportunity costs." He adds with appropriateness that there is a reliance upon "the operation of
the 'market' system (free enterprise) to decide what shall be produced, how resources shall be allocated in
the production process, and to whom the various products will be distributed. The market system relies on
the consumer to decide what and how much shall be produced, and on competition, among producers to
determine who will manufacture it."
39
Philippine Competition Act

(R.A. 10667): Changing the
Game?
40
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“step in the right

25 years in the Viewed as game-
direction” - PCC Chair
making changer, but not new
Balisacan
The Making of
the Philippine Consolidated product
of House Bill 5286
signed into law on
July 21, 2015, took
Commitment to the
ASEAN Economic
Competition
effect on Aug. 8,
and Senate Bill 2282 Integration
2015.
Act In a nutshell, the PCA

mandates the
creation of a national
competition
authority.
41
Motivations for its enactment
need to consolidate the need to have a specific commitment to the ASEAN broader economic and non-
numerous, fragmented and “central body” economic integration economic goals
scattered ” competition law
statutes
42
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§14, R.A. 10667: Anti-

Competitive Agreements
Substantive
Liability
§15, R.A. 10667: Abuse of
Provisions Dominant Position
[Prohibited
Acts]
§20, R.A. 10667: Prohibited
Mergers and Acquisitions
43
Horizontal Per se Agreements of §14(a) – Per se illegality rule
Anti- • Price-fixing
• Bid-rigging
Competitive Elements:
Agreements
• There is a horizontal agreement;
• The parties are competitors
• The purpose or object of the agreement is to fix price or rig a competitive
bidding.
44
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Horizontal Agreements of §14 (b) – Rule of reason
•Product limitation
Anti- •Market division
Competitive Elements:
Agreements •There is a horizontal agreement

•The agreement has the object or effect of substantially
preventing, restricting or lessening the competition
•The parties are competitors
45
Anti-Competitive Agreements
• Other Agreements of §14 (b) – Rule of reason with objective justifications

• 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.
46
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What is agreement in
the context of PCA?
• “any type or form of contract, arrangement,
understanding, collective recommendation, or
concerted action, whether formal or informal, explicit or
tacit, written or oral.” [ §4b, R.A. 10667]
47
Hybridization:
Fusion of EU-
US laws
48
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Hybridization:
House and
Senate
versions
49
Hybridization:
Bicam version
50
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Void
What is the
effect of
Parties involved are subject to
entering an administrative sanction, criminal
anti- prosecution (§14a, §14b) and
private action.
competitive
agreement?
The existence of agreement is
enough under §14a.
51
Insurance pool case

(§14c)
• Statement of Objections: respondents to have entered into agreements that allowed
the pool to exclusively and indefinitely provide mortgage redemption insurance
(MRI) to borrowers whose loans have been assumed by NHMFC as secondary
mortgagor. One of the anti-competitive agreements has been in force since 1980.
The investigation was initiated when NHMFC approached the PCC during the two-
year transitory period of the PCA, seeking a review of its agreements with the pool.
Prior to the PCA’s enactment, the NHFMC already attempted to terminate the said
agreements, but faced legal obstacles brought about by the insurance pool.
NHMFC, as secondary mortgagor, manages different mortgage loan portfolios that
are originated by banks, housing developers, and other primary lending institutions
that offer loans for socialized and low-cost housing. Mortgagor-borrowers of these
primary lending institutions, whose housing loans have been assumed by NHMFC,
must obtain an MRI as a form of security. [PCC Press Release 2020-0004]
52
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Abuse of Dominant
Position
• Dominant position (market power) - 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 from any
or a combination of the following: competitors,
customers, suppliers, or consumers.
• “Bigness per se is not illegal”
• Rebuttable presumption of market dominance (at least
50% share in the relevant market)
53
The first equates

market power The second
with the ability equates market
to increase power with
Four ways to price (the

neoclassical
commercial
power.
think about approach)
market The third sees

market power as
power
The fourth sees
the ability to market power as
exclude rivals a formal
so as to gain the jurisdictional
power to test.
increase price
54
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Predatory Imposing
Bundling or
barriers to
“Abuse Box” : pricing entry
tying
Abusive
Conducts Price
Restrictive
Resale price
(§15) discrimination
vertical
agreement
maintenance
Refusal to
Imposing Limiting
deal/exclusive
unfair price production
arrangement
55
“Abuse Box” (§14)
• Exclusive per R.A. 10667

• Non-exclusive per IRR of R.A. 10667
• Role of intent
• Conduct + SLC + Objective justifications
56
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Standard of
Analysis
• Anti-competitive Agreement
• Per se rule
• Object/Effect + SLC = Rule of reason
• Object/Effect + SLC + Objective justification = Rule of Reason
• Abuse of Dominant Position
• Conduct + SLC = Rule of reason
• Objective justifications
• But see §26, both are subject to market analysis (market definition)
57
Relevant market
definition
• Relevant Market (§24)
• Relevant product market
• Relevant geographic market
• Market substitutability
58
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What is ”substantial
preventing,
restricting or
lessening
competition” (SLC)?
59
Urban Deca Homes Manila

Condominium Corporation case
• 1st abuse of dominance case (condo-internet exclusivity deal)

• Statement of objections: the PCC enforcement unit charged the mass
housing developer with abuse of dominance for imposing a sole ISP on
its unit owners and tenants. Residents claimed they were prevented from
applying for other ISPs when the in-house “Fiber to Deca Homes” service
was slow, expensive, and unreliable. [PCC Press Release 2019-015]
• Instead of contesting PCC’s complaint, the respondents proposed to
correct their anticompetitive conduct through a motion for settlement
negotiated from May to July. [PCC Press Release 2019-015]
• With a fine of PhP27.11 million
60
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§14 and §26

Paradox
• §26 covers agreement and conduct
• “for appropriate cases” - IRR
61
Merger &
Acquisition
• A horizontal merger is a merger of entities whose products or services directly
compete in the same market.
• A non-horizontal merger can either be a vertical merger or a conglomerate

merger.
• Averticalmergerinvolvesentitiesoperatingatdifferentlevelsoftheproducti
onorsupply chain, that is, as suppliers or customers of one another.
• An example is the merger of an upstream firm and a downstream
firm whose inputs include the goods produced by the former.
• A conglomerate merger involves entities that are related neither
horizontally nor vertically. This merger may be between suppliers of
goods that are complements of one another or goods that exhibit
economies of scale when purchased together.
62
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M&A Compulsory
regime
• Compulsory notification requirement (§17)
• With threshold requirement
• PHP 5.6 Billion for the Size of Person (SoP)
• PHP 2.2 Billion for the Size of Transaction (SoT)
• Upon reaching a “definitive agreement”
• 30-day waiting period upon notification
• Violation renders M&A void + admin fine of 1% t0 5% of the value
of transaction
• Rationale: intended to deter parties to an M&A from non-compliance of
the requirement.
63
Udenna Corp and KGL

Investment Cooperatief
(PCC Case No. M-2017-001)
• Udenna failed to notify PCC of its purchase of 100% of KGL Coop’s shares in KGL
Investment B.V. with a consideration of USD 120 Million
• Transaction satisfies the Size of Transaction Test
• Held administratively liable for PhP19,667,175.9 (1% of the value of transaction
• Transaction is void, not voidable
• No exception to §17
• PCC has no discretion to refrain from imposing the void penalty
64
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Grab-Uber case
PCC Case No. M-2018-001
• Not notified under §17 (cost below threshold)

• Motu proprio
• MAO’s found SLC
• Grab filed a request for voluntary commitments
• Acquisition cleared, but subject to undertakings
65
Maximum of 30-day
Phase from complete
1 notification and
M&A Phase of
payment
Review more detailed and

in-depth assessment Phase
60-day 2
66
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After the review

process?
• If no SLC
• M&A is cleared.
• If with SLC,
1. prohibit the M&A
2. prohibit the M&A unless and until it is modified by
changes specified by the PCC
3. prohibit the M&A unless and until the pertinent party
or parties enter into legally enforceable agreements
specified by the PCC
67
PCC’s enforcement
regime
• Powers and functions of the Philippine Competition
Commission
• quasi-legislative and quasi-judicial nature
• original and primary jurisdiction over competition
law matters
• Tripartite role (investigator, prosecutor and
administrative judge)
68
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Procedural
Characteristics
• Enforcement
• Three adjudicative functions: (1) power to determine anti-
competitive agreement and conduct, (2) power of preliminary
inquiry, and (3) power to review mergers and acquisitions.
• Three stages: (1) preliminary inquiry, (2) full administrative
investigation, and (3) adjudication.
• “consumer-standing”
• Appeal
• CA under Rule 43 of the RRCP
69
Criminal action
• Office for Competition – Department of Justice
• §14a & §14b
• Subject to PCC’s preliminary inquiry
70
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Private enforcement
• Private action under §45
• person directly injured
• Requires preliminary inquiry
71
Suggested readings:
1. The Philippine Competition Act: A Mestiza?, Volume 9 Number 2, 2019
Link: https://ssrn.com/abstract=3499045
2. Institutional Design of Philippine Competition Law, Volume 8 Number 1, 2018
Link: https://ssrn.com/abstract=3489788
72
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Thank you!
73
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5/7/20

Dean prof Alizedney M Ditucalan

Ditucalan - Introduction to Competition Law 1

Ditucalan - Introduction to Competition Law 2

General • Competition law and competition policy

Ditucalan - Introduction to Competition Law 3

Ditucalan - Introduction to Competition Law 4

Gokongwei Jr. vs. Securities and

• The Court took note that these anti-trust law or laws

Ditucalan - Introduction to Competition Law 5

The concept of competition law

In a market economy, the

Ditucalan - Introduction to Competition Law 6

Goals of competition law

Economic Social Political

Ditucalan - Introduction to Competition Law 7

Economic efficiency and

Ditucalan - Introduction to Competition Law 8

Ditucalan - Introduction to Competition Law 9

• Many competition authorities may find themselves influenced in their decisions by

Ditucalan - Introduction to Competition Law 10

Ditucalan - Introduction to Competition Law 11

Ditucalan - Introduction to Competition Law 12

• Public policy aims

influence the • Structural approach

competition • Independent agency

law Institutions • Decisions by the

Ditucalan - Introduction to Competition Law 13

Ditucalan - Introduction to Competition Law 14

law • Horizontal agreements

Unilateral conduct affecting competition

Ditucalan - Introduction to Competition Law 15

• Research and development (R&D)

Ditucalan - Introduction to Competition Law 16

Examples of Vertical price fixing agreements

vertical • Minimum retail price

Vertical non-price fixing agreements

• Exclusive distribution agreements

Ditucalan - Introduction to Competition Law 17

Ditucalan - Introduction to Competition Law 18

Earlier competition law regimes

• Canada’s 1889 Wallace Act

• Spanish Codigo Penal of 1870

Ditucalan - Introduction to Competition Law 19

• Sherman Act of 1890

Earlier • Amended by Robinson-Patman Act in 1936;

law regimes Competition Law in the European Union

• National competition laws, e.g., German Law against

Ditucalan - Introduction to Competition Law 20

United States Antitrust Laws

• Based on common law

Ditucalan - Introduction to Competition Law 21

E.U. vs U.S: Substantive Antitrust Provisions

European Union Competition Law

• Art. 101, TFEU: anticompetitive agreements

Ditucalan - Introduction to Competition Law 22

E.U. vs U.S: Analytical Framework

Ditucalan - Introduction to Competition Law 23

Earlier competition law

Ditucalan - Introduction to Competition Law 24

Stages of transformation (pre-PCA regime)

Ditucalan - Introduction to Competition Law 26

The Marriage of Civil Law and Common Law Traditions