PHILIPPINE COMPETITION ACT Johannes R Bernabe Philippine Competition Commission

What the law seeks to discipline (I) Anti-competitive agreements Horizontal agreements (i.e., between or among competitors) which engage in – Cartels, price-fixing Bid-rigging Output limitation Market allocations are criminalized Other types of agreements which substantially prevent, lessen or restrict competition Definition by exclusion; applying ‘Single Economic Entity’ doctrine: “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 or act independently of each other shall not be considered competitors”

What the law seeks to discipline (II) Abuse of dominant position NOT against bigness Market dominance vs. abuse of market dominance e.g.: Predatory pricing Imposing barriers to entry Tying arrangements Anti-competitive mergers and acquisitions M&As not prohibited per se, prevented only if - promotes collusion Prevents, lessens or restricts competition

Considerations in application No precise application Apart from per se in Sec. 14(a) Contextual analysis in determining the ‘object’ of an agreement Rule of Reason analysis in assessing the ‘effects’ of an act or Weighing of social benefits vs. social costs Test: substantially prevent, restrict or lessen competition EU Commission Guidelines on the Application of [Article 101(3) TFEU]: The assessment of whether or not an agreement has as its object the restriction of competition is based on a number of factors. x x x content of the agreement x x x objective aims pursued by the agreement x x x context in which it is to be applied (therefore, the facts underlying the agreement) x x x way in which the agreement is actually implemented x x x actual conduct and behaviour of the parties in the market (therefore, the specific circumstances in which it operates). Subjective intent of the parties is a relevant factor but not a necessary condition.

A few exceptions General rule – of general application, applies to all sectors (no block exemptions) Exceptions: Trade associations Agreements for collective bargaining in employment

Mergers & Acquisitions (I) Not prohibited per se, but the Commission has the power to review Scope of mandatory review: all M&A transactions > PhP1 Billion other criteria in the IRR which establish nexus with PH jurisdiction Exempt from mandatory notification: internal re-structuring where acquiring and acquired entities belong to one and the same UPE and re-structuring does not result in change of control (CN 16-002) Period for review: 30 days from notification by the parties, extendible for maximum of another 60 days, but in no case to exceed a total of 90 days

M&As (II) Additional thresholds for notification under IRR Size of person + size of transaction tests (a) Aggregate annual gross revenues in, into or from PH; or (b) value of assets in PH of the UPE of at least one of the acquiring or acquired entities, including that of all entities the UPE controls, exceeds P1B AND The value of transaction exceeds P1B

M&As (III) In acquisition of voting shares: If the aggregate value of the assets in PH owned by the corporation or by entities it controls, other than assets that are shares of any of those corporations, exceed P1B; OR The gross revenues from sales in, into, or from PH of the corporation by entities it controls, other than assets that are shares of any of those corporations, exceed P1B AND . . .

M&As (IV) Control test: as a result of the proposed acquisition, the entity or entities acquiring the shares, together with their affiliates, would own voting shares of the corporation in excess of: Thirty-five percent (35%), or Fifty percent (50%), if the entity or entities already own more than the percentage set out above before the proposed acquisition;

M&As (V) Failure by the Commission to decide or complete its analysis within 30/90 days – M&A deemed approved Effect of failure by parties to an M&A to notify – transaction deemed void and subject parties to an administrative penalty of 1-5% of the value of the transaction

M&As (VI) If transaction will substantially prevent, restrict or lessen competition in the relevant market, the Commission can - prohibit the implementation of the M&A agreement prohibit the implementation of the M&A unless and until it is modified, or the parties enter into legally enforceable agreements specified by the Commission

M&As (VII) Possible exemptions: (a) The increased market concentration brings or will bring efficiency gains greater than the effects of any limitation on competition (b) A party to M&A is faced with actual or imminent financial failure, and the agreement represents the least anti-competitive arrangement

M&As (VIII) Reiteration of General Principles Prior M&As are grandfathered Acquiring or maintaining market share through legitimate means such as use of intellectual property rights without substantially lessening, preventing or restricting competition is not prohibited Stock acquisition solely for investment and – without using the shares for voting or exercising control; and not to otherwise bring about, or attempt to bring about the prevention, restriction, or lessening of competition in the relevant market is not prohibited.

* Please note that the characterizations and views expressed in the presentation are solely those of Mr. Bernabe and do not reflect the position of the Philippine Competition Commission or the other Commissioners. This presentation is not intended for circulation nor for use other than the forum of 8 November 2016. Thank you jrbernabe@phcc.gov.ph