CLIENT UPDATE
2015 JULY
COMPETITION
Philippines Passes Competition Law – Key Things to Know About the ‘Philippine Competition Act’
Introduction
On 21 July 2015, the President of the Philippines signed into law the long awaited Philippine Competition Act (the “Act”). In line with the commitment by the ASEAN Member States in the ASEAN Economic Blueprint to introduce national competition policies and laws by 2015, the Philippines now joins Indonesia, Thailand, Vietnam, Singapore, Malaysia, Myanmar and Brunei as countries with Competition Laws in place in the ASEAN Region1.
The Act is wide-ranging and establishes a full-fledged competition framework in the Philippines, which will be administered by an ‘independent quasi-judicial body’, the Philippine Competition Commission with ‘original and primary jurisdiction in the enforcement and regulation of all competition-related issues’. The Declaration of Policy contained in the Act further makes clear that the Act has extra- territorial reach, i.e. applies to acts done outside the Philippines with an impact on competition in the Philippines.
The Act will take effect 15 days after its publication in the Official Gazette but provides for a transitional period of two years during which businesses will have to put their house in order whilst the government will undertake an advocacy program to inform the public of the content of the Act.
This update highlights the main features of the Act.
A Competition Commission with Significant Exclusive Powers
The Act establishes the Philippine Competition Commission (“PCC”) as an ‘independent quasi-judicial body’ attached to the Office of the President. The PCC must be organized within 60 days after the Act has come into effect.
The PCC is charged with the enforcement and implementation of the Act, which includes, inter alia, the power to investigate and adjudicate any violation of the Act, to review mergers and acquisitions, to issue advisory opinions and guidelines on competition matters and to advise the Government on the competitive impact of its actions and policies.
As part of its powers of investigation, the PCC may issue a subpoena to require the production of information, documents, data, as well as to require personal appearance before it. With a warrant, the PCC can also conduct raids and search premises (including vehicles). The PCC is further empowered to impose penalties, fines and/or other remedies (including divestiture if appropriate) as well as to issue interim orders.
The Act further provides that the PCC has exclusivity over competition related matters: under Sections 31 and 32 of the Act, no law enforcement agency shall investigate any competition related matters and, vis-à-
1 The Lao National Assembly has passed its Competition Law on 14 July 2015 but this has yet to be promulgated by the President.
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vis sectoral regulators, the PCC has ‘original and primary jurisdiction in the enforcement and regulation of all competition-related issues’.
The PCC does not replace the Office For Competition (“OFC”) which had been established under the Department of Justice. The OFC remains in existence, with revised (and limited) powers, namely the preliminary investigation and the prosecution of criminal offences under the Act.
Main Prohibitions under the Act
In line with most of competition laws around the world, there are three main prohibitions under the Act:
The prohibition of anti-competitive agreements;
The prohibition of abuse of a dominant position; and
The prohibition of mergers that substantially prevent, restrict or lessen competition
Anti-Competitive Agreements
Agreements are defined in the Act as ‘any type or form of contract, arrangement, understanding, collective recommendation, or concerted action, whether formal or informal, explicit or tacit, written or oral’.
Section 14 of the Act seemingly distinguishes between three types of prohibited anti-competitive agreements:
Agreements which are per se prohibited: these are agreements between competitors which restrict competition on price (including any price component) and other trade terms or conditions; and agreements to rig bids in any way;
Agreements which have the object or effect of substantially preventing, restricting or lessening competition: these are agreements between competitors which set, limit or control production, markets, development and agreements between competitors to allocate markets and/or customers;
Agreements which do not fall under (a) and (b) above and have the object or effect of substantially preventing, restricting or lessening competition. For these agreements, it is provided that they may not be deemed a violation of the Act, if they produce benefits which are further passed-on to consumers.
The distinction in Section 14 between the three types of prohibited agreements is not fully clear and will certainly benefit from the Guidelines to be issued by the PCC.
First, the distinction between agreements in (a) which are per se prohibited and those in (b) that would be anti-competitive by object raise the question of whether the evidence to be adduced by the PCC will be different in order to establish a violation under (a) or (b) above. In particular, it is not clear what the PCC will have to establish in order to find a per se violation since it is required to establish an anti-competitive object or effect for the other violations – this seems to suggest that any agreement on price between competitors will be prohibited, with no obligation on the PCC to establish an anti-competitive object or effect. Section 26 of the Act adds to the confusion as it requires the PCC to ‘determine if there is an actual or potential adverse impact on competition […] caused by the alleged agreement’ when assessing whether an agreement is anti-competitive or otherwise. We assume that in relation to a Section 14(a) violation, Section 26 cannot apply.
It is also not clear whether the reference to a Net Economic Benefit (“NEB”) defence in Section 14(c) means that this defence is only available for agreements which do not fall under Section 14(a) or (b). And if this is the case, the reference that agreements in Section 14(c) will not be deemed a violation only if they
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produce NEB suggests, nevertheless, that there is a rebuttable presumption that these agreements may be anti-competitive in nature.
Another point that will need clarification is whether the prohibition of anti-competitive agreements applies to vertical agreements. Whilst Section 14(a) and (b) clearly refers to agreements between competitors, Section 14(c) refers in a general way to ‘agreements’, which means that it will apply to both horizontal and vertical agreements. It is noteworthy, however, that the concept of Single Economic Entity (“SEE”) which is enshrined within Section 14, provides that ‘an entity that controls, is controlled by, or is under common control with another entity or entities, have common economic interests, and are not otherwise able to decide or act independently of each other, shall not be considered competitors for the purposes of this Section’. This suggests that the SEE defence would not apply to a vertical anti- competitive agreement entered into between a parent and its wholly-owned subsidiary, i.e. in such case the parties could be imposed a fine for violation of Section 14(c).
Violation of Section 14 of the Act may result in the imposition of administrative fines of up to PHP100 m ilion (≈S GD 3 m ilion ) fora firsttim e violation an d up toP H P 2 5 0 m ilion (≈S GD 7 m ilion ) fora repeat offender.
Importantly, the Act further provides criminal penalties for participants in hard core cartels: a violation of Section 14(a) or 14(b) of the Act may result in the imposition of criminal penalties of between PHP50 m ilion (≈S GD 1 .5 m ilion ) an d P H P 2 5 0 m ilion (≈S GD 7 m ilion ) for each an d every violation . Furthermore, an entity which enters into an anti-competitive agreement prohibited under Section 14(a) or 14(b) shall be penalized by a jail term of between two to seven years. Where the entity is a company, the imprisonment will be imposed on the officers, directors or managers of the company who knowingly and wilfully participated in the infringement.
Abuse of a Dominant Position
Section 15 prohibits one or more entities from abusing their dominance by engaging in conduct that would substantially prevent, restrict or lessen competition.
There are a few points to note in that regard:
Being dominant is not prohibited – only the abuse of dominance is prohibited.
Section 27 of the Act establishes a rebuttable presumption of a dominant position where an entity has a market share of 50% or more in a relevant market. This threshold, however, can be varied by the PCC, generally or for a particular sector.
A conduct may not amount to an abuse of dominance if it can be established that it results in NEB.
The Act provides nine categories of conduct which would amount to an abuse of dominance, including, inter alia, the selling of products/services at a predatory or at an unfair price; imposing barriers to entry (this could, for instance, cover certain exclusivity clauses); discrimination; tying/bundling; limiting production or market development. Unique to Philippines, the imposition of an unfair low purchase price for goods/services sold by ‘marginalized agricultural producers’ or micro-, small- and medium-scale enterprises is specifically identified as an abuse of dominance.
A dominant entity which abuses its dominance may be imposed with an administrative fine of up to P H P 1 0 0 m ilion (≈S GD 3 m ilion ) fora firsttim e violation an d up toP H P 2 5 0 m ilion (≈S GD 7 m ilion ) for a repeat offender.
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Merger Regime
Sections 16 to 23 of the Act establish a merger regime which applies to:
Mergers, defined as the ‘joining of 2 or more entities into an existing entity or to form a new entity’, and
Acquisitions, defined as ‘the purchase of securities or assets, through contract or other means, for the purpose of obtaining control by (i) one entity of the whole or part of another; (ii) 2 or more entities over another; or (iii) one or more entities over one or more entities’.
Notification of a merger or acquisition is compulsory if the value of the transaction exceeds PHP1 billion (≈S GD 3 0 m ilion s). Furth er, th e tran saction can n otbe im plem en ted before th e P C C issuesa c learan ce decision within a period of 30 days (which can be extended to a maximum of 90 days) from the date of the notification. Note that if no decision is issued within this time frame, the merger is deemed approved.
If the PCC concludes that a merger or acquisition would result in a substantial prevention, restriction or lessening of competition, it may prohibit the transaction completely or prohibit it until and unless the parties to the transaction either amend the transaction as requested by the PCC or agree to enter into legally binding agreements as specified by the PCC.
A prohibited merger may, nevertheless be exempt from the prohibition if NEB can be established or if one of the party is genuinely failing (‘failing form defence’).
Other Points To Note
Scope of the Act
The Act makes clear that it has an extra-territorial reach and is enforceable against any person who engages in any trade, industry and commerce in Philippines. It applies to acts committed outside the Philippines as long as they have an impact on competition in Philippines.
It is unclear whether the Act applies to the Government or any statutory body. It is clear, however, that the Act applies to entities owned or controlled by the Government.
Limitation Period
Unlike Singapore where an alleged violation can be investigated years after it was committed, the Act provides for a 5-year limitation period within which an action relating to the violation of any provision of the Act shall be commenced. This is a good thing and in line with most of the competition laws in more established jurisdictions.
Leniency / Consent Orders
The Act provides for the implementation of a leniency program by the PCC as well as the possibility for a party being investigated to enter into a consent order with the PCC, i.e. to have an investigation closed subject to commitments being provided by the party under investigation.
Private Action
The Act expressly provides for a right of private action for any person who suffers a direct injury further to a violation of the Act. This right can only be exercised after the PCC has completed its preliminary enquiry under Section 31 of the Act, i.e. has made a resolution to proceed to a full administrative investigation.
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Concluding Remarks
The Act sets out a comprehensive competition framework and provides for hefty penalties in case of violations, including criminal penalties for cartel cases.
Businesses will be well-advised to take advantage of the 2-year transition period provided for in the Act to ensure their activities are in compliance with the Act when enforcement starts.
Should you have any queries or wish to speak to us regarding your business’ compliance with competition law in ASEAN, please do not hesitate to contact us at [email protected] or [email protected]
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2015 JULY
COMPETITION
Contacts
Kala Anandarajah
Partner
Head, Competition & Antitrust and Trade Practice
D (65) 6232 0111
F (65) 6428 2192
Dominique Lombardi Partner (Foreign Lawyer) Deputy Head, Competition & Antitrust and Trade Practice
D (65) 6232 0104
F (65) 6428 2257
Marcus Teo
Associate
Tanya Tang
Principal Economist
D (65) 6232 0298
F (65) 6225 0747
Kimberly Tan
Senior Associate
D (65) 6232 0273
F (65) 6428 2287
D (65) 6232 0723
F (65) 6428 2247
Please feel free to also contact Knowledge and Risk Management at [email protected]
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