A new competition law at last!

(Second of 3 parts)

Violations of the Philippine Competition Act may either be per se or non-per se violations.  But unlike many antitrust laws, the PCA limits per se violations to two categories only.

The first category is price fixing between or among competitors, which is not limited to fixing the price of goods or services but fixing other terms of trade (e.g., agreement not to offer discounts or credit) as well.

The second category is bid rigging involving competitors, which includes bid suppression, cover bidding, bid rotation and market allocation in bidding.

All other violations of the PCA are non-per se violations and shall be subject to the rule of reason analysis.

These include agreements other than those by or among competitors “which have the object or effect of substantially preventing, restricting or lessening competition,” abuse of market dominance and prohibited mergers and acquisitions.

Per se violations are subject to criminal sanctions while non-per se violations are not.

The sanctions for non-per se violations are limited to administrative fines and civil liability for damages.

Abuse of market dominance

The PCA prohibits entities to abuse their dominant position by engaging in conduct that substantially prevents, restricts or lessens competition.

The law specifically enumerates the acts considered as abuse of dominant position.  Aside from  predatory pricing and  barriers to entry and expansion that were earlier discussed, other examples of abuse of dominant position are tying arrangements and  price discrimination.

Tying arrangement is making a transaction subject to acceptance by the other party of other obligations which, by their nature or according to commercial usage, have no connection with the transaction.

Price discrimination is setting prices or other terms or conditions (such as discounts, rebates, allowances, or advertising assistance) that discriminate unreasonably between customers or sellers of the same goods or services where the effect may be to lessen competition substantially.

Of course, there are exceptions to unlawful price discrimination such as socialized pricing, pricing in response to competition or market developments, and pricing that reflect differences in the cost of the goods or services.

Abuse of dominant position also includes imposing unfair selling or purchase prices for goods or services (exploitative or excessive pricing) and limiting their production to the prejudice of the consumers.

Exceptions to these prohibited practices are those that develop in the market as a result of  superior products or processes, business acumen or legal rights or laws.

Similarly, 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.

Mergers and acquisitions

The PCA prohibits mergers or acquisitions that substantially prevent, restrict or lessen competition in the relevant market.

There are exemptions from the prohibited mergers or acquisitions.

Examples are mergers or acquisitions  that (a) have or are likely to bring about gains in efficiencies that are greater than their anti-competitive effects, (b) represent the least anti-competitive arrangement to save  financially distressed entity (known as “failing firm defense”), and (c) took place before the effectivity of the law.  The law puts the burden of proof on the party claiming the exemption.

One big change that the PCA brings about is that mergers and acquisitions with a transaction value exceeding P1 billion will require compulsory notification to the PCC.

The PCA gives the Philippine Competition Commission an initial period of 30 days to review the proposed merger or acquisition during which period the parties cannot consummate the transaction.

Should the PCC deem it necessary, it may request, within the 30-day period, from the parties further information that are reasonably necessary and directly relevant to help it determine whether the transaction is a prohibited merger or acquisition.

If the PCC makes such request,  the merger or acquisition may not be consummated for an additional 60 days, beginning on the day after the request  is received by the parties.

In no case, however, shall the total period for review exceed 90 days from the initial notification by the parties.

If  no decision is promulgated by the PCC within the 90-day period for whatever reason, the merger or acquisition shall be deemed approved and the parties may proceed to implement or consummate it.

Failure to comply with the notification requirement will make the transaction void.

It will also subject the parties to an administrative fine of one to five percent of the value of the transaction.

Significantly, the PCA does not dispense with the favorable recommendation from specialized regulatory agencies (e.g., Bangko Sentral ng Pilipinas) required by Section 79 of the Corporation Code.

However, a favorable recommendation from them shall give rise to a disputable presumption that the proposed merger or acquisition is not violative of the PCA.

(To be continued)

(The author is a professor in  the Ateneo Law School and a senior partner of the ACCRA Law Offices. The views in this column are exclusively his.  He may be contacted at [email protected].)