Today, 21 July 2015, the President of the Philippines, Benigno Aquino III, signed into law the Philippine Competition Act (An Act Providing for a National Competition Policy Prohibiting Anti-Competitive Agreements, Abuse of Dominant Position and Anti-Competitive Mergers and Acquisitions, Establishing the Philippine Competition Commission and Appropriating Funds therefor) (the “Act”), which establishes an updated and comprehensive framework of effects based competition policy in the Philippines.
Whilst previous bills of the Act sought to cherry-pick concepts from each of the US and EU models, the enacted version of the Act has aligned itself much more closely to the EU model. For example, in the earlier Bill No. 211, there were provisions on “combinations, or conspiracies in restraint of trade”, and “monopoly or attempt to monopolize”, which are concepts drawn heavily from the US model. However, the finalized version of the Act prohibits “anti-competitive agreements” and “abuse of dominant position”: an EU-leaning approach that is common to many other regimes in Asia such as Singapore, Malaysia, China, Hong Kong, and Myanmar.
The Act has been highly anticipated in the Philippines (having taken 25 years to pass through the legislative process), with President Aquino having advocated the need for an Anti-trust Law to ensure a fair market in his first State of the Nation Address in 2010. President Aquino subsequently established the Office for Competition (OFC) to promote the development of competition law. The Department of Justice (DOJ) has also issued a statement of support for the new legislation. It is therefore expected that the implementation of the Act will be fast paced, with the Act coming into effect 15 days following its publication in the Official Gazette. Under the provisions of the Act, the regulatory body of the Philippine Competition Comission must then be established within 60 days thereafter.
- KEY BODIES
- ANTI-COMPETITIVE AGREEMENTS AND ABUSE OF DOMINANT POSITION
- MERGER CONTROL REGIME
- LENIENCY PROGRAM AND PRIVATE ACTION
- PRACTICAL STEPS
1. KEY BODIES
The Act establishes the Philippine Competition Commission (“Commission”), which functions as an independent quasi-judicial body attached to the Office of the President. It will be responsible for the implementation of the national competition policy. The Commission must be organized within 60 days after the Act comes into effect.
The Commission is given a broad range of powers and functions, including conducting inquiries, investigating, hearing and deciding on cases involving violations of the Act and other existing competition laws, issuing advisory opinions and guidelines, and monitoring and analysing the practice of competition in markets. In addition to the powers explicitly granted under the Act, including the power to issue subpoenas for producing evidence and summoning witnesses, the Commission can also enforce its orders by making use of any available means under existing laws and procedures.
The Commission will be supported by the existing OFC of the DOJ, which will conduct preliminary investigations and undertake prosecution of all criminal offenses arising under the Act and other competition related laws.
2. ANTI-COMPETITIVE AGREEMENTS AND ABUSE OF DOMINANT POSITION
The definition of Anti-Competitive Agreements is similar to the concept under Article 101 of the Treaty on the Functioning of the European Union (“TFEU”). It prohibits, inter alia, agreements that restrict competition in price or other terms of trade, bid manipulation, and setting, limiting or controlling production.
However, unlike Article 101 TFEU, the Act prohibits three categories of agreements: first, it specifies that agreements concerning price-fixing and bid manipulation are “per se prohibited”; second, it prohibits agreements that specifically relate to controlling of production and market sharing and that have as their “object or effect” the substantial prevention, restriction or lessening of competition; and third, it prohibits all other agreements (regardless of subject matter) that have as their object or effect the substantial prevention, restriction or lessening of competition. In relation to this third category, there appears to be an exemption akin to Article 101(3) TFEU, i.e. the exemption may apply where the agreement brings an objective benefit (such as improving production, distribution, technology or economic progress). Such an exemption is similar to those set out in the Vietnam and Myanmar competition law regimes.
If, in practice, the distinctions mirror those made in other jurisdictions, then it is likely that where the regulator identifies “per se” infringements or infringements by “object”, it need only establish the existence of the prohibited agreement without having to analyse its effect on the market. (for this reason, such agreements are more frequently targeted by regulators). While the language and style of this part of the Act adopts both EU (“object or effect”) and US concepts (“per se”), it remains to be seen whether the Commission will follow this approach (the Act is silent on this point).
In due course, the Commission is likely to issue Guidelines which shed light on the issue (indeed Section 12(k) of the Philippine Act obliges the Commission to issue advisory opinions and guidelines on competition matters for the effective enforcement of the Act). It is common practice for regulators to issue Guidelines to clarify their interpretation of the relevant statute, for instance the Hong Kong Competition Commission has recently issued a range of very detailed draft Guidelines which explains the manner in which it intends to enforce the Competition Ordinance in Hong Kong.
Abuse of Dominant Position
The Act also prohibits entities from abusing their dominant position by engaging in conduct that would substantially prevent, restrict or lessen competition. This is similar to the Article 102 TFEU provision in the EU. Under the Philippine Act, prohibited activities include imposing barriers to entry, making a transaction subject to acceptance of other obligations which have no connection with the transaction, predatory pricing, discriminatory pricing between customers, and limiting production to the prejudice of consumers. This prohibition is applied where “one or more entities” abuse their dominant position, so it therefore appears that the prohibition applies to both unilateral and collective conduct.
There is a market share threshold of 50% for triggering the rebuttable presumption of a “market dominant position” – something which is clearly adopted from well-established EU case law (e.g. Case C-62/86, Akzo). However, the Commission will also consider factors including the existence of barriers to entry, the existence and power of its competitors and the power of its customers to switch to other goods or services. In assessing the "relevant market", the Act adopts an approach that mirrors other regimes, focusing on substitutability.
Under Section 4(h) of the Act, “entity” is defined to include those “owned or controlled by the government”, engaging “directly or indirectly in any economic activity”. Therefore, State-owned enterprises appear to fall within the scope of the Act.
As with the prohibition on anti-competitive agreements, conduct conferring an objective benefit, while allowing consumers a fair share of the resulting benefits, may be exempted from being considered an abuse of dominant position.
3. MERGER CONTROL REGIME
The Act also introduces a mandatory and suspensory merger control regime. In most of the previous bills, there were provisions requiring notification to the Commission upon any acquisition of twenty percent (20%) or more shares of stock or assets of any business, without any de minimis exception. This approach differed from most other merger control regimes, which will typically look into whether control is acquired, and whether the value of turnover or market share of the parties exceed a de minimis exception.
In the finalized version of the Act, the notification requirement is no longer simply based on the percentage of shares acquired. Instead, a notification threshold based on the value of the transaction, together with a requirement that “control” is acquired (see further below), has been introduced, in common with the majority of merger control regimes globally. Compulsory notification to the commission is required for any merger or acquisition agreement with a transaction value exceeding one billion pesos (approximately €20 million). Where this threshold is exceeded, parties are prohibited from completing their merger or acquisition until 30 days after submitting a notification. An agreement completed in violation of the requirement to notify shall be considered void and subject to an administrative fine of one percent (1%) to five percent (5%) of the value of the transaction.
The Commission may request further information before the expiration of the 30-day period. Such request will extend the period for an additional 60 days, beginning on the day of request. However, the Act requires that the total period for review of any case shall not exceed 90 days from the initial notification by the parties. This is a welcome timeline – many other regimes (e.g. China, the EU, India) have much longer review periods.
Mergers will be prohibited where they substantially prevent, restrict or lessen competition in the relevant market or in the market for goods and services as may be determined by the Commission. The enforcement model is thus based on the EU administrative model, rather than the prosecutorial model of, e.g. the US or Australia.
Exemptions may be available for otherwise prohibited mergers, for example, where the efficiency gains brought about by the merger outweigh any anti-competitive effects, or where one of the parties to the merger is faced with actual or imminent financial failure (a so-called “failing firm”). Acquisitions of stock that do not carry voting rights or otherwise allow for the exercise of “control” are also explicitly exempted. “Control” is defined in Section 25 of the Act and appears to be based upon the “decisive influence” criterion under the EU Merger Regulation.
4. LENIENCY PROGRAM AND PRIVATE ACTION
In common with most jurisdictions, the Act provides for a leniency program and private actions for damages. The leniency program will be developed by the Commission, which will grant any entity immunity from suit or reduction of fine in exchange for the voluntary disclosure of information regarding an anti-competitive agreement which satisfies criteria prior to or during the fact finding or preliminary inquiry stage of the case.
Similar to other jurisdictions, private litigation is also available. Any person who suffers direct injury by reason of any violation of the Act may institute a separate and independent civil action after the Commission has completed the preliminary inquiry. Again, it is very likely that the Commission will issue Guidelines in due course that expand on these issues.
5. PRACTICAL STEPS
The Philippines joins the ranks of the other ASEAN jurisdictions with domestic competition laws, adhering to the schedule envisaged by the ASEAN Economic Blueprint. The pace of implementation is expected to be rapid given the time frames set out in the Act itself. This contrasts with the competition law of Myanmar enacted in February this year, despite the expiry of the 90 day implementation period set out in the relevant Act.
As the regulatory landscape of competition laws in Asia continues to grow (indeed, the Laos National Assembly has just passed a new draft competition law), so does the need for businesses to ensure compliance of their business practices in the region. Businesses should be taking active steps to audit any existing agreements to identify potential infringements, as well as keeping their staff well-informed of competition law developments in order to ensure compliance.