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24 July, 2017
Republic Act No. 10667, also known as the Philippine Competition Act (PCA) was passed on July 21, 2015. The law aims to safeguard market competition in the Philippines by punishing acts that have negative direct, substantial, and reasonably foreseeable effects on competition in the country.
The PCA prohibits, among others, agreements which are considered under the law to be anti-competitive. Such agreements are not limited to written or formal agreements — the law covers any type or form of contract, arrangement, understanding, collective recommendation, or concerted action. Hence, an agreement does not have to be embodied in a written contract for the PCA to apply.
Anti-competitive agreements are covered under Section 14 of the PCA. Section 14 is further divided into three (3) subsections. Knowing the subsection an agreement falls under is important in determining the possible consequences of entering such agreement, and whether the agreement is per se prohibited, or whether it may be justified by pro-competitive benefits in the form of efficiency gains which benefit consumers.
The subsections of Section 14 of the PCA are as follows:
Section 14 (a) covers agreements between or among competitors which restrict price or components thereof, or which involve manipulating bids. Such agreements are strictly prohibited in all cases, and cannot be justified even if they result in efficiency gains. Any party who is found to have engaged in per se anti-competitive agreements shall be subject to administrative fines of up to P100,000,000 for the first offense, up to P250,000,000 for the second offense, and criminal penalties resulting in fines, and imprisonment of two (2) to seven (7) years.
Section 14 (b) prohibits agreements between or among competitors that set, limit, or control production, markets, technical developments, or investments, or divide or share the market. Similar to Section 14 (a), violations of Section 14 (b) will result in administrative fines and criminal penalties. However, unlike Section 14 (a), agreements falling under Section 14 (b) are not per se prohibited, and may be justified if it can be shown that such agreements will improve the production and distribution of goods and services, or promote technical and economic progress, benefitting consumers.
Section 14 (c) regulates other forms of agreements that are not considered as per se prohibited, but have the object or effect of substantially preventing, restricting, or lessening competition. Similar to Section 14 (b), agreements falling under these provisions may not be considered as violations of the PCA if the parties are able to show the efficiency gains resulting from such agreement. Like Sections 14 (a) and (b), violations of Section 14 (c) will result in administrative fines of up to P250,000,000. However, unlike the earlier subsections, there is no criminal penalty for violations of Section 14 (c).
It is noted that the wording of Sections 14 (a) and (b) specifically limit their application to agreements between or among competitors (horizontal agreements). Hence, the reasonable conclusion is that these sections do not apply to vertical agreements, or those agreements entered into by two (2) or more entities at different levels in the production or distribution chain (e.g. agreements between a manufacturer and its distributor). This does not mean, however, that vertical agreements are exempt from scrutiny under Section 14 of the PCA. Unlike the earlier subsections, Section 14 (c) does not limit its application to agreements between or among competitors. It is intended to be a catch-all provision covering agreements not falling under the earlier subsections, including vertical agreements.
In assessing whether an agreement is anti-competitive, the Philippine Competition Commission (the PCC) shall take into consideration the relevant market affected, the actual or potential adverse impact on competition, possible justifications for the agreement (if not per se prohibited), possible future market developments, any overriding need to make the goods available to consumers, requirements of large investments in infrastructure, requirements of law, and the need of the economy to respond to international competition.
Individuals and corporations should carefully evaluate that the agreements that they enter into will not be considered as anti-competitive by the PCC given the hefty fines and possible criminal penalties that will result from any violation of Section 14 of the PCA.
Further, businesses are reminded to review existing agreements as these are not exempt from complying with Section 14 of the PCA.
Under the transitional clause of the law, affected parties are given two (2) years after the effectivity of the PCA, or only until Aug. 8 to renegotiate or terminate agreements which are not compliant with the provisions of the PCA. Parties to existing agreements that remain to be noncompliant with the PCA beyond the curative period will be subject to administrative, civil and criminal penalties.
For further information, please contact:
James Patrick O. Alojado, Angara Abello Concepcion Regala & Cruz (ACCRALAW)
joalojado@accralaw.com
