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of these laws, which were not repealed by the PCA, are the Electric Power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 significantly 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.
ANTITRUST LAWS: A GLANCE AT
THE PHILIPPINE COMPETITION
ACT
Contributor: Karen Kate C. Pascual (October 2016)

Antitrust laws, also referred to as “competition laws”, are statutes developed to protect consumers
from predatory business practices by ensuring that fair competition exists in an open-market
economy. Competition laws regulate and prohibit several questionable business activities such
as market allocation/ de facto monopoly whereby companies agree to steer clear of each other’s
identified geographical market or territories; bid rigging whereby conspiring entities manipulate the
market with a view of retaining current market share and price for each entity; and price
fixing whereby two or three entities agree on the same selling price. Competition laws are designed
to maximize consumer welfare by regulating or preventing business activities which stifle
competition.[1]

Signed into law on 21 July 2015, Republic Act No. 10667, otherwise known as the Philippine
Competition Act (“PCA”)[2]is the first consolidated framework regulating competition in the
Philippines.

With the key objective of regulating and prohibiting monopolies and combinations in restraint of trade
or unfair competition to improve the overall welfare of consumers by giving them more choices at
possibly lower prices, the key features of the PCA include:

 Prohibition on: (1) anti-competitive agreements, (2) abuse of dominant position, and
(3) anti-competitive mergers and acquisitions

 The creation of the Philippine Competition Commission, the regulatory body tas ked
with the enforcement of the PCA

 Establishment of a framework for compulsory notifi cation of mergers and acquisitions

wherein the value of the transaction exceeds PHP 1 billion

 Development of a system of fi nes and penalties for violations of the provisions of the
PCA

Who or what is covered by the

PCA?
The provisions of the PCA are applicable to any individual or entity engaged in trade, industry and
commerce in the Philippines. It is likewise applicable to international trade, industry or commerce or
acts done outside the Philippines if the same can reasonably have a direct impact on trade, industry
and commerce in the Philippines.[3] Hence, the acts punishable under the PCA may be committed
by both domestic and foreign entities.
What is the role of the Philippine
Competition Commission?
The PCA provides for the creation of The Philippine Competition Commission (“PCC”), the
government entity tasked to implement and enforce the provisions of the PCA and its implementing
rules and regulations. The PCC has the power to conduct inquiries, investigate and hear and decide
cases involving violations of the PCA and other competition laws, including the power to issue
subpoenas for documents or testimonies of persons.[4] Inquiries, investigations and cases may be
undertaken by the PCA on its own, upon the complaint of an interested party or referral of a
concerned government agency. Additionally, The PCC may also issue advisory opinions and
guidelines on matters involving competition.

Distinguished among the powers of the PCC is its authority to review and prohibit proposed
mergers and acquisitions. If it finds a merger and/or acquisition to be anti-competitive, the PCC may
do any of the following: (a) prohibit the implementation of the agreement contemplating such merger
and/or acquisition, (b) require modifications in the terms of the agreement contemplating such
merger and/or acquisition by specifying such changes; or (c) require parties thereto enter into
otherwise legally enforceable agreements.[5]

What are anti-competitive

agreements?
Broadly, anti-competitive agreements[6] are those which substantially hamper or stifle competition.
Anti-competitive agreements may be divided into two (2) types: (1) an agreement which by itself is
prohibited (“per se prohibited”); (2) an agreement which has the objective or effect of substantially
preventing, restricting or lessening competition.

Agreements that are per se prohibited are those which restrict competition as to price, components
of price or other terms of trade. Thus, if an agreement contemplates price fixing then it is considered
anti-competitive under the PCA.

Other agreements which are per se prohibited include price-fixing at an auction or in any form of
bidding, and other forms of bid manipulation. Bid manipulation contemplates acts which allow each
player in an industry to maintain their stronghold over the price or market share.

The second type of anti-competitive agreements include those which contemplate controlling or
setting production, markets, technical developments or investment; and dividing or sharing the
market, by volume or sales or purchases, territory, type of goods or services, buyers or sellers or any
other means. These pertain to schemes undertaken by competing entities in order to keep a
geographical area, market share, sales or other market factors within their control. An example of
this would be when Entity A operates in Luzon while Company B agrees to solely cater to the market
in the Visayas region. This type of scheme is usually designed to prevent competition especially
when the costs of entering the industry in a particular area are high.

The PCA also provides for a catch-all provision wherein any agreement other than those expressly
enumerated under the law which shall have the same object or effect of substantially preventing,
restricting or lessening competition shall be considered anti-competitive.[7]
Conversely, agreements among the entities in a certain group having common economic interests
shall not be considered as agreements between competitors.

What does an “abuse of dominant

position” mean?
Under the PCA, an entity or group of entities has a dominant position if it possesses economic
strength which renders it capable of controlling the relevant market independently from competitors,
customers, suppliers or consumers.

In determining whether a certain entity has a dominant position, the following factors shall be
considered:

1. The share of the entity in the relevant market and whether it is able to fi x prices
unilaterally or to restrict supply in the relevant market;

2. The existence of barriers to entry and the elements which could alter those barriers
and the supply from competitors;

3. The existence and power of its competitors;

4. The possibility of access by its competitors or other entities to its sources of inputs;

5. The power of its customers to switch to other goods or services; or

6. Recent conducts of the entity [8] .

If the market share of an entity in the relevant market is at least fifty (50%), it shall be presumed that
the entity concerned has a dominant position. This presumption shall however be rebuttable.

Conduct which shall be considered as an abuse of dominant position in the market includes acts that
would substantially prevent, restrict or lessen competition such as:

1. Selling goods or services below cost with the object of driving competition out of the
relevant market;

2. Imposing barriers to entry or committing acts that prevent competitors from growing
within the market in an anti-competitive manner;

3. Imposing conditions or other obligations which do not bear a direct relation to the
transaction on the other contracting party;

4. Imposing restrictions on the contract of lease or sale of goods or services such as

fi xing prices, giving preferential discounts or rebates upon such price, or imposing
conditions not to deal with competing entities;

5. Making the supply of a particular product dependent on the purchase of other

products from the supplier which do not bear a direct relation to the main good to be
supplied;

6. Imposing unfairly low purchase prices for the products of marginalized agricultural
producers, small to medium scale enterprises, and the like; and
 7. Limiting production, markets or technical development to the prejudice of consumers.
[9]

It is worthy to note that having a dominant position in a market or sector is not by itself prohibited as
long as it was acquired or maintained through legitimate means.

What types of mergers and/or

acquisitions will require
compulsory notification to the
PCC?
Parties to a merger or acquisition are required to notify the PCC before the execution of agreements
relating to the following transactions:

1. wherein the aggregate annual gross revenues in, into or from the Philippines, or the
value of the assets in the Philippines of one of the entities, whether directly or
indirectly through parent entities, exceeds One Billion Pesos (Php1,000,000,000.00);
and

2. the value of the transaction exceeds One Billion Pesos (Php1,000,000,000.00). [10]

Thus, chiefly there are two (2) requirements for notification. First, one of the entities to the
transaction must possess assets or generate revenues in the aggregate amount exceeding One
Billion Pesos (Php1,000,000,000.00). Second, the value of the proposed merger or acquisition must
also exceed One Billion Pesos (Php1,000,000,000.00).

The following serve as guidelines in determining whether the value of the transaction exceeds One
Billion Pesos (Php1,000,000,000.00).

1. For a proposed merger or acquisition of assets in the Philippines:

2. the aggregate value of the assets in the Philippines to be acquired exceeds One
Billion Pesos (Php1,000,000,000.00); or

3. the gross revenues generated in the Philippines by assets acquired in the Philippines
exceeds One Billion Pesos (Php1,000,000,000.00).

Simply, if the total value of the asset to be acquired in the Philippines exceeds One Billion Pesos
(Php1,000,000,000.00) or the gross revenues generated by those assets exceed One Billion Pesos
(Php1,000,000,000.00), the value of the transaction shall be considered as exceeding One Billion
Pesos (Php1,000,000,000.00).

2. For a proposed merger or acquisition of assets outside the Philippines:

3. an acquiring entity has assets in the Philippines with an aggregate value exceeding
One Billion Pesos (Php1,000,000,000.00); and

4. the gross revenues generated in or into the Philippines by those assets acquired
outside the Philippines exceeds One Billion Pesos (Php1,000,000,000.00)
To illustrate how this works: first, the acquiring entity must possess assets in the Philippines with an
aggregate value exceeding One Billion Pesos (Php1,000,000,000.00). Second, the assets acquired
outside of the Philippines by the acquiring entity must generate gross revenues in the Philippines
exceeding One Billion Pesos (Php1,000,000,000.00).

3. For a proposed merger or acquisition of assets inside and ou tside the Philippines:

4. an acquiring entity has assets in the Philippines with an aggregate value exceeding
One Billion Pesos (Php1,000,000,000.00); and

5. the aggregate gross revenues generated in or into the Philippines by those assets
acquired in the Philippines and any asset acquired outside the Philippines collectively
exceeds One Billion Pesos (Php1,000,000,000.00)

This is similar to the second scenario wherein an acquiring entity has assets in the Philippines with
an aggregate value exceeding One Billion Pesos (Php1,000,000,000.00). However, the second
requirement is that the aggregate gross revenues, whether generated by assets acquired in the
Philippines or outside, collectively exceed One Billion Pesos (Php1,000,000,000.00).

4. For a proposed acquisition of (i) voting shares of a corporation or of (ii) an interest in

a non-corporate entity:

5. the corporation; or non-corporate entity whose shares or interest are to be acquired;

or entities controlled by it, either:

 owns assets in the Philippines with an aggregate value exceeding One Billion Pesos
(Php1,000,000,000.00). The said assets do not include shared assets among the
corporation, non- corporate entity and entities controlled by the corporation or non-
corporate entity; or

 generates gross revenues from sales in, into or from the Philippines exceeds One
Billion Pesos (Php1,000,000,000.00)

and

1. as a result of the proposed acquisition of either 4(i) or 4(ii) above, the acquiring
entity or entities, together with their affi liates, would aggregately own voting shares
or aggregately hold an interest, as the case may be, in the corporation or entity to be
acquired:

 thirty fi ve percent (35%); or

 if the acquiring entity or entities already ow n more than 35% before the proposed
acquisition, fi fty percent (50%).

To simplify, a proposed acquisition of shares in a corporation or interest in a non-corporate entity are

covered by the compulsory notification rule if, first, the entity whose shares or interest are to be
acquired, singly possess assets with an aggregate value which exceeds One Billion Pesos
(Php1,000,000,000.00); OR if the entity to be acquired singly generates gross revenues originating
from the Philippines exceeding One Billion Pesos (Php1,000,000,000.00). Second requirement is
that, as a result of the proposed acquisition, the acquiring entity would own or posses interest in the
entity of at least 35%. However, If prior to the said acquisition, the acquiring entity already owned
35% of the entity to be acquired, then the threshold percentage would be 50%, i.e., as a result of the
proposed acquisition, the acquiring entity should own 50%.
For a joint venture transaction, an acquiring entity must notify the PCC of the proposed venture if the
aggregate value of the assets to be combined or to be contributed to the joint venture exceeds One
Billion Pesos (Php1,000,000,000.00) or if the gross revenues generated in the Philippines by those
assets exceed One Billion Pesos (Php1,000,000,000.00).

It is important to note that mergers or acquisitions consisting of successive transactions or

acquisition of parts of one or more entities which shall take place within a one- (1) year
period between the same parties or parties controlled by or controlling parties shall be considered as
one transaction for purposes of the compulsory notification rule.

In calculating the notification thresholds, the aggregate value of assets in the Philippines shall be the
amount stated in the last regularly prepared annual balance sheet or the most recent audited
financial statements in which the said assets are accounted for. The gross revenues shall be the
amount stated on the last regularly prepared annual statement of income and expense of that entity.

Parties covered by the compulsory notification are prohibited from consummating the agreement
until thirty (30) days after giving the PCC the notification.

What are the applicable fines/

penalties that may be imposed for
violations under the PCA?
The PCA imposes administrative, civil and criminal liabilities[11], with all three applying to anti-
competitive agreements. Only administrative and civil liabilities shall be imposed to violations of the
abuse of dominant position and anti-competitive mergers.

Agreements consummated in violation of the compulsory notice requirement shall be considered

void. The parties to such merger or acquisition shall likewise be subject to pay an administrative fine
of one percent (1%) to five percent (5%) of the value of the transaction.

Administrative liability consists of payment of fines using the schedule provided by the PCA. The
fines range from 100 Million Pesos to 250 Million Pesos, depending on the gravity and duration of
the violation. Additional administrative penalties include failure to comply with an order of the PCC
and intentional or negligent supplying of incorrect or misleading information.

As for criminal liability, imprisonment and a fine are imposed on entities entering anti-competitive
agreements if they fall within the first two distinctions created by the PCA, i.e., per se prohibited
agreements and those which have the object or effect of substantially preventing, restricting or
lessening competition. The penalty of imprisonment shall be imposed upon the responsible officers,
and directors of the violating juridical entity.