POINT OF LAW: ANTI-TRUST WORTHY?

"Is It Antitrust Worthy?"
by
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 felim@accralaw.com.)"

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."

NESTLE PHILIPPINES: MONSTER MNC

"MONSTER MNC IS 100"
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

"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.

* * *"

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.