Philippines - Antitrust & Competition Guide 2016

Legal News & Analysis - Asia Pacific - Philippines – Competition & Antitrust

21 April, 2016

 

Philippines - Antitrust & Competition Guide 2016

 

General

 

What is the main piece of legislation of general application which regulates anti-competitive behavior? What are the main prohibitions in the legislation?

 

The Republic Act 10667 or the Philippine Competition Act (PCA). The PCA prohibits anti-competitive agreements; abuse of a dominant position; and anti-competitive mergers and acquisitions.

 

Which regulator is responsible for administering and enforcing competition laws?

 

The Philippine Competition Commission (Commission). The Of ce for Competition of the Department of Justice will prosecute criminal acts punishable under the PCA and conduct preliminary investigations.

 

The Commission also has jurisdiction over issues having both competition and non-competition aspects that are under the jurisdiction of other sector regulators. However, the relevant sector regulator shall be consulted and afforded reasonable opportunity to submit its opinion and recommendation to the Commission.

 

Are there any exclusions from the competition legislation of general application? Are there any sector-speci c competition laws or regulations?

 

Yes. The PCA does not apply to combinations or activities of workers or employees or to agreements or arrangements with their employers, which are intended for collective bargaining in respect of conditions of employment.

 

There are anti-trust provisions scattered in various industry- speci c laws. Some of these laws, which were not repealed by the PCA, are the Electric Power Industry Reform Act, Public Telecommunication Policy Act, Downstream Oil Deregulation Act of 1998, and the General Banking Law.

 

Does the competition legislation apply extraterritorially to persons, behaviour or action outside the jurisdiction?

 

Yes. The PCA is enforceable against any person or entity engaged in any trade, industry and commerce in the Philippines. It also applies to international trade having direct, substantial, and reasonably foreseeable effects in trade, industry, or commerce

in the Philippines, including those that result from acts done outside the Philippines.

 

What penalties and liabilities may be imposed for a breach of the competition law?

 

For anti-competitive agreements and abuses of a dominant position, the PCC may impose a ne of up to PhP 100,000,000 for a rst offense and between PhP 100,000,000 and PhP 250,000,000 for a second offense. In xing the amount of the ne, the PCC
will take into account both the gravity and the duration of the violation. For failing to comply with the mergers noti cation requirements, the PCC may impose a ne of 1% up to 5% of the value of the transaction.

 

The PCC may also charge between PhP 50,000 and PhP 2,000,000 daily for failure to comply with an order, and up to PhP 1,000,000 for the supply of incorrect information.

 

Other violations not specifically penalized by the PCA may carry a ne of PhP 50,000 to PhP 2,000,000.

 

In terms of criminal penalties, entities engaging in anticompetitive agreements may receive a ne between PhP 50,000,000 and PhP 250,000,000, and imprisonment from two to seven years. The penalty of imprisonment is imposed on the responsible of cers, and directors of the violating entity. When the entities involved are juridical persons, the penalty of imprisonment is imposed on its of cers, directors, or employees holding managerial positions, who are knowingly and willfully responsible for the violation.

 

Prohibition on anti-competitive agreements

 

What kinds of agreement or conduct is illegal under the prohibition?

 

There are three kinds of anti-competitive agreements under the PCA:

 

(a) “per se prohibited” agreements between or among competitors, namely price fixing and bid rigging

(b) agreements between or among competitors which have the object or effect of substantially preventing, restricting or lessening competition, namely production control agreements and market sharing agreements;

(c) other agreements which have the object or effect of substantially preventing, restricting or lessening competition.

 

The third type of prohibited anti-competitive agreement can cover both horizontal and vertical agreements, while the first two cover horizontal agreements.

 

Information exchange and price signaling are not expressly prohibited. However, the PCA broadly de nes the term agreements as any type or form of contract, arrangement, understanding, collective recommendation, or concerted action, whether formal or informal, explicit or tacit, written or oral. If the specific circumstances of the information exchange or price signaling can show the existence of an arrangement that falls under any of the anti-competitive agreements under the PCA, then the PCA would apply.

 

What types of agreements or conduct are illegal by object? And which are illegal only if they are signi cantly anti-competitive in effect?

 

Price fixing and bid rigging between or among competitors are per se prohibited under the PCA.

 

Production control agreements and market sharing agreements between or among competitors are illegal if they have the object or effect of substantially preventing, restricting or lessening competition.

 

Any other agreements not expressly identi ed under the PCA, which have the object or effect of substantially preventing, restricting or lessening competition, are also illegal.

 

Is there regulation of vertical agreements and if so, what type of vertical restraints or provisions in such agreements are typically examined?

 

Vertical agreements may be prohibited if they have the object or effect of substantially preventing, restricting or lessening competition. Regulations on vertical agreements may be covered in the implementing rules and regulations (IRR) to be promulgated by the Commission.

 

Is resale price maintenance allowed? Are recommended resale prices or maximum resale prices permitted?

 

Resale price maintenance may be considered an anti-competitive agreement if it has the object or effect of substantially preventing, restricting or lessening competition in the relevant market in the Philippines.

 

Resale price maintenance is also included among the acts that may constitute abuse of dominance, if the object or effect of the restrictions is to prevent, restrict or lessen competition substantially. 

 

Are there any defences or relief from liability provided by the legislation?

 

Yes. The PCA provides that agreements with a substantially anti-competitive object or effect may be allowed if the agreement contributes to improving the production or distribution of goods and services or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefits.

 

Is there a leniency regime? If there is, please describe the extent of and process in seeking leniency? 

 

Yes. The PCA provides for a leniency program in the form of immunity from suit, exemption, waiver or reduction of any ne for a participant in an anti-competitive agreement in exchange for the voluntary disclosure of information regarding such an agreement. Immunity from suit will be granted to an entity reporting illegal anti-competitive activity before a fact nding or preliminary inquiry has begun, if certain prescribed conditions are met.

 

Where the Commission receives information about the illegal activity after a fact nding or preliminary inquiry has commenced, the reporting entity will be granted leniency, provided that the entity satis es certain additional requirements, including being the rst entity to come forward and qualify for leniency.

 

Abuse of Dominance or Market Power

 

How is “dominance” or “market power” determined? Is there a market share test?

 

Under the PCA, a “dominant position” is a position of economic strength that an entity or entities hold which makes it capable of controlling the relevant market independently from any or a combination of the following: competitors, customers, suppliers, or consumers. In determining whether an entity has a dominant position, the following will be considered:

 

(a)  the share of the entity in the relevant market and whether it is able to x prices unilaterally or to restrict supply in the relevant market;

(b)  the existence of barriers to entry and the supply from competitors;

(c)  the existence and power of its competitors;

(d)  the possibility of access by its competitors or other entities to its sources of inputs; 

(e) the power of its customers to switch to other goods or services; and

(f) its recent conduct.

 

The PCA sets out a rebuttable presumption of dominant position if an entity’s market share in the relevant market is at least 50%.

 

What type of conduct constitutes abuse of dominance or abuse of market power? 

 

The PCA prohibits an entity with a dominant position in the relevant market from engaging in conduct that would substantially prevent, restrict or lessen competition. Examples of conduct which may be considered an abuse of dominance include predatory pricing, imposing barriers to entry to prevent competitors from growing, tying or bundling products which have no direct connection to the main goods or services, discriminatory pricing, preferential discounts, and limiting production, markets or technical development to the prejudice of consumers.

 

Are there any defences or relief from liability or exclusions applicable for abusive conduct?

 

Yes. The PCA expressly provides that any conduct which contributes to improving production or distribution of goods or services within the relevant market, or promoting technical and economic progress while allowing consumers a fair share of the resulting bene t may not necessarily be considered an abuse of dominant position.

 

Merger Control

 

Is there a merger control regime? What is considered a “merger”?

 

Yes. Any merger or acquisition agreement which meet the relevant noti cation thresholds must be noti ed to the Commission.

 

The PCA broadly de nes a merger as the joining of two or more entities into an existing entity or to form a new entity. It de nes an acquisition as the purchase of securities or assets, through contract or other means, for the purpose of obtaining control by one entity of the whole or part of another, two or more entities over another, or one or more entities over one or more entities.

 

Is the merger noti cation a mandatory or voluntary process?

 

Mandatory. 

 

When must the merger be noti ed to the regulator?

 

The transaction must be noti ed to the Commission at least 30 days prior to closing or consummating the same.

 

What are the ling thresholds and are there any exemptions from notification requirements?

 

The notification requirements apply to all agreements with a transaction value exceeding PhP1 billion. The PCA also authorizes the Commission to promulgate other criteria for the noti cation thresholds, such as sector-speci c market share thresholds.

 

The IRR may clarify how the thresholds are determined, where the transaction takes place outside the Philippines and involves various businesses in other jurisdictions, including the Philippines.

 

Please provide a brief description of the merger clearance process and the typical timeline for merger clearance.

 

The transaction must be noti ed to the Commission at least 30 days prior to closing or consummating the same. This period may be extended for an additional 60 days if the Commission requests for further relevant information concerning the transaction. The total period for the Commission’s review shall not exceed 90 days from initial notification by the parties. When the 30 or 90 day period has expired without any decision from the Commission, the transaction shall be deemed approved and the parties may proceed to implement or consummate it.

 

Prior to the issuance of the IRR, a transaction that complies with the basic noti cation requirements under the Circular is deemed approved by the Commission, and the parties to the transaction may proceed to execute or implement the same.

 

What are the consequences of failing to notify the regulator when required?

 

A transaction consummated in violation of the noti cation requirement shall be considered void and parties can be subject to an administrative ne of 1% to 5% of the value of the transaction. 

For further information, please contact:

 

Pearl Liu, Partner, Baker & McKenzie

pearl.liu@quisumbingtorres.com