Following its issuance of the Interim Rules on Preliminary Inquiry and Full Administrative Investigation in August 2017, the Philippine Competition Commission (Commission) has issued its more comprehensive Rules of Procedure (Rules). The Rules will take effect on 30 September 2017.
The Rules apply to investigations, hearings, and proceedings of the Commission, except matters involving mergers and acquisitions.
The Commission is expected to issue a separate set of rules of procedure for mergers and acquisitions in the coming months.
Investigation and Adjudication
Under the Rules, administrative proceedings for alleged violations of the Philippine Competition Act (PCA) or other existing competition laws consist of two stages: investigation and adjudication.
An investigation is initiated by a verified complaint, a referral by another regulatory agency, or a motu proprio directive from the Commission. Its Enforcement Office conducts the investigation, which consists of (i) a Preliminary Inquiry and (ii) a Full Administrative Investigation.
The Preliminary Inquiry, which is a summary proceeding to determine whether or not the Enforcement Office shall conduct a full administrative investigation, must be completed within 90-days from its commencement. If the Enforcement Office decides to conduct a Full Administrative Investigation into the alleged violation, the entity(ies) under investigation (Entity) will be notified, and the commencement of the Full Administrative Investigation will be published on the Commission's website. The publication will contain a general description of the industry involved and the possible violations. The Rules do not provide for the duration of the Full Administrative Investigation.
During the investigation, the Enforcement Office may require the submission of testimony and documents through subpoenas. It may also apply for "inspection orders" from a court, to conduct a search of business premises. Notably, the Commission's power to conduct inspections upon order of the court is also expressly recognized in the PCA. Currently, there are no procedural rules for court-issuance of such "inspection orders". The courts might apply the rules on the issuance of search warrants pending the issuance of specific rules on "inspection orders."
If the Enforcement Office files an administrative charge or issues a Statement of Objections (SO) after the Full Administrative Investigation, the Commission will publish the issuance of the SO and commence the adjudication phase of the proceedings (Adjudication). At this stage, the Commission shall determine whether there exists substantial evidence of a violation of the PCA and its Rules, to justify the imposition of penalties and remedies. The Rules also authorize the Commission to file related criminal complaints with the Department of Justice "at any time after termination of the Preliminary Inquiry" – or even before Adjudication has been completed.
The Rules provide timelines for key phases in Adjudication (e.g., responding to the charge; conduct of preliminary conference; submission of position papers), but do not fix the duration thereof. Final orders or decisions of the Commission are appealable to the Court of Appeals.
The Rules allow an Entity to propose a settlement before the Full Administrative Investigation is terminated. An Entity and the Enforcement Office are also allowed to jointly propose settlement during Adjudication. In both situations, the Commission has full discretion to accept or reject the proposal.
The Commission may impose:
1. An administrative fine of up to Php 250 million, depending on:
- frequency of violation
- "Relevant Turnover", or sales in the relevant market affected by the violation for the applicable financial year
- aggravating factors, such as the Entity leading the violation; and
- mitigating factors, such as the Entity's voluntary desistance from the anti-competitive act
The fine is tripled if the violation involves the trade or movement of basic necessities or prime commodities, and
2. The following remedies:
- Behavioral – obliging the Entity to engage in, or refrain from, specific conduct;
- Structural – changing the structure of the market;
- Injunction – directing the Entity perform or refrain from performing an act or acts;
- Disgorgement – requiring the Entity to disgorge excess profits or other benefits connected with the violation; and/or
- Divestiture – requiring the Entity to change its structure, through disposal of businesses, shareholdings, business units or assets. This is only imposed where there is no equally effective behavioral remedy, or such behavioral remedy would be more burdensome.
Responsible officers, directors, trustees and partners are solidarily liable with the Entity.
Other Prohibited Acts
The Rules also penalize the following acts of an Entity:
- Failing to notify the Commission of a disposition or transfer during Adjudication.
- Failing or refusing to comply with a ruling, order or decision of the Commission.
- Supplying incorrect or misleading information to the Commission.
- Committing any act of reprisal or discrimination against anyone cooperating with or furnishing information to the Commission in connection with an Investigation or proceeding.
- Without the authority of the Commission, directly or indirectly disclosing Confidential Information (as so determined by the Commission).
The Rules set out the mechanics for the following non-adversarial remedies:
By a verified written request, a Binding Ruling may be obtained when there is doubt as to whether a contemplated act, course of conduct, agreement, or decision is in compliance with, exempt from, or in violation of any of the provisions of the PCA, its implementing rules, or other competition laws.
In response to a "Show Cause Order" by the Enforcement Office, the anti-competitive act or conduct may be admitted and the Entity may provide a written proposal for addressing the same.
Upon a verified application at any time before the investigation stage is terminated, an Entity may seek a "Consent Order", specifying the terms and conditions to address the anti-competitive conduct or agreement.
Notably, the Rules do not include provisions to implement the leniency program that is provided in the PCA. The Commission is expected to issue a separate set of rules to develop the leniency program.
Why it affects you?
With the end of the two-year transitory period under the PCA, the Commission will now fully implement the PCA, including the prohibitions against anti-competitive agreements and abuse of dominance, and enforce penalties for violations of the PCA. It is important for businesses that may be exposed to competition law risks to be familiar with the procedure for investigations by the Commission, and be apprised of their rights and remedies in the process. Meanwhile, those planning to lodge complaints for anti-competitive acts will have to acquaint themselves with the relevant requirements, timelines and procedures for the resolution of such complaints.