PHILIPPINE COMPETITION LAW REVIEWER

Article XII, Sec. 1, 1987 Constitution

-The goals of the national economy are a more equitable distribution of opportunities,
income and wealth; a sustained increase in the amount of goods and services produced
by the nation for the benefit of the people; and an expanding productivity as the key to
raising the quality of life for all, especially the underprivileged.

The State shall promote industrialization and full employment based on sound
agricultural development and agrarian reform, through industries that make full and
efficient use of human and natural resources, and which are competitive in both
domestic and foreign markets. However, the State shall protect Filipino enterprises
against unfair foreign competition and trade practices.

In pursuit of these goals, all sectors of the economy and all regions of the country shall
be given optimum opportunity to develop. Private enterprises, including corporations,
cooperatives, and similar collective organizations, shall be encouraged to broaden the
base of their ownership.

Article XII, Sec. 6, 1987 Constitution

-The use of property bears a social function, and all economic agents shall contribute to
the common good. Individuals and private groups, including corporations,
cooperatives, and similar organizations, shall have the right to own, establish, and
operate economic enterprises, subject to the duty of the State to promote distributive
justice and to intervene when the common good demands.

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1st Case: Tatad v. DOE

FACTS:

In 1996 Congress enacted RA 8180 to deregulate the oil industry. Petitioner Francisco
Tatad seeks to annul Section 5(b) of RA 8180 which imposes a tariff duty on imported
crude oil at 3% and imported refined petroleum at 7%. The reason relevant to
competition law is the 2nd argument of Tatad that the imposition of tariff rates bars the
entry of other players in the oil industry because it is protecting the interest of oil
companies with existing refineries. The rates imposed defeat the purpose of the law
which is to deregulate the oil industry and runs counter to the objective of the law
which is “to foster a truly competitive market.”
On the other hand, petitioners Edcel Lagman et al. questioned the constitutionality of
Section 15 of RA 8180 and EO 392. Section 15 provides that the DOE shall, upon
approval of the President, implement full deregulation of the downstream oil industry
not later than March, 1997. As far as practicable, the DOE shall time the full
deregulation when the prices of crude oil and petroleum products in the world market
are declining and when the exchange rate of the peso in relation to the US dollar is
stable.

The relevant reason to competition law in this case is the 3 rd argument of petitioners
Lagman et al. The third argument provides that Section 15 of RA 8180 allow the
formation of a de facto cartel among the three existing oil companies- Petron, Caltex,
and Shell in violation of the constitutional prohibition against monopolies,
combinations in restraint of trade and unfair competition.

ISSUE:

Whether or not Sections 5(b), 6, 9, and 15 of RA 8180 violated the constitutional

prohibitions on monopolies or combinations in restraint of trade and unfair
competition.

HELD:

The validity of the assailed provisions of R.A. No. 8180 has to be decided in light of the
letter and spirit of our Constitution, especially section 19, Article XII. Beyond doubt, the
Constitution committed us to the free enterprise system but it is a system impressed
with its own distinctness. Thus, while the Constitution embraced free enterprise as an
economic creed, it did not prohibit per se the operation of monopolies which can,
however, be regulated in the public interest.33 Thus too, our free enterprise system is
not based on a market of pure and unadulterated competition where the State pursues a
strict hands-off policy and follows the let-the-devil devour the hindmost rule.
Combinations in restraint of trade and unfair competitions are absolutely proscribed
and the proscription is directed both against the State as well as the private sector.34
This distinct free enterprise system is dictated by the need to achieve the goals of our
national economy as defined by section 1, Article XII of the Constitution which are:
more equitable distribution of opportunities, income and wealth; a sustained increase in
the amount of goods and services produced by the nation for the benefit of the people;
and an expanding productivity as the key to raising the quality of life for all, especially
the underprivileged. It also calls for the State to protect Filipino enterprises against
unfair competition and trade practices.

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."35 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."

Again, we underline in scarlet that the fundamental principle espoused by section 19,
Article XII of the Constitution is competition for it alone can release the creative forces
of the market. But the competition that can unleash these creative forces is competition
that is fighting yet is fair. Ideally, this kind of competition requires the presence of not
one, not just a few but several players. A market controlled by one player (monopoly)
or dominated by a handful of players (oligopoly) is hardly the market where honest-to-
goodness competition will prevail. Monopolistic or oligopolistic markets deserve our
careful scrutiny and laws which barricade the entry points of new players in the market
should be viewed with suspicion.

In the cases at bar, it cannot be denied that our downstream oil industry is operated and
controlled by an oligopoly, a foreign oligopoly at that. Petron, Shell and Caltex stand as
the only major league players in the oil market. All other players belong to the
lilliputian league. As the dominant players, Petron, Shell and Caltex boast of existing
refineries of various capacities. The tariff differential of 4% therefore works to their
immense benefit. Yet, this is only one edge of the tariff differential. The other edge cuts
and cuts deep in the heart of their competitors. It erects a high barrier to the entry of
new players. New players that intend to equalize the market power of Petron, Shell and
Caltex by building refineries of their own will have to spend billions of pesos. Those
who will not build refineries but compete with them will suffer the huge disadvantage
of increasing their product cost by 4%. They will be competing on an uneven field. The
argument that the 4% tariff differential is desirable because it will induce prospective
players to invest in refineries puts the cart before the horse. The first need is to attract
new players and they cannot be attracted by burdening them with heavy disincentives.
Without new players belonging to the league of Petron, Shell and Caltex, competition in
our downstream oil industry is an idle dream.

The provision on inventory widens the balance of advantage of Petron, Shell and Caltex
against prospective new players. Petron, Shell and Caltex can easily comply with the
inventory requirement of R.A. No. 8180 in view of their existing storage facilities.
Prospective competitors again will find compliance with this requirement difficult as it
will entail a prohibitive cost. The construction cost of storage facilities and the cost of
inventory can thus scare prospective players. Their net effect is to further occlude the
entry points of new players, dampen competition and enhance the control of the market
by the three (3) existing oil companies.

Finally, we come to the provision on predatory pricing which is defined as ". . . selling
or offering to sell any product at a price unreasonably below the industry average cost
so as to attract customers to the detriment of competitors." Respondents contend that
this provision works against Petron, Shell and Caltex and protects new entrants. The
ban on predatory pricing cannot be analyzed in isolation. Its validity is interlocked with
the barriers imposed by R.A. No. 8180 on the entry of new players. The inquiry should
be to determine whether predatory pricing on the part of the dominant oil companies is
encouraged by the provisions in the law blocking the entry of new players. Text-writer
Hovenkamp,36 gives the authoritative answer and we quote:

The rationale for predatory pricing is the sustaining of losses today that will give a firm
monopoly profits in the future. The monopoly profits will never materialize, however, if the
market is flooded with new entrants as soon as the successful predator attempts to raise its
price. Predatory pricing will be profitable only if the market contains significant barriers to new entry.

As aforediscsussed, the 4% tariff differential and the inventory requirement are

significant barriers which discourage new players to enter the market. Considering
these significant barriers established by R.A. No. 8180 and the lack of players with the
comparable clout of PETRON, SHELL and CALTEX, the temptation for a dominant
player to engage in predatory pricing and succeed is a chilling reality. Petitioners'
charge that this provision on predatory pricing is anti-competitive is not without
reason.

2nd case- Gokongwei v. SEC

Upon the other hand, respondents Andres M. Soriano, Jr., Jose M. Soriano and San
Miguel Corporation content that ex. conclusion of a competitor from the Board is
legitimate corporate purpose, considering that being a competitor, petitioner cannot
devote an unselfish and undivided Loyalty to the corporation; that it is essentially a
preventive measure to assure stockholders of San Miguel Corporation of reasonable
protective from the unrestrained self-interest of those charged with the promotion of
the corporate enterprise; that access to confidential information by a competitor may
result either in the promotion of the interest of the competitor at the expense of the San
Miguel Corporation, or the promotion of both the interests of petitioner and respondent
San Miguel Corporation, which may, therefore, result in a combination or agreement in
violation of Article 186 of the Revised Penal Code by destroying free competition to the
detriment of the consuming public. It is further argued that there is not vested right of
any stockholder under Philippine Law to be voted as director of a corporation. It is
alleged that petitioner, as of May 6, 1978, has exercised, personally or thru two
corporations owned or controlled by him, control over the following shareholdings in
San Miguel Corporation, vis.: (a) John Gokongwei, Jr. — 6,325 shares; (b) Universal
Robina Corporation — 738,647 shares; (c) CFC Corporation — 658,313 shares, or a total
of 1,403,285 shares. Since the outstanding capital stock of San Miguel Corporation, as of
the present date, is represented by 33,139,749 shares with a par value of P10.00, the total
shares owned or controlled by petitioner represents 4.2344% of the total outstanding
capital stock of San Miguel Corporation. It is also contended that petitioner is the
president and substantial stockholder of Universal Robina Corporation and CFC
Corporation, both of which are allegedly controlled by petitioner and members of his
family. It is also claimed that both the Universal Robina Corporation and the CFC
Corporation are engaged in businesses directly and substantially competing with the
alleged businesses of San Miguel Corporation, and of corporations in which SMC has
substantial investments.

Areas of Competition between SMC and CFC Robina

Table Eggs 0.6% 10.0% 10.6%

Layer Pullets 33.0% 24.0% 57.0%
Dressed Chicken 35.0% 14.0% 49.0%
Poultry& Hog 40.0% 12.0% 52.0%
Feeds
Ice Cream 70.0% 13.0% 83.0%
Instant Coffee 45.0% 40.0% 85.0%
Woven Fabrics 17.5% 9.1% 26.6%

Thus, according to respondent SMC, in 1976, the areas of competition affecting SMC
involved product sales of over P400 million or more than 20% of the P2 billion total
product sales of SMC. Significantly, the combined market shares of SMC and CFC-
Robina in layer pullets dressed chicken, poultry and hog feeds ice cream, instant coffee
and woven fabrics would result in a position of such dominance as to affect the
prevailing market factors.
It is further asserted that in 1977, the CFC-Robina group was in direct competition on
product lines which, for SMC, represented sales amounting to more than ?478 million.
In addition, CFC-Robina was directly competing in the sale of coffee with Filipro, a
subsidiary of SMC, which product line represented sales for SMC amounting to more
than P275 million. The CFC-Robina group (Robitex, excluding Litton Mills recently
acquired by petitioner) is purportedly also in direct competition with Ramie Textile,
Inc., subsidiary of SMC, in product sales amounting to more than P95 million. The areas
of competition between SMC and CFC-Robina in 1977 represented, therefore, for SMC,
product sales of more than P849 million.
It is a settled state law in the United States, according to Fletcher, that corporations have
the power to make by-laws declaring a person employed in the service of a rival
company to be ineligible for the corporation's Board of Directors. ... (A)n amendment
which renders ineligible, or if elected, subjects to removal, a director if he be also a
director in a corporation whose business is in competition with or is antagonistic to the
other corporation is valid." 24 This is based upon the principle that where the director is
so employed in the service of a rival company, he cannot serve both, but must betray
one or the other. Such an amendment "advances the benefit of the corporation and is
good." An exception exists in New Jersey, where the Supreme Court held that the
Corporation Law in New Jersey prescribed the only qualification, and therefore the
corporation was not empowered to add additional qualifications. 25 This is the exact
opposite of the situation in the Philippines because as stated heretofore, section 21 of
the Corporation Law expressly provides that a corporation may make by-laws for the
qualifications of directors. Thus, it has been held that an officer of a corporation cannot
engage in a business in direct competition with that of the corporation where he is a
director by utilizing information he has received as such officer, under "the established
law that a director or officer of a corporation may not enter into a competing enterprise
which cripples or injures the business of the corporation of which he is an officer or
director. 26

It is not denied that a member of the Board of Directors of the San Miguel Corporation
has access to sensitive and highly confidential information, such as: (a) marketing
strategies and pricing structure; (b) budget for expansion and diversification; (c)
research and development; and (d) sources of funding, availability of personnel,
proposals of mergers or tie-ups with other firms.

It is obviously to prevent the creation of an opportunity for an officer or director of San

Miguel Corporation, who is also the officer or owner of a competing corporation, from
taking advantage of the information which he acquires as director to promote his
individual or corporate interests to the prejudice of San Miguel Corporation and its
stockholders, that the questioned amendment of the by-laws was made. Certainly,
where two corporations are competitive in a substantial sense, it would seem
improbable, if not impossible, for the director, if he were to discharge effectively his
duty, to satisfy his loyalty to both corporations and place the performance of his
corporation duties above his personal concerns.

The offer and assurance of petitioner that to avoid any possibility of his taking unfair
advantage of his position as director of San Miguel Corporation, he would absent
himself from meetings at which confidential matters would be discussed, would not
detract from the validity and reasonableness of the by-laws here involved. Apart from
the impractical results that would ensue from such arrangement, it would be
inconsistent with petitioner's primary motive in running for board membership —
which is to protect his investments in San Miguel Corporation. More important, such a
proposed norm of conduct would be against all accepted principles underlying a
director's duty of fidelity to the corporation, for the policy of the law is to encourage
and enforce responsible corporate management. As explained by Oleck: 31 "The law
win not tolerate the passive attitude of directors ... without active and conscientious
participation in the managerial functions of the company. As directors, it is their duty to
control and supervise the day- to-day business activities of the company or to
promulgate definite policies and rules of guidance with a vigilant eye toward seeing to
it that these policies are carried out. It is only then that directors may be said to have
fulfilled their duty of fealty to the corporation."

Sound principles of corporate management counsel against sharing sensitive

information with a director whose fiduciary duty of loyalty may well require that he
disclose this information to a competitive arrival. These dangers are enhanced
considerably where the common director such as the petitioner is a controlling
stockholder of two of the competing corporations. It would seem manifest that in such
situations, the director has an economic incentive to appropriate for the benefit of his
own corporation the corporate plans and policies of the corporation where he sits as
director.

Indeed, access by a competitor to confidential information regarding marketing

strategies and pricing policies of San Miguel Corporation would subject the latter to a
competitive disadvantage and unjustly enrich the competitor, for advance knowledge
by the competitor of the strategies for the development of existing or new markets of
existing or new products could enable said competitor to utilize such knowledge to his
advantage.

There is another important consideration in determining whether or not the amended

by-laws are reasonable. The Constitution and the law prohibit combinations in restraint
of trade or unfair competition. Thus, section 2 of Article XIV of the Constitution
provides: "The State shall regulate or prohibit private monopolies when the public
interest so requires. No combinations in restraint of trade or unfair competition shall be
snowed."

Basically, these anti-trust laws 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. "It rests on the premise that the
unrestrained interaction of competitive forces will yield the best allocation of our
economic resources, the lowest prices and the highest quality ... ." 34 they operate to
forestall concentration of economic power. 35 The law against monopolies and
combinations in restraint of trade is aimed at contracts and combinations that, by reason
of the inherent nature of the contemplated acts, prejudice the public interest by unduly
restraining competition or unduly obstructing the course of trade.
The terms "monopoly", "combination in restraint of trade" and "unfair competition"
appear to have a well defined meaning in other jurisdictions. A "monopoly" embraces
any combination the tendency of which is to prevent competition in the broad and
general sense, or to control prices to the detriment of the public. 37 In short, it is the
concentration of business in the hands of a few. The material consideration in
determining its existence is not that prices are raised and competition actually excluded,
but that power exists to raise prices or exclude competition when desired. 38 Further, it
must be considered that the Idea of monopoly is now understood to include a condition
produced by the mere act of individuals. Its dominant thought is the notion of
exclusiveness or unity, or the suppression of competition by the qualification of interest
or management, or it may be thru agreement and concert of action. It is, in brief, unified
tactics with regard to prices.

Shared information on cost accounting may lead to price fixing. Certainly, shared
information on production, orders, shipments, capacity and inventories may lead to
control of production for the purpose of controlling prices.

Obviously, if a competitor has access to the pricing policy and cost conditions of the
products of San Miguel Corporation, the essence of competition in a free market for the
purpose of serving the lowest priced goods to the consuming public would be
frustrated, The competitor could so manipulate the prices of his products or vary its
marketing strategies by region or by brand in order to get the most out of the
consumers. Where the two competing firms control a substantial segment of the market
this could lead to collusion and combination in restraint of trade. Reason and
experience point to the inevitable conclusion that the inherent tendency of interlocking
directorates between companies that are related to each other as competitors is to blunt
the edge of rivalry between the corporations, to seek out ways of compromising
opposing interests, and thus eliminate competition. As respondent SMC aptly observes,
knowledge by CFC-Robina of SMC's costs in various industries and regions in the
country win enable the former to practice price discrimination. CFC-Robina can
segment the entire consuming population by geographical areas or income groups and
change varying prices in order to maximize profits from every market segment. CFC-
Robina could determine the most profitable volume at which it could produce for every
product line in which it competes with SMC. Access to SMC pricing policy by CFC-
Robina would in effect destroy free competition and deprive the consuming public of
opportunity to buy goods of the highest possible quality at the lowest prices.

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3. Intel Corporation v. Commission

RELEVANT PRODUCT MARKET:

Processors in particular x86 CPUs

 RELEVANT GEPGRAPHIC MARKET:
Europe.

FACTS:

Advanced Macro Devices or AMD filed a complaint against Intel and later the
European Commission investigated Intel. On July 26, 2007, the Commission sent Intel a
Statement of Objections concerning its conduct vis-à-vis five major Original Equipment
Manufacturers or OEMs namely Dell, Hewlett-Packard or HP, Acer, NEC and IBM.

On 17 July 2008, the Commission sent Intel a supplementary statement of objections

concerning its conduct in respect of Media-Saturn-Holding GmbH (‘MSH’), a retailer of
electronic devices and the largest desktop computer distributor in Europe, and Lenovo
Group Ltd. (‘Lenovo’), another OEM. That supplementary statement included new
evidence on Intel’s conduct vis-à-vis some of the OEMs covered by the Statement of
Objections of 26 July 2007. Intel did not reply within the prescribed period.

ANTI-COMPETITIVE CONDUCT:

Intel allegedly used Conditional Rebates to exclude a competitor AMD from the market
for x86 CPUs from Intel. It granted rebates to four OEMs Dell, Lenovo, HP, and NEC,
which were conditioned on these OEMs purchasing all or almost all of their x86 CPUs
from Intel. The second conduct is the so-called ‘naked restrictions’ which consisted in
making payments to OEMs so that they could delay, cancel or restrict the marketing of
certain products equipped with AMD CPUs.

In the light of those considerations, the Commission found that Intel had committed a
single and continuous infringement of Article 102 TFEU and Article 54 of the
Agreement on the European Economic Area of 2 May 1992 (OJ 1994 L 1, p. 3), from
October 2002 until December 2007, and therefore imposed on it a fine of EUR 1.06
billion.

INTEL’S DEFENSE:

In support of its first plea in law, in relation to horizontal issues concerning the legal
assessments carried out by the Commission, Intel disputed the allocation of the burden
of proof and the standard of proof required, the legal characterisation of the rebates and
payments granted in consideration of exclusive supply as well as the legal
characterisation of the payments, which the Commission referred to as ‘naked
restrictions’, made to OEMs so that they would delay, cancel or restrict the marketing of
products equipped with AMD CPUs.
The General Court held, in essence, in paragraph 79 of the judgment under appeal, that
the rebates granted to Dell, HP, NEC and Lenovo were exclusivity rebates, since they
were conditional upon customers’ purchasing either all their x86 CPU requirements or
most of their requirements from Intel. In addition, the General Court explained, in
paragraphs 80 to 89 of the judgment under appeal, that the question whether such a
rebate can be categorised as abusive does not depend on an analysis of the
circumstances of the case aimed at establishing the capability of that rebate to restrict
competition.

For the sake of completeness, the General Court considered, in paragraphs 172 to 197 of
the judgment under appeal, that the Commission established, to the requisite legal
standard and on the basis of an analysis of the circumstances of the case, that the
exclusivity rebates and payments that Intel granted to Dell, HP, NEC, Lenovo and MSH
were capable of restricting competition.

As regards the fourth plea in law, alleging errors of assessment concerning the practices
relating to the various OEMs and MSH, the General Court rejected all of the complaints
raised by Intel in relation to Dell, HP, NEC, Lenovo, Acer and MSH in paragraphs 665,
894, 1032, 1221, 1371 and 1463 of the judgment under appeal.

As regards the fifth plea in law, by which Intel disputed the existence of an overall
strategy aimed at foreclosing AMD’s access to the most important sales channels, the
General Court held, in paragraphs 1551 and 1552 of the judgment under appeal, that the
Commission had, in essence, demonstrated to the requisite legal standard that Intel had
attempted to conceal the anticompetitive nature of its practices and had implemented a
long-term comprehensive strategy to foreclose AMD from those sales channels.

As regards the sixth plea in law, alleging that the Commission incorrectly applied the
Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of
Regulation No 1/2003 (OJ 2006 C 210, p. 2), the General Court considered, inter alia, in
paragraph 1598 of the judgment under appeal, that neither the principle of legal
certainty nor the principle that offences and punishments are to be strictly defined by
law precludes the Commission from deciding to adopt and apply new guidelines on the
method of setting fines, even after the infringement has been committed. In addition,
the General Court considered, in that paragraph, that the interest in effective
enforcement of the competition rules justifies that an undertaking must take account of
the possibility of a modification to the general competition policy of the Commission as
regards fines with respect both to the method of calculation and the level of fines.

As regards the seventh plea in law, alleging the absence of an intentional or negligent
infringement of Article 102 TFEU, the General Court held, in essence, in paragraphs
1602 and 1603 of the judgment under appeal, that Intel could not have been unaware of
the anticompetitive nature of its conduct and that the evidence relied on in the decision
at issue demonstrated to the requisite legal standard that Intel had implemented a long-
term comprehensive strategy to foreclose AMD from the strategically most important
sales channels and that it had attempted to conceal the anticompetitive nature of its
conduct.

4. NFL

FACTS:

The NFL is an unincorporated association originally organized in 1920 and now

includes 32 professional football teams. Each team has its own name, colors, and logo.
Prior to 1963, the teams made their own arrangements for licensing their own
intellectual property and marketing trademarked items such as caps and jerseys.

In 1963, the teams formed National Football League Properties (NFLP) to develop,
license, and market their intellectual property. Most, but not all, of the substantial
revenues generated by NFLP have either been given to charity or shared equally among
the teams. However, the teams are able to and have at times sought to withdraw from
this arrangement.

Between 1963 and 2000, NFLP granted non-exclusive licenses to a number of vendors,
permitting them to manufacture and sell apparel bearing team insignias. Petitioner,
American Needle, Inc., was one of those licensees. In December 2000, the teams voted to
authorize NFLP to grant exclusive licenses, and NFLP granted Reebok International
Ltd. An exclusive 10-year license to manufacture and sell trademarked headwear for all
32 teams. It thereafter declined to renew American Needle’s nonexclusive license.

American Needle filed this action in the Northern District of Illinois, alleging that
the agreements between the NFL, its teams, NFLP, and Reebok violated §§1 and 2 of
the Sherman Act. In their answer to the complaint, the defendants averred that the
teams, NFL, and NFLP were incapable of conspiring within the meaning of §1 “because
they are a single economic enterprise, at least with respect to the conduct challenged.”
App. 99. After limited discovery, the District Court granted summary judgment on the
question “whether, with regard to the facet of their operations respecting exploitation of
intellectual property rights, the NFL and its 32 teams are, in the jargon of antitrust law,
acting as a single entity.” American Needle, Inc. v. New Orleans La. Saints, 496 F. Supp. 2d
941, 943 (2007). The court concluded “that in that facet of their operations they have so
integrated their operations that they should be deemed a single entity rather than joint
ventures cooperating for a common purpose.”

The Court of Appeals for the Seventh Circuit affirmed. The panel observed that “in
some contexts, a league seems more aptly described as a single entity immune from
antitrust scrutiny, while in others a league appears to be a joint venture between
independently owned teams that is subject to review under §1.” 538 F. 3d, 736, 741
(2008). Relying on Circuit precedent, the court limited its inquiry to the particular
conduct at issue, licensing of teams’ intellectual property. The panel agreed with
petitioner that “when making a single-entity determination, courts must examine
whether the conduct in question deprives the marketplace of the independent sources
of economic control that competition assumes.” Id., at 742. The court, however,
discounted the significance of potential competition among the teams regarding the use
of their intellectual property because the teams “can function only as one source of
economic power when collectively producing NFL football.” Id., at 743. The court noted
that football itself can only be carried out jointly. See ibid.  (“Asserting that a single
football team could produce a football game … is a Zen riddle: Who wins when a
football team plays itself ”). Moreover, “NFL teams share a vital economic interest in
collectively promoting NFL football … [to] compet[e] with other forms of
entertainment.” Ibid. “It thus follows,” the court found, “that only one source of
economic power controls the promotion of NFL football,” and “it makes little sense to
assert that each individual team has the authority, if not the responsibility, to promote
the jointly produced NFL football.” Ibid. Recognizing that NFL teams have “license[d]
their intellectual property collectively” since 1963, the court held that §1 did not
apply. Id., at 744.

 We granted certiorari.

ISSUE:

Whether the NFL respondents are capable of engaging in a “contract, combination … ,

or conspiracy” as defined by §1 of the Sherman Act, 15 U. S. C. §1

HELD:

Taken literally, the applicability of §1 to “every contract, combination … or conspiracy”

could be understood to cover every conceivable agreement, whether it be a group of
competing firms fixing prices or a single firm’s chief executive telling her subordinate
how to price their company’s product. But even though, “read literally,” §1 would
address “the entire body of private contract,” that is not what the statute
means. National Soc. of Professional Engineers v. United States, 435 U. S. 679, 688 (1978); see
also Texaco Inc. v. Dagher, 547 U. S. 1, 5 (2006) (“This Court has not taken a literal
approach to this language”); cf. Board of Trade of Chicago v. United States, 246 U. S. 231,
238 (1918) (reasoning that the term “restraint of trade” in §1 cannot possibly refer to any
restraint on competition because “[e]very agreement concerning trade, every regulation
of trade, restrains. To bind, to restrain, is of their very essence”). Not every instance of
co- operation between two people is a potential “contract, combination … , or
conspiracy, in restraint of trade.” 15 U. S. C. §1.

The meaning of the term “contract, combination … or conspiracy” is informed by the

“ ‘basic distinction’ ” in the Sherman Act “ ‘between concerted and independent
action’ ” that distinguishes §1 of the Sherman Act from §2. Copperweld, 467 U. S., at 767
(quoting Monsanto Co. v. Spray-Rite Service Corp., 465 U. S. 752, 761 (1984)). Section 1
applies only to concerted action that restrains trade. Section 2, by contrast, covers both
concerted and independent action, but only if that action “monopolize[s],” 15 U. S. C.
§2, or “threatens actual monopolization,” Copperweld, 467 U. S., at 767, a category that is
narrower than restraint of trade. Monopoly power may be equally harmful whether it is
the product of joint action or individual action.

Congress used this distinction between concerted and independent action to deter
anticompetitive conduct and compensate its victims, without chilling vigorous
competition through ordinary business operations. The distinction also avoids judicial
scrutiny of routine, internal business decisions.

Thus, in §1 Congress “treated concerted behavior more strictly than unilateral

behavior.” Id., at 768. This is so because unlike independent action, “[c]oncerted activity
inherently is fraught with anticompetitive risk” insofar as it “deprives the marketplace
of independent centers of decision-making that competition assumes and
demands.” Id., at 768–769. And because concerted action is discrete and distinct, a limit
on such activity leaves untouched a vast amount of business conduct. As a result, there
is less risk of deterring a firm’s necessary conduct; courts need only examine discrete
agreements; and such conduct may be remedied simply through prohibition. [Footnote
2] See Areeda & Hovenkamp ¶1464c, at 206. Concerted activity is thus “judged more
sternly than unilateral activity under §2,” Copperweld, 467 U. S., at 768. For these
reasons, §1 prohibits any concerted action “in restraint of trade or commerce,” even if
the action does not “threate[n] monopolization,” Ibid. And therefore, an arrangement
must embody concerted action in order to be a “contract, combination … or conspiracy”
under §1.

We have long held that concerted action under §1 does not turn simply on whether the
parties involved are legally distinct entities. Instead, we have eschewed such formalistic
distinctions in favor of a functional consideration of how the parties involved in the
alleged anticompetitive conduct actually operate.

As a result, we have repeatedly found instances in which members of a legally single

entity violated §1 when the entity was controlled by a group of competitors and served,
in essence, as a vehicle for ongoing concerted activity. In United States v. Sealy, Inc., 388
U. S. 350 (1967), for example, a group of mattress manufacturers operated and
controlled Sealy, Inc., a company that licensed the Sealy trademark to the
manufacturers, and dictated that each operate within a specific geographic area. Id., at
352–353. The Government alleged that the licensees and Sealy were conspiring in
violation of §1, and we agreed. Id., at 352–354. We explained that “[w]e seek the central
substance of the situation” and therefore “we are moved by the identity of the persons
who act, rather than the label of their hats.” Id., at 353. We thus held that Sealy was not
a “separate entity, but … an instrumentality of the individual manufacturers.” Id., at
356. In similar circumstances, we have found other formally distinct business
organizations covered by §1. See, e.g., Northwest Wholesale Stationers, Inc. v. Pacific
Stationery & Printing Co., 472 U. S. 284 (1985); National Collegiate Athletic Assn. v. Board of
Regents of Univ. of Okla., 468 U. S. 85 (1984)  (NCAA); United States v. Topco Associates,
Inc., 405 U. S. 596, 609 (1972); Associated Press v. United States, 326 U. S. 1 (1945); id., at 26
(Frankfurter, J., concurring); United States v. Terminal Railroad Assn. of St. Louis, 224 U. S.
383 (1912); see also Rock, Corporate Law Through an Antitrust Lens, 92 Colum. L. Rev.
497, 506–510 (1992) (discussing cases). We have similarly looked past the form of a
legally “single entity” when competitors were part of professional organizations
[Footnote 3] or trade groups. [Footnote 4]

Conversely, there is not necessarily concerted action simply because more than one
legally distinct entity is involved. Although, under a now-defunct doctrine known as
the “intraenterprise conspiracy doctrine,” we once treated cooperation between legally
separate entities as necessarily covered by §1, we now embark on a more functional
analysis.

The roots of this functional analysis can be found in the very decision that established
the intra-enterprise conspiracy doctrine. In United States v. Yellow Cab Co., 332 U. S.
218 (1947), we observed that “corporate interrelationships … are not determinative of
the applicability of the Sherman Act” because the Act “is aimed at substance rather than
form.” Id., at 227. We nonetheless held that cooperation between legally separate
entities was necessarily covered by §1 because an unreasonable restraint of trade “may
result as readily from a conspiracy among those who are affiliated or integrated under
common ownership as from a conspiracy among those who are otherwise
independent.” Ibid.; see also Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, Inc., 340 U. S.
211, 215 (1951).

 The decline of the intraenterprise conspiracy doctrine began in Sunkist Growers,

Inc. v. Winckler & Smith Citrus Products Co., 370 U. S. 19 (1962). In that case, several
agricultural cooperatives that were owned by the same farmers were sued for violations
of §1 of the Sherman Act. Id., at 24–25. Applying a specific immunity provision for
agricultural cooperatives, we held that the three cooperatives were “in practical effect”
one “organization,” even though the controlling farmers “have formally organized
themselves into three separate legal entities.” Id., at 29. “To hold otherwise,” we
explained, “would be to impose grave legal consequences upon organizational
distinctions that are of de minimis meaning and effect” insofar as “use of separate
corporations had [no] economic significance.” Ibid.

Next, in United States v. Citizens & Southern Nat. Bank, 422 U. S. 86 (1975), a large bank,
Citizens and Southern (C&S), formed a holding company that operated de
facto suburban branch banks in the Atlanta area through ownership of the maximum
amount of stock in each local branch that was allowed by law, “ownership of much of
the remaining stock by parties friendly to C&S, use by the suburban banks of the C&S
logogram and all of C&S’s banking services, and close C&S oversight of the operation
and governance of the suburban banks.” Id., at 89 (footnote omitted). The Government
challenged the cooperation between the banks. In our analysis, we observed that
“ ‘corporate interrelationships … are not determinative,’ ” id., at 116, “looked to
economic substance,” and observed that “because the sponsored banks were not set up
to be competitors, §1 did not compel them to compete.” Areeda & Hovenkamp ¶1463,
at 200–201; see also Citizens & Southern, 422 U. S., at 119–120; Areeda, Intraenterprise
Conspiracy in Decline, 97 Harv. L. Rev. 451, 461 (1983).

We finally reexamined the intraenterprise conspiracy doctrine in Copperweld

Corp. v. Independence Tube Corp., 467 U. S. 752 (1984), and concluded that it was
inconsistent with the “ ‘basic distinction between concerted and independent
action.’ ” Id., at 767. Considering it “perfectly plain that an internal agreement to
implement a single, unitary firm’s policies does not raise the antitrust dangers that §1
was designed to police,” id., at 769, we held that a parent corporation and its wholly
owned subsidiary “are incapable of conspiring with each other for purposes of §1 of the
Sherman Act,” id., at 777. We explained that although a parent corporation and its
wholly owned subsidiary are “separate” for the purposes of incorporation or formal
title, they are controlled by a single center of decision-making and they control a single
aggregation of economic power. Joint conduct by two such entities does not “depriv[e]
the marketplace of independent centers of decision-making,” id., at 769, and as a re-
sult, an agreement between them does not constitute a “contract, combination … or
conspiracy” for the purposes of §1. [Footnote 5]

As Copperweld exemplifies, “substance, not form, should determine whether a[n] …

entity is capable of conspiring under §1.” 467 U. S., at 773, n. 21. This inquiry is
sometimes described as asking whether the alleged conspirators are a single entity. That
is perhaps a misdescription, however, because the question is not whether the
defendant is a legally single entity or has a single name; nor is the question whether the
parties involved “seem” like one firm or multiple firms in any metaphysical sense. The
key is whether the alleged “contract, combination … , or conspiracy” is concerted action
—that is, whether it joins together separate decision-makers. The relevant inquiry,
therefore, is whether there is a “contract, combination … or conspiracy” amongst
“separate economic actors pursuing separate economic interests,” id., at 769, such that
the agreement “deprives the marketplace of independent centers of decision-
making,” ibid., and therefore of “diversity of entrepreneurial interests,” Fraser v. Major
League Soccer, L. L. C., 284 F. 3d 47, 57 (CA1 2002) (Boudin, C. J.), and thus of actual or
potential competition, see Freeman v. San Diego Assn. of Realtors, 322 F. 3d 1133, 1148–
1149 (CA9 2003) (Kozinski, J.); Rothery Storage & Van Co. v. Atlas Van Line, Inc., 792 F. 2d
210, 214–215 (CADC 1986) (Bork, J.); see also Areeda & Hovenkamp ¶1462b, at 193–194
(noting that the “central evil addressed by Sherman Act §1” is the “elimin[ation of]
competition that would otherwise exist”).

Thus, while the president and a vice president of a firm could (and regularly do) act in
combination, their joint action generally is not the sort of “combination” that §1 is
intended to cover. Such agreements might be described as “really unilateral behavior
flowing from decisions of a single enterprise.” Copperweld, 467 U. S., at 767. Nor, for this
reason, does §1 cover “internally coordinated conduct of a corporation and one of its
unincorporated divisions,” id., at 770, because “[a] division within a corporate structure
pursues the common interests of the whole,” ibid., and therefore “coordination between
a corporation and its division does not represent a sudden joining of two independent
sources of economic power previously pursuing separate interests,” id., at 770–771. Nor,
for the same reasons, is “the coordinated activity of a parent and its wholly owned
subsidiary” covered. See id., at 771. They “have a complete unity of interest” and thus
“[w]ith or without a formal ‘agreement,’ the subsidiary acts for the benefit of the parent,
its sole shareholder.” 

Because the inquiry is one of competitive reality, it is not determinative that two parties
to an alleged §1 violation are legally distinct entities. Nor, however, is it determinative
that two legally distinct entities have organized themselves under a single umbrella or
into a structured joint venture. The question is whether the agreement joins together
“independent centers of decision-making.” Id., at 769. If it does, the entities are capable
of conspiring under §1, and the court must decide whether the restraint of trade is an
unreasonable and therefore illegal one.

The NFL teams do not possess either the unitary decision-making quality or the single
aggregation of economic power characteristic of independent action. Each of the teams
is a substantial, independently owned, and independently managed business. “[T]heir
general corporate actions are guided or determined” by “separate corporate
consciousnesses,” and “[t]heir objectives are” not “common.” Copperweld, 467 U. S., at
771; see also North American Soccer League v. NFL, 670 F. 2d 1249, 1252 (CA2 1982)
(discussing ways that “the financial performance of each team, while related to that of
the others, does not … necessarily rise and fall with that of the others”). The teams
compete with one another, not only on the playing field, but to attract fans, for gate
receipts and for contracts with managerial and playing personnel. See Brown v. Pro
Football, Inc., 518 U. S. 231, 249 (1996); Sullivan v. NFL, 34 F. 3d 1091, 1098 (CA1
1994); Mid-South Grizzlies v. NFL, 720 F. 2d 772, 787 (CA3 1983); cf. NCAA, 468 U. S., at
99.

 Directly relevant to this case, the teams compete in the market for intellectual property.
To a firm making hats, the Saints and the Colts are two potentially competing suppliers
of valuable trademarks. When each NFL team licenses its intellectual property, it is not
pursuing the “common interests of the whole” league but is instead pursuing interests
of each “corporation itself,” Copperweld, 467 U. S., at 770; teams are acting as “separate
economic actors pursuing separate economic interests,” and each team therefore is a
potential “independent cente[r] of decisionmaking,” id., at 769. Decisions by NFL teams
to license their separately owned trademarks collectively and to only one vendor are
decisions that “depriv[e] the marketplace of independent centers of
decisionmaking,” ibid., and therefore of actual or potential competition. See NCAA, 468
U. S., at 109, n. 39 (observing a possible §1 violation if two separately owned companies
sold their separate products through a “single selling agent”); cf. Areeda & Hovenkamp
¶1478a, at 318 (“Obviously, the most significant competitive threats arise when joint
venture participants are actual or potential competitors”).

 In defense, respondents argue that by forming NFLP, they have formed a single entity,
akin to a merger, and market their NFL brands through a single outlet. But it is not
dispositive that the teams have organized and own a legally separate entity that
centralizes the management of their intellectual property. An ongoing §1 violation
cannot evade §1 scrutiny simply by giving the ongoing violation a name and label.
“Perhaps every agreement and combination in restraint of trade could be so
labeled.” Timken Roller Bearing Co. v. United States, 341 U. S. 593, 598 (1951).

 The NFL respondents may be similar in some sense to a single enterprise that owns
several pieces of intellectual property and licenses them jointly, but they are not similar
in the relevant functional sense. Although NFL teams have common interests such as
promoting the NFL brand, they are still separate, profit-maximizing entities, and their
interests in licensing team trademarks are not necessarily aligned. See generally
Hovenkamp, Exclusive Joint Ventures and Antitrust Policy, 1995 Colum. Bus. L. Rev. 1,
52–61 (1995); Shishido, Conflicts of Interest and Fiduciary Duties in the Operation of a
Joint Venture, 39 Hastings L. J. 63, 69–81 (1987). Common interests in the NFL brand
“partially unit[e] the economic interests of the parent firms,” Broadley, Joint Ventures
and Antitrust Policy, 95 Harv. L. Rev. 1521, 1526 (1982) (emphasis added), but the teams
still have distinct, potentially competing interests.

 It may be, as respondents argue, that NFLP “has served as the ‘single driver’’ of the
teams’ “promotional vehicle,” “ ‘pursu[ing] the common interests of the whole.’ ” Brief
for NFL Respondents 28 (quoting Copperweld, 467 U. S., at 770–771; brackets in original).
But illegal restraints often are in the common interests of the parties to the restraint, at
the expense of those who are not parties. It is true, as respondents describe, that they
have for some time marketed their trademarks jointly. But a history of concerted
activity does not immunize conduct from §1 scrutiny. “Absence of actual competition
may simply be a manifestation of the anticompetitive agreement itself.” Freeman, 322
F. 3d, at 1149.

 Respondents argue that nonetheless, as the Court of Appeals held, they constitute a
single entity because without their cooperation, there would be no NFL football. It is
true that “the clubs that make up a professional sports league are not completely
independent economic competitors, as they depend upon a degree of cooperation for
economic survival.” Brown, 518 U. S., at 248. But the Court of Appeals’ reasoning is
unpersuasive.

 The justification for cooperation is not relevant to whether that cooperation is concerted
or independent action.[Footnote 6] A “contract, combination … or conspiracy,” §1, that
is necessary or useful to a joint venture is still a “contract, combination … or
conspiracy” if it “deprives the marketplace of independent centers of
decisionmaking,” Copperweld, 467 U. S., at 769. See NCAA, 468 U. S., at 113 (“[J]oint
ventures have no immunity from antitrust laws”). Any joint venture involves multiple
sources of economic power cooperating to produce a product. And for many such
ventures, the participation of others is necessary. But that does not mean that necessity
of cooperation transforms concerted action into independent action; a nut and a bolt can
only operate together, but an agreement between nut and bolt manufacturers is still
subject to §1 analysis. Nor does it mean that once a group of firms agree to produce a
joint product, cooperation amongst those firms must be treated as independent conduct.
The mere fact that the teams operate jointly in some sense does not mean that they are
immune. [Footnote 7]

 The question whether NFLP decisions can constitute concerted activity covered by §1 is
closer than whether decisions made directly by the 32 teams are covered by §1. This is
so both because NFLP is a separate corporation with its own management and because
the record indicates that most of the revenues generated by NFLP are shared by the
teams on an equal basis. Nevertheless, we think it clear that for the same reasons the 32
teams’ conduct is covered by §1, NFLP’s actions also are subject to §1, at least with
regards to its marketing of property owned by the separate teams. NFLP’s licensing
decisions are made by the 32 potential competitors, and each of them actually owns its
share of the jointly managed assets. Cf. Sealy, 388 U. S., at 352–354. Apart from their
agreement to cooperate in exploiting those assets, including their decisions as the NFLP,
there would be nothing to prevent each of the teams from making its own market
decisions relating to purchases of apparel and headwear, to the sale of such items, and
to the granting of licenses to use its trademarks.

We generally treat agreements within a single firm as independent action on the

presumption that the components of the firm will act to maximize the firm’s profits. But
in rare cases, that presumption does not hold. Agreements made within a firm can
constitute concerted action covered by §1 when the parties to the agreement act on
interests separate from those of the firm itself, [Footnote 8] and the intrafirm
agreements may simply be a formalistic shell for ongoing concerted action.
See, e.g., Topco Associates, Inc., 405 U. S., at 609; Sealy, 388 U. S., at 352–354.

 For that reason, decisions by the NFLP regarding the teams’ separately owned
intellectual property constitute concerted action. Thirty-two teams operating
independently through the vehicle of the NFLP are not like the components of a single
firm that act to maximize the firm’s profits. The teams remain separately controlled,
potential competitors with economic interests that are distinct from NFLP’s financial
well-being. See generally Hovenkamp, 1995 Colum. Bus. L. Rev., at 52–61. Unlike
typical decisions by corporate shareholders, NFLP licensing decisions effectively
require the assent of more than a mere majority of shareholders. And each team’s
decision reflects not only an interest in NFLP’s profits but also an interest in the team’s
individual profits. See generally Shusido, 39 Hastings L. J., at 69–71. The 32 teams
capture individual economic benefits separate and apart from NFLP profits as a result
of the decisions they make for the NFLP. NFLP’s decisions thus affect each team’s
profits from licensing its own intellectual property. “Although the business interests of”
the teams “will often coincide with those of the” NFLP “as an entity in itself, that
commonality of interest exists in every cartel.” Los Angeles Memorial Coliseum
Comm’n v. NFL, 726 F. 2d 1381, 1389 (CA9 1984) (emphasis added). In making the
relevant licensing decisions, NFLP is therefore “an instrumentality” of the
teams. Sealy, 388 U. S., at 352–354; see also Topco Associates, Inc., 405 U. S., at 609.

If the fact that potential competitors shared in profits or losses from a venture meant
that the venture was immune from §1, then any cartel “could evade the antitrust law
simply by creating a ‘joint venture’ to serve as the exclusive seller of their competing
products.” Major League Baseball Properties, Inc. v. Salvino, Inc., 542 F. 3d 290, 335 (CA2
2008) (Sotomayor, J., concurring in judgment). “So long as no agreement,” other than
one made by the cartelists sitting on the board of the joint venture, “explicitly listed the
prices to be charged, the companies could act as monopolies through the ‘joint
venture.’ ” Ibid. (Indeed, a joint venture with a single management structure is generally
a better way to operate a cartel because it decreases the risks of a party to an illegal
agreement defecting from that agreement). However, competitors “cannot simply get
around” antitrust liability by acting “through a third-party intermediary or ‘joint
venture’.” Id., at 336. [Footnote 9]

Football teams that need to cooperate are not trapped by antitrust law. “[T]he special
characteristics of this industry may provide a justification” for many kinds of
agreements. Brown, 518 U. S., at 252 (Stevens, J., dissenting). The fact that NFL teams
share an interest in making the entire league successful and profitable, and that they
must cooperate in the production and scheduling of games, provides a perfectly
sensible justification for making a host of collective decisions. But the conduct at issue
in this case is still concerted activity under the Sherman Act that is subject to §1
analysis.

When “restraints on competition are essential if the product is to be available at all,” per

se rules of illegality are inapplicable, and instead the restraint must be judged according
to the flexible Rule of Reason. [Footnote 10] NCAA, 468 U. S., at 101; see id., at 117 (“Our
decision not to apply a per se rule to this case rests in large part on our recognition that a
certain degree of cooperation is necessary if the type of competition that petitioner and
its member institutions seek to market is to be preserved”); see also Dagher, 547 U. S., at
6. In such instances, the agreement is likely to survive the Rule of Reason. See Broadcast
Music, Inc. v. Columbia Broadcasting System, Inc., 441 U. S. 1, 23 (1979) (“Joint ventures
and other cooperative arrangements are also not usually unlawful… where the
agreement … is necessary to market the product at all”). And depending upon the
concerted activity in question, the Rule of Reason may not require a detailed analysis; it
“can sometimes be applied in the twinkling of an eye.” NCAA, 468 U. S., at 109, n. 39.
Other features of the NFL may also save agreements amongst the teams. We have
recognized, for example, “that the interest in maintaining a competitive balance” among
“athletic teams is legitimate and important,” NCAA, 468 U. S., at 117. While that same
interest applies to the teams in the NFL, it does not justify treating them as a single
entity for §1 purposes when it comes to the marketing of the teams individually owned
intellectual property. It is, however, unquestionably an interest that may well justify a
variety of collective decisions made by the teams. What role it properly plays in
applying the Rule of Reason to the allegations in this case is a matter to be considered
on remand.

Accordingly, the judgment of the Court of Appeals is reversed, and the case is
remanded for further proceedings consistent with this opinion.

It is so ordered.

______________________________________________________________________________

5. Agan Jr. v. Philippine International Air Terminals Co. Inc.

By its very nature, public bidding aims to protect the public interest by giving the
public the best possible advantages through open competition. Thus:

Competition must be legitimate, fair and honest. In the field of government contract
law, competition requires, not only `bidding upon a common standard, a common
basis, upon the same thing, the same subject matter, the same undertaking,' but also
that it be legitimate, fair and honest; and not designed to injure or defraud the
government.

An essential element of a publicly bidded contract is that all bidders must be on equal
footing. Not simply in terms of application of the procedural rules and regulations
imposed by the relevant government agency, but more importantly, on the contract
bidded upon. Each bidder must be able to bid on the same thing. The rationale is
obvious. If the winning bidder is allowed to later include or modify certain provisions
in the contract awarded such that the contract is altered in any material respect, then the
essence of fair competition in the public bidding is destroyed. A public bidding would
indeed be a farce if after the contract is awarded, the winning bidder may modify the
contract and include provisions which are favorable to it that were not previously made
available to the other bidders. Thus:

It is inherent in public biddings that there shall be a fair competition among the bidders.
The specifications in such biddings provide the common ground or basis for the
bidders. The specifications should, accordingly, operate equally or indiscriminately
upon all bidders.
The same rule was restated by Chief Justice Stuart of the Supreme Court of Minnesota:
The law is well settled that where, as in this case, municipal authorities can only let a
contract for public work to the lowest responsible bidder, the proposals and
specifications therefore must be so framed as to permit free and full competition. Nor
can they enter into a contract with the best bidder containing substantial provisions
beneficial to him, not included or contemplated in the terms and specifications upon
which the bids were invited.

In fact, in the PBAC Bid Bulletin No. 3 cited by PIATCO to support its argument that
the draft concession agreement is subject to amendment, the pertinent portion of which
was quoted above, the PBAC also clarified that "[s]aid amendments shall only cover
items that would not materially affect the preparation of the proponent's proposal."

While we concede that a winning bidder is not precluded from modifying or amending
certain provisions of the contract bidded upon, such changes must not constitute
substantial or material amendments that would alter the basic parameters of the
contract and would constitute a denial to the other bidders of the opportunity to bid on
the same terms. Hence, the determination of whether or not a modification or
amendment of a contract bidded out constitutes a substantial amendment rests on
whether the contract, when taken as a whole, would contain substantially different
terms and conditions that would have the effect of altering the technical and/or
financial proposals previously submitted by other bidders. The alterations and
modifications in the contract executed between the government and the winning bidder
must be such as to render such executed contract to be an entirely different contract
from the one that was bidded upon.