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Antitrust and Competition in the Philippines

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By Ma. Christina Macasaet-Acaban and Alain Charles Veloso (Baker McKenzie Manila)

1.           Overview of competition laws

The Philippines has general antitrust laws that prohibit unfair competition, and arrangements and combinations aimed to restrain trade or prevent by artificial means free competition in the market. There are also laws that govern specific industries and arrangements, and which prohibit specific acts such as price fixing, illegal combinations, hoarding, profiteering, tying, coordination, abuse of market power, predatory behavior, and other arrangements in such industries. However, the Philippines does not yet have a comprehensive or well-developed body of antitrust law.

2.           Enforcement and administration

In June 2011, the President of the Philippines issued Executive Order 45 (EO 45), which designated the Department of Justice (DOJ) as the Competition Authority and created the Office for Competition (OFC) under the DOJ. EO 45 vested the OFC with the following broad powers, duties, and responsibilities:

  • investigate all cases involving violations of competition laws and prosecute violators to prevent, restrain and punish monopolization, cartels and combinations in restraint of trade;
  • enforce competition policies and laws to protect consumers from abusive, fraudulent, or harmful corrupt business practices;
  • supervise competition in markets by ensuring that prohibitions and requirements of competition laws are adhered to, and to this end, call on other government agencies and/or entities for submission of reports and provision for assistance;
  • monitor and implement measures to promote transparency and accountability in markets;
  • prepare, publish and disseminate studies and reports on competition to inform and guide the industry and consumers; and
  • promote international cooperation and strengthen Philippine trade relations with other countries, economies, and institutions in trade agreements.

Pursuant to EO 45, the DOJ issued Department Circular 11, series of 2013, otherwise known as the Implementing Rules and Regulation for the Establishment of the OFC (OFC Rules), which took effect on 1 March 2013. The OFC Rules apply to all investigations conducted by the OFC on cartelization, monopolies, and combinations in restraint of trade. Under the OFC Rules, investigations may be commenced either upon complaint or by the OFC motu propio. The OFC Rules provide formal requirements but are clear in stating that the OFC may choose to commence an action on the basis of any complaint, regardless of form. A complaint will commence only upon the approval of the OFC Head after determining whether it is sufficient in form and substance. To this end, the OFC is empowered to make use of investigative measures such as “requests for information”. Such measures allow the OFC to procure additional information from the respondent, complainant, and other relevant parties for the purposes of the initial assessment. Following the investigation, the OFC must produce an investigation report containing the results of the investigation. The report may recommend the filing of cases with the appropriate bodies or require the complainant to submit additional information for further investigation. The OFC Rules empower the Secretary of Justice to accept, reject, or modify the recommendations in the investigation report produced by the OFC. Should the Secretary approve a recommendation to file a case, the OFC shall be tasked with preparing and filing the complaints with the appropriate bodies. The OFC Rules mandate that the OFC must form a mechanism for cooperation with the Department of Trade and Industry (DTI) and freely share information with sector regulators to aid in protecting consumers from abusive, fraudulent, or harmful corrupt business practices.

3.           Anti-competitive agreements and other conduct

3.1         Philippine Constitution

The role of competition in the private sector is recognized in the Philippine Constitution as a state policy. Article II, Section 20 provides that “[t]he State recognizes the indispensable role of the private sector, encourages private enterprise and provides incentives to needed investments”. To encourage and at the same time regulate private sector enterprise, Article XII, Section 19 provides that “[t]he State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed.” This provision is a statement of public policy and does not necessarily prohibit monopolies per se. However, the Constitution expressly prohibits unfair competition or combinations in restraint of trade.

3.2         Revised Penal Code

The Revised Penal Code prohibits monopolies and combinations in restraint of trade. The following acts are prohibited under Article 186 of the Revised Penal Code:

  • combinations to prevent free competition in the market, by entering into any contract or agreement or taking part in any conspiracy or combination in the form of a trust or otherwise, in restraint of trade or commerce, to prevent by artificial means free competition in the market;
  • a monopoly to restrain free competition in the market, by monopolizing any merchandise or object of trade or commerce, or by combining with any other person or persons to monopolize such merchandise or object in order to alter the price thereof by spreading false rumors or making use of any other artifice to restrain free competition in the market; and
  • the manufacturer, producer, processor or importer of any merchandise or object of commerce combining or agreeing with any person to make transactions prejudicial to lawful commerce or to increase the market price of merchandise or object of commerce manufactured, produced, processed, assembled or imported into the Philippines.

3.3         Civil Code

Article 28 of the Civil Code of the Philippines provides that “unfair competition in agriculture, commercial or industrial enterprises or in labour through the use of force, intimidation, deceit, machination or any other unjust, oppressive or high-handed method shall give rise to a right of action by the person who thereby suffers damage”. The Civil Code prohibits unfair competition. To qualify the competition as “unfair”, it must have two characteristics:

  • it must involve an injury to a competitor or trade rival; and
  • it must involve acts which are characterized as “contrary to good conscience” or otherwise unlawful.

The public injury or interest factor appears to be a minor aspect. The essence of the matter appears to be a private wrong perpetrated by unconscionable means. What is commonly known as “cutthroat competition”, for instance, is considered unfair. When a person starts a business that directly competes with another, not for the sake of profit for himself and regardless of loss, but for the sole purpose of driving his competitor out of business so that at a later date he can take advantage of the effects of his malevolent purpose, the person may be guilty of unfair competition under the Civil Code. The broad concept of unfair competition under the Civil Code may cover cases of discovery of trade secrets of a competitor, bribery of his employees, misrepresentations of all kinds, interference with the fulfillment of a competitor’s contract or any malicious interference with the latter’s business, which cause damage or injury to another person.

4.           Mergers and acquisitions

On 23 July 2014, the DOJ and the Securities and Exchange Commission (SEC) entered into a Memorandum of Agreement (MOA) which requires the SEC to notify the DOJ of applications for mergers and consolidations of corporations, and, in turn, authorizes the DOJ to assess the impact on competition of the proposed merger or consolidation. The MOA took effect on 7 August 2014. The MOA requires the OFC, within 30 days from receipt of the notice and complete set of documents from the SEC, to assess and evaluate whether the proposed merger or consolidation violates existing laws on competition, monopolies, and combinations in restraint of trade. To assist in the conduct of its assessment, the OFC may request for additional information or documents from the concerned corporations, through the SEC, within the same 30-day period. The OFC shall then endorse a report to the SEC on the proposed merger or consolidation. The report shall state whether the proposed merger or consolidation is inconsistent with any existing laws on competition, will unreasonably restrict trade, or lead to monopolization. If the OFC report states that the proposed merger or consolidation will not be anticompetitive, unreasonably restrict trade, or lead to monopolization, the SEC shall treat the report as compliant with section 79 of the Corporation Code, provided that the favorable recommendation of the appropriate government agency shall still be obtained in case of merger or consolidation of special corporations. If the OFC report states otherwise, the SEC may either:

  • give the applicant corporations the opportunity to be heard and thereafter approve or disapprove the application; or
  • conditionally approve the application, provided the applicant corporations comply with conditions or requirements set by the OFC in its report within the period prescribed by the SEC.

As of date, the DOJ is in the process of drafting the guidelines in assessing whether a proposed merger or consolidation will violate existing laws on competition, monopolies, or combinations in restraint of trade (Guidelines). Pending the issuance of the Guidelines, the OFC will assess proposed mergers or consolidations on the basis of existing laws and jurisprudence on competition, monopolies and combinations in restraint of trade. There are no indications as of date that the MOA will be extended to transactions that do not currently require SEC approval (e.g., share acquisitions or asset acquisitions that will not involve applications requiring SEC approval). Thus, as a rule, it would appear that only mergers and consolidations of domestic corporations are intended to be regulated at this time. Notwithstanding that the MOA does not appear to cover certain types of acquisitions, the OFC appears to take the position that it continues to have a general power to review such transactions from an antitrust perspective, based on existing laws that prohibit cartels and combinations in restraint of trade. In addition to the OFC’s review of a proposed merger or consolidation under the MOA, the Philippine Corporation Code also provides that, in cases involving the merger of banks or banking institutions, building and loan associations, trust companies, insurance companies, public utilities, educational institutions or other special corporations governed by special laws, the favorable recommendation/approval of the appropriate government agency must be obtained prior to the Commission approval. Also, certain special laws require prior notice or approval for M&A transactions for specific industries. Currently, these requirements are general in nature and do not focus on (although the same may include) the antitrust and competition aspects of the M&A transaction.

5.           Other prohibitions

The Philippines also has various industry-specific laws, such as the following, which restrict and prohibit certain arrangements that are considered to be anti-competitive:

  • Price Act, which governs the sale of basic necessities and prime commodities, and penalizes acts of hoarding, profiteering, and cartels.
  • Electric Power Industry Reform Act, which regulates competition in the power industry, and prohibits participants in the electricity industry from engaging in any anti-competitive behavior including, but not limited to, cross-subsidization, price or market manipulation, and imposes limits on ownership and control by related companies, of installed generating capacity.
  • Public Telecommunication Policy Act, which grants the National Telecommunication Commission (NTC) certain powers to regulate rates or tariffs when ruinous competition results or when a monopoly or a cartel or combination in restraint of free competition exists.
  • Universally-Accessible Cheaper and Quality Medicines Act (Cheaper Medicines Act), which applies to the pharmaceuticals industry and prohibits acts of price manipulation such as hoarding, profiteering, or illegal combination or forming cartels by any manufacturer, importer, trader, distributor, wholesaler, retailer, or any person engaged in any method of disposition of drugs and medicines.
  • The Generics Act of 1998 (Generics Act), which promotes, encourages and requires the use of generic terminology in the importation, manufacture, distribution, marketing, advertising and promotion, prescription and dispensing of drugs. The Generics Act also empowers the Department of Health to promulgate rules and regulations requiring every drug-manufacturing company operating in the Philippines to produce, distribute and make widely available to the general public an unbranded generic counterpart of their branded product.
  • Downstream Oil Deregulation Act of 1998, which regulates competition in the oil industry and prohibits, among others, predatory pricing in the context of the sale of oil products.
  • General Banking Law, which provides for limitations on ownership by related interests or a family group in a domestic bank.
  • The Intellectual Property Code (IP Code), which mandates or prohibits certain arrangements in a technology transfer arrangement (TTA). TTAs are “contracts or agreements involving the transfer of systematic knowledge for the manufacture of a product, the application of a process, or rendering of a service including management contracts, and the transfer, assignment or licensing of all forms of intellectual property rights, including licensing of computer software, except computer software developed for mass market” (e.g., licensing agreement). Failure to comply with the mandatory or prohibited clauses will render the entire TTA (and not just the non-complying provisions thereof) automatically unenforceable, unless an exemption is granted by, and the TTA registered with, the Documentation, Information, and Technology Transfer Bureau of the Intellectual Property Office.

6.           Penalties and liabilities

6.1         Revised Penal Code

Compliance with Article 186 of the Revised Penal Code may be enforced by administrative action before the DTI, upon the initiative of a private party or by the DTI. Administrative penalties that may be imposed by the DTI include:

  • the issuance of a cease-and-desist order;
  • the acceptance of a voluntary assurance of compliance or discontinuance under such terms and conditions as may be imposed;
  • the condemnation or seizure of products which are the subject of the offense;
  • the seizure and forfeiture of the paraphernalia and all properties, real or personal, which have been used in the commission of the offense;
  • the imposition of administrative fines in such amount as deemed reasonable by the Chief Hearing Officer/Adjudication Officer;
  • the cancellation of any permit, license, authority, or registration which may have been granted by the DTI, or the suspension of the validity thereof for such period of time as the DTI may deem reasonable;
  • the withholding of any permit, license, authority, or registration which is being secured by the violator from the DTI;
  • the assessment of damages;
  • censure; and
  • other analogous penalties or sanctions.

The Revised Penal Code may also be enforced through the judicial courts. A determination by a Philippine court of a violation of Article 186 of the Revised Penal Code will warrant the imposition of criminal penalties. The penalties imposable for criminal violations of the Revised Penal Code are prision correctional (or imprisonment from six months and one day to six years) or a fine ranging from PHP200 to PHP6,000 or both. If the violation affects any food substance, motor fuel or lubricants, or other articles of prime necessity, the penalty imposable shall be increased to prision mayor (or imprisonment of between six years and one day to 12 years). Any property possessed under any contract or by any combination in violation of the Revised Penal Code, being the subject of the said contract, shall be forfeited in favor of the government. If the violation is committed by a corporation or association, its president and each one of its agents or representatives in the Philippines (if a foreign corporation or association) who knowingly permitted or failed to prevent the commission of such violation will be held liable for the offense.

6.2         Civil Code

The Civil Code, which gives a right of action for damages against the offending party, is enforced by private action.

6.3         Other special laws and regulations

A violation of the antitrust provisions in special laws or regulations in the Philippines may give rise to the imposition of administrative fines, and civil or criminal liabilities on the offending party. For example, under the Price Act, any person who commits any act of illegal price manipulation of any basic necessity or prime commodity shall suffer the penalty of imprisonment for a period of five to 15 years, and shall be fined not less than PHP5,000 and not more than PHP2 million. Any person who violates the provisions on automatic price controls and mandated price ceilings of the Price Act shall suffer the penalty of imprisonment for a period of one to 10 years or a fine of not less than PHP5,000 and not more than PHP1 million or both, at the discretion of the court. Under the Oil Deregulation Act, any person found guilty of predatory pricing, including but not limited to the Chief Operating Officer, Chief Executive Officer or Chief Finance Officer of a partnership, corporation or any entity involved will be punishable with three to seven years of imprisonment, and a fine ranging from PHP1 million to PHP2 million. Under the Cheaper Medicines Act, any person or entity who commits any act of illegal price manipulation of any drug and medicine shall suffer the penalty of imprisonment for a period of not less than five years nor more than 15 years or shall be imposed a fine of not less than PHP100,000 nor more than PHP10 million, at the discretion of the court.

7.           Extraterritorial application

Philippine laws are generally effective only within the limits of Philippine territory; however, an agreement that is entered into in a foreign country may be subject to Philippine antitrust laws if its provisions and arrangements are implemented in the Philippines. Moreover, prohibitive laws such as the foregoing are not rendered ineffective by agreements executed abroad if the acts contemplated affect public order, public policy and good customs.

8.           Reform

8.1         Senate Bill

The Philippine Senate has recently passed a bill entitled the Fair Competition Act of 2014 (the Senate Bill), which is now on its third and final reading. Its counterpart bill in the House of Representatives (House) is currently pending second reading. Generally, every bill passed by the Philippine Congress has to undergo three readings in both the Senate and the House. Once passed by both Houses, a bicameral conference committee will consolidate the two bills. The consolidated bill then becomes law following approval from the President of the Philippines. The Senate Bill seeks to promote a free market economy and encourage business competition in the Philippines. To that end, it prohibits anti-competitive actions that distort, manipulate or constrict the operations of relevant markets in the Philippines. It also provides for the creation of the Fair Competition Commission (FCC) and incorporates an extraterritoriality provision.

8.2         Fair Competition Commission

The FCC will be created as a quasi-judicial body empowered to enforce the provisions of the Senate Bill. Some of its powers and functions include:

  • investigate any violations of the Senate Bill;
  • stop or redress anti-competitive acts or behaviors by applying remedies, such as but not limited to, imposition of temporary price controls, issuance of injunctions, requirement of divestment, and disgorgement of excess profits;
  • impose sanctions, fines or penalties;
  • inspect business premises and other premises where books, tax records, or other documents relevant to the investigation are suspected to be kept, in order to prevent their removal, concealment, tampering with, or destruction; and
  • issue subpoenas to require the production of books, records, or other documents relevant to the investigation, and require personal appearance before the FCC; summon witnesses; administer oaths; and issue interim orders such as show-cause orders and cease-and-desist orders.

8.3         Extraterritoriality provision

The Senate Bill covers acts done outside the country in the course of trade or business, where the act complained of has a direct effect on domestic trade, commerce and industry in the Philippines.

8.4         Prohibited acts

The Senate Bill prohibits the following:

  • entering into anti-competitive agreements that relate to: price fixing; limiting production, markets, development, and investment to the prejudice of consumers; market sharing; applying dissimilar conditions to equivalent transactions with other parties; and other similar conduct;
  • abuse of dominant position, which includes predatory pricing; imposing barriers to entry; price discrimination; imposing restrictions on how, where, to whom, or in what form goods or services may be sold or traded, such as fixing prices, giving preferential discounts or imposing lock-outs; and tying goods or services; and
  • entering into mergers or acquisition agreements that will prevent or substantially lessen competition in the relevant market or in the market for substantially related goods or services. Parties to a merger or acquisition agreement are required to notify the FCC, who will then review the agreement. If the FCC determines that the agreement will prevent or substantially lessen competition, and does not qualify for any exemption, the FCC may prohibit the implementation of the merger or acquisition transaction or require certain changes to the terms of the same.

8.5         Penalties

In administrative proceedings, violators are fined PHP50 million for the first offence and up to PHP200 million for the third offence. Non-compliance with an order of the FCC, on the other hand, effects a fine of not less than PHP1 million for each violation and a similar amount for every delay of 30 days. Furnishing incorrect or misleading information to the FCC also results in a fine of not less than PHP1 million. In criminal proceedings, violators may be punished by imprisonment or fine or both. Imprisonment may range from two to five years while the amount of the fine ranges from PHP100 million to PHP200 million for each infraction. For juridical entities, the penalty of imprisonment shall be imposed upon the responsible officers and directors of the entity. If the violation involves trade of prime commodities such as rice, corn, sugar, pork, beef, fish, vegetables, or commodities of basic necessity, the fine shall automatically be tripled. The Senate Bill also provides that any person who suffers direct injury by reason of any violation of the Senate Bill may institute a separate and independent civil action against the entity that engaged in anti-competitive practices or otherwise abused its dominant position. The injured person may recover damages sustained, the costs of suit, and reasonable attorney’s fees.

8.6         House of Representatives

In December 2014, the House Committee on Economic Affairs issued a bill (i.e., House Bill No. 5286) consolidating 12 antitrust bills in the 16th Congress of the House (the House Bill). The House Bill is pending second reading in the House. Similar to the Senate Bill, the House Bill generally prohibits anti-competitive agreements, abuse of dominant position and anti-competitive mergers. The House Bill also prohibits specific unfair methods of competition and unfair or deceptive trade or business practices. The House Bill also provides for the creation of a Philippine Competition Commission (PCC) with broad powers to enforce the provisions of the enacted antitrust law. The House Bill provides a range of imposable administrative penalties of 1 percent up to 5 percent of the entity’s total turnover in the preceding business year. For the failure or neglect to comply with an order of the PCC, a fine of PHP50,000 up to PHP200,000 may be imposed for each violation. Each day of continuance of such failure or neglect shall be deemed a separate offence. For the supply of incorrect or misleading information to the PCC, a fine of PHP5,000 up to PHP100,000 may be imposed for each violation. The House Bill imposes criminal penalties on entities that enter into anti-competitive agreements, which may include imprisonment from five to 10 years or a fine of up to 10 percent of the annual turnover of the infringed entity during the previous fiscal year or up to 10 percent of the value of the assets infringed, whichever is higher, or both imprisonment and a fine. Similar to the Senate Bill, if the violation involves the trade or movement of basic necessities or prime commodities, the administrative or criminal fine imposed shall automatically be tripled.

8.7         ASEAN Economic Integration

In 2007, ASEAN member states (AMSs), including the Philippines, agreed to the establishment of the ASEAN Economic Community (AEC) by 2015, which aims to transform ASEAN into a region with free movement of goods, services, investment and skilled labor, and free flow of capital. As part of the AEC Blueprint, each of the AMSs endeavoured to introduce a national competition policy and law by 2015. In newspaper articles, the Senate President, Senator Franklin Drilon, identified the Senate Bill as one of the measures being eyed by Congress to further boost investment-driven economic growth in the Philippines. House Speaker Feliciano Belmonte has vowed that the House of Representatives will work on the passage of the antitrust law, in light of the Philippines’ commitment under the AEC Blueprint to introduce a competition law by 2015. [wpdm_package id=’4258′]