Chicky Notes 2020 – COMMERCIAL LAW (PCA)

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PHILIPPINE COMPETITION ACT (R.A. No. 10667) IN GENERAL, PCA:

• Defines, prohibits, and penalizes anti-competitive practices so as to
INTRODUCTION enhance efficiency of the economy, and promote free and fair
• Grabe Airlines competition in trade, industry and other commercial activities
o Lone air company, Manila-Naga: 25K
• Haircut -5K DECLARATION OF POLICY
• Contact lense -1K per piece • Sec 2, PCA
• If there is only one service provider, customers will be forced to take • Enhance economic efficiency and promote free and fair competition
service or avail such merchandise in trade, industry and all commercial econ activities and establish a
• Likelihood of poor quality National Competition Policy
• Escalation of prices • Prevent economic concentration
• Goods, products, services • Penalize all forms of anti-competitive agreements, abuse of
dominant position and anti-competitive mergers and acquisitions
BACKGROUND
• Enacted on July 21, 2015 SCOPE
• Took effect on August 8, 2015 • Any person or entity engaged in any trade, industry, and commerce
• First comprehensive competition or antitrust law in the country in the Philippines
• Created the Philippine Competition Commission (PCC) was • International trade having direct, substantial, and reasonably
organized in February 2016 foreseeable effects in trade, industry, or commerce in the Philippines
(Sec 3, PCA)
• To make businesses more cautious in their dealings
• Not applicable to:
• More competition = More choices
o Agreements to facilitate CBAs in respect of conditions of
• POV of consumers = higher quality, lower price
employment
BENEFITS OF COMPETITION
KEY PROVISIONS
• More choices
• Prohibitions
• Lower prices
o Anti-competitive agreements (Sec 14, PCA)
• Good quality
o Abuse of dominant position (Sec 15, PCA)
• Efficiency o Prohibited mergers and acquisitions (Sec 16-23, PCA)
• Differentiation/innovation
• Small businesses can compete ANTI-COMPETITIVE AGREEMENTS
• Business attuned to customer demand • Agreements that substantially prevent, restrict, or lessen
competition

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• Could be in a contract, arrangement, or any understanding between
persons/enterprises to fix the prices or manipulate bids
• Could be formal or informal; express (declared, in writing) or
implied as long as rivals act in a way as to limit competition or hinder
others from entering the market
• Prohibited per se
o Restricting competition as to price, or components thereof,
or other terms of trade
▪ Defeat competition because of their arrangements
o Fixing price at an auction or in any form of bidding
including cover bidding, bid suppression, bid rotation and
market allocation and other analogous practices of bid
manipulation
▪ Bid rigging
▪ Cover Bidding
• Courtesy bidding
• Occurs where some of the bidders agree to
submit bids that are intended not to be
successful, so that another conspirator can
win the contract.
• Example: 7million budget; bids: x 78M,
6M, x 80M
▪ Bid Suppression
• Occurs when conspirators agree not to
submit a bid so another can win the
contract
▪ Bid rotation
• Competing bidding firms “taking turns” at
winning the bid
▪ Market Allocation
• Competitors agreeing to stay out of one
another’s way. Competitors divide the
market among themselves
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• Setting, limiting, or controlling production, markets, technical
development, or investment
• Dividing or sharing the market, whether by volume of sales or
purchases, territory, type of goods or services, buyers or sellers or
any other means
• Not competitors
o 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 ot
act independently of each other
o Ex. X (Parent) – Y (Subsidiary)
ABUSE OF DOMINANT POSITION
• Dominant position
o 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
(Sec 4, PCA)
• There shall be a rebuttable presumption of market dominant position
if the market share of an entity in the relevant market is at least 50%
• NOT illegal to be dominant so long as no undue advantage is taken
of its dominance as to substantially lessen market competition
• By engaging in conduct that would substantially prevent, restrict, or
lessen competition
• Such conduct includes predatory pricing, exploitative behavior
towards consumers, limiting production to the detriment of
consumers
• Predatory pricing
o The pricing of goods or services at such a low level that
other suppliers cannot compete and are forced to leave the
market
• Limiting production
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o Dominant business refuses to supply or limits supply
• Exploitative behavior
o Tying arrangement
▪ Vertical restraint of trade where a seller refuses to
sell one product to a consumer unless the customer
agrees to purchase a second product from the seller
• Monopsony
o A situation where a market has only one buyer
o This lone buyer is able to reduce the price of a good or
service due to the lack of competition
o A monopsony has buying or bargaining power in their
market
o This buying power means that a monopsony can exploit
their bargaining power with a supplier to negotiate lower
prices.
o Food retailers have power when purchasing suppliers from
farmers, milk producers, and other raw materials
o A car-rental firm seeking a contract to a manufacturer to
supply new cars for their fleet
o The government as to military procurement
o Mining company as the sole/largest employer in town A
o There must be no undue advantage taken of their leverage
to avoid any violation of the PCA
o Main effect: the single buyer in a given industry has control
of the market. That buyer has far too much power in setting
the price of the goods or services they alone are buying.
This can be quite problematic for the economy and so ought
to be avoided.
DOMINANCE PER SE, NOT VIOLATIVE OF PCA
• United Brands vs. Commission from the European Union
o The EU Court of Justice explained that dominance that
constitutes a violation of competition laws is one that relates
to a position of economic strength enjoyed by an
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undertaking which enables it to prevent effective
competition being maintained on the relevant market by
affording it the power to behave on appreciable extent
independently of its competitors, customers and ultimately
of consumers
• PCC Case E-2019-001
o Involves a case for abuse of dominance against a
condominium developer arising from the exclusive supply
by a single internet service provider (ISP) of in-house
internet services to all the occupants of its nine residential
projects in the Philippines. The respondents in the case
(respondents) conceded that their conduct constitutes abuse
of dominance and proposed certain commitments to the
PCC.
o The PCC determined that such commitments were
sufficient to remedy the harm arising from their wrongful
conduct, as these will: cease the anti-competitive conduct
and prevent its recurrence; restore competition; and effect
deterrence. Nonetheless, the PCC imposed an
administrative fine on the respondents.
MERGERS AND ACQUISITIONS
• Merger
o Joining of two (2) or more entities into an existing entity or
to form a new entity
• Acquisition
o Purchase of securities or assets through contract or other
means, for the purpose of obtaining control of another entity
• Business can operate more efficiently—more resources, tech
transfer, increase production
• But M&As that harm competition is prohibited
• Anti-Competitive M&As
o When is an M&A anti-competitive?
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▪ When it substantially prevents, restricts or lessens including that of all entities that the ultimate parent
competition in the relevant market or in the market entity controls, directly or indirectly, EXCEEDS 6
for goods or services as may be determined by the BILLION PESOS; AND
Commission shall be prohibited (Sec 20, PCA) ▪ 2.) the size of the transaction EXCEEDS 2.4
• PCC review of M&As BILLION PESOS.
o PCC reviews M&As and evaluates impact to market o Size of the parties (inc. the Parent and family) AND Size of
competition the transaction
o Triggered by: compulsory notification by the parties, PCC’s o SoP (exceeds 6B) AND SoT (exceeds 2.4B)
own initiative, third party complaint o SoP – take into account assets or income (of either party)
• Compulsory notification – M&As o SoT – acquired entity’s size of assets or its AGR
o Parties to the merger or acquisition agreement referred to in • Size of the Person (SoP)
the preceding section wherein the value of the transaction o SBU to merge with/acquire the assets of SBA
exceeds one billion pesos (P1,000,000,000.00) are o SBA – acquired company
prohibited from consummating their agreement until thirty o SBU – surviving/acquiring entity
(30) days after providing notification to the Commission in o SBAA -> SBU (acquiring company)
the form and containing the information specified in the ▪ SBAA (parent) >6B (assets or AGR)
regulations issued by the Commission: • SOP falls within threshold
o Provided, That the Commission shall promulgate other o SBAAA -> SBAA -> SBU
criteria, such as increased market share in the relevant ▪ SBAA less than 6B (below threshold) -do you
market in excess of minimum thresholds, that may be stop?
applied specifically to a sector, or across some or all sectors, ▪ SBAAA (ultimate parent) >6B (assets or AGR)
in determining whether parties to a merger or acquisition • SOP falls within threshold
shall notify the Commission under this Chapter (Sec 17, ▪ What if SBAA is below threshold? Even if
PCA). combined with SBAA and SBU?
o PCC MC 18-001 >2B (size of transaction) • Look into the company to be acquired
o PCC MC 19-001 >2.2B (SBA)
o PCC MC 02-2020 (February 11, 2020) o SBMMM -> SBMM -> SBA (acquired company)
• Thresholds for compulsory notification ▪ SBMMM >6B (assets of AGR)
o Parties to a merger or acquisition are required to provide ▪ SOP falls within threshold
notification to the PCC: o SBMM (SBA + SBC + SBT)
▪ 1.) the aggregate annual gross revenues in, into or ▪ SBMM > 6B
from the Philippines, OR value of the assets in the ▪ SOP falls within threshold
Philippines of the ULTIMATE PARENT ENTITY • Size of Transaction (SoT)
of at least one of the acquiring or acquired entities, o Focus on the acquired entity’s:
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▪ Value of assets; OR
▪ Income of the assets
o Exceeds 2.4B
o How about share acquisition?
▪ Value of assets (other than shares) or income
thereof exceeds 2.4B AND due to such acquisition:
• Acquiring entity would control:
o 35% OR
o 50% of the acquired entity (if
acquiring entity had existing
shares)
• Each party to M&A shall submit a notification
• Submission – 30 days from signing of definitive agreement re: M&A
• PCC has 15 days from submission to determine if the form and other
requirements have been completed
• What if the parties entered into a non-disclosure agreement? Do they
need to submit a notification/report to the PCC?
o No; not yet definitive
• After notice of sufficiency PCC shall review within 30 days. PCC is
allowed to request for supplementary documents
• Issuance of such request by the PCC – extension of period within
which the M&A cannot be consummated – for 60 days from receipt
of PCC request
• The period of review by the PCC shall not exceed 90 days from
initial notification by the parties
• When period/s has/ve expired and no decision has been
promulgated, the M&A is deemed approved
• An M&A consummated in violation of the notice requirement shall
be considered void and subject to an administrative fine of 1% to 5%
of the value of the transaction (Sec 17, PCA).
• If within the relevant periods
• stipulated in the preceding section, the Commission determines that
such agreement is prohibited under Section 20 and does not qualify
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for exemption under Section 21 of this Chapter, the Commission
may:
(a) Prohibit the implementation of the agreement;
(b) Prohibit the implementation of the agreement unless and
until it is modified by changes specified by the Commission;
(c) Prohibit the implementation of the agreement unless and
until the pertinent party or parties enter into legally enforceable
agreements specified by the Commission (Sec 18, PCA)
PENALTIES
PCC
• The PCA creates the PCC which is designed to be an independent,
quasi-judicial body. It is an attached agency to the Office of the
President (Sec 5, PCA).
• PCC to be composed of one Chairperson and four Commissioners,
with rank equivalent to a Cabinet Secretary and Undersecretaries,
respectively, with expertise in economics, law, finance, commerce
or engineering (Sec 6, PCA)
• They shall be appointed by the President
• The term of the Chairperson and Commissioners is seven years
without re-appointment
PCC POWERS
• Original and primary jurisdiction over the enforcement and
implementation of the PCA
• Powers and functions:
o Conduct inquiry, investigate
o Hear and decide cases
o Review M&As
o Monitor compliance
o Stop, redress, apply remedies based on findings
o Issue subpoenas
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o Conduct administrative proceedings, impose sanctions,

fines or penalties
o Issue adjustment or divestiture orders
o Undertake inspection of business premises, under order of
court
o Deputize enforcement agencies
o Issue advisory opinions on competition matters
• The PCC has the sole authority to initiate and conduct a fact-finding
preliminary investigation in connection with the PCA (Sec 31, PCA).
• In addition, a private party suffering from violations of the PCA
cannot separately file or initiate a civil case in court, until after the
PCC has completed a preliminary inquiry (Sec 45, PCA).