19 August, 2015
A brand new competition law regime will soon be in place in the Philippines. The new Competition Law was signed on 21 July 2015 by the President and it will come into force 15 days after it is published (which is thought to be imminent).
The Competition Law comprises the country’s long-awaited comprehensive legal framework on antitrust and contains prohibitions on anti-competitive agreements, abuse of dominance, as well as anti-competitive mergers and acquisitions.
The new law contains a two year grace period from the date on which the Competition Law takes effect, during which companies are strongly advised to check that their business arrangements are fully compliant – so as to avoid the stringent penalties that the new enforcer will be able to impose, including large corporate fines and prison sentences for implicated individuals.
THE NEW COMPETITION LAW AT A GLANCE
• New empowered enforcer: a brand new agency – the Philippine Competition Commission (PCC) – will be armed with broad powers to conduct unannounced inspections of company premises (dawn raids), investigate suspected violations, review mergers and acquisitions, issue injunctions, require divestment and disgorgement of excess profits, and impose penalties on companies and individuals that have violated the Competition Law.
• Anti-cartel laws with stringent penalties including prison: price-fixing and bid-rigging will be ‘per se’ violations (meaning that the enforcer has a low threshold to meet in order to find a violation). Market sharing and fixing production levels with the object or effect of substantially preventing, restricting or lessening competition are also expressly prohibited. Companies can then be fined PHP 50m – PHP 250m (approximately USD 1-5m). Officers, directors, or employees holding managerial positions, who are knowingly and wilfully responsible for the violation may be imprisonment for 2-7 years.
Other arrangements that restrict competition will be prohibited unless they have offsetting efficiencies. A penalty of up to PhP100m (approximately USD 2m) can be imposed.
• Leniency: immunity or fine reductions where a company self-reports a violation
• Prohibition on abuse of a dominant position: There is a rebuttable presumption of dominance if the market share of an entity in the relevant market is at least 50%. The concept of dominant position also seem to resemble the EU notion (with dominance arising when a company can act independently of customers and competitors). The Competition Law prohibits firms in a dominant position from:
i. Selling below cost to drive competition out of the market (though good faith price matching is permitted);
ii. Imposing barriers to entry or committing acts that prevent competitors from growing within the market
iii. Tying (e.g. making a customer buy one product/service when it buys an unconnected one)
iv. Discriminating (without legitimate reason) between customers or sellers. Socialized pricing for the less fortunate sector of the economy or price differentials which reflect differences in the cost of manufacture, sale, or delivery, changing market conditions, etc. are permitted;
v. Imposing anti-competitive sales/lease restrictions. This would include vertical resale price maintenance and anticompetitive rebates as well as any restrictions on where, to whom, or in what form goods or services may be sold or traded);
vi. Imposing unfairly low purchase prices for the goods or services of, among others, marginalized agricultural producers, fisherfolk, micro-, small-, medium-scale enterprises, and other marginalized service providers and producers;
vii. Imposing unfair purchase or selling price on competitors’ customers, suppliers or consumers, or limiting production, markets or technical development to the prejudice of consumers (except when price develops as a result of a superior product or process, business acumen or legal rights
• New mandatory merger control rules:
(i) Notification of transactions valued over PHP 1 billion (approx. USD 22m) to the Philippine Competition Commission, with closing to be suspended prior to clearance.
(ii) The initial review period is 30 days, which can be extended by an additional 60 days.
(iii) Fines can be imposed for failure to notify of up to 5% of the value of the transaction. The transaction would also be void. Implementing rules and regulations are to be published with in 180 days of the Competition Law coming into force.
IMPLICATIONS FOR BUSINESSES
To avoid potential violations of the Competition Law, companies should consider the following actions:
• Audit and assess existing pricing strategies, commercial agreements (whether or not embodied in a written contract), and other business practices in light of the provisions under the Competition Law;
• Develop dawn raid guidelines so that company personnel know how to react in this stressful context. It is necessary to know how to cooperate as required by the law but at the same time defend the company’s legitimate interests
• Companies with a strong position in any market should assess whether they may be considered “dominant” under the Competition Law and review their commercial arrangements and business practices to ensure compliance with the Competition Law;
• Establish competition compliance and training programs, particularly for employees whose functions and responsibilities cover activities that may infringe the Competition Law;
• Review mergers and acquisition plans, transactions, or agreements, to ensure that they comply with procedural and substantive requirements under the Competition Law, including the impact of procedural and timing requirements of the Competition Law;
• In case of highly doubtful transactions, seek non-adversarial remedies available under the Competition Law, such as requesting the PCC to make a binding preliminary determination on the legality of a questioned agreement or activity. The law states that where no prior complaint or investigation has been initiated, any entity that is in doubt as to whether a contemplated act, course of conduct, agreement, or decision, is in compliance with, is exempt from, or is in violation of any of the provisions of the Act may request the PCC, in writing, to render a binding ruling thereon.
CONCLUSION
The Competition Law is the first comprehensive competition legal framework for the Philippines, bringing the country into greater conformity with other nations. It will have far-reaching implications on domestic business as well as foreign companies selling into the country. Businesses are encouraged to review and assess the impact of the Competition Law and evaluate their business practices for compliance
For further information, please contact:
Pearl Liu, Partner, Baker & McKenzie
Pearl.Liu@quisumbingtorres.com
