In this microsite, the Philippine Competition Commission (PCC) has assembled information that would better equip law graduates or bar examinees with the knowledge of Republic Act No. 10667, or the Philippine Competition Act (PCA), and help prepare them for the Bar examinations. As such, the information is organized using the outline contained in Supreme Court Bar Bulletin No. 7, series 2020.
What is the Philippine Competition Act?
The PCA is the primary law in the Philippines enacted to promote and protect market competition. The law defines, prohibits, and penalizes anti-competitive practices, with the aim of enhancing economic efficiency and promoting free and fair competition in trade, industry, and all commercial economic activities. Its key prohibitions include entering into anti-competitive agreements, abusing a dominant market position, and forming anti-competitive mergers and acquisitions (M&As).
Who and what are covered by the Philippine Competition Act?
The PCA covers any person or entity engaged in trade, industry, and commerce in the Philippines. The law also applies to international trade that may impact trade, industry, and commerce in the country. The law, however, does not apply to collective bargaining agreements or arrangements between workers and employers and activities to facilitate collective bargaining agreements in respect of conditions of employment.
What is the Philippine Competition Commission (PCC)?
The PCC is an independent quasi-judicial government agency mandated to implement the national competition policy and enforce the PCA. It has original and primary jurisdiction over the enforcement and implementation of the PCA and its IRR.
The OFC under the Department of Justice (DOJ-OFC) shall only conduct preliminary investigation and undertake prosecution of all criminal offenses arising under the PCA and other competition-related laws.
What are the powers and functions of the PCC?
As the Philippines’ antitrust authority, the PCC is mandated to exercise the following powers and functions, among others:
(a) Conduct inquiry, investigate, and hear and decide on cases involving any violation of this Act and other existing competition laws:
- motu proprio
- upon receipt of a verified complaint from an interested party
- upon referral by the concerned regulatory agency, and institute the appropriate civil or criminal proceedings;
(b) Review proposed mergers and acquisitions, determine thresholds for notification, determine the requirements and procedures for notification, and upon exercise of its powers to review, prohibit mergers and acquisitions that will substantially prevent, restrict, or lessen competition in the relevant market;
(c) Monitor and undertake consultation with stakeholders and affected agencies for the purpose of understanding market behavior;
(d) Upon finding, based on substantial evidence, that an entity has entered into an anti-competitive agreement or has abused its dominant position after due notice and hearing, stop or redress the same, by applying remedies, such as, but not limited to, issuance of injunctions, requirement of divestment, and disgorgement of excess profits under such reasonable parameters that shall be prescribed by the rules and regulations implementing this Act;
(e) Conduct administrative proceedings, impose sanctions, fines or penalties for any noncompliance with or breach of this Act and its implementing rules and regulations (IRR) and punish for contempt;
(f) Issue subpoena duces tecum and subpoena ad testificandum to require the production of books, records, or other documents or data which relate to any matter relevant to the investigation and personal appearance before the Commission, summon witnesses, administer oaths, and issue interim orders such as show cause orders and cease and desist orders after due notice and hearing in accordance with the rules and regulations implementing this Act;
(g) Upon order of the court, undertake inspections of business premises and other offices, land and vehicles, as used by the entity, where it reasonably suspects that relevant books, tax records, or other documents which relate to any matter relevant to the investigation are kept, in order to prevent the removal, concealment, tampering with, or destruction of the books, records, or other documents;
(h) Issue adjustment or divestiture orders including orders for corporate reorganization or divestment in the manner and under such terms and conditions as may be prescribed in the rules and regulations implementing this Act. Adjustment or divestiture orders, which are structural remedies, should only be imposed:
(1) Where there is no equally effective behavioral remedy; or
(2) Where any equally effective behavioral remedy would be more burdensome for the enterprise concerned than the structural remedy. Changes to the structure of an enterprise as it existed before the infringement was committed would only be proportionate to the substantial risk of a lasting or repeated infringement that derives from the very structure of the enterprise;
(i) Deputize any and all enforcement agencies of the government or enlist the aid and support of any private institution, corporation, entity or association, in the implementation of its powers and functions;
(j) Monitor compliance by the person or entities concerned with the cease and desist order or consent judgment;
(k) Issue advisory opinions and guidelines on competition matters for the effective enforcement of this Act and submit annual and special reports to Congress, including proposed legislation for the regulation of commerce, trade, or industry;
(l) Monitor and analyze the practice of competition in markets that affect the Philippine economy; implement and oversee measures to promote transparency and accountability; and ensure that prohibitions and requirements of competition laws are adhered to;
(m) Conduct, publish, and disseminate studies and reports on anti-competitive conduct and agreements to inform and guide the industry and consumers;
(n) Intervene or participate in administrative and regulatory proceedings requiring consideration of the provisions of this Act that are initiated by government agencies such as the Securities and Exchange Commission, the Energy Regulatory Commission and the National Telecommunications Commission;
(o) Assist the National Economic and Development Authority, in consultation with relevant agencies and sectors, in the preparation and formulation of a national competition policy;
(p) Act as the official representative of the Philippine government in international competition matters;
(q) Promote capacity building and the sharing of best practices with other competition-related bodies;
(r) Advocate pro-competitive policies of the government by:
(1) Reviewing economic and administrative regulations, motu proprio or upon request, as to whether or not they adversely affect relevant market competition, and advising the concerned agencies against such regulations; and
(2) Advising the Executive Branch on the competitive implications of government actions, policies and programs; and
(s) Charging reasonable fees to defray the administrative cost of the services rendered.
While it has original and primary jurisdiction in the enforcement and regulation of all competition-related issues, the PCC works with relevant sector regulators on matters where their expertise and knowledge on the sector are critical.
What are anti-competitive agreements?
Anti-competitive agreements include agreements between or among competitors that substantially prevent, restrict or lessen competition. Such agreements may be in the form of a contract, arrangement, understanding, collective recommendation, or concerted action, whether formal or informal, explicit or tacit, written or oral.
Also known as cartels, anti-competitive agreements between or among competitors involve collusive conduct to fix prices, rig bids, limit output, or allocate the market.
Under the PCA, there are anti-competitive agreements that are per se prohibited (Section 14[a]) and there are agreements that are prohibited for having an anti-competitive object or effect (Section 14[b] and [c]).
For more information, see PCA Chapter 3, Section 14
What are per se violations?
These anti-competitive agreements that are inherently illegal and require no further inquiry into their actual effect on the market or the intentions of the parties who engaged in the illegal act or agreement. The Philippine Competition Act classifies price fixing and bid rigging as per se violations.
Price fixing involves restricting competition as to price, or components thereof, or other terms of trade. This happens when competitors agree on the price of goods or services, rather than independently setting their respective prices.
Bid-rigging involves fixing prices at an auction or any form of bidding, including cover bidding, bid suppression, bid rotation, and market allocation, among others. Bid-rigging usually occurs when parties participating in a tender coordinate their bids rather than submit independent proposals.
What are not per se violations?
Not per se violations are other anti-competitive agreements prohibited by the law which have the object or effect of substantially preventing, restricting, or lessening competition. Since these agreements are not per se illegal, the PCC needs to conduct inquiries to determine whether they restrict competition and violate the PCA.
Supply restriction is an agreement by two or more competitors which sets or limits production levels and create an artificial supply shortage, thereby raising prices. Similar forms of anti-competitive agreements include restrictions in markets, technical development, or investment.
Market sharing is a collusive agreement by two or more competitors which divides or allocates the market. Market sharing not only includes territories, but also customers, volume of sales or purchases, and type of goods or services, among other considerations.
What are the exceptions to the coverage of anti-competitive agreements?
Agreements not falling under Section 14(a) and 14(b) of the PCA that have an anti-competitive object or effect, but nevertheless contribute 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 benefit may not necessarily be considered anti-competitive. (Note: This only applies to Section 14 (c) of the PCA).
For more information, see PCA Chapter 2, Section 14
It is not illegal to have a dominant position in the market; however, it is illegal to abuse one’s dominance.
How to determine control or dominance of market?
In determining the control of an entity, the Commission may consider the following:
Control is presumed to exist when the parent owns directly or indirectly, through subsidiaries, more than one half (1/2) of the voting power of an entity, unless in exceptional circumstances, it can clearly be demonstrated that such ownership does not constitute control. Control also exists even when an entity owns one half (1/2) or less of the voting power of another entity when:
(a) There is power over more than one half (1/2) of the voting rights by virtue of an agreement with investors;
(b) There is power to direct or govern the financial and operating policies of the entity under a statute or agreement;
(c) There is power to appoint or remove the majority of the members of the board of directors or equivalent governing body;
(d) There is power to cast the majority votes at meetings of the board of directors or equivalent governing body;
(e) There exists ownership over or the right to use all or a significant part of the assets of the entity;
(f) There exist rights or contracts which confer decisive influence on the decisions of the entity
For more information, see PCA Chapter 4, Section 25
When can a business be considered dominant in the market?
A dominant position refers to 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.
For more information, see PCA Chapter 1, Section 4
Dominance can exist either on the part of one firm (single dominance) or of two or more firms (collective dominance). In determining whether a business has a market dominant position, the Commission will consider the following factors:
- The share of the entity in the relevant market and whether it can fix prices on its own or restrict supply in the relevant market;
- The competitors’ shares in the relevant market;
- Existence of barriers to entry and the elements which could change both the barriers and the supply from competitors;
- Existence and power of competitors;
- Credible threat of future expansion by competitors or entry by potential competitors;
- Market exit of competitors;
- Bargaining strength of customers;
- Possibility of access by competitors or other enterprises to its sources of inputs;
- Power of its customers to switch to other goods or services;
- Recent market behavior;
- Ownership, possession, or control of infrastructure which are not easily duplicated;
- Technological advantages or superiority, compared to other competitors;
- Access to capital markets or financial resources;
- Economies of scale and scope;
- Vertical integration; and
- Existence of a highly developed distribution and sales network.
When can a business be held liable for abusing its market dominance?
The PCA prohibits entities from abusing their dominant position in the relevant market by engaging in conduct that would substantially prevent, restrict, or lessen competition.
Examples of conduct constituting abuse of dominant position:
- Selling goods or services below cost to drive competition out of the market;
- Imposing barriers to entry or committing acts that prevent competitors from growing within the market;
- Making a transaction subject to acceptance by other parties who have no connection to the transaction;
- Setting prices or other terms or conditions that discriminate unreasonably between customers or sellers of the same goods or services;
- Imposing restrictions on the lease or contract for sale or trade of goods or services concerning where, to whom, or in what form a good or service may be sold or traded;
- Making supply of particular goods or services dependent upon the purchase of other goods or services from the supplier;
- Imposing unfairly low purchase prices for the goods or services of marginalized service providers and producers, such as farmers, fisherfolk, and micro, small, and medium enterprises (MSMEs);
- Imposing unfair purchase or selling price on competitors, customers, suppliers or consumers; and
- Limiting production, markets or technical development to the prejudice of consumers.
For more information, see PCA Chapter 3, Section 15
What are the exceptions to the coverage of abuse of dominance?
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 benefit may not necessarily be considered an abuse of dominant position.
Additionally, the acquisition, maintenance, and increase of market share does not violate the PCA if:
- It is acquired through legitimate means, such as having superior skills, rendering superior service, producing or distributing better-quality products, having business acumen, and using and enjoying intellectual property rights; and
- It does not substantially prevent, restrict, or lessen competition in the market.
For more information, see PCA Chapter 3, Section 15 (a), (d), (e) and (i)
What are prohibited mergers and acquisitions?
Anti-competitive mergers and acquisitions (M&As) refer to transactions that substantially lessen, restrict, or prevent competition in the relevant market as determined by the PCC in the exercise of its power to review such transactions.
What are the exceptions to the prohibition of anti-competitive M&As?
M&A agreements which substantially prevent, restrict, or lessen competition may be allowed if the parties are able to prove that (a) the concentration has brought about or is likely to bring about gains in efficiencies that are greater than the effects of any limitation on competition that result or are likely to result from the merger or acquisition agreement; or (b) a party is faced with actual or imminent financial failure and the agreement represents the least anti-competitive arrangement among the known alternative uses of its assets.
For more information, see PCA Chapter 4, Sections 21-22
What are the thresholds for compulsory notification of mergers and acquisitions?
Parties to a merger or acquisition agreement where the size of transaction and size of person/party exceed the thresholds set annually by the PCC are required to notify the Commission of such agreement before consummating the transaction. The annual adjustment of thresholds for compulsory notification is based on the Philippine Statistics Authority’s official estimate of the nominal gross domestic product (GDP) of the previous year.
In September 2020, the values of the size-of-party and size-of-transaction thresholds, which were then set at PHP 6 billion and PHP 2.4 billion, respectively, were further adjusted pursuant to Republic Act No. 11494 or the Bayanihan to Recover as One Act. Section 4(eee) of the said law exempts mergers or acquisitions from compulsory notification with transaction values below PHP 50 billion if entered into within two (2) years from the effectivity of the law on 15 September 2020. The said section was enacted as part of the government’s economic recovery measures, and for the stated purpose of “promoting business continuity and capacity building.”
Who is/are the notifying entity/entities?
Under the Implementing Rules and Regulations of the PCA (IRR), the notifying entity/entities refer to the following parties:
- The acquiring and acquired parties to the notifiable M&A and their ultimate parent entities.
- In the formation of a joint venture (other than in connection with a merger or consolidation), the contributing entities shall be deemed acquiring entities, and the joint venture shall be deemed the acquired entity.
If a transaction is not subject to compulsory notification, can the PCC still review it?
The PCC has the authority to review or investigate, motu proprio or on its own initiative, any transaction that may result in substantial lessening or restriction of competition in a market. Motu proprio means that, even without notification, the PCC may commence a review of the proposed transaction.
Additionally, an agreement consummated in violation of compulsory notification requirement shall be considered void and subject the parties to an administrative fine of one percent (1%) to five percent (5%) of the value of the transaction.
What is the recourse if a proposed M&A is found to be anti-competitive??
If it finds that the M&A could substantially prevent, restrict, or lessen competition in the market, the PCC can prohibit the transaction or impose conditions before the transaction can be consummated. Alternatively, the merging parties can propose voluntary commitments meant to curtail the anti-competitive effects of the transaction. If the Commission accepts these commitments, then the transaction can proceed, on condition that the PCC will monitor the parties post-merger to determine if they have complied with those commitments.
What are the exceptions to compulsory notification?
Joint ventures of private entities formed for both solicited and unsolicited public-private partnership (PPP) projects may be exempted from compulsory notification. The PCC however can modify or rescind, among others, the transaction value threshold and other criteria subject to compulsory notification and the exceptions or exemptions from the notification requirement.
Coverage of Compulsory Notification in Land Acquisition:
Coverage of Compulsory Notification in Consolidation of Ownership:
What is a relevant market?
The relevant market refers to the market in which a particular good or service is sold and which comprises two dimensions: the relevant product market and the relevant geographic market. Each aspect is defined as follows:
(1) A relevant product market comprises all those goods and/or services which are regarded as interchangeable or substitutable by the consumer or the customer, by reason of the goods and/or services’ characteristics, their prices and their intended use; and
(2) The relevant geographic market comprises the area in which the entity concerned is involved in the supply and demand of goods and services, in which the conditions of competition are sufficiently homogenous and which can be distinguished from neighboring areas because the conditions of competition are different in those areas.
The following factors help determine the relevant market:
- Possibilities of substituting goods and services with other domestic or foreign products, considering technological possibilities, availability of substitute products to consumers, and the time required for such substitution;
- Cost of distribution of goods and services, along with its raw materials, and supplements and substitutes from other areas and abroad, considering freight, insurance, import duties, and non-tariff restrictions; the restrictions imposed by economic agents or by their associations; and the time required to supply the market from those areas;
- Cost and probability of users or consumers seeking other markets; and
- National, local or international restrictions which limit the access by users or consumers to alternate suppliers, or the access by suppliers to alternate consumers.
How does the PCC determine if a business conduct is anti-competitive?
In determining whether an anti-competitive agreement or conduct exists or has been committed, the PCC shall:
- Define the relevant market allegedly affected by the anti-competitive agreement or conduct, following the principles laid out in Section 24 of the PCA;
- Determine if there is actual or potential adverse impact on competition in the relevant market caused by the alleged agreement or conduct, and if such impact is substantial and outweighs the actual or potential efficiency gains that result from the agreement or conduct;
- Adopt a broad and forward-looking perspective, recognizing future market developments, any overriding need to make the goods or services available to consumers, the requirements of large investments in infrastructure, the requirements of law, and the need of the Philippine economy to respond to international competition, but also taking account of past behavior of the parties involved and prevailing market conditions;
- Balance the need to ensure that competition is not prevented or substantially restricted and the risk that competition efficiency, productivity, innovation, or development of priority areas or industries in the general interest of the country may be deterred by overzealous or undue intervention; and
- Assess the totality of evidence on whether it is more likely than not that the entity has engaged in an anti-competitive agreement or conduct, including whether the entity’s conduct was done with a reasonable commercial purpose such as but not limited to phasing out of a product or closure of a business, or as a reasonable commercial response to the market entry or conduct of a competitor.
When can the PCC exercise forbearance?
The Commission, motu proprio or upon application, prior to its initiation of an inquiry, may forbear from applying the provisions of the PCA and its IRR, for a limited time, in whole or in part, in all or specific cases, on an entity or group of entities, if in its determination:
- Enforcement is not necessary to the attainment of the policy objectives of the PCA;
- Forbearance will neither impede competition in the market where the entity or group of entities seeking exemption operates nor in related markets;
- Forbearance is consistent with public interest and the benefit and welfare of the consumers; and
- Forbearance is justified in economic terms.
Provided, that forbearance will be granted for a maximum period of one year. Any extension to the period will have to be expressly approved by the Commission. Any extension of the duration of an exemption shall not be longer than one year.
For a copy of the Philippine Competition Act and its Implementing Rules and Regulations, click here.