Standing up for the little guy

"Standing up for the little guy"
Domini M. Torrevillas
From the Stands, Philippine Star, Opinion
February 17, 2011

Please click on picture to enlarge and view full article by Domini Torrevillas on Atty. Lorna Kapunan's crusade for better anti-trust laws.

Full text of article re-printed below:

"By any standard, lawyer Lorna Kapunan is a formidable woman. After graduating from the University of the Philippines College of Law in the late '70s, she embarked on an impressive career that has so far spanned more than three decades. Along the way, she became recognized as one of the leading litigation lawyers in the country, representing several high profile and multi-faceted cases. Her versatility has allowed her to be proficient in several practice areas, including licensing law, franchising, corporate and commercial law, international humanitarian law, family law and estate law and succession.

The thing about Lorna is this: you will never hear her talking about herself. In fact, she may feel somewhat awkward reading the paragraph above Given her remarkable credentials and achievements (including being a Ten Outstanding Women in the Nations Service awardee and a professional lecturer at the European-based International Centre for Legal Studies), many of her colleagues in the profession would be lulled into an overblown sense of self-worth. Lorna, on the other hand, is often heard saying that a person is only as good as the causes that he or she fights for. This is precisely why she currently sits in various boards and voluntary organizations and foundations.

Her latest cause has prompted many to compare her to a proverbial David standing in front of Goliath. Last week, however, Lorna was invited by Senators Juan Ponce Enrile, Manny Villar, Miriam Defensor-Santiago, and other members of the Senate Committee on Trade and Commerce to speak about what she feels is a pressing concern for Filipino entrepreneurs, Small and Medium Enterprise (SME) owners, and consumers in general.

The legislators listened intently as she outlined the unfair practices of some multinational corporations (MNCs) operating in the Philippines, and discussed the lack of legislation protecting Filipinos against these activities.

It turns out that MNCs - by virtue of their size, economic clout, profit-centeredness, or a combination of all three - often act like bullies and take advantage of the leniency present in the Philippines in order to get away with violations. In particular, it is those that are engaged in Fast Moving Consumer Goods (FMCG) that are notorious for this bullying behavior Unfortunately, as Lorna pointed out, this maltreatment of local distributors and the buying public has gone unabated because the government has been powerless to stop it.

'That's the saddest part,' she explained to friends in media later on. 'All we are to some foreign corporations are buyers and end-users. They do not seem to be interested in creating vertical employment, encouraging entrepreneurship, or forging beneficial partnerships with SMEs. It's all about profit, profit, and profit - and the ones getting the very short end of the stick are usually the distributors.'

Apparently, countless Filipino distributors have been literally driven to bankruptcy as a direct result of this so-called 'MNC abuses.' These abuses include baiting prospects with the promise of marketing and promotional support, as well as favorable in-house financing rates. A few months later, however, all support disappears into thin air. Moreover, distributors are suddenly endorsed to a third-party bank for financing (without prior notice), and saddled with rates much higher than agreed upon.

'This is very common,' Lorna said matter-of-factly. 'Now imagine how the problem compounds for the distributors when the MNCs engage in predatory pricing. In order to drive their competition out of the market, certain MNCs compel their distributors to sell goods at irrationally low prices - while keeping the company's margins intact, of course - just to move stocks. They do this in a number of ways: threatening to terminate contracts if quotas are not met, instigating price wars among distributors, or assigning problem accounts directly to their distributors. It's no wonder that they eventually find themselves in a hole they can't get out of.'

But surely the Department of Trade and Industry (DTI) would step in during such instances, right? 'Sadly, no," stated the noted lady lawyer. 'Many distributors have actually filed complaints with the DTI, but they have all received the same reply. Evidently, the agency is fully convinced that cases like these are not within their jurisdiction, if you can believe that.'

The good news is that, according to my reporter-friends, Senator Enrile was especially attentive during Lorna's presentation. Small wonder, considering that Manong Johnny is a principal co-author of Senate Bill No. 3197, or the Anti-Trust Bill. As more legislators hear Atty. Kapunan's invaluable inputs on the topic, this will surely create a critical mass for her crusade.

'Crusade sounds a bit too romantic,' Lorna said with a smile. 'I prefer to think of it as merely standing up for the little guy, and making sure that our fellow Filipinos are not bullied.'

- Domini M. Torrevillas, "Standing up for the little guy", From the Stands, Philippine Star, February 17, 2011

Villar holds series of forum on Anti-trust law

Original article appears here.

"Villar holds series of forum on Anti-trust law
Press Release
February 10, 2011

Sen. Manny Villar today hosted the second installment of a series of discussion to better understand the anti-trust law now being studied by the Committee on Trade and Commerce. "I would like to cover all the bases by conducting public hearings and hosting this series of lecture so we may all understand the intent of the law and its benefits," Villar said.

The proposed Antitrust law seeks to penalize unfair trade and anti-competitive practices in restraint of trade, unfair competition and abuse of dominant power.

Villar said the law will encourage competition in the market place which will help reduce prices and increase the quality of products or services and gave the assurance that his committee is dead set on passing the bill.

Usec. Zenaida Maglaya of the Department of Trade and Industry gave a presentation expounding on the need for an antitrust law in the country during "Lecture II: Understanding Antitrust" held Thursday morning at the Recto Room.

Maglaya underscored the need to enact a Competition/Antitrust Law to promote investment and facilitate trade among neighboring countries.

Atty. Anthony Abad, managing director, Trade Advisory Services/ Ateneo Center for International Economic Law explained the United Nations Conference on Trade and Development (UNCTAD) Model for Antitrust Law while Atty. Lorna Patajo-Kapunan presented a critique on existing legislations on antitrust.

Abad said it is fortunate that the 15th Congress is prioritizing the Antitrust bill, as this is one piece of legislation that will have a transformative effect on the way business is done in the country.

For her part, Kapunan recognizes that there are antitrust provisions scattered in different laws like the Revised Penal Code, New Civil Code, Consumer Act of the Philippines, etc. but argued that 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.

Reactions on the presentations were given by Atty. Geronimo Sy, assistant secretary, Department of Justice; Atty. Rod Libunao, legal counsel, Chevron Philippines; Mr. Reiner Aaron Villasenor, student leader, San Beda College; and Atty. Jose Cabrera, governor, Integrated Bar of the Philippines.

Villar said the country needs a comprehensive antitrust law that will complement the prevailing economic conditions and put in place the atmosphere for companies to deliver better goods and services to consumers.

"We need this law because we want to prohibit anti-competitive practices like monopolies and cartels," he added.

The first forum was held last week where Senate President Juan Ponce Enrile, who co-authored with Sens. Ralph Recto and Antonio Trillanes IV Senate Bill No. 1 or the Competition Act of 2010, shared his insights on the matter.

The committee is also tackling related bills on antitrust legislation namely, SB 123 authored by Sen. Sergio Osmena III, SB 1838 filed by Sen. Miriam Defensor Santiago and Senate Proposed Resolution No. 123 urging inquiry on cartels and monopolies sponsored by Villar."

New anti-trust law should tackle the unfair practice of vertical price-fixing

Since there has been much buzz about the need to pass a tougher anti-trust law in the Philippines, our legislators should pay special attention to the issue of vertical price-fixing. Also known as vertical price restraints, this occurs when a manufacturer sets a minimum price for its distributors and retailers, coupled with the threat of refusing to deal with the manufacturer’s distributor or retailer when the latter fails to charge at least the minimum prices set by the manufacturer.

In these kinds of vertical arrangements, the manufacturer is, in effect, a playground bully who leaves the smaller, more helpless classmates with no choice but to turn over their lunch money. Naturally, in this scenario, the smaller, more helpless classmate is the Filipino SME who typically act as the distributors and retailers for large multinationals such as Nestle, P & G, Johnson & Johnson, and the like.

Vertical price agreements fall within the ambit of predatory pricing which is generally considered illegal across most countries since it obviously hampers free competition. In predatory pricing, prices are set by a company which are below previous rates and below average costs. Nestle Philippines, for instance, has existing agreements wherein a minimum price is set (which its distributors and retailers are supposed to follow when selling the Nestle products to the end users) which does not factor in the average costs it takes for the Filipino SMEs to distribute and get these products to the consumers in the first place.

Why then do these Filipino SMEs enter into such agreements in the first place? The answer is because there is often the promise of initial marketing and promotional support by Nestle or the multinational, and because these small Filipino companies have already put in much capital to lay down the infrastructure for the business. They hang on in the hopes of turning a profit. Given the obvious strength multinationals such as Nestle wields compared to Filipino SMEs, then the only way to deal with such “bullies” is to pass a tougher anti-trust law.

Need for new anti-trust law to protect Filipino SMEs from predatory pricing!!!

Predatory pricing seeks to eliminate competition. It is unfair and illegal. It hampers free and fair competition because sale of products at low prices causes a loss, with the only possible rational for such low prices is the elimination of the company’s competitor in the long run and the capture of market share.

One wonders why this should matter when the loss is perceived to be borne by the company which set the low price rates to begin with. In actual practice here in the Philippines, this loss is never borne by the company (i.e. the multinational) but by its distributors and retailers (i.e. the Filipino SMEs). Multinationals such as Nestle Philippines sets a low price without considering previous price bulletins it has imposed on the Filipino SMEs (supposedly their “partners” in “growth” and “profit”), and, more importantly, without considering average total costs of distribution. These distributors/retailers have to eke out whatever minimal profit they can get from these arrangements, and it is not uncommon for these Filipino SMEs to operate at a loss.

Really, the most alarming aspect in the spread of vertical price fixing agreements in the Philippines is its impact on local SMEs. The common scenario is that you have a large multinational such as Nestle Philippines who has a distributorship or retail agreement with a Filipino SME. When this kind of company makes use of vertical price fixing agreements, the Filipino SME has no choice but to sell the Nestle products, for instance, to consumers at low prices – with complete disregard as to the actual costs borne by the SME to actually get or distribute these products to the market.

This is out and out bullying. As a country, we will never be able to move beyond providing distributorship and BPO support to these multinationals unless there is greater protection for the Filipino SMEs!!!

Lawmakers call for tougher anti-trust law

There has been much noise from our lawmakers on the need for a tougher anti-trust law in the Philippines. Rep. Eduardo Gullas, of Cebu, has been very vocal about pushing for an anti-trust law that would protect both consumers and businesses from wrongful and unfair competition in commerce. Senator Sergio Osmena III and Senator Juan Ponce Enrile have drafted bills for a stronger anti-trust policy and have been holding public forums for greater understanding of our current anti-trust issues. This is no doubt in response to President Noy Noy Aquino’s call for Congress to pass a new anti-trust law in his first State of the Nation Address last July 2010.

It is high time too. In truth, there is no comprehensive anti-trust policy and regulation in the country – at all. While there have been much reforms by way of liberalization, deregularizaton, and privatization to encourage free trade and open markets, anti-trust regulation in the Philippines is unfortunately completely behind compared to our foreign counterparts.

Rep. Gullas has stated that he favors new legislation patterned after the tough anti-trust laws of the United States. Actually, anti-trust laws in European countries such as Switzerland crack down even more than U.S. courts with respect to certain practices. Take the concept of vertical price-fixing, also known as vertical price restraints, which is not unfamiliar in Philippine economy.

The U.S., Switzerland and the Philippines adhere to the Rule of Reason doctrine in determining whether a company is liable for vertical price-fixing. However, the U.S. takes on a more liberal approach whereas Switzerland has more stringent standards and even has a Competition Commission which determines whether there is vertical price restraint involved. In the Philippines, there are no such determinants, and hardly if any case law providing for guidelines on how to apply the Rule of Reason.

Growing buzz for new anti-trust policy doesn't bode well for companies like Nestle

Cebu Rep. Eduardo Gullas caused a ripple when news broke out that he was strongly pushing for stronger anti-trust laws in the Philippines.

The ripple is building up into a tidal wave. Senators Sergio Osmena III, Manny Villar, and Juan Ponce Enrile have been championing a new anti-trust law. Several public forums were held for the public to introduce the proposed bills and to increase public awareness and understanding on the need for a more comprehensive anti-trust policy.

The good thing is that these new laws will champion the cause of not only the consumer but the middlemen as well - distributors, retailers, mom and pop stores, even your neighborhood sari-sari. It seeks greater protection from the big bad multinational.

In fact, on the "Understanding Anti-Trust" public forum held in the Senate building last 26 January 2011, Senator Villar's closing remarks focused squarely on the plight of Filipino small-to-medium enterprises who act as distributors for foreign multinationals. The Senator, no doubt the poster boy for Filipino entrepreneurship in his classic rags-to-riches story, threw around such fighting words like "dapat patas ang laban" ("it should be an equal fight") "paano na ang mga distributors?" ("what about the distributors") "dapat bigyan ng pag-asa ang mga Filipino SMEs" ("we should give hope to the Filipino SMEs").

Well said, Senator.

There's another anti-trust public forum this week on 10 February 2011. Atty. Lorna Kapunan will be one of the speakers, no doubt in light of her crusade to seek a forum where the needs and grievances for distributors can be heard. Her recent case against Nestle Philippines, for predatory pricing, is on appeal with the Department of Trade and Industry because the latter claims they do not have jurisdiction. This despite the fact that the case filed before that agency wasn't even a criminal case. So if DTI can't protect distributors and middle men against big bad multinationals, who then is the protector? And isn't the DTI precisely the government body tasked with regulating and ensuring compliance with all trade and industry laws???

Bullies in the spotlight

"Predatory Nestle" by Ducky Paredes (original article appears here).

NESTLÉ S.A, one of the largest food and nutrition companies in the world, operates in 86 countries and employs 283,000 people. Here, it is Nestlé Philippines, Inc. (NPI).

NPI is once again the subject of complaints, filed by two of its Filipino distributors for allegedly engaging in predatory pricing and for two separate cases of perjury.

What is predatory pricing? Wikipedia defines it as "the practice of selling a product or service at a very low price, intending to drive competitors out of the market, or create barriers to entry for potential new competitors. If competitors or potential competitors cannot sustain equal or lower prices without losing money, they go out of business or choose not to enter the business."

What is surprising here is that the complaint of predatory pricing comes from its own distributors who feel that Nestle itself is the predator that would devour them.

The complainants are Service Edge Distribution, Inc.(SEDI) and its sister firm, FDI Forefront II Trading Corporation (FDI 2). The first has been Nestlé’s distributor for the Caloocan, Malabon, Navotas and Valenzuela (Camanava) area since December 2001 while the latter became the distributor for northwestern Quezon City in July 2003.

The predatory pricing complaint is based on Nestlé’s alleged violation of Article 186 of the Revised Penal Code. Docketed as I.S. No. XV-03-INV-10Q-06071, the case is now pending with Quezon City Assistant City Prosecutor Maribel Arriola. Among the respondents is NPI’s former chairman and CEO Doreswamy Nandkishore, now said to be with the Nestlé main office in Switzerland.

The two distributors say that Nestle, among other things, has been forcing them to sell the company’s products to their own clients at prices controlled and dictated by Nestlé. These price bulletins do not consider the actual cost of distributing these products, and other attendant expenses such as municipal taxes of up to 1 percent of sales. Distributors are compelled to follow the price bulletins under threat of termination of their distributorship contracts.

Apart from this questioned pricing strategy, the two distributors also accuse Nestle of withdrawing its promised marketing support. One specific instance cited was when Nestle allegedly ended the in-house financing of inventories that provided a 30-day credit line to distributors. Nestle used to extend its credit line to 45-60 days without penalty to align it with the actual periods within which the distributors’ own clients usually make the payments.

They said that in place of the in-house financing, and without consultation with its distributors, Nestlé Chief Financial Officer Peter Noszek unilaterally negotiated with different banks whereby the banks would provide distributors with revolving promissory note lines (RPNL) on a strictly 30-day credit limit. Since their own clients usually do not pay within 30 days, the distributors are forced to shoulder higher interest rates and other penalties that increase their operating costs. In effect, Nestlé shifted the cost of financing inventories from Nestlé to the distributors.

Among the allegations was that Nestlé Area Sales Manager Elisa Lupena, "in conspiracy with the other respondents even forced complainant FDI 2 to deliver new supplies to customers that owed FDI 2 more than P1 million in unpaid deliveries." Nestle’s Regional Sales Manager Jose Ceballos, "in conspiracy with his co-respondents, likewise ordered complainant SEDI to give a unilateral discount of five percent (5%) discount to George Cua of the Welcome Group of Quezon City."

The same discounts were purportedly ordered by Ceballos to be given to other wholesalers and supermarket customers in its area. These discounts resulted in losses for the distributors of P8.4 million in 2007 and P8.6 million in 2009. In spite of these losses and additional expenses, they were not allowed to go beyond the prices specified in the price bulletins. The complaint includes the accusation that although additional capital from borrowed money was infused into FDI 2 in compliance with the demand of Nestlé, the company still terminated the former’s distributorship agreement on December 21, 2007, or four days before Christmas Day. Thus, the firm was forced to stop operations and lay off its employees.

The perjury charges were an offshoot of the September 17, 2010 counter-affidavits of four top officials of Nestlé, The four are Nestlé Chairman and CEO John Martin Miller, Regional Sales Manager Jose Ceballos, Chief Financial Officer Peter Noszek, and Business Executive Manager for Liquid Beverages Shahab Bacani.

In their counter-affidavits, the four officials purportedly committed perjury and offered false testimony into evidence. These are alleged in several instances covering the issues of whether incentives and discounts are mere privileges or a matter of right, the infusion of additional capital in FDI 2 and the subsequent termination of its distributorship contract, the supposed indiscretions of Area Sales Manager Lupena, the mediation entered into by the contending parties, the granting of discounts to certain favored wholesalers as ordered by Lupena and Ceballos

The perjury charges also touched on the separate disbarment case filed by the distributors against Nestlé lawyer Aileen Cero for her alleged violation of the 2004 Rules on Notarial Practice (A.M. 02-8-13-SC) when she notarized a document concerning a negotiation wherein she was a participant.

Complainants also cited Nestlé’s claim that that it never acted in an oppressive, unjust or illegal manner in its dealings with its distributors. They referred to the judgment handed down by the Second Division of the Supreme Court in the case of Nestlé Philippines, Inc. vs. FY Sons, Inc. on May 5, 2006 under G. R. No. 150780.

Nestle filed the case in the Makati Regional Trial court which ruled against it and ordered the multinational to pay defendant FY Sons P1 million in actual damages, P100,000 as exemplary damages and P100,000 as attorneys fees.

Nestlé went to the Court of Appeals where it again lost. In fact, the CA even increased to P1.5 million the amount of actual damages that Nestlé was ordered to pay FY Sons. This was for the unjust termination of the distributorship agreement with FY Sons, unfair imposition of fines, and confiscation of the latter’s P500,000 time deposit to secure FY Sons credit purchases.

Nestlé elevated the CA decision to the Supreme Court but was again rebuffed when the High Tribunal, in a decision written by then Associate Justice Renato Corona, affirmed the ruling. The Supreme Court found Nestlé "at fault and (acting) in bad faith."

Banco de Oro (BDO) also sued Nestlé for P109.792 million in damages, together with its distributor, Interbrand Logistics and Distribution, Inc. The case involved hundreds of millions of pesos in loans and credit facilities that the bank extended to Interbrand on the strength of endorsements and certifications that Nestlé made concerning the financial standing and credit worthiness of its distributor. It turned out that the endorsements and certifications were fraudulently issued.

BDO charged the defendants of having "acted in utmost bad faith, and in wanton, fraudulent, reckless, oppressive and malevolent manner." In particular, BDO accused Nestle of having "knowingly made a false representation with intent to mislead the bank into renewing Interbrand’s credit facilities and allowing Interbrand to make further availments under the same to finance the purchase of (its) products which would eventually lead to (its) benefit".

Nestlé Philippines, Inc. is a member of the European Chamber of Commerce. We wonder if there is any action that this organization is contemplating in regard to this particular multinational considering the many complaints lodged against Nestlé Philippines, Inc..

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