1.0 WHAT ACTS ARE PROHIBITED UNDER · competition, it provides for exceptions such as: permissible franchising, licensing, exclusive merchandising, or exclusive distributorship agreements

1.0 WHAT ACTS ARE PROHIBITED UNDER THE PHILIPPINE COMPETITION ACT? Anti-competitive agreements

Hypothetical cases of anti-competitive agreements

Abuse of dominance

Hypothetical cases of abuses of dominance

Anti-competitive mergers and acquisitions

Hypothetical cases of anti-competitive mergers and acquisitions

2.0 WHAT ARE THE RISkS Of BREACHINg THE PHILIPPINE COMPETITION ACT? Risks of administrative fines

Risks of criminal penalties

3.0 WHAT CAN I DO? File a complaint to the PCC

TABLE Of CONTENTS

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WHAT ACTS ARE PROHIBITED UNDER THE PHILIPPINE COMPETITION ACT?

KEY PROHIB IT I ONS U NDER THE P C A EXP LAI NED

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Anti-competitive AgreementsIn general terms, anti-competitive agreements are arrangements that substantially prevent, restrict, or lessen competition. Some anti-competitive agreements may be classified into “horizontal” and “vertical” agreements.

• Horizontalagreements are those entered into by and between two (2) or more competitors. For example, two (2) competing manufacturers could collude and agree to sell the same product at the same price.

• Verticalagreements are those entered into by and between two (2) or more entities at different levels of the distribution or production chain such as those entered into by suppliers, manufacturers, distributors, and retailers. Examples include distribution, agency, and franchising agreements.

The Philippine Competition Act (PCA) prohibits three (3) types of anti-competitive conduct, namely:

• Anti-competitive agreements between competitors or among enterprises in a production or distribution chain that substantially prevent, restrict, or lessen competition.

• Abuse of market dominance, which occurs when a conduct of a business or company with significant control or share in the market substantially prevents, restricts, or lessens competition.

• Anti-competitive mergers and acquisitions, which refer to the coming together of two (2) or more firms, or the purchase of one firm by another firm, respectively, that substantially impedes competition in the market.

price fixing

Competitors collude with one another to fix the prices of goods and services, rather than allow the prices to be determined by market forces.

Bid rigging

Contractors or businesses, who participate in a competitive bidding process, coordinate their price quotations rather than submit independent bid prices.

output limitation

Firms or businesses agree to limit output or control production by fixing production levels or setting quotas. Also, they may agree to deal with structural overcapacity or to coordinate future investment plans.

market sharing

Producers restrict the sale of goods and services to certain geographic areas, thereby developing local monopolies.

Examples of anti-competitive agreements:

Phil iPP i ne Com P et i t i on AC t

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HypotHeticAl cAses of Anti-competitive Agreements

The law prohibits anti-competitive agreements,1 including those that restrict competition as to price, and those that fix prices at an auction or bidding process. Under Section 4 of the PCA, an agreement may be a contract, arrangement, understanding, collective recommendation, or concerted action.

A decision by your industry association to raise prices by a fixed percentage is a collective recommendation or concerted action, which restricts competition as to price. It is a form of price fixing. You must independently make all decisions regarding the selling price of your goods.

price fixing

1 Section 14 (a).2 Section 14 (a).

“My flower shop is a member of a florists association. Our association’s members voted unanimously to raise prices by 10%. The agreement is to implement this price increase as soon as possible.”

The PCA prohibits fixing the price at an auction or manipulating bids. This includes rotating bids,2 which is what you and your competitors appear to be doing.

Bid rigging

“My competitors and I own computer shops. In bidding for contracts to supply computers to companies and government agencies, we share information on our bids and sometimes agree to take turns in securing contracts.”


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The following are some examples of bid manipulation:

1. Cover bidding. The act of submitting an artificially high price for a contract with the assumption that the bid will not be accepted;

2. Bid suppression. An agreement made by businesses to not submit a bid so that another would win the contract;

3. Bid rotation. The practice of competitors agreeing to take turns at winning contracts; and

4. Market allocation. Agreements in which competitors allocate specific types of customers, products, or territories among themselves, such that one would not bid on contracts in markets assigned to the other competitors.

Section 14 (b) (2) of the law prohibits agreements between or among competitors wherein the market is divided or shared, such as by volume of sales or purchases, territory, type of goods or services, buyers, or sellers. In this case, your plan is to share the market by territory. If, upon review, such agreement is deemed to substantially prevent, restrict, or lessen competition, then it shall be considered a violation of the PCA.

market sharing

“I am not making enough profit selling my dried organic mango to retailers in both Manila and Cebu. I plan to stop selling in Manila and ask my competitor to stop selling in Cebu. This way, we can both sell more goods in our respective territories.”


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ABuse of dominAnceIn competition law, dominant position refers to a position of economic strength. Markets that are dominated by a small number of large companies are vulnerable to anti-competitive practices. In the conduct of their business, dominant companies, considering their size, scope, and position of economic strength, may have a disproportionately severe effect on the market and its competitors. However, the law’s provisions on abuse of dominance are not meant to punish companies for their success. The PCA does not mean to unfairly burden dominant companies. Rather, the law is concerned with and punishes abuse of dominant position.

Under the PCA, it is illegal to abuse one’s dominant position. This is because it harms competitors through means such as:

exploitative behavior toward consumers, customers, and competitors

Excessive or unfair purchase or sales prices of goods and services, or other unfair trading conditions such as tying the sales of unrelated products. The following are examples of exploitative behavior:

A. Imposing barriers to entry or committing acts that prevent competitors from growing within the market in an anti-competitive manner, except those that develop in the market as a result of or arising from a superior product or process, business acumen, or legal rights or laws.

B. Tying / Bundling. Making transactions subject to the acceptance of other parties through other obligations that have no connection with the transaction, or making the supply of particular goods or services dependent upon the purchase of other goods or services that have no direct connection with the main goods or services being supplied.

C. Imposing restrictions on the lease or contract of sale or trade of goods or services concerning where, to whom, or in what form goods or services may be sold or traded. These restrictions include fixing prices, giving preferential discounts or rebates upon such price, or imposing conditions not to deal with competing entities. It is not necessarily unlawful to enter into:

i. Permissible franchising, licensing, exclusive merchandising, or exclusive distributorship agreements such as those which give each party the right to unilaterally terminate the agreement; or

ii. Agreements protecting intellectual property rights, confidential information, or trade secrets.

D. Monopsony. Directly or indirectly imposing unfairly low purchase prices for the goods or services of, among others, marginalized agricultural producers, fisherfolk, MSMEs (micro, small, and medium enterprises), and other marginalized service providers and producers.


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predatory pricing

A dominant player in a market deliberately incurs losses in the short term by setting prices so low that it forces other competitors out of the relevant market, so as to be able to charge higher prices in the long term.

discriminatory behavior

A dominant player deliberately applies dissimilar pricing or conditions to otherwise equivalent transactions.

limiting production, markets, or technical development to the prejudice of consumers

This includes output restrictions or the illegitimate refusal of a dominant player to supply certain goods or services. This can also include restrictions in the access, use, and development of a new technology.


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HypotHeticAl cAses of ABuses of dominAnce

While Section 15 of the law prohibits the abuse of a dominant position by, for example, imposing restrictions on the contract of sale or trade of goods concerning where, to whom, or in what form goods or services may be sold or traded where the object or effect of the restrictions is to substantially prevent, restrict, or lessen competition, it provides for exceptions such as: permissible franchising, licensing, exclusive merchandising, or exclusive distributorship agreements. The PCC needs to determine the validity of exclusivity restrictions in relevant markets on a case-by-case basis.

imposing restrictions

“My supplier of dietary supplements, the biggest manufacturer in the industry, appointed distributors throughout the Philippines to sell its products. I’d like to sell to my Facebook friends, many of whom live outside my province. However, the company told me that, while I can advertise online, I’m only allowed to sell to residents of my province.”

The restaurant chain may be in violation of the PCA. Section 15 (g) of the law prohibits the abuse of a dominant position by directly or indirectly imposing unfairly low purchase prices for the goods or services of, among others, marginalized agricultural producers, fisherfolk, MSMEs (micro, small, and medium enterprises), and other marginalized service providers and producers.

monopsony “Our small farming village supplies ube to the only restaurant chain that serves ube pancakes throughout the country. The restaurant chain buys almost all the ube grown and harvested in the country. The company forces all ube farmers to sell our products at an extremely low purchase price for them. Our farming families have no choice but to accept the price set by the restaurant chain because there is no other significant buyer of ube and our produce will spoil if we are unable to sell them immediately. As a result, many of the families in our farming village barely make an income.”

Section 15 (f) of the law prohibits the abuse of a dominant position where the supply of goods or services is made dependent upon the purchase of other goods or services that have no direct connection with the main goods or services to be supplied. Your supplier is prohibited from requiring you to buy another product since it is in a dominant position, as defined in Section 4 (g).

tying / Bundling“I have a company that leases out trucks, and I rely on a supplier that is the only one able to provide tires for trucks. However, the supplier said that they will only continue to sell to my company if I also buy a minimum number of smaller tires for cars, which I do not need.”


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Anti-competitive mergers And AcquisitionsA merger is defined as the joining of two (2) or more entities into an existing entity or to form a new entity, including joint ventures; while an acquisition refers to the purchase or transfer of securities or assets for the purpose of obtaining control by one (1) or more firms over the whole or part of another firm or firms.

Mergers and acquisitions (M&As) can be good for consumers because they can enable businesses to operate more efficiently, and bring the prices of their products down. M&As can result in economies of scale and scope, enable transfer of technologies, broaden access to capital, and increase productivity. However, there are M&As that harm competition and result in a market that is disadvantageous to consumers.

HypotHeticAl cAses of Anti-competitive mergers And Acquisitions

Section 20 of the PCA prohibits merger and acquisitions that substantially lessen competition in the relevant market for goods. In the example provided, the parties involved are already the largest producers of handmade shoes in the country. The review of the transaction should take into account the fact that the resulting entity from the acquisition will control a dominant market share (85%). This might lead to higher prices, fewer choices, and less innovation, to the detriment of consumers.

“Faster Hauling Services Corporation proposed to merge with Fast Freight Forwarding Corporation solely to improve their economic strength by accumulating a combined share of 80% in the hauling market. Upon review of their financial data, none of the parties involved in the transaction were found to be facing financial failure. Furthermore, based on economic analyses, there appeared to be no efficiency gains resulting from the transaction.”

Section 20 of the PCA prohibits merger acquisitions that substantially lessen competition in the relevant market for goods. In the example provided, the parties involved are already the largest producers of handmade shoes in the country. The review of the transaction should take into account the fact that the resuIting entity from the acquisition will monopolize the local market for handmade shoes by virtue of its dominant market share (85%). This might lead to higher prices, fewer choices, and less innovation, to the detriment of consumers.

“AAA Shoe Company wanted to acquire its competitor, XYZ Shoe Company. They are two of the largest producers of handmade shoes in the Philippines, accounting for 50% and 35% market share, respectively.”


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COMPULSORy NOTIfICATIONThe PCA and its IRR oblige parties to the M&A agreement, where the PHP1 billion notification threshold is breached, to notify the PCC before proceeding with the merger or acquisition. The said parties are not allowed to consummate their agreement without the approval of the PCC. If parties to M&A transactions requiring compulsory notification fail to notify the PCC, the said transactions shall be considered void. Furthermore, parties will be sanctioned with an administrative fine ranging between 1% and 5% of the transaction value.

Motu ProPrio REvIEWEven if an M&A transaction does not exceed the notification threshold, the PCC has the authority to review or investigate, on its own initiative, any transaction that may result in the substantial lessening or restriction of competition in a market.

If, upon review of mergers and acquisitions, the PCC finds that a proposed transaction is likely to harm competition in a market, it has the power to disallow the merger or acquisition. It may also allow the transaction, subject to arrangements that will remedy or mitigate the potential harm to competition arising from the transaction.

The proposed acquisition of Telefónica UK’s ‘O2’ by Hutchison 3G UK’s ‘Three’ was blocked by the European Commission. Upon their investigation, they found that the acquisition will: (i) lead to higher prices and reduced choice and quality for consumers in the UK mobile market; (ii) hamper the development of the entire UK mobile network infrastructure; and (iii) reduce the number of network operators willing to host virtual operators.

Source: European Commission. (October 30, 2015). Mergers: Commission prohibits Hutchison’s proposed acquisition of Telefónica UK. Retrieved May 5, 2017, from: http://europa.eu/rapid/press-release_IP-16-1704_en.htm


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WHAT ARE THE RISkS Of BREACHINg THE PHILIPPINE COMPETITION ACT?


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Sections 29 and 30 of the PCA detail the fines and penalties for violators of the antitrust law.

risks of AdministrAtive fines

CONDUCT Of ANTI-COMPETITIvE BEHAvIORParties found to have committed anti-competitive agreements and abuses of dominance, or those that failed to comply with compulsory mergers and acquisitions procedures, will be sanctioned with administrative fines. The PCC will consider both the gravity and the duration of the violation in defining the appropriate amount of fines.

• first offense: Fine of up to PHP100 million• second offense: Fine of not less than PHP100 million but not more than PHP250

million

Note that the fines shall be increased by the Commission every five (5) years to maintain their real value from the time it was set.


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risks of criminAl penAlties

For violations of Sections 14 (a) and 14 (b), the following penalties may be imposed:

• Imprisonment from two (2) to seven (7) years, and• Fine of not less than PHP50 million but not more than PHP250 million

Imprisonment will be sanctioned for responsible officers and directors of violators. When juridical persons (e.g., corporations, business associations) are involved, imprisonment will be imposed on its officers, directors, or employees holding managerial positions, who are knowingly and willfully responsible for the violation.


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WHAT CAN I DO?


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file A complAint to tHe pcc If you suspect that any business, company, or organization is behaving anti-competitively, and that such behavior may constitute a possible violation of the PCA, kindly file a complaint with the PCC.

The PCC will evaluate the complaints (i.e., verified complaints) and determine if there is a reasonable basis to commence an investigation.

COMPLAINTS ON CARTELS

PHILIPPINE COMPETITION COMMISSIONPostal Address: 2nd Floor, DAP Building,

San Miguel Avenue, Ortigas Center, Pasig CityTelefax: +632 631 2129

Email Address: [email protected] | [email protected]

Examples of relevant information include:

• Information about the conspiring companies or businesses; • The nature of the cartelized industry; and• Any other relevant information backed with supporting documents as proof of the agreements,

decisions, or practices of the cartel (i.e., records of a tender and all communication with those that submitted tenders).

The PCC is interested in hearing useful information on cartels in the Philippines. If you are aware of cartel arrangements, you are highly encouraged to contact the PCC through the following:


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ContactUs

The Philippine Competition Commission is open Mondays through Fridays, from 9:00 a.m. to 5:00 p.m. Submissions of notifications and complaints are accepted during these hours.

2nd Floor, DAP Building, San Miguel Avenue, Ortigas Center, Pasig City, Philippines

www.phcc.gov.ph

+632 515 4536

[email protected]

[email protected]

[email protected]

Documents

1.0 WHAT ACTS ARE PROHIBITED UNDER · competition, it provides for exceptions such as: permissible franchising, licensing, exclusive merchandising, or exclusive distributorship agreements