Recent developments

The Philippine Senate recently passed a bill entitled the "Fair Competition Act of 2014" (the "Senate Bill") 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. In separate interviews, both the Speaker of the House and the President of the Senate have vowed to prioritize the passage of the antitrust law, in light of the Philippines' commitment to introduce a competition law within the year.

Implications for business and transactions in the Philippines

The Senate Bill proposes  a more extensive and stringent competition regime for companies doing business in the Philippines. In particular, the Bill envisages a new quasi-judicial institution - the Fair Competition Commission ("FCC") - which would be armed with broad powers to investigate violations; inspect business premises; issue subpoenas and impose penalties on companies that break the rules.

Unlike existing general laws on competition in the Philippines, the Senate Bill identifies specific anti-competitive agreements, and prohibits conduct that would constitute an abuse of a dominant position (more details on this below). It also provides for a statutory merger control regime, which would revise the current merger approval process contained in the Memorandum of Agreement between the Department of Justice ("DOJ") and the Securities and Exchange Commission - see our previous Alert on this development [click here].

Companies, including foreign corporations that conduct business with Philippine companies and consumers, will have to review their pricing strategies, market approaches, contractual arrangements, and commercial transactions, to ensure compliance with the provisions of the Senate Bill. Companies should also be aware that the merger control environment in the Philippines is quickly moving toward the implementation of stricter control mechanisms. Indeed, the passage of the Senate Bill is expected to usher in full merger control in the medium term.

Companies violating the Senate Bill may face stiff administrative penalties from PhP50 million up to PhP200 million (approximately USD1 million to USD4.5 million) and criminal penalties of imprisonment from 2 to 5 years or a fine of PhP100 million up to PhP200 million (approximately USD2.2 million up to USD4.5 million) or both. If the violation involves trade of prime commodities or basic necessities, the fine shall automatically be tripled. More details on this below.

What the proposed bill says

The Senate Bill prohibits anti-competitive agreements, abuse of dominant position, and anti-competitive mergers or acquisition transactions. The Senate Bill also provides for the creation of the FCC and incorporates an extraterritoriality provision, which is explained below.

Fair Competition Commission

The FCC will be an independent quasi-judicial body empowered to enforce the provisions of the Senate Bill. The FCC shall have the following powers and functions, among others:

  • Investigate any violations of the Senate Bill;
  • Hear and decide cases involving any violation of the Senate Bill and other existing competition laws, and conduct administrative proceedings;
  • Stop or redress anti-competitive agreements or abuse of dominant position 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;
  • Stop or redress anti-competitive agreements or abuse of dominant position 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 for any violation of the Senate Bill;
  • Subject to court order, inspect business premises and other officers, land and vehicles, 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;
  • 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; and
  • Issue adjustment or divestiture orders, including orders for reorganization or divestment, under certain circumstances.

Office for Competition

The existing Office for Competition ("OFC") under the DOJ Department of Justice shall continue to investigate and prosecute all criminal offenses arising under the Senate Bill.

Extraterritoriality provision

The Senate Bill covers acts done outside the Philippines in the course of trade or business with Filipino persons or entities, where the act complained of has a direct, substantial and reasonably foreseeable effects on trade, commerce and industry in the Philippines.

Prohibited acts

The Senate Bill prohibits the following acts:

  • Entering into any of the following anti-competitive agreements with the object or effect of unreasonably and substantially restricting or lessening competition: price fixing; limiting production, markets, development, and investment to the prejudice of consumers; market sharing; applying dissimilar conditions to equivalent transactions with other parties; bid-rigging; and other analogous agreements.
  • Abuse of dominant position (defined under the Senate Bill as "a position held by an entity in a relevant market, individually or jointly with others, that affords it the ability to behave to a significant extent independently of its competitors and consumers"), by engaging in any of the following acts that would unreasonably and substantially prevent or restrict competition:  predatory pricing; imposing barriers to entry; subjecting a transaction to acceptance by the other parties of other obligations which have no connection with the transaction; price or other forms of discrimination between customers or sellers of the same goods or services; imposing restrictions on 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; tying of goods or services; and other analogous agreements.
  • 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. The term "mergers" include transactions whereby: (i) two entities legally combine into one (i.e., mergers or consolidations), (ii)  one entity takes control over another (i.e., acquisitions or takeovers), (iii) two or more entities acquire joint control over another entity (i.e., joint ventures), and (iv) other transactions whereby one or more undertakings acquire control over one or more undertakings. 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. The FCC shall adopt regulations stipulating the threshold subject to notification requirement, the information that must be supplied to the FCC, exceptions or exemptions from the notification requirements, and other rules to implement the notification requirements.

Leniency Program

The Senate Bill empowers the FCC, in coordination with the OFC, to adopt a leniency program to be granted to any entity in the form of immunity from suit or reduction of any fine, in exchange for the voluntary disclosure of information regarding a cartel before an investigation has begun, and under certain specific conditions.

Penalties

In administrative proceedings, infringing companies are fined PhP50 million for the first offense up to PhP200 million for the third offense (approximately USD1.1 million to USD4.5 million).  Noncompliance with an order of the FCC, on the other hand, gives rise to a fine of at least PhP1 million (approximately USD23,000) 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.

Infringing companies found guilty of entering into anti-competitive agreements may be punished with criminal penalties of imprisonment or fine or both. Imprisonment may range from 2 to 5 years while the amount of the fine ranges from PhP100 million to PhP200 million (approximately USD2.2 million up to USD4.5 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.

House Bill

In December 2014, the House Committee on Economic Affairs has also issued a bill (i.e., House Bill No. 5286), which consolidated 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% up to 5% 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 offense. 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 5 to 10 years or a fine of up to 10% of the annual turnover of the infringed entity during the previous fiscal year or up to 10% of the value of the assets infringed, whichever is higher, or both imprisonment and fine.

Similar to the Senate Bill, if the violation involves the trade of movement of basic necessities or prime commodities, the administrative or criminal fine imposed shall automatically be tripled.

Actions to consider

To avoid potential violations of the Senate Bill once it becomes law, companies may consider the following actions:

  • Review and assess pricing strategies and market approaches in the Philippines, and commercial arrangements with Filipino persons or entities, that may be considered as anti-competitive under the Senate Bill
  • Review formal (e.g. contracts) as well as informal relations with competitors to ensure that they constitute permissible arrangements under the Senate Bill.
  • Companies with a strong position in the market (i.e. with a paramount market position) should assess whether they may be considered "dominant" under the Senate Bill and review their commercial arrangements and strategies to ensure that these constitute permissible and legitimate arrangements;
  • Establish competition compliance and training programs, particularly for employees whose responsibilities pertain to arrangements covered by the Senate Bill;
  • Review mergers and acquisition plans, transactions, or agreements, to ensure that they comply with procedural and substantive requirements;
  • Consider impact of procedural and timing requirements of the Senate Bill on Philippine and cross-border mergers and acquisitions; and
  • In case of highly doubtful transactions, seek non-adversarial remedies available under the Senate Bill, such as requesting the FCC to make a binding preliminary determination on the legality of a questioned agreement or activity from the perspective of the Senate Bill.

Conclusion

The enactment of the Senate Bill into law will introduce significant controls on a wide array of transactions, commercial activities and arrangements in the Philippines, or with Filipino persons or entities, and bring the country closer to the level of antitrust regulations imposed in other countries. In the event that the Senate Bill is passed into law, commercial arrangements and transactions, including any proposed mergers or acquisitions, which are not subject to close review under current antitrust laws and regulations may have to undergo additional substantive and / or procedural review for specific compliance with the Senate Bill. Considering the far reaching implications of such law in the Philippines, it would be worthwhile for businesses in the Philippines to keep a close eye on developments of the Senate Bill and endeavor to foresee how its enactment may impact their current and planned operations and commercial arrangements.