Atty. Gregorio B. Austral, CPA
Substantially lessening competition is illegal
When business competitors agree not to compete to pursue a common profit objective, the consumers are at the losing end. Parties to a contract must examine any anti-competitive clause to avoid incurring hefty penalties.
The Philippine Competition Act prohibits anti-competitive agreements and abuse of dominant position to remove barriers to healthy competition. An entity that enters into an anti-competitive agreement shall, for every violation, be penalized by imprisonment from 2 years to 7 years and a fine of not less than P50 million but not more than P250 million. The law imposes the penalty of imprisonment upon the responsible officers and directors of the entity. When the entities involved are juridical persons, the penalty of imprisonment is imposed on its officers, directors, or employees holding managerial positions who are knowingly and wilfully responsible for the said violation.
Business entities must closely examine every proposed contract to avoid violating the law, especially when it involves a contract between or among competitors. The law does not give a fixed definition of what an anti-competitive agreement is, but it classifies anti-competitive agreements between or among competitors as follows: (a) agreements which are per se prohibited; (b) agreements which have the object or effect of substantially preventing, restricting or lessening competition; and (c) agreements other than those specified in (a) and (b) which have the object or effect of substantially preventing, restricting or lessening competition.
Agreements between or among competitors that are per se prohibited are those restricting competition as to price, or components thereof, or other terms of trade and fixing the price at an auction or in any form of bidding, including cover bidding, bid suppression, bid rotation, and market allocation and other anomalous practices of bid manipulation.
Agreements that have the object or effect of substantially preventing, restricting, or lessening competition may include any of the following: (1) setting, limiting, or controlling production, markets, technical development, or investment; (2) dividing or sharing the market, whether by volume of sales or purchases, territory, type of goods or services, buyers or sellers or any other means.
In the Nexium (Esomeprazole) Antitrust Litigation, direct and indirect purchasers of the drug Nexium sued AstraZeneca, the drug’s manufacturer, and three other manufacturing companies, Ranbaxy Inc., Teva Pharmaceuticals, and Dr. Reddy’s Laboratories, for agreeing to sell generic versions of Nexium. Allegedly, this agreement is prohibited for being a “reverse payment” settlement, whereby a branded-drug manufacturer settles a challenge to its patent by providing compensation to a generic challenger. In exchange, a generic manufacturer typically agrees to drop its patent challenge and enter the market as a licensee at some later time before the patent expires. The jury concluded that AstraZeneca possessed the necessary market power over Nexium and the settlement contained a “large and unjustified payment.” The jury ruled that the settlement was “unreasonably anti-competitive” and that any procompetitive justifications did not outweigh its anti-competitive nature.
In another anti-trust case in the U.S., a group of pediatricians sued vaccine manufacturer Sanofi for entering into negotiated contracts with the Physician Buying Groups (PBGs), which are typically privately held, for-profit entities, with membership consisting of thousands of family practices, pediatricians, and other independent medical practices. These contracts aim to negotiate group prices for their members, but the PBGs do not actually buy any vaccines. Practitioners who participate in PBGs are generally required to “agree to contractual terms to be eligible to purchase vaccines and other products pursuant to the PBG group purchasing contracts. The plaintiffs alleged that Sanofi used its market power across all relevant markets to impose bundled-pricing contracts on PBGs to stifle competition from Sanofi’s rivals. Thus, under Sanofi’s “exclusionary contracts with PBGs,” buyers are allegedly penalized for purchasing any vaccine that Sanofi offers from one of Sanofi’s competitors. The plaintiffs alleged two causes of action: (1) monopolization of the meningococcal vaccine market in violation of Section 2 of the Sherman Act and (2) anti-competitive agreements. Sanofi’s defense focuses on the fact that plaintiffs lack the standing to sue as the bundling contracts were negotiated by the PBGs and not the individual doctors themselves; therefore, only the PBGs have the legal standing to file the case. As of now, the case remains to be resolved by the U.S. District Court for the District of New Jersey.
The Nexium and Sanofi cases are just a few examples of how business deals and agreements are being strictly scrutinized for any anti-trust violation in the U.S. There are a lot of business deals and arrangements in the Philippines which need to be examined very closely. One area which the Philippine Competition Commission must look into is government procurement. Although the Government Procurement Act provides strict guidelines in the conduct of bidding yet, we still hear a lot of stories about cover bidding, bid suppression, bid rotation, and market allocation, and other anomalous practices of bid manipulation.
The Philippine Competition Act is a good law. The Philippines never ran out of good laws. In fact, we have so many of them. It is in the implementation of the law that we find it most challenging. Our Constitution envisions a more equitable distribution of opportunities, income, and wealth, a sustained increase in the number of goods and services produced by the nation for the benefit of the people, and expanding productivity as the key to raising the quality of life for all. However, we still have a long way to go.