Monday, December 12, 2011


"Impeaching Corona Not Far Behind"
by Emil Jurado 
09 December 2011, To The Point, MANILA STANDARD
(Original article here).

Some businessmen friends recently asked me about the statute of the much ballyhooed proposal for an Anti-Trust Law that would finally give teeth to Article 186 of the Revised Penal Code. This refers to prohibition from entering into or being a party to any contract or agreement, or from taking part in any conspiracy or combination in restraint of trade or commerce for the purpose of preventing by artificial means, free competition.

As far as I can recall, the move to have such a law introduced received a boost last August when five top officers of the giant multinational Nestle Philippines Inc. were indicted for violation of Article 186 of the Revised Penal Code. The charges were an offshoot of complaints against Nestle by two of its distributors, Service Edge Distributors Inc. and FDI Forefront 2 Trading Corporation.

The Filipino firms alleged that Nestle engaged in predatory pricing, imposition of inflexible price bulletins that resulted in luge losses to the distributors, unilateral withdrawal of promised marketing support, violation of the terms and eventual termination of the distribution agreement, perjury and offering false testimony in evidence.

I suppose that hearings of the charges against Nestle officials have been scheduled at the Quezon City Regional Trial Court. Resolution of this matter will have an important bearing on the perceived overhearing conduct of multinational firms towards not only their competitors, but even to their own distributors, who are in fact their business partners. Interestingly enough, during the recently concluded Philippine Advertising Congress in Camarines Sur, Nestle Philippines was adjudged Employer of the Year. Well, the company certainly will not win an award of any kind from its distributors who feel they have been wronged.


Friday, November 4, 2011

NESTLÉ PHILIPPINES, Inc. officials have been accused of fixing wholesale prices.

Nestlé officials accused of price fixing

by N.R. Melican
BusinessWorld Online, 31 October 2011
(Original article availble online here).

A CITY prosecutor’s office has found probable cause to charge Nestlé Philippines, Inc. officials with price fixing after distributors complained that the local arm of the food giant required their products to be sold for a dictated cost.

As such, the case has been filed at the Quezon City Regional Trial Court and raffled to Branch 97 at present.

In a resolution issued Aug. 15, 2011, Quezon City First Assistant City Prosecutor Meynardo M. Bautista Jr. ruled there was weight behind complaints against six officials -- former Nestlé Philippines chairman and chief executive officer (CEO) Doreswamy Nandkishore, incumbent chairman and CEO John Martin Miller, Sales Director Shahab Bachani, Chief Finance Officer Peter Noszek, and sales officials Jose Ceballos and Maria Elisa Lupena -- accused of imposing predatory prices for goods, a violation of Article 186 of the Revised Penal Code.

Nestlé Philippines could not be immediately reached for comment.

FDI Forefront II Trading Corp. and its parent firm Service Edge Distributors Inc. (SEDI) took issue with the price bulletins Nestlé Philippines issues to middlemen dictating the cost at which Nestlé products should be sold to retailers. Distributors are told to follow the selling prices in the bulletins or face termination of the distributorship agreement.

The two firms -- which were formerly assigned to distribute Nestlé products in northwest Quezon City, Caloocan, Malabon, Navotas and Valenzuela -- claim that the price bulletins do not take into account several factors: the cost of financing for the goods, municipal business taxes, cost of bad debts for bad or poorly paying retailers, cost of discounts given to retailers and cost of bad goods.

Nestlé Philippines terminated its distributorship agreement with FDI in late 2007 and that with SEDI in September 2011.

The respondents countered, however, that the two distributors’ claims are baseless, saying that price fixing only occurs when multiple firms agree to set prices to restrain trade.

The city prosecutor’s office decided, however, that the case was worth pursuing.

“The act of Nestlé in fixing the resale price maintenance for its products… is illegal, a per se violation of paragraph 1 of Artice 186, Revised Penal Code, which means that price fixing is automatically illegal and there will be no valid justification to legitimate price fixing agreement,” the resolution read.

“Even if the agreement of Nestlé and the complainants is to be analyzed under the rule of reason, the act is also unlawful because of its harmful anticompetitive effects against consumers and complainants, with no competitive economic benefits,” the resolution read further.

“[This is] harmful to the consumers because Nestlé exercised monopoly power of price fixing the resale of its goods which means that consumers cannot buy the product at a lower price than that fixed by Nestlé,” it stated.

The Nestlé officials could be “criminally liable,” the resolution stated. -- N.R. Melican

Monday, October 3, 2011


"Time to pass an antitrust law"
Sen. Manny B. Villar
BUSINESS MIRROR, Entrepreneur, 19 September 2011
(Original article available here)

First of two parts
"The time is ripe for the Philippines to enact a comprehensive antitrust law. Let me tell you why.
First, the global financial crisis of 2008, which plunged two-thirds of the world into recession and which continues to threaten the developed economies, has shifted the flow of capital into emerging markets, such as the Philippines, which are now leading economic growth and offering better returns for investments.
The Philippines can expect a bigger share of foreign investments as a result of this shift in capital flow because of its strategic location. It is close to China, which is aggressively investing in other countries not only to make money but to ensure adequate supplies of raw materials and intermediate goods for its own industries.
Second, the volatility in the prices of essential goods like oil and other food commodities, which must be imported. We have to import rice because of our inability to produce enough rice for domestic consumption. We also have to import wheat (for flour) because we don’t grow this cereal.
Third, there are so few players in many of our industries, providing the temptation and the environment for the operation of cartels and monopolies.
The hearings conducted by the Senate Committee on Economic Affairs, of which I’m chairman, and the Committee on Trade and Commerce, on several bills and a resolution proposing the enactment of an antitrust law underscored the relevance and the urgency of such legislation.
In particular, Senate Resolution 123, which I introduced, expresses concern about the undue advantage that cartels and monopolies pose over our micro, small and medium enterprises.
During the hearings, Trade and Industry Undersecretary Adrian Cristobal stressed that a competition or antitrust law would promote investments and facilitate trade between the Philippines and other countries. Attorney Lorna Patajo-Kapunan explained that antitrust provisions could be found in existing laws like the Revised Penal Code, New Civil Code and the Consumer Act of the Philippines.
However, these provisions do not provide for clear-cut guidelines or evidence to determine whether an act constitutes unfair competition, monopolistic behavior or restraint of trade.
Attorney Anthony Abad, managing director of the Trade Advisory Services of the Ateneo Center for International Economic Law, said it was fortunate that the 15th Congress was prioritizing the antitrust bill, enactment of which would have a transformative effect on the way business is done in the country.
The Constitution itself provides the basis for the enactment of an anti-trust law. Under Article XII, Section 19, the state is mandated to “regulate or prohibit monopolies when public interest so requires” and disallows “combinations in restraint of trade or unfair competition.” Section 22 of the same article provides: “Acts which circumvent or negate any of the provisions of this article shall be considered inimical to the national interest and subject to criminal and civil sanctions, as may be provided by law.”
Monopolies exist when one major company has enough power to dictate the prices, quality and selection of products and services, thereby becoming very powerful because competitions are not big enough to threaten that company.
On the other hand, a cartel is a group of companies producing the same product or service which, instead of competing with each other, agree to jointly control the price or supply of their common product or service, to the detriment of consumers.
Since consumers have no other product choices, monopolies or cartels can increase or decrease prices at will. In the end, the people who suffer most are those who already have low purchasing power like the minimum-wage earners or small entrepreneurs.
To this day, the Philippines does not have a comprehensive and developed legislation relating to antitrust and monopoly activities.
We need a comprehensive law that will give meaning to the principles of fair market and discourage monopolies, to afford our micro, small and medium enterprises the opportunity to participate in the growth of our economy.
The Senate Committees on Economic Affairs and on Trade and Commerce have come up with a draft bill, which consolidates Senate Bill 1 introduced by Senate President Juan Ponce Enrile together with Senators Ralph Recto and Antonio Trillanes; Senate Bill 123 by Sen. Serge Osmeña; Senate Bill 1838 by Sen. Miriam Santiago and my Senate Resolution 123.
The consolidated measure, when enacted into law, will encourage competition in the marketplace, help reduce prices and increase the quality of products or services for the benefit of consumers."


"DOJ as competition authority"
Lito U. Gagni
BUSINESS MIRROR, Market Files, 20 September 2011
(Original article available here)

"CAN the Department of Justice (DOJ) pursue a similar line of complaint that the US DOJ advocated against a looming merger between AT&T and T-Mobile on issues of dominance that is now the subject of a controversy involving Philippine Long Distance Telephone Co. (PLDT) and Digital Telecom, which owns Sun Cellular? This merger issue, we believe, is at the heart of an executive order that sought to make DOJ as a competition authority.
As of yesterday, the state attorneys general of New York, Washington, California, Illinois, Massachusetts, Ohio and Pennsylvania have joined the US Justice Department in its suit against the proposed acquisition by AT&T of T-Mobile.
One needs only to look at what is happening in the US to determine that the proposed acquisition by PLDT of Sun Cellular would mean a 70-percent control of the frequency, the digital roadway, which smacks of dominance and goes against the grain of letting competition dictate the tempo of the business game. This is why it is important to look at what’s happening in the US in the business of telcos to know that PLDT’s acquisition of Sun would have the same impact as that of AT&T’s on T-Mobile and should, therefore, be an occasion for the DOJ to pursue its mandate as the competition authority.
No less than President Aquino sounded the alarm on the return of the monopolies. Remember that it was during the dark days of the monopoly of PLDT when 98 percent of the population was waiting for a line and 2  percent was waiting for a dial tone. This quotable quote from Singapore’s Lee Kwan Yew was what possibly moved then-President Fidel V. Ramos to open the telco industry to other players.
That opening of the telecom industry to other players is what allowed the Philippines to become an investment destination and now we are reaping the benefits of that Ramos vision to rid the sector of the monopolistic situation. As a result, thousands of jobs were created, with the business-process outsourcing industry leading the way. It is thus unfortunate to know that the telco sector is again being threatened by the PLDT-Sun deal. Perhaps, the DOJ can look at the options open to prevent a repeat of the problem. For starters, it may want to google the AT&T-T-Mobile deal and discover how US state attorneys are doing it.

Friday, September 30, 2011


"Is It Antitrust Worthy?"
Francis Ed Lim
PHILIPPINE DAILY INQUIRER, Point of Law, 15 September 2011
(Original article available here)

"Since President Aquino mentioned a new antitrust law in his first State of the Nation Address, much work has been done on the antitrust bills filed in Congress.

Legislative hearings have been concluded and proponents say that after decades of waiting (since the Eighth Congress, I’m told), we will finally have a unified, up-to-date and comprehensive antitrust or competition law.  

What are antitrust laws? Antitrust or competition laws are laws that regulate and maintain market competition by prohibiting or regulating anti-competitive behavior. Three acts that antitrust laws normally seek to prohibit are monopolies, cartel-like behavior and abuse of dominant market position.
In an economic sense, antitrust laws are in place to promote a freer market and more open trade, which will result in substantial efficiency and welfare gains for everyone.
A hot topic
The proposed acquisition of Digitel by PLDT has sparked even more interest on an antitrust law for the country. Globe, a competitor, argues that the transaction will lead to PLDT controlling close to 70 percent of the market and will eventually lead to higher prices and rates. However, PLDT and Digitel maintain that the deal will result in continued “unli” benefits, to use telco lingo, for consumers.
Aside from the PLDT-Digitel deal, Nestlé has its own antitrust controversy: Allegedly, it has been engaging in predatory pricing to drive out competition from the market. Expectedly, Nestlé contends that its products are not the cheapest in the market and that competition among lower-priced products remains intense.
Justice Secretary Leila de Lima also had reportedly ordered a review of antitrust cases filed against Fraport AG (Fraport), a German company, and its local partner Philippine International Air Terminals Co. (Piatco), in connection with the Ninoy Aquino International Airport Terminal 3.
Interestingly, perhaps in an attempt to respond to these antitrust controversies, the President issued Executive Order No. 45, which created an Office of the Competition Authority in the Department of Justice, to help enforce our antitrust laws.
Current law
This is not to say that our country has no antitrust laws at all. From myriad sources of law, one can find snippets of an anti-competition framework that serves as some sort of precedent for the current bill.
Foremost is Article XII, Section 19, of the Constitution, which mandates the State to regulate or prohibit monopolies when required by public interest and at all times to prohibit combinations in restraint of trade and other unfair competition practices.
There are implementing pieces of legislation, like the Revised Penal Code which, in Article 186, punishes monopolies and combinations in restraint of trade.
Meanwhile, the Civil Code under Article 28 authorizes the collection of damages arising from unfair competition in agricultural, industrial or commercial enterprises or in labor.
There are other laws that attempt to penalize anti-competition activities. However, with very few exceptions, many of these laws have but skeletal provisions and do not provide meaningful guidance to the market on how our competition policy should be implemented.
Salient features
What is clear from the bills (at least after the Senate and House committee hearings) is that they do not prohibit monopolies per se, perhaps taking their cue from the Constitution and our Asean neighbors.
At the core of the bills are more detailed provisions on anti-competitive agreements (like price-fixing, market allocation), abuse of dominant position (like predatory pricing), anti-competitive mergers and more detailed enforcement mechanism.
Unlike its Senate counterpart, the House version proposes to create a five-man Philippine Competition Commission as a single venue for anti-competition issues. Similarly, the House version proposes to adopt non-adversarial methods of enforcement, like a request for binding ruling to make the law more business-friendly.
Anti-antitrust law
There are, of course, those who are against an antitrust law. Some economists argue that the need for an antitrust law stems from the wrongful notion that an unhindered and unregulated market leads to coercive monopolies. They assert that no unfair monopoly can ever be created by means of free trade in a free market economy.
Surely, there are policy issues yet to be decided in the plenary sessions of both Houses before an antitrust law becomes part of our statute books.
A basic policy issue, of course, is whether we really need a new antitrust law. If so, do we adopt the American system or the European model? What acts should be outlawed and what type of enforcement mechanism should be adopted considering the stage of our economic development? Should the law go for a separate competition commission or just create an office in the DoJ? How should the competition authority interface with other government agencies, like the Department of Energy, Department of Trade and the Securities and Exchange Commission on antitrust-related matters that, by law, are currently under their jurisdiction?
The big question is, whether a new antitrust law will finally see the light of day or will the bills suffer the same fate as the preceding measures?
Your guess is as good as mine.
(The author, formerly the president and CEO of the Philippine Stock Exchange, is now the co-managingpartner and head of the corporate and special projects department of Accralaw. He may be contacted at"

Sunday, September 18, 2011

Nestle execs face trial

"A Climate of Uncertainty"
by Emil Jurado
MANILA STANDARD, To The Point, 06 September 2011
(Original article available here)


Calls for the passage of an effective and all-embracing anti-trust law in the country appear to have received renewed interest in the wake of a resolution handed down by the Office of the Quezon City Prosecutor in a case filed against multi-national Nestle Philippines Inc.

In an August 15 resolution, City Prosecutor Donald Lee approved the recommendation of First Assistant City Prosecutor Meynardo Bautista Jr. that charges be filed in court against high officials and executives of NPI for violation of Article 186 of the Revised Penal Code.

This particular provision contains a prohibition against entering into, or being a party to, any contract or agreement, or from taking part in any conspiracy or combination in restraint of trade or commerce, for the purpose of preventing by artificial means, free competition.

Those recommended for indictment are NPI chairman and CEO John Martin Miller, Chief Finance Office Peter Oszek, Business Executive Manager Shahab Bacani, Regional Sales Manager Jose Ceballos and Area Sales Manager Elisa Lupena.


The case stemmed from complaints filed against Nestle by service Edge Distributors Inc. and FDU Forefront II Trading Corp. (FDI 2), two Filipino firms serving as distributors of Nestle products in Metro Manila.

The allegations against Nestle include predatory pricing, violation of the terms of distribution agreement between Nestle and the two distributors, unjust termination of the said agreement, imposition of inflexible price bulletins that resulted in huge losses to the distributors, unilateral withdrawal of promised marketing support, perjury and offering false testimony in evidence.

Investigations established the existence of a vertical agreement between Nestle and its distributors, wherein the former fixes the resale price of the products. The agreement compels the distributors to sell the goods only at the price dictated by Nestle, otherwise, their distributorship contract will be revoked.

The resolution also said that the respondents, who were then officials of Nestle Philippines, Inc., knowingly committed the crime or permitted or failed to prevent the commission of the said crime. Hence, they are criminally liable.

Nestle was also accused of fixing the resale price of its products and imposing upon its distributors that these prices be maintained. This is in violation of Article 18 of the Revised Penal Code, which says that price fixing is automatically illegal and there will be no valid justification to legitimate price-fixing agreement.

If I may read between the lines, I would say that the resolution represents a triumph not only of the two Filipino distributors, but also of the common Filipino consumer. This case sends a strong message to other multinationals that their abusive practices will not be tolerated. Significantly, it also encourages similarly situated Filipino distributors and marketing outfits that they can rely on the government to uphold and to protect their rights."


by Ducky Paredes
MALAYA, Business Insight, 05 September 2011
(Original article available here)

"PEOPLE and multinational corporations both have birthdays but with a big difference. Humans tend to become kinder as they approach the end of their time on earth; multinationals get to be more powerful and, as their reach expands, more dominant, exploitative and even criminally abusive. Not all, of course; as with humans, there are good and bad multinationals.

One multinational celebrated its hundredth year recently by bullying and throwing its weight around to the detriment, not just of its competitors, but also even of its own business partners.

At last, the multinational is getting its comeuppance. For starters, the force of the law, imperfect as it is in this country, seems to be working against the multinational. A judge is looking them over and entertaining complaints filed by Pinoys who were abused by the MNC and forced into a state of near-bankruptcy.

There is even more trouble due the MNC in the form of bills pending in the Senate and the House of Representatives intended to improve current laws against monopolistic behavior, predatory pricing and restraint of trade, sponsored by Senate President Juan Ponce Enrile, Senator Sergio Osmeña and Representative Rufus Rodriguez. .

The giant multinational, which is Nestle Philippines, Inc. (NPI), just turned 100 recently. Nestle, as with most other MNCs, celebrated its longevity by launching corporate social responsibility (CSR) projects backed up by lavish advertisements in print, radio, television and cinema showing how the multinational has been a good corporate citizen. In the case of Nestle in the Philippines, one wonders whether this the true picture of the company.

NPI’s festivities were somewhat rained on when the Office of the City Prosecutor of Quezon City issued a resolution on August 15 finding sufficient evidence to hold NPI for trial for violation of Article 186 of the Revised Penal Code.

This article penalizes any person "who shall enter into any contract or agreement or shall take part in any conspiracy or combination in the form of a trust or otherwise, which results in restraint of trade or commerce and prevents, by artificial means, free competition in the market."

The resolution found merit in the complaint filed by Nestle distributors FDI Forefront II Trading Corporation and Service Edge Distributors, Inc. that their agreements with Nestle were anti-competitive since they were obligated to sell Nestle products at the price fixed by NPI, regardless of the fact that the set price provided too thin a margin for the distributors to make a profit. Failure by the distributors to sell under these terms would result in the unilateral termination of their agreement with NPI. Their complaint pointed to a situation when NPI forced them to sell to a set of customers at a loss because of the fixed price set by NPI.

According to the QC Prosecutor’s resolution, "the act of Nestle in fixing the resale price maintenance for its products, imposing it on complainant is illegal, a per se violation of paragraph 1 of Article 186, Revised Penal Code which means that price fixing is automatically illegal and there will be no valid justification to legitimate price fixing agreement."

The resolution further stated that an analysis of the agreement shows that the act is also unlawful "because of its harmful anti-competitive effects against consumers and complainants, with no competitive economic benefits. Harmful to the consumers because Nestle exercised monopoly power of price fixing, the resale of its goods which means that consumers cannot buy the product at a lower price than that fixed by Nestle."

High ranking NPI executives, former Chief Executive Officer Doreswamy Nandkishore, current CEO John Martin Miller, Shahab Bahcani and Peter Noszek were impleaded for conspiring to commit anti-competitive acts as they were found to have knowingly committed the crime or to have permitted or failed to prevent the commission of the crime, and will stand trial before a Regional Trial Court of Quezon City.

The resolution is a welcome development, not only to the complainants, but to those who support the passage of an Anti-Trust Law, coming as it does on the heels of President Noynoy Aquino’s signing of Executive Order No. 45 giving full jurisdiction to the Department of Justice over matters related to competition and fair trade practices.

Lawyer Lorna P. Kapunan recalled the president’s assurance that the matter of monopolies and corporate bullying tactics was one of the first issues that he would look into. "His signing that E.O. shows that he is taking active steps to back up his promise," Kapunan said.

Nestle insiders say that the top honchos in the company’s main office in Switzerland are closely monitoring the woes that the local hundred-year-old outfit is experiencing. The rift between NPI and its distributors was reportedly on the agenda when the mother company’s chief executive Paul Burke and executive vice president Frits Van Dijk came all the way from Switzerland to meet with NPI officials (and also incidentally, to participate in the company’s centennial celebration).

Will the mother company in Switzerland do anything to convert the image of the centenarian company into a more grandfatherly one in its dealings with its business partners or will Nestle continue to exhibit the worst traits of a MNC monster?"

The DOJ Anti-Trust Mandate from PNoy

Globe urges DOJ to follow lead of US counterpart in telecom deal

by Mary Ann Ll. Reyes
Philippine Star, 05 September 2011
(Original article available here)

"MANILA, Philippines - Globe Telecom has urged the Department of Justice (DOJ), which has recently been named by President Aquino as Competition Authority, to follow the lead of its US counterpart in opposing a planned merger that will create a monopoly in the telecommunications market.

According to Globe corporate communications head Yoly Crisanto, “government intervention is necessary to ensure that there is a level playing field and allow healthy competition to boost the quality of services for the benefit of consumers.”

But PLDT dismissed Globe’s assertion, saying that the legal and factual contexts of these cases are different. “Our view is the Digitel transaction complies with Philippine law and will serve the public interest through better and more affordable telecom services in more areas of the country,” PLDT spokesperson Ramon Isberto said.

The US Justice Department has filed a civil antitrust lawsuit at the US District Court in Washington against AT&T for its $39 billion purchase of T-Mobile USA, a move described by industry observers as raising the stakes in antitrust jurisprudence.

Crisanto said this development is seen as a welcome input to the Aquino administration’s strong anti-monopoly stance which is incidentally aligned with his “matuwid na daan” or a straight path approach to issues involving corruption and the protection and promotion of public interest.

Based on Associated Press reports, the US Justice Department believed that the proposed merger would “stifle competition and lead to higher wireless prices, less innovation and fewer choices for consumers” and these were reiterated in a news conference by Deputy Attorney General James Cole, saying that the merger would result in “tens of millions of consumers all across the United States facing higher prices, fewer choices and lower quality products for mobile wireless services.”

Globe said the AT&T, T-Mobile merger, under review by the Federal Communications Commission, bears a striking resemblance to the local PLDT-Digitel merger which is likewise under review by the Philippine regulator, the National Telecommunications Commission (NTC).

Between AT&T and T-Mobile, the merger will compete nationwide in 97 of the 100 largest cellular marketing areas.

Globe noted that the PLDT-Digitel merger, on the other hand, will give it 70 percent of the total market and excess frequencies at a ratio of 4.5 vs. 1 of Globe.

AT&T is being accused of “hoarding spectrum”, sitting on top of a 700MHz spectrum acquired in 2008 auctions and its Advanced Wireless Services spectrum to roll out 4G LTE service. AT&T is said to be planning to cover 97 percent of the US population with 4G service if the merger is approved.

The AT&T purchase of T-Mobile, however, was alleged to have been a move to solve its spectrum issues brought about by the surge in mobile broadband use. In fact, this issue of acquiring additional frequencies by merging is the target of investigation set by one of the famous ’50 questions’ asked by the FCC of AT&T.

Globe pointed out that consistent with his anti-monopoly position, President Aquino said, when asked in an interview about the PLDT case at the NTC, that “our interest here is to ensure that there is no monopoly and that we promised a level-playing field, and about 85 million mobile-phone users can’t be tied to one provider.”

Last June 9 this year, President Aquino signed Executive Order 45 designating the DOJ as the Competition Authority.

He created the Office for Competition under the Office of the Secretary of Justice “to carry out duties and responsibilities such as the investigation of all cases involving violations of competition laws and the prosecution of violators to prevent, restrain and punish monopolization, cartels and combinations in restraint of trade as well as enforce competition policies and laws to protect consumers from abusive, fraudulent or harmful corrupt business practices.”


"People v.Nestle"
by Horacio Paredes
Abante, 03 September 2011
(Original article available here)

"Tila nagbunga na rin ang pagsisikap ng dalawang kumpanyang Pinoy na mabigyan ng katarungan ang pagmamalabis at pang-aaping dinanas ng mga ito sa kamay ng isang dayuhang multi-national.

Lumabas na rin ang Resolusyon ng Office of the City Prosecutor ng Quezon City tungkol sa mga kasong isinampa ng Service Edge Distribution, Inc. (SEDI) at ng FDI Forefront II Trading Corporation (FDI 2) laban sa Nestle Philippines, Inc.(NPI).

Ang kaso ay tungkol sa predatory pricing na ipinatutupad ng Nestle kaugnay ng pagbebenta ng iba’t ibang produkto nito. Sa ilalim ng mga patakaran ng Nestle Philippines, ang mga distributor ng kumpanya ay hindi maaring magbenta ng mga produkto sa presyong labas sa idinidikta ng Nestle, kahit na ma­ging dahilan ito sa kanilang pagkalugi.

Ang mga nasakdal ay sina Nestle Chairman at CEO John Martin Miller, Chief Financial Officer Peter Noszek, Business Executive Manager Shahab Bacani, Regional Sales Manager Jose Ceballos, Area Sales Manager Elisa Lupena at dating Chairman at CEO Noreswamy Nandkishore.

Sinabi ni First Assistant City Prosecutor Meynardo M. Bautista Jr. na may sapat na ebidensya upang dalhin ang kaso sa hukuman.

Ayon kay Bautista, may nagawang paglabag ang Nestle sa Article 186 ng Revised Penal Code na nagsisilbing batas ng Pilipinas hinggil sa isyu ng anti-trust practices. Ang nabanggit na artikulo ng Kodigo Penal ay nagtatakda ng sumusunod:

“Any person who shall enter into any contract or agreement or shall take part in any conspiracy or combination in the form of trust or otherwise, in restraint of trade or commerce to prevent by artificial means free competition in the market.”

Ang paglabag ay kaugnay sa mga ipinatutupad ng Nestle na mga limitasyon sa presyo ng mga produkto nito, sa mga gawaing pumipigil sa malayang kalakalan at nagbibigay-daan para mangi­babaw ang monopolyo, kasama na ang kapangyarihang magtakda ng mga presyo at pigilan o harangan ang mga karibal sa negosyo sa isang partikular na lugar.

Lumabas sa imbestigasyon na may kasunduan ang Nestle at ang dalawang distributors kung saan itinakda ng NPI ang mga presyo na dapat sundin ng mga distributors. Inobliga ng NPI ang SEDI at FDI 2 na ibenta lamang ang mga produkto nito sa itinakdang mga presyo, kasabay ng bantang pawawalang-saysay ang distributorship agreement kapag ‘di sila sumunod.

Sinabi ni Bautista na ang ginawang ito ng NPI ay ilegal at isang paglabag sa Paragraph 1 ng Article 186 ng Revised Penal Code. Aniya, ilegal din ang nangyaring price fixing at walang sapat na katwiran upang maging lehitimo ang pagtatakda ng mga presyong nabanggit.

Ang kasunduan sa pagitan ng dalawang panig, ani Bautista, ay labag sa interes hindi lamang ng dalawang distributors kundi pati na ng mga consumers o mamimili. Wala rin aniyang benepisyong ekonomiko na matatamo rito.

Ayon kay Bautista, ang mga isinakdal, na mga responsableng opisyal ng Nestle Philippines, ay hayagang isinagawa ang krimen, o pinayagang mangyari ito, o nabigong pigilan ang nasabing krimen, kaya mayroon silang pananagutan dito.

Inirekomenda ni Bautista na ipaghaharap ng sakdal sa korte ang mga nabanggit na opisyal ng NPI bunsod ng reklamong ini­hain ng FDI Forefront II Trading Corporation. Ang rekomendasyong ito ay inaprubahan at sinang-ayunan ni City Prosecutor Donald T. Lee.

Matinding dagok sa Nestle Philippines ang naging pasiya ng Quezon City Prosecutor’s Office. Panay pa naman ang papogi ng Nestle sa telebisyon at sa mga pahayagan kaugnay ng katatapos pa lamang na selebrasyon ukol sa nakaraang 100th Anniversary nito sa Pilipinas. Parang binagyo ang parada ng Nestle.

Sa kabilang dako, pinawalang-saysay naman ang sakdal ng Service Edge Distributors, Inc. sa dahilang ang negosyo ng Service Edge ay sumasaklaw lamang sa Caloocan, Malabon, Navotas at Valenzuela na pawang nasa labas ng Quezon City. Kaya walang hurisdiksyon ang Quezon City Prosecutors Office sa kaso.

Gayun pa man, napag-alaman na puwede pa ring magsampa ng demanda ang Service Edge sa piskalya ng alin sa mga lugar na sumasaklaw ng operasyon nito. Hindi pa ligtas ang mga nasabing opisyal ng Nestle sa demanda ng Service Edge kapag ito ay iharap ng distributor sa tamang korte.

* * *"

Thursday, September 1, 2011

Nestle to stand trial in Quezon City for anti-competitive acts

In light of all the debates and discussions on anti-trust practices revolving around the PLDT-Smart-Sun deal, another giant multinational, Nestle Philippines, Inc. (NPI) is actually going to be held for trial for criminal violation of anti-competition provisions.

On 15 August 2011, the Office of the City Prosecutor of Quezon City issued a resolution finding that there is sufficient evidence to hold NPI for trial for violation of Article 186 of the Revised Penal Code, which penalizes any person who shall enter into any contract or agreement, or shall take part in any conspiracy or combination in the form of a trust or otherwise, which results in restraint of trade or commerce and prevents by artificial means free competition in the market. 

High-ranking officers of NPI, namely Doreswamy Nandkishore (former CEO), John Martin Miller (current CEO), Shahab Bachani and Peter Noszek were impleaded for conspiring to commit anti-competitive acts.   The resolution found that NPI’s practice of resale price maintenance constituted price-fixing which results in exclusion of competition in a particular market. 

Since current anti-trust bills are still pending in Senate, the OCP made reference to the US Sherman Act which considers resale price maintenance as illegal per se.   According to the resolution, the vertical agreement existing between NPI and its distributors, FDI Forefront II Trading Corporation and Service Edge Distributors, Inc., was anti-competitive since Nestle fixed the resale price of its products, while its distributors were obligated to sell Nestle products only at the price fixed by NPI.   Apparently, failure by the distributors to sell the products at the prices fixed by NPI would result in the unilateral termination of their distributorship agreement by NPI.   The price fixing was found to be harmful to consumers because it meant that consumers cannot buy the product at a lower price than that fixed by NPI.

This practice of price-fixing by NPI was deemed as a violation of Paragraph 1 of Article 186 of the Revised Penal Code.   Nandkishore, Miller, Bachani and Noszek were found to have knowingly committed the crime or to have permitted or failed to prevent the commission of the crime.   The NPI officers will stand trial before a Regional Trial Court of Quezon City.

Wednesday, August 31, 2011

Antitrust Law Center Forum

The young lawyers advocating the passage of anti-trust legislation held an anti-trust forum on 31 August 2011 at Pasay AB Function Room of the Makati Shangri-la at 11:00 a.m. The form was called “Bastardization of the Philippine Economy: A Primer on Anti-trust Legislation.”

The forum was organized by the Antitrust Law Center/Young Lawyers In Support of Antitrust Law (YLSAT).

The two main resource speakers were again Atty. Lorna Kapunan and Atty. Anthony Abad.

Atty. Lorna Kapunan spoke on manifestations of monopolies, unfair competition, restraint of trade and price manipulation in the Philippines. 

Atty. Abad discussed different anti-trust regulations and competition policies in various Asian countries.

Thursday, August 11, 2011

Time for Anti-Trust?

“MAPping the Future” Column in INQUIRER – 1 August 2011

Time for Anti-Trust?
by Ronald U. Mendoza

Lee Kwan Yew once quipped that in the Philippines, 99 percent of the population waited for a phone line, while the remaining 1 percent waited for a dial tone. While this jab was directed at our telecoms sector, Lee could have just as easily poked at the rest of our monopolized and highly regulated industries then.

Sweeping market-oriented reforms in the mid-1990s were designed to change this. Deregulation and privatization would get the inefficient and costly government out of key sectors it had no business being in, and instead draw-in competitive, innovative and much more efficient private sector actors who would in turn compete for market share by providing better services at lower prices. Deregulation would enhance competition, in turn promoting the necessary investments to boost innovation and competitiveness. This would ultimately lead to increasing consumer welfare and taxpayers’ benefits, by lowering the number of loss-making and inefficient government owned and controlled corporations.

Are consumers (and taxpayers) really any better off today, well over a decade after this deregulation wave? Did competition and competitiveness really increase? Telecommunications, petroleum, and air travel are three industries that are particularly illustrative of the range of outcomes. There are some gains, but also evidence of emerging challenges to promote competition and safeguard consumer welfare.
Table 1. Summary of Selected Industry Information
Telecommunications Petroleum Airlines
Year of Deregulation 1995 1998 1995
Companies before Deregulation PLDT Shell, Petron and Caltex Philippine Airlines (PAL)
Companies after Deregulation PLDT (Smart; Talk N’Text-Piltel; Red Mobile-Cure and Sun-Digitel) and Globeb Shell, Petron, Caltex, SeaOil, Flying V, Total, Jetti, City Oil and UniOil PAL, Cebu Pacific, SEAir, Air Philippines, and ZestAir
Herfindahl-Hirschman Competition Indicatora (Higher values reflect more market concentration; Date or event in parentheses) Mobile Telephony:
·        10000 (1994) ·        4020 (prior to PLDT-Digitel merger)b ·        5800 (after PLDT-Digitel merger)c Landlines: ·        10000 (1994) ·        3253 (prior to PLDT-Digitel merger)b ·        4479 (after PLDT-Digitel merger)c 3427 (1996)d 2846 (2010)d Domestic: ·        10000 (1994) ·        3680 (2010) International: ·        2548 (2010)e
a Herfindahl-Hirschman Index prior to and after deregulation, with year in parenthesis. The HHI it is the sum of the squared market shares of the each company in the industry. The index approximates the value zero when the industry has more firms with similar size. A higher value therefore signals potentially weaker competition and more concentration in the industry. For illustration, the US Department of Justice, Federal Trade Commission characterizes an HHI of 1500 and below as “unconcentrated”, 1500-2500 as “moderately concentrated” and 2500 and above as “highly concentrated”.
b Shares prior to PLDT-Digitel merger.
c Assuming PLDT-Digitel merger.
d Data from the Department of Energy.
e Data from the Center for Asia Pacific Aviation (2010); and based on passenger capacity, including international flights.

The telecommunications industry was deregulated in the early 1990s, but PLDT remained a dominant player due to its control over most landlines. This was further reinforced in 1998, when First Pacific (owner of Smart) bought control of PLDT (also owner of Piltel), and these companies accounted for a combined share of 68 percent of the cellular telephone subscribers and 43 percent of the installed lines. Competition between PLDT-Smart and Globe kept pricing steady for text messaging, so in real terms (i.e. accounting for inflation), the price of text messaging declined over time, even as it was kept at PhP1 per text message. In 2003, Sun Cellular of Digital Telecommunications Philippines Inc. (Digitel) entered the mobile telecommunications market offering product innovations like “unli” (unlimited) calls and text messaging. While initially challenged by the industry incumbents through the National Telecommunications Commission (NTC), the NTC upheld Sun Cellular’s entry and it eventually provoked similar product innovations among the incumbents.
Intense competition among these companies generated a wider array of product options for consumers, with ever more competitive pricing schemes fitting different consumer preferences. Well over 80 percent of the population now has access to mobile telephony—a far cry from the times when it took over a decade to get a landline from PLDT.
However, the recent acquisition of Digitel by PLDT raises questions about the state of market concentration in the industry, and in turn, what this might mean for continued product innovation, competitiveness and consumer welfare. A virtual duopoly will emerge from this deal, with PLDT and its affiliates accounting for about 70 percent of the mobile phone market, and Globe serving the remaining 30 percent. Despite deregulation, barriers to enter the industry, including separate franchise requirements for each telecommunications sector and limits to foreign participation (40 percent cap), prevent further enhanced competition.
Deregulated in 1998, the downstream oil industry was initially comprised of three players: Caltex Philippines (now the marketing and distributing company under Chevron), Pilpinas Shell, and Petron (then jointly owned by the state-owned Philippine National Oil Company and Saudi Aramco). Today there are several more gasoline suppliers, including the original three plus SeaOil, Flying V, Total, Jetti, City Oil and UniOil.

Unleaded gasoline was about PhP12 per liter while diesel gasoline was about PhP8 per liter during the deregulation—these recently reached peaks of about PhP60 and PhP45, respectively. Are these dramatic price increases due to deregulation? Recent analysis by the UAP and SGV suggests that, in fact, local pump prices have not gone up as fast as international indicators for crude oil and its refined products. Further, the stock prices of oil companies such as Petron and Shell do not appear to show any marked improvements during the period of study from 2005-2008, when prices at the pump were on an upward trend.

Our own empirical analysis at AIM also shows that much of the change in gas prices at the pump since the deregulation was accounted for by international price movements. In fact, after correcting for the influence of international prices and a measure of industry competition, gas prices on the margin before and after deregulation are not statistically different. This suggests that while deregulation is not to blame for the dramatic rise in gas prices, it did not seem to change industry pricing either. Indeed, even as they are now also competing in retail, food and shopping options, the three main industry players still dominate—their combined market share still stands at about 77 percent.


The civil aviation industry in the Philippines was dominated by PAL until the government finally opened this sector in 1995. Following the entry of new airlines like Cebu Pacific, Air Philippines and Asian Spirit (now ZestAir), PAL’s market share was cut in half, declining from 96 percent in 1995 to about 49 percent in 1999. PAL nevertheless remains a dominant player in the market with about 50 percent market share in recent years, but Cebu Pacific has captured significant ground, accounting for about 30 percent market share.

Deregulation brought about a surge in domestic air travel in the country, thanks to more flights and more competitive pricing. The Manila-Iloilo route alone experienced an 83 percent increase in the number of travelers just two years after deregulation. Passengers from Manila to Davao and from Manila to Cebu also shot up by 45 percent and 34 percent, respectively, during this period.

More attractive pricing clearly played a role in successfully contesting market share from PAL. There is also evidence that PAL restricted output—and this was quickly undone by the entry of more players. A recent empirical study suggests that average airfares are about 10 percent lower after liberalization, and that up to 90 percent of domestic airline passengers benefited from lower fares.

The industry is not without challenges, however. Competition did improve for the most profitable routes, but the less profitable routes (or so-called missionary routes) could be left behind. PAL used to serve these routes through a cross-subsidy between the more profitable and less profitable destinations. However, with the break-up of its monopoly, and the apparent focus of the new entrants on the more profitable routes, up to 11 markets formerly served by PAL have lost airline service.

Airport infrastructure is also still inadequate. In addition, even as new domestic firms have shown their competitiveness relative to the once monopoly incumbent, there are some concerns that these same firms may be hard-pressed to compete at the international level, notably once the country opens up to ASEAN competitors as part of the country’s “open skies” policy. Industry experts already forecast the Philippines could be a key battleground for low cost carriers in the region, including AirAsia (Malaysia) and Tiger Airways (Singapore) once Philippine skies have been opened up.

Promoting Competition and Competitiveness

The preceding examples provide some evidence of consumer gains from deregulation. However, they also flag critical issues, including the possible need to maintain healthy competition levels, and also competitiveness, across Philippine industries. Indeed the indicator of competition used widely by international regulators—the Herfindahl-Hirschman index (HHI) —suggests that the potential for abuse of market power is still present in all three industries examined here (see table 1). Since the HHI for these industries are well above 2500, according to the guidelines of the US Department of Justice and the Federal Trade Commission, they would all be described as “highly concentrated.”

Some market consolidation has also already begun to take place. Indeed, if we were to draw from guidelines on competition policy presently applied in the United States or in the EU, the PLDT-Digitel merger would automatically raise a red flag and trigger closer scrutiny by regulatory authorities, as the worsening of industry concentration indicators could indicate a rise in market power and possibly open the door to anti-competitive behavior.

In addition, pricing behavior and product/service strategies remain largely unexamined. Further market liberalization will also introduce challenges to some industries. Regulatory authorities will need to catch up with these developments, utilizing international good practices, including more robust analytical frameworks and technical analyses to strengthen regulatory oversight over these evolving industries.

Deregulation does not mean that the government should be absent—only that its role be re-focused. Markets can also malfunction, and industries could end up consolidating in ways that undermine competition, innovation and ultimately also competitiveness. It is up to regulatory authorities to facilitate healthy competition and improved competitiveness, in order to safeguard consumer welfare. That in turn requires professional and technically equipped regulatory institutions with true independence and real capacity to exercise their mandate. Given the growing importance of anti-trust issues both nationally and internationally, more effective and coherent competition law and policy will be necessary.

(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines.  The author is Associate Professor of Economics at the Asian Institute of Management, and Executive Director of the AIM Policy Center. Prior to joining AIM, he was a senior economist with the United Nations in New York. Feedback at  For previous articles, please click