Untangling The Interlocks: E L P L H V I P C A

UNTANGLING THE INTERLOCKS:
ESTABLISHING THE LEGAL PARAMETERS AND LIMITATIONS

FOR HORIZONTAL AND VERTICAL INTERLOCKS IN LINE WITH
THE PHILIPPINE COMPETITION ACT
DANIELLE LAUREN K. LIM
A thesis presented in partial fulfilment

of the requirements for the degree of
JURIS DOCTOR
2019
i
ABSTRACT
Competition Law aims to ensure free and fair competition in all kinds of trade or
industry in the market. It seeks to ban any form of agreement, which would prevent the
equitable distribution of opportunities and income for all. The provisions in the current
Philippine Competition Act prohibit anti-competitive agreements, abuse of dominant
positions, and certain mergers and acquisitions. The law, however, is far from perfect as it
fails to consider other factors that promote anti-competitive activities.
Horizontal and vertical interlocks have always raised controversial issues in the
realm of antitrust laws. Though they are not inherently anti-competitive, they may pave the
way towards different forms of anti-competitive behavior, which in effect bars other potential
rivals from entering into the same line of business. Like mergers and acquisitions,
interlocking directorates create unwanted structural linkages between firms. The only
difference is that while mergers terminate a firm’s independence and involves larger
transactional costs, an interlock does not.
Having a director sit in the boards of rival companies or companies with a vertical
relationship with each other creates what is known as “fiduciary tension”. Corporate law
requires a director to observe his fiduciary duties to the companies he serves. Such a duty is
problematic in situations of horizontal and vertical interlocks because a director is forced to
find a way to ensure benefits for all his companies, which may result to antitrust violations.
The current competition law does not specifically nor sufficiently address the anti-
competitive effects of horizontal and vertical interlocks.
This thesis aims to determine the legality of horizontal and vertical interlocks in this
jurisdiction in light of the Philippine Competition Act. It also seeks to identify and address
the insufficiencies or gaps in the law. The failure of the law to properly regulate horizontal
and vertical interlocks leaves the conflict between corporate fiduciary duties and competition
policies unresolved. It also allows entities to engage in certain anti-competitive conducts
through the interlock free from any form of liability despite causing damage to consumer
welfare and the general relevant market, which is against the policy stipulated in the
Philippine Competition Act and 1987 Philippine Constitution, propagating fair competition.
At the end, this thesis will recommend additional provisions for the Philippine Competition
Act, which would be used to determine and penalize horizontal or vertical interlocks that are
violative of antitrust principles.
ii
ACKNOWLEDGEMENT
I would like to express my gratitude to each and every person who helped me throughout my
entire thesis journey.
Thank you to my advisers Atty. Abad and Abraham Guiyab for taking me as their advisee.
Thank you for answering my never-ending questions and teaching me more about
competition law, a branch of law I had never encountered before writing my thesis.
Thank you to my family who literally prayed with me every step of the way.
Thank you to the Backseat Girls, Selynn, Jasmine, Jill, and Alexa for always believing in me

especially during the times when I had no confidence in myself despite the hours and effort I
put for this paper.
Thank you to the LEMonaides for participating in my block mock panel defense.
Thank you to TEAM Hortons for that fruitful Baclaran trip.
Thank you to my LAV sisters for all the support and love. Thank you for taking time out of
your busy schedules to serve as my mock panels.
And thank you to the Philippine Competition Commission for allowing me to interview them
and helping me develop my thesis even further.
iii
TABLE OF CONTENTS
CHAPTER 1: INTRODUCTION 1
A. Background of the Study 1

1. The Emergence of Competition Law in the Philippines 1
2. Objectives and Rationale of Competition Law 4
3. Interlocking Directorates and its Relation to Competition Law 8
B. Statement of the Problem 12
C. Objectives of the Study 13
D. Significance of the Study 14
E. Scope and Limitation 15
F. Methodology 17
G. Organization of Thesis 18
H. Definition of Terms 19
CHAPTER 2: INTERLOCKING DIRECTORATES 21
A. Defining Interlocking Directorates 21
B. Origins of Interlocking Directorates 22
C. Types of Interlocks 24
1. Direct and Indirect Interlocks 25
2. Horizontal and Vertical Interlocks 29
D. Interlocking Directorates: A Problem in Competition Law 30

1. Benefits of Interlocks 31
2. Drawbacks of Interlocks 32
E. Per Se Prohibition Approach vs. Rule of Reason Analysis 36
CHAPTER 3: INTERNATIONAL AND FOREIGN COMPETITION LAW OR POLICIES ON

INTERLOCKING DIRECTORATES 39
A. European Union 39
iv
B. United States 45
1. Per Se Prohibition 48
2. Elements of Violation of Section 8 48
3. Interlocking Directorates and Mergers 59
4. Exceptions to the Per Se Prohibition 59
5. Enforcement of Section 8 61
6. Recent Application of Section 8 62
7. Other Pertinent Laws 63
C. Canada 65
D. Japan 66
E. South Korea 68
F. Indonesia 69
G. Asean Competition Guidelines 70
CHAPTER 4: RELEVANT PROVISIONS RELATED TO INTERLOCKING DIRECTORATES IN THE

PHILIPPINE CONTEXT 72
A. Corporation Code of the Philippines 72
B. Corporate Governance Principles 77
C. Evolution of Competition Policies in the Philippines 80
D. Philippine Competition Act of 2015 84
E. Special Rules on Interlocking Directorates in Certain Industries 89
CHAPTER 5: LEGAL ANALYSIS 92
A. Overview 92
B. Conflict between Corporate Law and Competition Principles 94
C. Insufficiency of the Current Philippine Competition Act 97

1. Anti-Competitive Agreements (Section 14 of the Philippine Competition Act) 97
2. Abuse of Dominant Position (Section 15 of the Philippine Competition Act) 101
3. Mergers and Acquisitions (Sections 16-23 of the Philippine Competition Act) 103
D. Insufficiency of the Other Competition-Related Laws 104

v
E. Summary 105
CHAPTER 6: CONCLUSIONS AND RECOMMENDATIONS 108
A. Conclusions 108
B. Recommendations 114
1. Applicability to Different Types of Interlocks 115
2. Defining the Relevant Markets 116
3. Per Se Prohibition or Rule of Reason Analysis 119
4. Substantial Lessening of Competition Test (SLC Test) 119
5. Exceptions 122
6. Administrative Sanctions and Remedies 122
1
CHAPTER 1: INTRODUCTION
A. BACKGROUND OF THE STUDY

1. The Emergence of Competition Law in the Philippines
During the 1970s, the government created the Philippine Cement Industry Authority
(PCIA) to help the cement industry and regulate fierce competition. PCIA worked with
Philcemcor, a cement industry association. Philcemcor was assigned to set production quotas.
Firms within the cement market, together with Philcemsor, eventually started entering into
informal agreements regarding such production quotas. They also divided the geographic
markets among themselves. Such practice was a form of collusion and gave birth to the
alleged cartel in the cement industry, which eliminated much of the competition, which used
to exist. After the 1997 financial crisis, mergers and acquisitions occurred between the
companies within the market. As a result, prices increased exorbitantly annually. The public
attempted to file a criminal case against those involved in the cartel but to no avail.1
Last June 2014 during President Benigno Aquino III’s term, consumers and government
officials were surprised by the sudden spike in the prices of garlic. In one year, there was a
74% increase. To be more precise, it hit the price of P287 per kilogram. Upon investigation,
it was discovered that due to problems with regard to the issuance of plant quarantine
clearances and certain forms of collusion, a cartel was formed. Such cartel controlled 75% of
1
Rafaelita M. Aldaba, Impact of market reforms on competition, structure, and performance of the Philippine
economy, available at http://siteresources.worldbank.org/INTPHILIPPINES/Resources/Aldaba.pdf (last
accessed Jan. 1, 2018).
2
the total garlic imports in the country. Government officials involved in the scheme were
charged for graft and corruption. However, the anti-competitive behavior was not addressed.2
The aforementioned cases are examples of incidents wherein antitrust principles were
clearly violated. However, those involved were not prosecuted. The main reason for such a
failure was because, at that time, the Philippines had no comprehensive competition law yet.
The Philippine Competition Act came about only in 2015.
Before the Philippine Competition Act was enacted, competition policies were scattered
across different laws. There are provisions found in the Philippine Constitution 3, Revised
Penal Code4, Civil Code5, Price Act6, and other special laws for certain industries.7 However,
there was a lack of jurisprudence on the matter. The provisions were very broad and failed to
list the specific prohibited acts and corresponding penalties that would constitute violation of
antitrust principles. The lack of definite regulations made it difficult to sanction something
that is clearly illegal.8 Different agencies were assigned to deal with competition problems
within different industries. There was no central authority to ensure that all the rules and
2
Chris Schnabel, What Consumers need to know about the PH Competition Act, available at https://www
.rappler.com/business/economy-watch/98287-philippine-competition-act-part-1 (last accessed Jan 1, 2018).
3
PHIL. CONST. art. XII, §19.
4
An Act Revising the Penal Code and Other Penal Laws [REVISED PENAL CODE], Act No. 3815, art. 186 (1932).
5
An Act to Ordain and Institute the Civil Code of the Philippines [CIVIL CODE], Republic Act No. 386, art. 28
(1950).
6
An Act Providing Protection to Consumers by Stabilizing the Prices of Basic Necessities and Prime
Commodities and by Prescribing Measures Against Undue Price Increases During Emergency Situations and
Like Occasions [Price Act], Republic Act No. 7581 (1992).
7
Gabriel G. Olandesca, Toward a Regime of a Real Competitive Market: The Constitutional Policy on
Competition and the Prohibited Conducts under the Philippine Competition Act, available at
http://www.sanbeda-alabang.edu.ph/bede/images/researchpublication/BedanReview/4._Toward_a_Regime_of_
a_Real_Competitive_Market_The_Constitutional_Policy_on_Competition_and_the_Prohibited_Conducts_unde
r_the_Philippine_Competition_Act_-_Bedan_Review_Vol._V.pdf (last accessed Jan 1, 2018).
8
Erlinda Medalla, Understanding the New Philippine Competition Act, PHILIPPINE INSTITUTE FOR
DEVELOPMENT STUDIES, Discussion Paper Series No. 2017-14, available at https://pidswebs.pids.gov.ph
/CDN/PUBLICATIONS/pidsdps1714.pdf (last accessed Oct. 14, 2017).
3
regulations were not conflicting with each other, making it difficult to ensure proper
implementation of antitrust principles.9 Hence, for the longest time, many have advocated for
an actual national comprehensive competition law. Numerous House and Senate Bills were
passed since the first Aquino administration but it was only about two decades later when the
Philippine Competition Act was finally created.10
The drive for such a comprehensive competition law was also influenced by other
countries. The United States created the Sherman Act as early as 1890. Later, more laws
came about such as the Clayton Act and Federal Trade Commission Act both in 1914. In
1906, Australia enacted the Australian Industries Preservation Act. Sometime in the 1940s,
Japan passed Monopolies and Restrictive Practices (Inquiry and Control) Act. ASEAN
members also started to create their own comprehensive competitive laws in line with the
ASEAN Economic Community (AEC) Blueprint. 11 In 1999, Indonesia and Thailand enacted
their own laws. In 2004, Singapore also did. Vietnam soon followed in 2005. Malaysia did so
as well in 2012.12 Like the Philippines, Laos, Myanmar, and Brunei finally passed their own
laws in 2015. Cambodia remains to be the only country left which is part of ASEAN that has
not yet passed its own law.13
9
Rafaelita M. Aldaba and Geronimo S. Sy, Designing A Cooperation Framework For Philippine Competition
and Regulatory Agencies, PHILIPPINE INSTITUTE FOR DEVELOPMENT STUDIES, Discussion Paper
Series No. 2014-31, available at https://dirp3.pids.gov.ph/webportal/CDN/ PUBLICATIONS/pidsdps1431.pdf
(last accessed Oct. 14, 2017).
10
Schnabel, supra note 2.
11
Seminar on “Competition Policy and Law in Cambodia”, available at https://asean-competition.org/read-
news-seminar-on-competition-policy-and-law-in-cambodia (last accessed Jan 1, 2018).
12
Bam Aquino, Towards fair competition, healthier economy, available at https://www.rappler.com/thought-
leaders/93566-fair-competition-economy (last accessed Jan 1, 2018).
13
Competition Policy and Law in Cambodia, supra note 11.
4
Seeing as how many nations clearly value the implementation of a comprehensive
competition law, it would be wise to, first and foremost, determine what it is in the first place
and why there is a need for it.
2. Objectives and Rationale of Competition Law
Competition is as a “process of rivalry between firms, seeking to win customers’
business over time by offering them a better deal.” 14 Competition laws are created to ensure
that firms within the industry play ‘fair’ to safeguard consumer welfare. Playing fair means
that companies should be prevented from obtaining market power in a manner that excludes
others from competing in the industry and providing better quality and reasonably priced
products. If there is fair competition, no firm would dominate, which in turn forces individual
corporations to try and surpass the other. Some would focus on product development and
innovate to attract consumers. Others may opt to lower their prices to cater to those who have
lower income-earning capacities. Some may improve both the quality and prices of their
products.15 In general, competition gives consumers options.
Although they may seem the same, there is a difference between competition law and
competition policy. Competition law refers to the “framework of rules and regulations
designed to foster the competitive environment in the economy”. 16 On the other hand,
competition policy is broader since it pertains to the laws, regulations and other policies
created to protect competition in the market. In short, the latter is more encompassing.
14
THE COMPETITION COMMISSION OF THE UNITED KINGDOM & THE OFFICE OF FAIR TRADING OF THE UNITED
KINGDOM, MERGER ASSESSMENT GUIDELINES 19 (2010).
15
Understanding the New Philippine Competition Act, supra note 8.
16
THE TARIFF COMMISSION OF THE PHILIPPINES, COMPETITION POLICY: PRIMER 2 (2016).
5
Competition laws also guarantee economic development since companies are forced to
innovate and compete in terms of quality and prices, allowing industries to grow, making
them more attractive to both local and foreign investors. More players in the market also allot
more job opportunities, increase productivity, and create greater consumer purchasing
power.17 This helps in eliminating poverty and fostering social equity.18
Competition law is vital in achieving different kinds of efficiencies, namely productive,
allocative, and dynamic efficiencies.19 Productive efficiency occurs when goods are made at
the lowest possible cost.20 Those who are not able to produce at such costs are eliminated
from the market. Allocative efficiency is accomplished if goods are produced in line with
how much consumers need, with no one being better off than the other. 21 In short, market
prices meet consumer preferences. Lastly, dynamic efficiency ensures innovation and
technological growth.22 This protects consumer welfare. In a competitive market, consumer
surplus is at its greatest.
To get a better perspective on the significance of competition laws, it would be best to
look at actual everyday examples. One of the most developed industries today is that of the
mobile phone market. The first mobile phones were actually introduced only in the early
1970s. These were the large Motorola phones that were a lot more difficult to carry around.
Eventually in the 1990s, Nokia came into the picture and almost everyone had in his hands
17
18
United Nations Conference on Trade and Development, The effects of anti-competitive business practices on
developing countries and their development prospects, UNCTAD/DITC/CLP/2008/2 (2008).
19
Id.
20
Id.
21
Id.
22
Id.
6
the 3310 model. In the 2000s, many new features for mobile phones were introduced. Japan
introduced cameras. Siemens included an mp3 feature. Samsung started colored and larger
screens. Blackberry included WiFi. Different models or designs came out. At first, the
phones were bulky. Then, there were flip phones and slide phones. By 2008, Apple finally
introduced the iPhone. This was thinner and had a touchscreen feature. 23 In less than fifty
years, the mobile phone evolved from large bulky devices with antennas to the smaller,
lighter, and handy gadgets today with exceptional camera quality, WiFi, a music library, and
other applications purchasable from the App Store. The industry developed because of
competition. Each company tried to outdo the other by introducing newer and more advanced
features to cater to the consumers’ needs.24 If the industry was left in the hands of only one or
two players, the advancement in technology could have taken longer and consumers’ right of
choice would have been greatly diminished. Competition laws seek to guarantee economic
development and consumer protection so that all industries could develop in the same way
the mobile industry did.
In the Philippines, there are clearly some issues with regard to competition policies. A
study was conducted about the state of the economy and competition in the Philippines. 25 It
was shown that one of the reasons why the country is struggling economically is because of
weak competition in the market.26 There are industries dominated only by a few players in the
market. For instance, there was a time when there was even only one airline company – the
23
A History of Mobile Phones, available at http://www.stelladoradus.com/history-mobile-phones/ (last
accessed Jan 2, 2018).
24
Aquino, supra note 12.
25
Rafaelita Aldaba, Assessing Competition in Philippine Markets, PHILIPPINE INSTITUTE FOR
DEVELOPMENT STUDIES, Discussion Paper Series No. 2008-23, available at https://dirp3.pid
s.gov.ph/ris/dps/pidsdps08 23.pdf (last accessed June 13, 2018).
26
Id.
7
Philippine Airlines or PAL. Since only one company offered such passenger flight services,
it could set any price, subject only to government regulation, and consumers would not really
have any choice but to pay such amount since no other company offered the same services.
Before, flights to Davao costs around P10,000.27 However, later on, Cebu Pacific came into
the picture. The company marketed itself as a low-cost budget airline that could provide the
same services at cheaper prices.28 Hence, air fare dropped.29 Competition fostered more
choices as seen in this example so laws, which protect a competitive market, would definitely
be for the consumers’ and general economy’s benefit.
Today, perhaps, one of the most problematic industries in the Philippines is the
telecommunications industry. Currently, there are only two companies in the market namely,
Globe Telecom and Philippine Long Distance Telephone Company (PLDT). These two
companies also own Bayantel Communications and Smart Communications, respectively.
More often than not, consumers complain about the poor services both companies offer with
regard to cellular network and Internet services. Internet in the Philippines is really slow as
compared to those provided by other countries. Yet, despite the lousy services, consumers
still pay quite a price for them because there are no other companies providing the service in
the market.30 Telstra, an Australian company, tried to enter the market through a joint venture
with San Miguel Corporation, but to no avail. 31 Entering the telecommunications industry is
not easy in the Philippines since the two major players make it very difficult. Government
27
Schnabel, supra note 2.
28
Id.
29
Id.
30
Id.
31
Chrisee Dela Paz, San Miguel Corp., Telstra end joint venture plan, available at
https://www.rappler.com/business/industries/172-telecommunications-media/125715-telstra-san-miguel-end-
talks (last accessed Jan 2, 2018).
8
regulation has not been enough the past years to open the market to other possible players,
who could provide better services at better prices. However, President Duterte has recently
issued directives to the National Telecommunications Commission and Department of
Information and Communications Technology to ensure a third player would come in the
market by 2018.32
3. Interlocking Directorates and its Relation to Competition Law
The current Philippine Competition Act focuses on the following: 1) anti-competitive
agreements, 2) abuse of dominant positions, and 3) mergers and acquisitions. 33 Price-fixing
and bid rigging are categorized as a per se violation.34 Other prohibited acts in Section 14 and
15 are subject to the rule of reason test. Mergers and acquisitions are not prohibited but
rather, regulated to ensure that such are not used as a means to violate antitrust principles.
The Philippine Competition Act is definitely a step up from before. However, it is not perfect
and could still be subject to further amendments. Comparisons with other countries’
competition laws may be used as basis to improve the current Philippine law.
A situation, which the current competition law has not yet clearly addressed, is the
occurrence of horizontal and vertical interlocks. Horizontal interlocks refer to those between
competing firms. Vertical interlocks refer to those between companies in different levels of
the production chain. Among the multiple House and Senate bills that were drafted, there
32
Nestor Corrales, Duterte wants 3rd telco player in PH ‘up and about’ by Q1 2018, PHIL. DAILY INQ., Dec 19,
2017, available at http://business.inquirer.net/242747/telecommunications-ntc-dict-president-rodrigo-duterte
(last accessed Jan 2, 2018).
33
An Act Providing for a National Competition Policy Prohibiting Anti-Competitive Agreements, Abuse of
Dominant Position and Anti-Competitive Mergers and Acquisitions, Establishing the Philippine Competition
Commission and Appropriating Funds Therefore [Philippine Competition Act], Republic Act No. 10667, § 14
(2015).
34
Id.
9
were actually a few, which included a prohibition on horizontal interlocks. 35 However, the
output submitted by Senator Bam Aquino was the one finally approved by Congress. Unlike
the Philippines, the United States clearly prohibits certain types of interlocks. Section 8 of the
Clayton Act provides for a per se prohibition for interlocking directorates between competing
firms or horizontal interlocks, subject to certain de minimis exceptions.36 Indonesia, Japan,
and Korea also have provisions on interlocking directorates, which cover both horizontal and
vertical interlocks. However, they do not provide for per se prohibitions. Instead, the rule of
reason analysis is used to determine on a case-to-case basis whether or not the situation truly
violates competition policies.37
Vertical interlocks can come in the form of institutional interlocks, which is common in
the financial sector.38 Institutional interlocks refer to situations wherein a director in a
financial institution is also a director of a company who is at least a potential customer of the
former’s services.39 The financial industry in the Philippines regulates such interlocks under
certain situations as stipulated in the Insurance Code, BSP Regulations, and the Investment
Houses Law.
Critics have held that horizontal and vertical interlocks allow companies involved in the
interlocks to circumvent antitrust principles. No actual agreements need to be made in order
for collusion to take place. It is the exchange of highly qualified and sensitive information
35
Designing A Cooperation Framework For Philippine Competition and Regulatory Agencies, supra note 9.
36
Laura A. Wilkinson, Interlocking Directorates, available at https://www.weil.com/~/media/files/pdfs/2017/
lit_febmar17_spotlighton.pdf (last accessed Jan 2, 2018).
37
Michael Jacobs, Combating Anticompetitive Interlocks: Section 8 of the Clayton Act as a Template for Small
and Emerging Economies, 37 FORDHAM INTERNATIONAL LAW JOURNAL 643, 668 (2014).
38
Richard P. Murphy, Keys to Unlock the Interlocks: Dealing with Interlocking Directorates, 11 UNIVERSITY OF
MICHIGAN JOURNAL OF LAW REFORM 361, 366 (1978).
39
Id.
10
through even just a single director that may effect how firms behave in the market. It is
important to note that a director has a fiduciary duty to the corporation. He is expected to
make decisions that would be beneficial to the corporation he is serving. If he is providing
services for two companies with a horizontal or vertical relationship towards each other, a
conflict of interest situation would arise. It is true that sometimes certain directors are hired
mainly for their professional skills and knowledge about the industry but it does not prevent a
situation wherein he might be forced to make a decision for one company that would be
detrimental to the other. To avoid such a case, as a director of both companies, he is required
to put both companies’ best interests forward. He would opt for a plan that would be
beneficial for both. Such a plan, more often than not, may result to collusions or parallel
behavior even without any actual formal or informal agreements between the two companies.
Generally, whether or not an interlocking director intends to violate antitrust principles, it
may happen due to conflicting interests.
In the United States, the most recent case involving interlocking directorates was
actually between Google and Apple. In 2009, the Federal Trade Commission (FTC)
investigated the two companies. There were reports saying that Google and Apple shared two
directors. These two directors were Eric Schmidt, the CEO of Google, and Arthur Levinson,
former CEO of Genentech. Google became a major competitor of Apple in the smartphone
market when it released its Android mobile device platform. Because of this, the FTC was
suspicious of possible anti-competitive activities and addressed the situation early on. Further
11
prosecution did not occur because before it could, Schmidt resigned from Apple while
Levinson left Google.40
In the Philippines, jurisprudence directly disallowing interlocking directorates does not
exist but something close to it does. In the case of Gokongwei, Jr. v. SEC, a substantial
stockholder of a competing corporation sought to gain a seat in the board of directors of San
Miguel Corporation. Before he could do so, the by-laws were amended disallowing a
competitor from becoming a board director. The issue in the case was the validity of the
amended by-laws. The Court ruled that the amendment was valid. Apart from discussing
certain powers of a corporation, the Court also explained the possible violations of antitrust
principles due to interlocking directorates between competing corporations. It did not
expressly prohibit interlocking directorates among rival firms but it did recognize the anti-
competitive dangers that exist in such a relationship.41
Clearly, based on the above cases, the issue on interlocking directorates is not something
to be belittled. It has been something debated about for the longest time in different
jurisdictions. Some have included it specifically in their competition laws. Others have not.
Since the choosing of the members of a board of directors are internal matters, it is hard to
detect the collusion behind the scenes, making it easier to circumvent the very laws that aim
to protect the economy from unfair competition practices.
B. STATEMENT OF THE PROBLEM
40
Miguel Helft and Brad Stone, Board ties at Apple and Google are Scrutinized, NEW YORK TIMES, May 4,
2009, available at https://www.nytimes.com/2009/05/05/technology/companies/05apple.html (last accessed
July 3, 2018).
41
Gokongwei, Jr. v. Securities and Exchange Commission, G.R. No. L-45911, Apr. 11, 1979.
12
Competition Law aims to ensure free and fair competition in all kinds of trade or
industry in the market. The 1987 Philippine Constitution, itself, prohibits all forms of illegal
monopoly, unfair competition, and combinations in restraint of trade. It seeks to ban any
form of coordination, which would prevent the equitable distribution of opportunities and
income for all. The problem with interlocks arises from the conflict between a director’s
fiduciary duty and competition principles. The fiduciary duties of a director force him to
always work for the benefit of the companies he serves. If he is hired by companies, which
have a vertical or horizontal relationship with each other, he may pave the way towards anti-
competitive behavior since he could function as the link through which exchanges of
sensitive commercial information may occur.
The provisions in the current Philippine Competition Act (PCA) forbid anti-competitive
agreements, abuse of dominant positions, and certain mergers and acquisitions. However,
there is nothing that directly addresses horizontal and vertical interlocks. In fact, even the
Philippine Competition Commission has not clarified its stand regarding this issue. Section
14 of the Philippine Competition Act deals with anti-competitive agreements. Although
interlocks may be addressed indirectly if the anti-competitive agreements that result from it
are penalized, this provision does not cover anti-competitive risks of interlocks that do not
come in the form of agreements. Section 15 enumerates the list of conducts considered as
forms of abuse of dominance in the Philippines. Based on the Congressional deliberations,
this list is exclusive. This means that it doesn’t cover interlocks resulting to abuse of
dominance outside those listed in the law. Lastly, Sections 16-23 refer to mergers and
13
acquisitions (M&A). The Philippine Competition Commission may address interlocks in this
context but outside of the mergers and acquisitions framework, they are left unregulated.
This thesis proposes to address the gaps in the current Philippine Competition Act, which
does not specifically address the problem of horizontal and vertical interlocks. It aims to be
able to properly resolve the insufficiency in the law in order to balance the requirements of
the Corporation Code bestowing fiduciary duties upon the director and the mandates of fair
competition in Philippine antitrust laws and policies.
C. OBJECTIVES OF THE STUDY

In light of the issues presented above, this study aims to accomplish the following:
1. To compare and contrast different national competition laws and jurisprudence of
various countries and determine whether or not there are provisions addressing
the issue on interlocking directorates;
2. To classify those competitions laws containing provisions on interlocking
directorates between two categories: those that legislate per se prohibitions and
those that make use of the rule of reason analysis;
3. To determine whether or not horizontal and vertical interlocks violates the current
Philippine Competition Act and other competition principles;
4. To clarify the conflict between the requirements of corporate law regarding
fiduciary duties and the need for fair competition
5. To determine whether or not the current competition law is sufficient to address
the antitrust concerns regarding horizontal and vertical interlocks; and

14
6. To recommend the type of prohibition for interlocks, whether per se or based on
rule of reason, that would suit the competition environment in the Philippines.
D. SIGNIFICANCE OF THE STUDY

The Philippines has struggled with competition issues for the longest time. Although
there were laws that dealt with antitrust problems, there was a lack of actual implementation
of them. There are many industries that up until today are dominated by only a few players in
the market. With the recent enactment of the Philippine Competition Act, the government
seeks to better ensure free trade and fair competition for the benefit of the consumers and the
economy. However, because of the fact that the national competition law is generally still
quite novel, it still has certain loopholes, which may be used by companies to circumvent the
very policies that the current competition law aims to protect.
This thesis aims to be able to strengthen competition policies by addressing the antitrust
issues arising from horizontal and vertical interlocks. This is to ensure the protection of
consumers from anti-competitive behavior that may occur through horizontal and vertical
interlocks. Interlocking directorates may seem like a small issue as compared to other matters
that are clearly prohibited by the law. However, a single person sitting on two boards of
related or competing corporations can make all the difference. Many firms hire certain people
to be directors for their skills in the industry. Because of this, having interlocking directorates
between two competing firms or firms in different levels of the production chain is not really
impossible.
The problem with interlocks is that it is so difficult to detect the anti-competitive
behavior that goes on in the boardroom. Companies do not have to directly deal with each
15
other in order to collude. That single person in the boards of both companies has the power to
instigate unfair competition. It is precisely because of this fact that the US created a per se
prohibition on interlocking directorates within competing firms subject only to certain
specified exceptions. Per se prohibitions do not require proof of competitive injury to
constitute a violation of the law.42 It encourages a strict application of the law that seems
appropriate for anti-competitive activities that are difficult to prove.
After a determination of the legality of the interlocks in light of the new law and other
competition principles, this study seeks to determine the sufficiency of the current law.
Proper rules are required to balance the need for experts to sit in multiple boards and possible
anti-competitive effects that may result from it. Also, the failure of the Philippine
Competition Act and other competition laws to address all the anti-competitive effects of
interlocks would be contrary to the 1987 Constitution, which requires the maintenance of fair
competition in the Philippine market. It will also recommend ways through which the gap in
the law may be addressed. To aid legislators, it will determine whether or not a more specific
prohibition is required and whether such prohibition should be per se or based on the rule of
reason analysis.
E. SCOPE AND LIMITATION

This thesis will focus on studying horizontal and vertical interlocks. It will not go into a
discussion about conglomerate interlocks. These interlocks are a bit more complicated since
it is usually engaged in different industries. It may require further research given the fact that
conglomerates involve more than just horizontal and vertical interlocks. This thesis will not
42
Wilkinson, supra note 36.
16
focus on interlocks in particular industries. It will study horizontal and vertical interlocks as a
whole.
It will also discuss comprehensive competition laws of other countries. However, the
topic of discussion will zero in on the provisions dealing with interlocking directorates. The
study will discuss other provisions on anti-competitive agreements, abuse of dominant
positions, or mergers and acquisitions only in relation to the problem of interlocking
directorates.
This thesis will also not be discussing other anti-competitive practices that have not yet
been addressed by the current Philippine Competition Act. Whenever the topic on
interlocking directorates comes up in relation to the European Competition Law, it usually
goes hand-in-hand with the possible competition problems that arise from minority
shareholdings between competing firms. This study will not be discussing issues related to
minority shareholdings. Although it also presents some interesting factors that need to be
considered, it would be best left as an independent topic of another research paper. At
present, there is a need to study and prove first the anti-competitive effects of horizontal and
vertical interlocks since even Philippine case law has referred to interlocks as a situation,
which could possibly foster violations of antitrust principles.
As for the recommendations, the proposal would be limited to the legal aspect. Certain
economic tools may be touched upon but they will not be discussed in great detail. This
paper will merely provide an overview on how the economic analysis can work.
F. METHODOLOGY
17
First, this thesis will give a general overview about interlocking directorates. There will
be a discussion about what it is, the types of interlocks that exists, and the current
controversies that surround it in relation to competition laws. The anti-competitive effects of
such interlocks will be explored so as to clearly demonstrate the need to address this
problem. The study will also explain what per se prohibitions are and compare it with the
rule of reason analysis. Such a discussion is important since the application and effects of the
law differ depending on the type of prohibition.
The thesis will then shift to a survey of international laws and jurisprudence on the
matter. There will be discussion on Westerns laws and jurisprudence first. Afterwards, there
will be a shift towards competition laws of Asian countries. ASEAN Guidelines will also be
taken into consideration because the Philippines is a member of the Association. Also, it was
the ASEAN project towards economic development that actually pushed for the enactment of
competition laws among all its member states.
Lastly, the thesis will turn towards the local or Philippine context. A discussion about the
relevant provisions in the Corporation Code, corporate governance principles, and history of
Philippine competition laws will be made. The Philippine Competition Act will be
expounded upon with an emphasis on what it currently prohibits. The situation of
interlocking directorates in the Philippines will also be analyzed, in light of the current
competition law, other special laws, and jurisprudence that have briefly discussed the subject
matter. There will be a comparison of interlocking directorates and that of mergers and
acquisitions to highlight the similarities. Finally, there will be a recommendation focusing on

18
the better type of prohibition (per se or based on rule of reason) for the Philippines to better
address the problem of interlocking directorates.
G. ORGANIZATION OF THESIS
This thesis is composed of five parts. The first chapter is the Introduction. It gives a brief
background on the issue. It contains a discussion of competition law and its objectives, both
in the international and local context. Afterwards, there will also be an overview of
horizontal and vertical interlocks and how they pave the way towards violation of certain
antitrust principles. Other parts of Chapter 1 would include the thesis statement, the
objectives and significance of the study, the scope and limitation, the methodology, and the
definition of terms.
The second chapter will focus on interlocking directorates in general. There will be a
discussion on what it is in the first place. The chapter will also explore the types of
interlocks. A discussion on the antitrust risks of interlocking directorates will then be made.
Lastly, the chapter will differentiate between the two types of prohibition under competition
laws and how it may be applied.
The third chapter will focus on the different laws and jurisprudence. There will be a
discussion on the European Law and whether or not there are provisions, which deal directly
with interlocking directorates. A look into US laws and jurisprudence will also be made since
it is the first country, which actually addressed the issue. Further studies on other competition
laws in different parts of Asia will also be included in the chapter.
The fourth chapter will discuss the relevant corporate law provisions, related corporate
governance principles, and the evolution of Philippine competition laws and policies. There
19
will be an overview of the history of Philippine competitions laws as well as the current state
of competition in the country. Aside from a discussion of the old laws that advocate
competition, the Philippine Competition Act will be expounded upon to determine what
antitrust principles it already covers and what it doesn’t.
The fifth chapter will be the legal analysis. It will discuss the conflict between corporate
law requirements and competition law principles in much more details. It will determine
whether or not the current law is sufficient to tackle horizontal and vertical interlocks. It will
discuss the gaps in the law that still need to be addressed. There will also be a comparison of
interlocks and mergers and acquisitions.
The sixth and final chapter would be the recommendation and conclusion. They will
include suggestions on how to amend the current law. The amendments will be in the form of
additional or revised provisions that would better address the problem of interlocks.
H. DEFINITION OF TERMS
1. Interlocking Directorates – when a person functions as an officer or a director of two
or more corporations.43
2. Horizontal Interlocks – interlocking directorates between competitors44
3. Vertical Interlocks – interlocking directorates between companies in different levels
of the production chain45
4. Direct Interlocks – refers to one individual that has vital functions in two or more
separate competing firms46
43
44
Id.
45
Id.
46
Jacobs, supra note 37, at 648.
20
5. Indirect Interlocks – may refer to deputization or parent-subsidiary interlocks47
6. Per Se Prohibition - mere existence of the relationship without looking into the
effects on the market or the intentions of the persons who were involved in the
practice constitutes a violation.48
7. Rule of Reason Analysis – violation is determined through the totality of the
circumstances test which considers the alleged illegal activities’ effect on market
competition.49
47
Id.
48
Horizontal and Vertical Cooperation, available at https://www.eucomplaw.com/horizontal-and-vertical-
cooperation/ (last accessed June 29, 2018).
49
Id.
21
CHAPTER 2: INTERLOCKING DIRECTORATES
A. DEFINING INTERLOCKING DIRECTORATES

Before a corporation acquires its legal personality, several requirements must usually be
complied with. One such requirement is the setting up of a board of directors. The members
of the board are usually subject to state regulation. The board may be composed of
professionals, executives, non-executives, family, or independent members, depending on
what the law dictates.50 The board’s main function involves the management and control over
the business activities of the firm. Board members are also considered fiduciary agents of the
corporation. It is because of this fact that the situation created by interlocking directorates
under certain circumstances requires examination.
Interlocking directorates occur when persons who have executive responsibilities in one
company sits in the boards of other companies which have a vertical or horizontal
relationship with the former corporation.51 Such interlocks have become more and more
common in the past couple of years. In fact, it is usually common in large corporations. 52 A
study was conducted in the United States before, which showed that the average number of
interlocks between large companies actually increased the asset value of the firms. 53 This
isn’t really surprising because of the fact that these directors are usually more experienced,
accomplished, and knowledgeable in their fields, making them attractive to those who seek
50
Florence Thepot, et al., Interlocking Directorates and Anti-Competitive Risks: An Enforcement Gap in
Europe?, CONCURRENCES N° 1-2016, available at https://www.concurrences.com/en/review/issues/no-1-
2016/Articles-1807/Interlocking-directorates-and-anti (last accessed July 5, 2018).
51
52
Wissam Nawfal, Interlocking Directors: Impact on Canadian Merger and Acquisition Outcomes (2011)
(Master of Science in Administration thesis, Concordia University).
53
P.C. Dooley, The Interlocking Directorate, 59 THE AMERICAN ECONOMIC REVIEW 314, 316 (1969).
22
their expertise.54 Interlocks usually occur when several other firms begin hiring these same
directors. These companies employ such people as a way of improving their reputation. 55
Hiring experienced people makes the company seem legitimate and dependable enough to
attract investments.56
I. ORIGINS OF INTERLOCKING DIRECTORATES

There are several theories that try to explain the origins of interlocking directorates. The
first is known as the Class Hegemony Theory.57 According to statistics, the wealthiest class
constituting 1% of the total American population actually own about 60-70% of the private
wealth available to the public.58 The people, who are part of this elite class, generally have
the same interests, experiences, and outlook so they have some sort of consensus with regard
to their corporate goals and prefer to cooperate with one another, than to engage in
aggressive competition.59 This paves the way for interlocking directorates to occur.
Another theory is the Homophily Theory.60 This theory states that social interactions
usually occur between those people who are similar to each other. 61 Interlocks are more
probable when people have similar needs or wants. There is also what is known as the
Resource Dependence Theory.62 This suggests that interlocking directorates are used to
minimize environmental uncertainty and manage a company’s relations with other
54
Dooley, supra note 53.
55
Mark S. Mizruchi, What Do Interlocks Do?, 22 ANNUAL REVIEW OF SOCIOLOGY 271, 275 (1996).
56
Id.
57
Dane Etheridge, Director Interlocking in Australia, (2012) (Ph.D. dissertation, University of Western
Australia).
58
Id.
59
Id.
60
Id.
61
Id.
62
Id.
23
corporations.63 Interlocking directors allow access to or exchange of resources with external
organizations.64 Next, the Reciprocity or Co-optation Model adopts the idea that interlocking
directorates facilitate collusions between certain companies, leading to the exclusion of other
competitors.65 Lastly, the Finance Control Theory deals with financial institutions, which
propagate interlocking directorates by placing their own representatives in private
corporations, in order to influence corporate actions to the financial firm’s advantage. 66 In
this scenario, interlocking directors function somewhat as monitoring tools, who control firm
behavior to secure advantages not only for the private company but also for the financial
institution.67
The concept of interlocking directorates was also highly influenced by the emergence of
corporate governance principles. Corporate governance revolves around accountability and
management’s commitment to transparency and integrity. 68 What is important is to determine
who is part of the board and how these board members work towards what is best for the
company. Global practices have created the concept of independent directors to further
corporate governance principles. Independent directors are preferred as they ensure unbiased
decision-making for the good of the corporation. These directors are often professionals who
specialize in different aspects of the business and have no personal interest in the corporation,
which hires them. They are considered to be capable of ensuring shareholder wealth
63
Etheridge, supra note 57.
64
Id.
65
Id.
66
Id.
67
Mizruchi, supra note 55, at 275.
68
Paul Obo Idornigie, Interlocking Directorate and Corporate Governance, 32 INTERNATIONAL BUSINESS LAW
75, 79 (2004).
24
maximization due to the leadership skills and experience they possess. The hiring of these
same directors by different companies increase the likelihood of interlocking directors.
Interlocks may also occur between non-independent directors. Critics believe that such
interlocks cause agency problems detrimental to efficient corporate governance.69 The
interlocking director makes a career out of being a board director in different companies. He
may be tempted to work for his own interests by favoring the company, in which he has more
personal pecuniary interest in, than the other.70 It has also began to be a growing concern for
competition law authorities as it became a means through which certain structural links could
be formed that made the companies involved more inclined to participate in collusive
activities such as price fixing, market allocation or segregation, and many more.
J. TYPES OF INTERLOCKS
There are two ways to classify interlocking directorates. Interlocks can be direct or
indirect. They can also be horizontal or vertical. Whether there is a direct or indirect interlock
depends on the person or director sitting in the boards of two or more corporations. On the
other hand, whether there is a vertical or horizontal interlock would depend on the
relationship of the two or more corporations with interlocking directorates.
1. Direct and Indirect Interlocks

Idornigie, supra note 68.
69
70
Rafael Santos et al., Board Interlocking in Brazil: Directors’ Participation in Multiple Companies and its
Effect on Firm Value and Profitability, 13 LATIN AMERICAN BUSINESS REVIEW 1, 6 (2012).
25
Direct Interlocks
A direct interlock occurs when the same person is a member of at least two boards of
different corporations.71 This is the simplest and more obvious type of interlock. It is also the
most detectable form of interlock. Assuming the two firms are competitors, Figure 1 below
illustrates their relationship. There is a person who serves as a board member of the two rival
firms in the market.
Source: Michael Jacobs, Combating Anticompetitive Interlocks: Section 8 of the Clayton Act as a Template
for Small and Emerging Economies, 37 FORDHAM INTERNATIONAL LAW JOURNAL 643, 649 (2014).
It is significant to note that, sometimes, direct interlocks can occur through management
interlocks.72 Management interlocks do not require a person sitting in the board of one
company to be the one who also functions as a board member in the other corporation.
Rather, an officer of one company may be the one assigned to hold a board member seat in
the other corporation.73 There are even situations wherein different family members sit in the
boards of different companies.
71
72
Murphy, supra note 38, at 365.
73
Id.
26
Indirect Interlocks
An indirect interlock, on the other hand, may come in different forms. The first type of
indirect interlock is known as deputization.74 It is called such because of the agency
relationship involved in this type of interlock. Basically, there is a certain principal who has
two or more agents working under him. These agents are the ones who sit on the boards of
the two corporations. Although it is not the same person who is holding a position in both
boards, the effect is the same because of the nature of an agency relationship. In fact,
according to the Civil Code of the Philippines, in a contract of agency, “a person binds
himself to render some service or to do something in representation or on behalf of another,
with the consent or authority of the latter.”75 In short, the agent’s actions represent the
principal’s actions. The agent is the persona of the principal. Hence, in deputization, due to
the legal nature of a contract of agency, it is as if the principal is part of the boards of both
corporations despite the reality that it is actually two separate individuals sitting as board
members. Assuming the two companies are competitors, Figure 2 below better explains
deputization. The darker box, at the top of the triangle, is the principal who splits himself up
through two separate agents to sit as board members in the two competing firms, represented
by the lighter boxes.
74
75
CIVIL CODE, art. 1868.
27
The second type of indirect interlock deals with subsidiary companies. In today’s
world, much of the larger corporations have smaller subsidiary corporations, which they own
a large percentage of. An interlock may exist through these subsidiaries. An interlock exists
when a person sits in the board of two parent corporations, who are not competing with each
other but have subsidiary companies that are engaged in competition. 76 On the assumption
that these parent companies have major control over their subsidiary corporations, a conflict
of interest situation still occurs with regard to the person who sits as a board member of both
parent corporations. This person may facilitate the means through which the competing
subsidiary firms may conduct anti-competitive behavior. Figure 3 below shows how this
relationship works. Basically, the interlock is at the parent company level (dark boxes) but
the competition is between the subsidiary companies (the lighter boxes).
76
28
The third type of indirect interlock again involves the parent-subsidiary relationship.
However, this type of interlock focuses on one parent company and one subsidiary
corporation. This covers a situation wherein one of the parent companies is competing with
the subsidiary corporation of another parent company.77 If a person serves as the board
member of one parent company and the other parent corporation whose subsidiary
corporation is competing with the first parent company, again, he will have access to the
information vital to the two competing companies, albeit indirectly. Figure 4 below exhibits
this relationship. The dark boxes, once again, represents the two parent companies while the
lighter box is the subsidiary firm.
Other Types of Direct or Indirect Interlocks
Direct or indirect interlocks may be in the form of institutional interlocks.
Institutional interlocks are those that occur between large financial institutions and the top
corporations in the industry.78 This is one of the most common types of interlocks in many
77
78
29
states. There are certain countries that propagate it, such as Germany, but there are also
others who try to regulate such a situation, seeing as how it creates serious antitrust concerns.
Aside from institutional interlocks, some studies also make mention of direct or indirect
interlocks between potential competitors.79 This exists between firms that are technically not
competing with each other at the moment but may end up doing so in the future due to low
switching costs.80
2. Horizontal and Vertical Interlocks
Horizontal Interlocks
Horizontal interlocks refer to interlocks between two or more competing corporations
within the same industry and in the same level of the production chain. 81 A person or his
agent basically sits as a board member of at least two competing companies. This type of
interlock is usually the most problematic as the conflict of interest situation is much more
evident, especially in the context of competition law. In some states, this type of interlock is
actually directly prohibited or regulated.
Vertical Interlocks
Vertical interlocks are those between companies in different levels of the production
chain.82 An example would be interlocks between buyer and supplier corporations. 83 It may
79
Id. at 365.
80
Id.
81
82
Vidir Petersen, Interlocking Directorates in the European Union: An Argument For Their Restriction, 6
EUROPEAN BUSINESS LAW REVIEW 821 (2016).
83
Id. at 874.
30
also refer to interlocks between a manufacturer company and a distributor corporation. 84
Although such a relationship is not between competing firms, it may still cause certain
problems as it may influence, for instance, how the supplier corporation services other
companies competing with the buyer corporation, where the aforementioned interlocking
director holds a position.
K. INTERLOCKING DIRECTORATES: A PROBLEM IN COMPETITION LAW

Since over a century ago, interlocking directorates were already considered
controversial in the realm of competition law. The root of the problem actually lies in the
fiduciary nature of the position of a board member. Fiduciary duty is an Anglo-American
corporate law concept that distinguishes the rights and obligations of a director from a
manager.85 In order to be able to run a business, trust is an important factor to consider. 86
Directors of a company are vested with the powers of management. They are the
representatives of corporations in all its business activities. They have countless
responsibilities that give them access to vital information necessary to keep the company
alive and competitive. They are obliged to act in the best interest of the corporation and other
shareholders. Directors, as fiduciary agents, are obliged to ensure that they do not get
involved in matters, which would cause them to be in a conflict of interest situation. In the
case of Wardell v. Union Pacific R. Co., the US Supreme Court stated that:
Directors of corporations, and all persons who stand in a fiduciary relation to other parties
and are clothed with power to act for them, are subject to this rule; they are not permitted
to occupy a position which would conflict with the interest of parties they represent, and
84
Id.
85
Giri Hartarto, The Application of Fiduciary Duty by the Interlocking Directors: A Comparative Perspective
between Indonesia and Singapore in the Regulation of the Interlocking Directors, (2013) (Master in Law Thesis,
Tilburg University).
86
Id.
31
are bound to protect. 87
Currently, many states provide for certain rules to address these kinds of conflict of interest
situations. However, more often than not, these regulations focus on restricting corporate
transactions that may be entered into by the board of directors of a corporation with another
party, when one of the directors of the former stand to be personally benefited by the
agreement. It is important to note that other situations may also lead to the creation of a
conflict of interest situation such as when an individual functions as a director in two
companies with a horizontal or vertical relationship, as further explained below.
1. Benefits of Interlocks
Before going into the anti-competitive dangers brought about by interlocking
directorates under certain situations, it may be wise to also determine the benefits that it may
produce. Interlocks are said to produce dynamism within the firm since these directors are
from different backgrounds and have acquired much experience from being involved in the
industry for so long.88 Interlocks are also seen as a way to ease the “talent shortage”. 89 It is
used to address the lack of experts in the market, whose knowledge is sought by many in the
same industry. Interlocks may also be used to co-opt sources of supply dependency.90
Basically, it may be the means through which companies have easier access to resources.
Another reason why some believe interlocks are beneficial is that it gives the firms a sense of
legitimacy.91 If well-known capable people are board members, then customers, suppliers,
87
Wardell v. Union Pacific R. Co., 103 US 651 (1880)(U.S.).
88
89
Id.
90
91
32
and financial institutions will have a lot more faith in the company’s capacity for success. 92
Some also deem that interlocks could lead to efficiency gains and economic growth because
uncertainties are removed.93 Investments also increase because access to information would
be easier and transaction costs lowered.94
2. Drawbacks of Interlocks
Although there may be benefits brought about by interlocks, it also creates certain
problems. First, some critics believe that interlocks decrease the talent pool. Because the
same people are hired again and again by different companies, other individuals, who are
new in the field but have potential, may be deprived of opportunities for growth and
experience.95 This limits the number of experts in the industry.96 Second, it can be fairly
assumed that individuals functioning as interlocking directors have a lot on their plate. 97 It’s
basically like having multiple part-time jobs. Because they are kept busy, the quality of their
services for the different companies that they serve may be compromised, as they do not have
the luxury of time.98 Lastly, interlocking directorates pose antitrust concerns.99
Both horizontal and vertical interlocks pose some sort of danger but it is usually
horizontal interlocks, direct or indirect, which causes the biggest concern. The Organization
for Economic Co-operation and Development, in a study, confirmed this. It basically stated
that such relations might lead to coordination of business activities between competitors
92
Thepot, et al., supra note 50.
93
Id.
94
Idornigie, supra note 68, at 80.
95
Id.
96
Id.
97
Id.
98
Id.
99
Id.
33
through sharing of sensitive pieces of information, foreclosure of rivals, and parallel
behavior.100 To further bolster such arguments, it is significant to note that certain states
actually already have legislations on it. Although horizontal interlocks do not always result to
anti-competitive behavior, laws or regulations are still set into place by some governments
because it is difficult to detect actual collusive behavior from interlocks. The lack of
regulation paves the way for conniving corporations to circumvent the laws in place through
that single interlocking directorate.
Horizontal interlocks can create both coordinated and unilateral risks.101 These are
further explained below:
Coordinated Risks
Coordinated risks refer to possible collusive activities that may be agreed upon by the
companies with interlocking directorates. It occurs because of the privileged access the
interlocking director has to the strategy and other vital pieces of information of the firms
involved. Information exchange serves as a barrier to competition because it substitutes the
risks of competition with cooperation, coordination, or collusion.102
Coordinated risks include situations wherein the two corporations actually come to an
explicit or tacit agreement and appoint or take advantage of an interlocking director to ensure
their position and control over the market. They could coordinate prices, production outputs,
marketing plans, divide the market or even form cartels. 103 Cartels generally require some
100
Acquisition of Minority Shareholdings and Interlocking Directorates: Can These be Reviewed by
Competition Regulators?, available at http://v1.lawgazette.com.sg/2013-11/895.htm (last accessed June 14,
2018).
101
102
Id.
103
Gale T. Miller, Interlocking Directorates and the Antitrust Law, 26 COLUMBIA LAW JOURNAL 53 (1997).
34
sort of trust between the firms involved. Interlocking directorates make it easier, then, to
conduct anti-competitive behavior because the director can pave the way for the building of
the trust required in these types of situations. 104 It also allows cartels to detect and retaliate
against whistle blowers and other companies who could deviate from the agreement. 105
Basically, having interlocking directorates allow the companies to maintain and monitor the
cartel more efficiently. The structural linkage between the firms through the interlocking
director also reduces transaction costs because of increased transparency and decreased
uncertainty.106
Interlocking directorates also create opportunities for anti-competitive parallel
behavior. This is considered a coordinated risk because it involves the actions of the different
companies who hired the interlocking director. As a general rule, parallel behavior is not
necessarily unlawful since it can occur, without collusion or agreement. 107 Companies, in this
scenario, unilaterally act yet their behaviors combined may prevent new entrants from
establishing themselves in the market.
Non-coordinated Risks
Horizontal interlocks may also result in non-coordinated or unilateral risks. 108 These
risks are those that occur without actual collusion or agreement. Examples of non-
coordinated risks include exchange of sensitive information. 109 Exchange of information is
104
Petersen, supra note 82.
105
Tommy Staahl Gabrielsen, et al., Rethinking Minority Share Ownership and Interlocking Directorships: The
Scope for Competition Law Intervention, 36 E. L. REV. 837 (2011).
106
107
Id.
108
Id.
109
Matthew Bennett & Philip Collins, The Law and Economics of Information Sharing: The Good, the Bad and
the Ugly, 6 EUROPEAN COMPETITION JOURNAL 311, 324 (2010).
35
said to lessen or soften market uncertainty.110 It affects how companies behave towards each
other and disturbs competitive autonomy.111
A director is tasked to ensure the successful management of a company. He has a
fiduciary duty to work for the interests of the company he serves. In the case of interlocking
directors, they owe fiduciary duties to all the companies they serve. More often than not, he
is forced to come up with decisions to compromise the situation of the companies involved.
The director experiences what is referred to as “fiduciary tensions.” 112 Should he receive
information from one company that is detrimental to the other, he may be obliged to reveal it
to the latter but at the same time keep it a secret for the benefit of the former. In the end, he
has to compromise or else it could lead to breach of duties. Such information, as stated
earlier, could affect fair competition in the market if the companies have a horizontal or
vertical relationship. Collusions can even occur without actual exchange of information.
Sometimes, the director may simply manipulate how the boards of the two companies should
act without disclosing what he knows about the other corporation.113
On the other hand, vertical interlocks, direct or indirect, also have their own anti-
competitive risks. These risks are usually not as prominent as that of horizontal interlocks’
but they can be means through which abuse of dominant position can occur. In the United
States, State legislation merely deals with horizontal interlocks. However, President Wilson,
in 1914, actually wanted laws that would also address other types of interlocks such as
110
F. David Schoorman et al., Interlocking Directorates: A Strategy for Reducing Environmental Uncertainty, 6
THE ACADEMY OF MANAGEMENT REVIEW 243, 244 (1981).
111
112
Id.
113
Id.
36
vertical interlocks.114 The corporations with interlocking directorates may work together to
the detriment of other firms, who may be customers of the supplier corporation where the
interlocking director sits. It is basically a disadvantage to nonintegrated customers. 115 Vertical
interlocks may lead to exclusive agreements, uneven distributions of supplies or equipment,
price discrimination, or unfair bundling or tying arrangements. The customer corporation,
where the interlocking director is a member, may be offered better deals than the other buyer
companies in the same industry. The problem basically lies in possible preferential
treatments that may create barriers to entry.116 If all these are done to ensure the dominance of
certain firms over a market, there is no doubt that antitrust principles are being violated.
L. PER SE PROHIBITION APPROACH VS. RULE OF REASON ANALYSIS

There are two types of prohibitions in competition law. The first is the per se
prohibition.117 The per se prohibition makes particular arrangements absolutely illegal, unless
there are exceptions stipulated for in the rules. No further examinations of the facts and
circumstances of the case are necessary.118 The only thing that needs to be proven is the fact
that the restraint exists.119 Some believe the per se rule is too restrictive. Others think that it is
the best way to address issues arising from anti-competitive behavior that is difficult to
detect. In the United States, the Clayton Act provides for a specific per se prohibition of
114
James T Halverson, Should Interlocking Director Relationships Be Subject to Regulation and, if so, What
Kind, 45 ANTITRUST LAW JOURNAL 341, 347 (1976).
115
Id. at 348.
116
117
Halverson, supra note 114, at 347.
118
Id.
119
Lourdes C. Echavez-De Leon, The Legal Framework for Reform of the Philippine Law on Unfair Methods of
Business Competition (1999) (J.D. thesis, Ateneo de Manila University) (on file with the Professional Schools
Library, Ateneo de Manila University).
37
horizontal interlocks.120 This rule is simple, straight to the point, and requires less
administrative costs on the part of the competition authority.121 However, some critics believe
it is too obstructive since not all horizontal interlocks are anti-competitive. It also propagates
interference with the corporation’s freedom to choose who it wants to represent its interests.
On the other hand, the rule of reason analysis, may involve a notification process. 122 It
requires the analysis of facts and the effect of restraint on competition. It is usually what is
used to regulate mergers and acquisitions. Competition authorities must first be notified
about the relationship allegedly in restraint of trade. 123 Such state agents would then
determine whether or not there truly is anti-competitive behavior. If there is, it severs the
relationship and imposes the appropriate penalties.124 Much of the rules or regulations in
competition laws make use of the rule of reason analysis as many violations depend on the
factual circumstances of each case. Certain countries like Japan, South Korea, and Indonesia
provide for stipulations addressing interlocking directorates in line with the rule of reason
analysis.125 This would, however, require more expenses, as a more comprehensive economic
analysis of the industry is necessary to hold the firms liable. 126 Enforcement is not easy since
evidence cannot be acquired outright. More often than not, competition authorities merely
rely on indirect evidence to determine whether or not competition principles are being
violated.
120
Clayton Antitrust Act (Clayton Act), 15 U.S.C. § 19 (1914).
121
122
Id.
123
Id.
124
Id.
125
Id.
126
Id.
38
39
CHAPTER 3: INTERNATIONAL AND FOREIGN COMPETITION LAW OR

POLICIES ON INTERLOCKING DIRECTORATES
A. EUROPEAN UNION
At present, there is no specific provision or regulation addressing interlocking
directorates under the European Union competition rules. The Treaty on the Functioning of
the European Union (TFEU) provisions that may be relevant to the topic is Article 101 and
102.
1. Article 101 TFEU
Article 101 basically addresses anti-competitive agreements. Article 101(1) provides:
1.The following shall be prohibited as incompatible with the internal market: all agreements
between undertakings, decisions by associations of undertakings and concerted practices which
may affect trade between Member States and which have as their object or effect the prevention,
restriction or distortion of competition within the internal market, and in particular those which:
(a) directly or indirectly fix purchase or selling prices or any other trading conditions;
(b) limit or control production, markets, technical development, or investment;
(c) share markets or sources of supply;
(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby
placing them at a competitive disadvantage;
(e) make the conclusion of contracts subject to acceptance by the other parties of
supplementary obligations which, by their nature or according to commercial usage, have no
connection with the subject of such contracts.127
The law focuses on one thing: agreements. In order to become liable under this
provision, the parties must have actually come to an agreement. 128 There must be an
understanding. The appointment of a director in two competing firms does not necessarily
127
Consolidated Version of the Treaty on the Functioning of the European Union, arts. 101, Mar. 25, 1957, 2012
O.J.L C326/01, at 59 [hereinafter TFEU].
128
40
connote concerted action.129 More often than not, it is done unilaterally by the companies. 130
As stated earlier, there are coordinated and unilateral risks that come with interlocking
directorates between competing firms. Some competition authorities argue that some
coordinated risks may be addressed by this provision. However, it cannot be used to tackle
unilateral risks, because an agreement, whether direct or indirect, is required under Article
101 before prosecution.131 Also, although parallel behavior is a coordinated risk, it cannot be
covered by Article 101 unless evidence of an agreement to collude is shown. It is also
important to point out that interlocks are not per se violations under Article 101 (1).132 This
means that should an actual agreement to create such an interlock be found, the Commission
must still conduct an economic analysis of the anti-competitive effects of the interlock before
liability may be imposed.133
In one case134 decided by the European Commission, British Telecommunications (BT)
acquired 20% of the share capital of MCI Communications Corporation. This allowed BT to
appoint its own representative as director in the board of MCI. The Court held that such
board representation could lead to collusion between the companies through information
exchange. However, in order to support such a ruling, it made use of U.S. antitrust and
corporate law.135 This shows that there really is no provision directly addressing director
interlocks since the Commission had to refer to American laws to determine the implications
129
130
Id.
131
Id.
132
133
Id.
134
British Telecom / MCI, Case No. IV/M .353, Sep. 13, 1993.
135
41
of the scenario.136
2. Article 102 TFEU
Article 102 provides:
Any abuse by one or more undertakings of a dominant position within the internal market or in
a substantial part of it shall be prohibited as incompatible with the internal market in so far as it
may affect trade between Member States.137
Article 102 addresses issues involving abuse of dominant position. It can only be a
means of regulating interlocks if the companies involved held a dominant position in the
market.138 If the interlock creates anti-competitive effects but does not involve corporations
that could make a large impact on the industry, Article 102 cannot be invoked. Neither does
it directly fall under Article 101 because as was mentioned earlier, Article 101 can only be
used if the existence of an agreement can be proven.
To supplement the rules provided in the Treaty on the Functioning of the European
Union (TFEU), the European Commission came up with the Horizontal and Vertical
Guidelines.139 In both of the aforementioned guidelines, the Commission uses the “effects-
based” approach.140 The Horizontal Guidelines addresses situations involving information
exchange, agreements on research and development, production agreements, purchasing
agreements, commercialization agreements, and standardization agreements. The European
Court has acknowledged that information exchange must be investigated when "the
interaction took place on a regular basis over a long period of time.”141 It can be anti-
136
137
TFEU, art. 102.
138
139
Slaughter and May, An Overview of the EU Competition Rules, available at https://www.slaughterandmay.
com/media/64569/an-overview-of-the-eu-competition-rules.pdf (last accessed June 14, 2018).
140
Id.
141
Hüls AG v. Commission of the European Communities, Case C-199/ 92P, July 8 1999 (ECJ).
42
competitive if the information relayed to competitors involves individual price structures or
future production plans.142
Europe also has what is known as the EU Merger Regulation (EUMR). 143 It
determines whether or not certain mergers should be prohibited, depending on its effects on
competition in the market. In the analysis of merger cases, the Commission may look into the
subject of interlocking directorates. However, the EUMR may only investigate interlocks if it
would allow the acquiring company to assert “decisive influence” over the target company. 144
More often than not, the Commission orders the severance of the interlock before granting
the merger.145
In Thyssen/Krupp146, Thyssenkrupp, the market leader, had a 10% share and also
certain interlocking directorships in Kone, the second largest competitor. Although the
European Commission does not have precise laws addressing minority shareholdings and
interlocking directorates, the Commission still demanded that such a situation be rectified as
it may reduce competition.147 It ordered the removal of Krupp’s right to be represented in the
board of Kone.148 It feared that the merger would subject Kone to the strategy of
Thyssenkrupp and grant the latter access to sensitive information through the interlocking
director.149 In the case of AXA/GRE, one of the conditions imposed for the approval of the
142
143
Slaughter and May, supra note 139.
144
Francisco Gonzales-Diaz, Minority Shareholdings and Interlocking Directorships: The European Union
Approach, CPI ANTITRUST CHRONICLE, January 2012 (1).
145
146
Thyssen/Krupp, Case M. 1080, June 2 1998.
147
Antitrust Issues involving Minority Shareholding and Interlocking Directorates, available at http://ec.europa
.eu/competition/international/multilateral/2008_feb_antitrust_issues.pdf (last accessed June 13, 2018).
148
Id.
149
Gonzales-Diaz, supra note 144.
43
merger was also the elimination of all interlocks. 150 The same thing happened in the case of
Nordbanken/Postgiro, wherein all the current representatives of Nordbanken in Bankgiro’s
Board of Directors were forced to resign in order for the merger to push through. 151 In this
case, Nordbanken, a large Swedish banking company, acquired Postgirot, one of the only two
corporations offering giro payment systems.152 Nordbanken also held shares and board seats
in Bankgirot, Postgirot’s only competitor. 153 The European Commission wanted to avoid the
anti-competitive effects of such a relationship. Such an interlock allows access to confidential
business information of the only competing company offering giro payment systems, which
could affect the strategic decisions both firms may undertake in the future.154
Despite the lack of provisions that directly addresses interlocking directorates, the
European Commission has recognized the danger such a situation poses to free trade and
competition.155 It recognized that it may facilitate collusions due to the sensitive information
that may be exchanged between the corporations.156 The drive for profit-maximization may
be severely affected as co-existence instead of competition replaces the corporations’
goals.157 The director generally has an incentive to reduce competition so that both companies
he works for would benefit equally. 158 The fact that there are merger regulations dealing
particularly with the situation of interlocking directorates show that the EU is aware of the
possible anti-competitive effects of such a structural link between companies with a

150
AXA/ GRE, Case No. COMP/M .1453, April 8, 1999.
151
Nordbanken/Postgirot, Case COMP/M.2567, November 8 2001.
152
153
Id.
154
Id.
155
Antitrust Issues involving Minority Shareholding and Interlocking Directorates, supra note 147.
156
Id.
157
Id.
158
44
horizontal or vertical relationship with each other
Italy
Most European countries do not have specific provisions dealing with interlocking
directorates. Italy, however, has seen the impact such a situation has on the economy and has
instituted certain rules addressing the matter. The Italian government recognizes that
interlocking directorates gives access to sensitive information regarding the companies’
strategies, demand, costs, entry into certain markets or geographic areas. 159 It has been held
that it could lead to the following harmful anti-competitive effects: “1) Enhancing
coordination among firms and 2) Increased sustainability of implicit agreements between
competitors.”160 In order to become liable for anti-competitive interlocks, the Italian
government also recognizes that the interlock should occur between boards that actually
actively participate in the daily management of the companies. 161 Interlocks between boards,
which merely monitor management’s behavior, would not raise as much antitrust concerns.162
Legislators have created the Rescue-Italy Law Decree. Section 36 (1) provides that:
no member of management boards, supervisory boards, and statutory board of auditors, as well
no executive officer, of undertaking or group of undertakings that are active on the markets for
banking, insurance, and finance shall simultaneously hold the same office in competing
undertakings or groups of undertakings: such condition being met by those undertakings or
groups that are active on the same product and geographic markets and that have no relationship
of control.163
159
Organization of Economic Co-operation and Development, Antitrust Issues involving Minority Shareholding
and Interlocking Directorates, DAF/COMP (2008) 30. [hereinafter OECD]
160
Id.
161
Id.
162
Id.
163
Valeria Falce, Interlocking Directorates: An Italian Antitrust Dilemma, 9 JOURNAL OF COMPETITION LAW &
ECONOMICS 457, 461 (2013).
45
Failure to comply with the provision above will cause the director to be dismissed from all
his positions.164 The law focuses on the banking or finance industry. 165 Hence, it does not
apply to interlocks in other markets. Regulatory agencies interpret this particular provision as
a per se prohibition, meaning no further economic analysis is required to hold someone liable
as long as the interlock exists.166
M. UNITED STATES
As early as the late 19th century, monopoly was a problem in the US economy. 167 In
response to competition issues, the Sherman Act of 1890 was created. 168 More than 20 years
later, in 1914, President Woodrow Wilson wanted to enact state legislation in order to
address the concern brought by Louis Brandeis.169 Brandeis attacked director interlocks
among large corporations through written articles in Harper’s Weekly. 170 Certain wealthy
individuals, known as the “money trust” or “inner group”, were engaged in anti-competitive
behavior. There was increased concentration of wealth in the financial, industrial and
manufacturing industry.171 Basically, Wilson and Brandeis were concerned over the political,
economic, and conflict of interest effects that interlocking directorates created. 172 There was
also Congressional investigations conducted which reinforced the view taken by President
Wilson and Brandeis.173 The investigations revealed that in the railroad industry, Central
164
Id. at 462.
165
Id. at 463.
166
Id.
167
Hiroshi Iyori, A Comparison of U.S. – Japan Antitrust Law: Looking at the International Harmonization of
Competition Law, 4 PACIFIC RIM LAW & POLICY JOURNAL 60, 62 (1995).
168
Id.
169
170
171
Robert Preminger, Deputization and Parent-Subsidiary Interlocks Under Section 8 of the Clayton Act, 59
WASHINGTON UNIVERSITY LAW REVIEW 943 (1981).
172
173
Id.
46
Pacific Railroad Company had four directors who controlled other companies that had
contracts with Central Pacific.174 Further investigations also revealed similar occurrences in
other markets.175 It was because of these issues that gave rise to the enactment of the Clayton
Act of 1914.176
The particular provision involving interlocking directorates is Section 8 of the Clayton
Act. Section 8 states:
(a)(1) No person shall, at the same time, serve as a director or officer in any two corporations
(other than banks, banking associations, and trust companies) that are—
(A) engaged in whole or in part in commerce; and
(B) by virtue of their business and location of operation, competitors, so that the
elimination of competition by agreement between them would constitute a violation of
any of the antitrust laws;
if each of the corporations has capital, surplus, and undivided profits aggregating more than
$10,000,000 as adjusted pursuant to paragraph (5) of this subsection.
(a)(2) Notwithstanding the provisions of paragraph (1), simultaneous service as a director or

officer in any two corporations shall not be prohibited by this section if—
(A) the competitive sales of either corporation are less than $1,000,000, as adjusted
pursuant to paragraph (5) of this subsection;
(B) the competitive sales of either corporation are less than 2 per centum of that
corporation’s total sales; or
(C) the competitive sales of each corporation are less than 4 per centum of that
corporation’s total sales.
For purposes of this paragraph, “competitive sales” means the gross revenues for all products and
services sold by one corporation in competition with the other, determined on the basis of annual
gross revenues for such products and services in that corporation’s last completed fiscal year. For
the purposes of this paragraph, “total sales” means the gross revenues for all products and
services sold by one corporation over that corporation’s last completed fiscal year.
(a)(3) The eligibility of a director or officer under the provisions of paragraph (1) shall be
determined by the capital, surplus and undivided profits, exclusive of dividends declared but not
paid to stockholders, of each corporation at the end of that corporation’s last completed fiscal
year.
174
Id
175
Id.
176
Id. at 345.
47
(a)(4) For purposes of this section, the term “officer” means an officer elected or chosen by the
Board of Directors.
(a)(5) For each fiscal year commencing after September 30, 1990, the $10,000,000 and
$1,000,000 thresholds in this subsection shall be increased (or decreased) as of October 1 each
year by an amount equal to the percentage increase (or decrease) in the gross national product, as
determined by the Department of Commerce or its successor, for the year then ended over the
level so established for the year ending September 30, 1989. As soon as practicable, but not later
than January 31 of each year, the Federal Trade Commission shall publish the adjusted amounts
required by this paragraph.
(b) When any person elected or chosen as a director or officer of any corporation subject to the
provisions hereof is eligible at the time of his election or selection to act for such corporation in
such capacity, his eligibility to act in such capacity shall not be affected by any of the provisions
hereof by reason of any change in the capital, surplus and undivided profits, or affairs of such
corporation from whatever cause, until the expiration of one year from the date on which the
event causing ineligibility occurred.177
Section 8 basically prohibits an individual from serving as a director of two or more
companies, engaged in commerce, that are competing with one another. The following must
be satisfied in order to constitute a violation under the provision:
1. The two or more companies should be engaged in whole or in part commerce

2. The two or more companies compete with one another by virtue of their business or
location so that the elimination of competition between them would be a violation of
antitrust laws
3. The interlocks must be between two or more companies other than banks, banking
associations, trust companies, and common carriers
4. The person serves as an officer or director of two corporations
5. The corporation’s financial records must exhibit that it has capital, surplus, and
undivided profits aggregating $34,395,000 or more (as of January 2018) 178, adjusted
annually by the FTC based on changes in the gross national product.179
1. Per Se Prohibition
As established by United States v. Sears, the statute is a per se prohibition.180 In this case,
the government claimed that the interlock between Sears and B.F. Goodrich Company
violated the Clayton Act. The defendants, however, argued that they didn’t satisfy the “so
177
178
Federal Trade Commission, Federal Register Vol. 83 No. 19 (Jan. 29, 2018).
179
Murphy, supra note 38, at 373-77.
180
United States v. Sears, 111 F. Supp. 614 (S.D.N.Y. 1953)(U.S.).
48
that” clause in the law.181 They claimed that although there was a common director between
them, such a situation did not eliminate competition. The Court ruled that the defendant’s
contention was incorrect and established the per se rule on interlocking directorates.182 This
interpretation has been further supported by the decision of the U.S. Court of Appeals in the
case of Protectoseal Co. v. Barancik.183 It was held that Section 8 “establishes a rather simple
objective criteria for judging the legality of the interlock and that a market-wide analysis of
competition was unnecessary.”184 Hence, whether or not the interlock actually encourages
anti-competitive behavior does not really matter. As long as the person sits in the board of
two competing firms, he may immediately be sanctioned or removed from one or both
boards.
2. Elements of Violation of Section 8
Commerce Test
To determine whether or not the corporations are actually engaged in commerce, the
U.S. makes use of the commerce test. This test is satisfied if corporations are engaged in
whole or in part in commerce, including either interstate commerce or US commerce with
foreign countries.
Competitors
Section 8 is confined to horizontal interlocks. This means the interlock must occur
between two or more competing corporations in the same level of the production chain. Basic
economic principles are used to determine who are competitors. It is important to know the
181
Id.
182
Id.
183
Protectoseal Co. v. Barancik, 484 F.2d 585 (7th Cir. 1973)(U.S.).
184
Id.
49
relevant product or geographic market. 185 There are disagreements regarding the right tests to
determine competitors in the market. 186 But many courts and the Federal Trade Commission
usually use the quantitative market definition analysis. This refers to standards set by Section
7 of the Clayton Act for merger cases 187, which was introduced in the case of Brown Shoe
Co. v. United States188. In this case, it was held that the relevant product market is
“determined by the reasonable interchangeability of use or the cross price-elasticity of
demand between the product itself and substitutes for it.” 189 On the other hand, the relevant
geographic market must “both correspond to the commercial realities of the industry and be
economically significant.”190 This geographic market may be global, regional, or national. 191
At the same time, it may be limited by “transportation costs […], language, regulation, tariff
and non-tariff trade barriers, custom, and familiarity, reputation, and service availability.”192
Relevant Product Market
There are a few tests that U.S. jurisprudence has introduced to determine the relevant
product market. These tests are:
1. Demand Side Substitutability Test or Du Pont Test

2. Hypothetical Monopolist Tests or Small but Significant and Non-Transitory Increase
in Price (SSNIP) Test
3. Submarkets Test
4. Supply Side Substitutability Test
185
Preminger, supra note 171, at 948.
186
Id.
187
Id.
188
Brown Shoe Co. v. United States, 370 US 294 (1962)(U.S.).
189
Id.
190
Id.
191
Association of Southeast Asian Nations, ASEAN Regional Guidelines on Competition Policy (Aug. 2010)
[hereinafter ASEAN Regional Guidelines].
192
EINER ELHAUGE, UNITED STATES ANTITRUST LAW AND ECONOMICS 211 (2011).
50
DEMAND SIDE SUBSTITUTABILITY / DU PONT TEST
In the case of United States v. E.I. Du Pont de Nemours & Co.193, E.I Du Pont was a
large cellophane producer in the U.S. The government believed that the company
monopolized the cellophane industry. However, the U.S. Supreme Court disagreed claiming
that the cellophane market constituted only 20% of the whole packaging material market.
The Court depended on the cross price-elasticity of demand. The Du Pont test basically
explains that “commodities reasonably interchangeable by consumers”194 compose the
products in the same market. Products in the market do not have to be identical.195
Cross price-elasticity of demand refers to demand sensitivity of one product to price
changes of another product.196 It is the quotient of a percentage change in the quantity of one
good and a 1% change in the price of another.197 If the quotient is high, this means that the
products belong to the same market.198 In the aforementioned case, cellophane was
discovered to be highly interchangeable with other types of flexible packaging materials so
cellophane producers alone do not comprise the entire industry. Du Pont could not be
considered a monopolist.
HYPOTHETICAL MONOPOLIST TESTS OR SMALL BUT SIGNIFICANT AND NON-TRANSITORY

INCREASE IN PRICE (SSNIP) TEST
This test is the most widely used test around the world. The U.S. Department of
193
United States v. E.I. Du Pont de Nemours & Co., 351 U.S. 377 (1956)(U.S.).
194
Id.
195
Id.
196
European Union Commission, Commission Notice on the Definition of Relevant Market for the Purposes of
Community Competition Law, 1997 O.J.C 372/03.
197
Organization of Economic Co-operation and Development, Policy Roundtables Market Definition,
DAF/COMP (2012) 19.
198
George Stigler and Robert Sherwin, The Extent of the Market, 28 THE JOURNAL OF LAW AND ECONOMICS
555 (1985).
51
Justice and Federal Trade Commission originally used it for merger cases alone but such has
been expanded to define markets in general.199 It has been defined in the Horizontal Merger
Guidelines as follows:
The test requires that a hypothetical profit-maximizing firm, not subject to price regulation, was
the only present and future seller of those products, likely would impose at least a small amount
but significant and non-transitory increase in price on at least one product in the market,
including at least one product sold by one of the merging firms.200
A 5% SNIPP is usually used as a reference point to determine price increases while a one
year period is considered as non-transitory.201 There are cases, however, wherein a SNIPP of
10% is used if explicit or implicit prices can be identified. 202 If a SNIPP provokes an
unprofitable substitution for a hypothetical monopolist upon deviation of demand to other
products, then these good are considered part of the same product market.203
The SNIPP test involves 1) determining the cross price-elasticity of demand between
the hypothetical monopolist’s products and substitute products, 204 2) computing for the
diversion ratio by comparing the cross price-elasticity of demand with the hypothetical
monopolist’s elasticity of demand,205 3) a critical loss analysis of the substitute goods, 206 and
4) determining the profitability of the SNIPP by a comparison of the Diversion Ratio and
199
John Harkrider, Operationalizing the Hypothetical Monopolist Test, available at http://www.justice.gov/atr/
public/workshops/docs/202598.pdf (last accessed July 7, 2018).
200
U.S. Department of Justice and Federal Trade Commission, U.S. 2010 Horizontal Merger Guidelines §4.1.1.
(2010) (U.S.)
201
Id. §4.1.2.
202
Id.
203
GEORGE BERMANN ET AL., CASES AND MATERIALS ON EUROPEAN UNION LAW 873 (3d ed. 2010).
204
Claudia Gabriella R. Squillantini, Demystifying Dominance: Establishing Legal Parameters for Abuse of
Dominance (2015) (J.D. thesis, Ateneo de Manila University) (on file with the Professional Schools Library,
Ateneo de Manila University).
205
Commission Notice on the Definition of Relevant Market for the Purposes of Community Competition Law,
supra note 196.
206
Squillantini, supra note 204.
52
break-even Critical Loss point.207 If the Diversion Ratio or Actual Loss is greater than the
Critical Loss, the products are within the same market. 208 If Critical Loss is greater than the
Diversion Ratio, the goods in question do not belong to the same market.209
SUBMARKETS TEST
The submarkets test applies in cases of complementary goods. It was introduced in
the case of Brown Shoe Co. v. U.S. The Court held in that case that:
the outer boundaries of a product market are determined by the reasonable interchangeability
of use or the cross-elasticity of demand between the product itself and substitutes for it.
However, within this broad market, well-defined submarkets may exist which, in themselves,
constitute product markets for anti-trust purposes.210
To determine the relevant market, an examination of certain practical indicia such as
“industry or public recognition of the submarket as a separate economic entity, the product’s
peculiar characteristics and uses, unique production facilities, distinct customers, distinct
prices, sensitivity to product changes, and specialized vendors”211 must be made.
SUPPLY SIDE SUBSTITUTABILITY TEST
The Supply Side Substitutability Test is the opposite of the Du Pont Test. 212 This test
refers to the reaction of other suppliers to price increases. 213 The question that must be
answered is whether or not “suppliers are able to switch production to relevant products, and
207
Policy Roundtables Market Definition, supra note 197.
208
Id.
209
Id.
210
211
Id.
212
John J. Flynn et. al., Free Enterprise and Economic Organization: Antitrust 138 (July 28, 2017)(unpublished
draft).
213
Id.
53
market them in the short term.”214 A switch, which does not result to large additional costs or
risks, would mean that the product is part of the same relevant market.215
Relevant Geographic Market
To determine the geographic market, the U.S. Department of Justice and Federal
Trade Commission also makes use of the SSNIP test. The question that must be answered is:
What would happen if a hypothetical monopolist of that [relevant] product [at that point]
imposed at least a ‘small but significant and non-transitory increase in price, but the terms of
sale at all other locations remained constant?216
If in response to the price increase, the reduction in sales of the product at that location would
be large enough that a hypothetical monopolist producing or selling the relevant product at the
firm’s location would not find it profitable to impose such an increase in price, then the Agency
will add the location from which production is the next-best substitute for production at the
firm’s location.217
To illustrate the use of the tests above, in the case of American Bakeries Company v.
Gourmet Bakers, Inc., American Bakeries Company supplies breads, rolls, doughnuts, and
other bakery products to retail stores and institutions in metropolitan New York. The
products delivered are all fresh, not frozen. On the other hand, Gourmet Bakers, Inc.
warehouses frozen and dry bakery goods then delivers them to retailers and McDonald’s
branches. It is not involved in the manufacture or processing of baked goods. An individual
was going to be appointed as director of both companies. The issue was whether or not the
two companies could be considered competitors. The Court made mention of the
interchangeability and cross price-elasticity of demand tests. There was no evidence
presented for the second test so the Court applied the first test by taking into consideration
214
supra note 196.
215
Id.
216
U.S. Department of Justice and Federal Trade Commission, U.S. 1992 Horizontal Merger Guidelines (1992)
(U.S.).
217
Id.
54
the following factors: 1) similarity of use and 2) physical similarity. It was proven that there
is no physical similarity between the products of the two companies since American sells
freshly baked goods while Gourmet offers frozen products. There is also no similarity of use.
American products are delivered in finished form, ready to be sold to customers. Gourmet
only gives out raw materials, which must still be processed.218
Apart from the quantitative market definition analysis, the US Ninth Circuit’s
decision in TRW, Inc. v. Federal Trade Commission219 introduced a broader flexible
qualitative market analysis to determine the relevant market. 220 In that case, Horace
Shephard was a director for TRW, Inc. and Addresso-Multigraph Corporation. 221 Both
companies sold electronic funds transfer and credit validation equipment.222 Because of this,
a case was filed against the two corporations for violation of Section 8 of the Clayton Act.
The issue was determining who are considered competitors. The Federal Trade Commission
believed that competing companies are those engaged in a business with the same
prospective buyers.223 The products do not have to be identical. However, the firms argued
that the proper tests to be used should be the cross price-elasticity of demand and
interchangeability of use.224 The Court did not agree with the two companies since these
aforementioned tests are generally restrictive and would defeat the purpose of Section 8.225
Section 8 was created “to nip in the bud incipient to antitrust violations by removing the
218
American Bakeries Company v. Gourmet Bakers, Inc., 515 F.Supp. 977 (1981) (U.S.).
219
TRW, Inc. v. Federal Trade Commission, 647 F.2d 942 (9th Cir. 1981) (U.S.).
220
221
Kelly Ryan, Interlocking Directorates and the Clayton Act: A New Standard of Competition, 19 HOUSTON
LAW REVIEW 809 (1982).
222
Id.
223
Ryan, supra note 221.
224
Id.
225
Id.
55
opportunity or temptation for such violations through interlocking directorates.”226 It was also
held that the tests were not really suited for infant industries. The court decided to expand the
test and consider other factors namely the following:
(1) the extent to which the industry and its customers recognize the products as separate
or competing;
(2) the extent to which production techniques for the products are similar; and
(3) the extent to which the products can be said to have distinctive customers. 227
No banks, banking associations, trust companies, and common carriers
The prohibition does not apply to banks, banking associations, trust companies, and
common carriers. Interlocks between two banks or a bank and a competing non-bank do not
constitute a violation of Section 8.228 This has been reinforced in the case of BankAmerica
Corporation v. United States.229 There was a complaint saying that interlocks between banks
and insurance companies violated the Clayton Act. The Court ruled that Section 8 does not
apply if either of the corporation is a bank.230
Person serves as an officer or director of two corporations
The fourth element may seem self-explanatory but there is an issue about the scope of
the law: whether or not it applies to both direct and indirect interlocks? For the longest time,
it was believed that Section 8 only applies to direct interlocks but recent jurisprudence has
shown the Court to be more liberal in its interpretation of the statute. Both have been
acknowledged by courts to have anti-competitive effects; therefore, coming under the
prohibition in Section 8.
226
United States v. Sears, Roebuck & Co., 111 F. Supp. 614, 616 (S.D.N.Y. 1953) (U.S.).
227
TRW, Inc. v. Federal Trade Commission, 647 F.2d 942 (9th Cir. 1981) (U.S.).
228
229
BankAmerica Corporation v. United States, 462 U.S. 122 (1983)(U.S.).
230
Id.
56
The first type of indirect interlocks in the form of deputization causes the same
problems as direct interlocks. The only difference is that instead of one person sitting in the
two boards, two different people are board members of the competing companies. However,
these two different people’s actions are dictated by a single person so it is as if that single
person sits on both boards. Hence, the danger of exchanging sensitive information and
influencing anti-competitive conduct is still there. In the case of United States v. Cleveland
Trust Co.231, there was a deputization interlock between Cleveland Trust, the 16 th largest bank
in America and three industrial firms. The bank Chairman, Karch, and the Vice President,
Shaw, were on the boards of the competing machine tool manufacturers. The issue in this
case was whether or not the aforementioned people were acting as agents of the bank and
therefore guilty of violating Section 8. The court did not get to really answer these questions
since the case merely involved a motion for summary judgment. However, “the court refused
to hold that an agent of an interlocking firm could not be deputized for purposes of section 8
or that a corporation could not be a director within the restrictive language of the statute.”232
Section 8 refers to a “person”. Person includes corporations as stipulated in the
definitions provided in the Clayton Act. 233 Hence, deputization by a firm through its agents
can be covered by the prohibition. A deputy relationship, however, must be proven. 234 It is
not enough that two officers from the same mother company are sitting on the boards of
competing firms.235 These officers must be agents of the mother company, not acting in their
231
United States v. Cleveland Trust Co., 392 F. Supp. 699 (N.D. Ohio 1974) (U.S.).
232
233
Id.
234
235
Id.
57
own capacity.236 In the cases of Square D Co. v. Schneider237 and Reading International v.
Oaktree Capital Management LLC238, the court confirmed that there is still a Section 8
violation if the directors’ service in the competitors’ boards are not in their individual
capacities but as agents of another entity to which they both belong. Otherwise, deputization
would be a means of circumventing the law. The case of Square D Co. also extended
Section 8 to employees, not just to officers or directors of the companies so long as an
agency relationship exists.239
The prohibition in Section 8 also applies to the second type of indirect interlock
relating to parent-subsidiary companies. To be able to constitute a violation, strong parental
influence over the subsidiaries must be proven.240 Competition problems arise because the
parent companies basically control the subsidiaries. 241 Any information acquired through the
parent companies will reach the subsidiaries, which could influence competitive behavior of
competing subsidiary corporations.242 If the subsidiaries, however, act independently,
antitrust violations are less likely.243 In the case of Borg-Warner Corporation244, Bosch
GmbH acquired stocks of Borg-Warner. Two directors, who sit in the boards of Bosch
GbmH and Bosch US, then became directors as well on Borg-Warner’s board. 245 The US
government believed there was a violation of Section 8 since the parent company’s control
236
Id.
237
Square D Co. v. Schneider S.A., 760 F. Supp. 362 (S.D.N.Y 1991) (U.S.).
238
Reading International Inc. v. Oaktree Capital Management, 317 F.Supp.2d 301, (S.D.N.Y 2003) (U.S.).
239
240
241
242
243
Id.
244
Borg-Warner Corp. v. FTC, 746 F.2d 108 (2d Cir. 1984) (U.S.).
245
58
over the American subsidiary firm is blatant. The administrative law judge agreed. In
Cleveland Trust246, the Court ruled that if enough evidence of domination of the subsidiary
was proven, the interlock could be deemed illegal.247
Jurisprudence has also introduced and discussed the concept of single economic
entity in relation to interlocking directorates. In the case of Copperweld Corp. v.
Independence Tube Corp.248, the US Supreme Court ruled that when an interlock occurs
between a parent company and its wholly-owned subsidiary, no violation may occur because
the two companies form a single economy entity.249 This was reaffirmed in the case of
HealthAmerica Pennsylvania, Inc. v. Susquehanna Health System 250. In the latter case, there
were interlocks between the boards of Susquehanna Regional Healthcare Alliance and its
member hospitals. It was ruled that Section 8 was not violated since the member hospitals
and Alliance were not considered competitors.251 They formed one single economic entity.252
3. Interlocking Directorates and Mergers
Section 8 of the Clayton Act was meant to deal with interlocks within or outside the
context of a merger. The case of U.S. v. CommScope253 is an example of the use of Section 8
in a merger process. CommScope Inc. and Andrew Corporation came up with an agreement
wherein the former would acquire the latter. 254 CommScope is involved in the manufacture of
246
247
248
Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984)(U.S.).
249
250
HealthAmerica Pennsylvania, Inc. v. Susquehanna Health System, 278 F. Supp. 2d 423, (M.D. Pa. 2003)
(U.S.).
251
252
Id.
253
U.S. v. CommScope, Inc. and Andrew Corp., Case No: 1:07-cv-02200, December 6, 2007.
254
OECD, supra note 159.
59
cable products such as drop cables and hardware products required for the installation of the
aforementioned type of cable.255 On the other hand, Andrew produces antennas and cable
products including drop cables but it sold its drop cable business to Andes Industries, Inc. 256
It also has a 30% share in Andes.257 The Department of Justice was concerned that
competition between CommScope and Andes could be deterred by the acquisitions. 258
Andrew was ordered to remove any ownership interest in Andes and give up any contractual
governance rights to address the interlock problem.259
4. Exceptions to the Per Se Prohibition
Section 8 applies if the competing corporations have capital, surplus, and undivided
profits of more than $10 Million each. There are de minimis exceptions to the general rule
namely the following:
1) If the competitive sales of either corporation are less than $ 1 Million

2) If the competitive sales of either competing companies is less than 2% of the total sales
of said corporation; or
3) If the competitive sales of each of the competing companies are less than 4% of the
company’s total sales.260
The monetary thresholds are revised every year. As of January 29, 2018, “if each of the
competing companies has capital, surplus and undivided profits of over $34,395,000, the
interlock is unlawful unless (1) the competitive sales of either firm are under $3,439,500 or
represent less than 2% of that firm's total sales, or (2) the competitive sales of each firm are
less than 4% of that firm's total sales.”261

255
Id.
256
Id.
257
Id.
258
Id.
259
Id.
260
261
FTC increases HSR and Clayton Act Thresholds, available at https://www.perkinscoie.com/en/news-
insights/ftc-increases-hsr-and-clayton-act-thresholds-1.html (last accessed July 3, 2018).
60
Section 8 also has a one-year grace period from when the interlocking director is
asked to resign from his position.262 This is available subject to the following requirements:
1. At the time of elections, the individual had the capacity to serve as director legally
2. The same individual, however, later became ineligible to serve in the aforementioned
position because of an intervening occurrence that made it unlawful under Section 8,
such as:
a. a change in one of the corporation’s capital, surplus, and undivided profits
which resulted to an increase beyond the threshold for exemption; or
b. the companies became competitors.263
Further, the prohibition does not apply to the following types of interlocks:
o Vertical interlocks
o Interlocks involving only potential competitors.
o Interlocks between entities that are not corporations
o Interlocks involving relatives or friends
o Interlocks between non-competing firms.264
5. Enforcement of Section 8
Section 8 does not impose criminal penalties.265 Upon the filing of an administrative
case, more often than not, the motion for summary judgment or a decision on the merits is
not granted.266 Instead of pursuing a full-blown litigation process, the Federal Trade
Commission and the Department of Justice prefers to settle the issue through consent
orders.267 The director is asked to resign from his position. 268 After the director resigns, the
262
263
Id.
264
Id.
265
Simpson Thacher, Federal Trade Commission makes inquiries into Interlocking Boards, available at
http://www.stblaw.com/docs/default-source/cold-fusion-existing-content/publications/pub830.pdf?sfvrsn=2
(last accessed July 3, 2018).
266
267
Id.
268
Id.
61
companies usually ask for the motion for summary judgment claiming that the case is
moot.269 If the motion is not granted, cease and desist orders may be issued to prohibit similar
future activities.270 A consent agreement may be signed to ensure the creation of a monitoring
program to prevent prohibited interlocks.271 Should the court find that the voluntary
resignation of the director does not eliminate all future anti-competitive dangers, it may issue
injunctive orders.272 Injunctive relief may be used by: a) the FTC under Section 11 of the
Clayton Act; b) the DOJ under Section 15 of the Clayton Act; or c) private plaintiffs under
Section 16 of the Clayton Act.273 Private parties may also ask for damages under Section 16
of the Clayton Act.274
6. Recent Application of Section 8
Last 2009, the Federal Trade Commission conducted investigations regarding the
interlocks between the boards of Apple and Google. 275 There were two directors shared by
the two companies namely, Eric E. Schmidt, chief executive of Google, and Arthur Levinson,
former chief executive of Genentech.276 Apple and Google are known to compete in the
smartphone operating systems industry.277 They also compete through “web browsers (Safari
v. Google Chrome), music or videos (iTunes v. Youtube), cloud computing (MobileMe v.
iGoogle), e-mail services (Mail v. Gmail), address lists (Address Book v. Contacts) ,
269
Id.
270
Id.
271
Id.
272
United States v. W.T. Grant Co., 345 U.S. 629 (1953)(U.S.).
273
274
Id.
275
Board ties at Apple and Google are Scrutinized, supra note 40.
276
Id.
277
Id.
62
calendars (iCal v. Google Calendar), chat (iChat v. Google Talk), photos (iPhoto vs.
Picasa), and file storage (iDisk vs. Google Docs).” 278 Due to this issue, the two directors
eventually stepped down from their positions. The Federal Trade Commission Chairman, Jon
Leibowitz, commended the two corporations for taking immediate action and acknowledging
the anti-competitive effects interlocking board members may propagate. 279 He further added
that the Federal Trade Commission “will continue to monitor companies that share board
members and take enforcement actions where appropriate.”280
In June 2016, there was a business transaction between Tullett Prebon Group Ltd. and
ICAP.281 The Department of Justice ordered the transaction to be restructured to avoid
violation of Section 8 of the Clayton Act. 282 The original plan allowed ICAP to own 20% of
Tullett and nominate a member in the latter’s board. 283 These two companies were competing
in the market. The revised transaction removed the right to own shares and to nominate a
director.284
7. Other Pertinent Laws
As was mentioned earlier, not all forms of interlocks are covered by Section 8 of the
Clayton Act. Section 5 of the Federal Trade Commission Act punishes “unfair methods of
278
Philip Elmer-Dewitt, Antitrust Inquiry: How Apple and Google Compete, available at http://fortune.com/
2009/05/05/antitrust-inquiry-how-apple-and-google-compete/ (last accessed July 3, 2018).
279
Paul, Weiss, Rifkind, Wharton & Garrison LLP, Interlocks under Section 8 of the Clayton Act: Implications
of the FTC’s investigation of Apple and Google, available at https://www.lexology.com/library/detail.aspx?g=4
57fd9a1-57c3-4e7d-8d9d-e2a3d2a73fa2 (last accessed July 3, 2018).
280
Id.
281
Board Interlocks on Antitrust Enforcement Hot Seat: A Must-read Guide for Board Members and Officers,
available at https://www.goodwinlaw.com/publications/2016/08/08_17_16-board-interlocks-on-antitrust-
enforcement (last accessed July 3, 2018).
282
Id.
283
Id.
284
Id.
63
competition” and “unfair deceptive acts or practices in or affecting commerce”. 285 The
Federal Trade Commission is empowered under this provision to prohibit activities against
antitrust policies despite not clearly violating the law.286 There is no exact definition for
unfair methods of competition. The Federal Trade Commission is empowered to determine
what practices are considered unfair.287 Standards that the Federal Trade Commission have
used include the following: “whether the conduct offends public policy, whether it is
immoral, unethical, oppressive, unscrupulous, and whether it causes substantial injury to
consumers, competitors, or other businessmen.”288 Interlocks that produce anti-competitive
effects may be covered by this general provision especially because the original drafters in
the law even considered including interlocking directorates in the Section. 289 In the case of
Kraftco.290, Kraftco Corporation and SCM had interlocking directorates. In this case, the
Court held that Section 8 of the Clayton Act and Section 5 of the Federal Trade Commission
Act were violated. Later, in In Re Perpetual Federal Savings and Loan Association 291, the
Federal Trade Commission used Section 5 of the FTCA against an interlock not covered by
the prohibition in the Clayton Act.
As clearly specified by Section 8 of the Clayton Act, interlocks between banks or a
bank and non-bank are not prohibited under the aforementioned law. However, the
Depository Institution Management Interlocks Act may be used to address this situation. The
285
Federal Trade Commission Act (FTA Act),15 U.S.C. § 45 (1914).
286
287
Id.
288
Id. at 379.
289
290
In re Kraftco Corp., 89 F.T.C. 46, 60 (1977) (U.S.).
291
64
law was created to prevent a management official of a depository organization from serving
in the same capacity in another depository organization.292 A depository institution is “a
commercial bank, a savings bank, a trust company, a savings and loan association, a building
and loan association, a homestead association, a cooperative bank, an industrial bank, or a
credit union.”293 On the other hand, a management official is “an employee or officer with
management functions, a director (including an advisory or honorary director, except in the
case of a depository institution with total assets of less than $100,000,000), a trustee of a
business organization under the control of trustees, or any person who has a representative or
nominee serving in any such capacity.”294
N. CANADA
In Canada, interlocking directorates are only addressed in the context of a merger
review.295 It is covered by the 2004 Merger Enforcement Guidelines. 296 The Competition
Bureau is allowed to look into the anti-competitive effects of a merger with interlocking
directorates between a company and its competitor, customer or supplier. 297 A merger is
defined as “... the acquisition or establishment, direct or indirect, by one or more persons,
whether by purchase or lease of shares or assets, by amalgamation or by combination or
otherwise, of control over or significant interest in the whole or a part of a business of a
competitor, supplier, buyer or other persons.”298 What is important in this definition is the
292
Comptroller Licensing Manual: Management Interlocks, available at https://www.occ.gov/publications/
publications-by-type/licensing-manuals/mgmtint.pdf (last accessed July 4, 2018).
293
Depository Institution Management Interlocks Act, 12 U.S.C. § 3201 (1978).
294
Id.
295
Mark Katz, Canadian Merger Law and Interlocking Directorships / Minority Shareholdings, available at
http://www.mondaq.com/canada/x/60384/Antitrust+Competition/Canadian+Merger+Law+And+Interlocking+D
irectorships+Minority+Shareholdings (last accessed July 4, 2018).
296
297
Id.
298
Id.
65
phrase, “significant interest.” When this test is met, the Bureau has the right to conduct
investigations on suspicious antitrust activities. Significant interest “is held qualitatively
when the person acquiring or establishing the interest obtains the ability to materially
influence the economic behaviour of the business (including decisions relating to pricing,
purchasing, distribution, marketing, investment, financing or the licensing of intellectual
property rights).”299 The analysis usually begins with a full assessment of the merger itself. 300
If the merger does not show any signs of violating competition policies, the issue on
interlocking directorates would no longer be discussed.301
In cases relating to interlocking directorates and mergers, the Bureau examines the
following:
1) the ability to materially influence the economic behavior of the business;

2) the ability to obtain confidential information; and
3) changes to incentives (or the profit maximizing function).302
To come up with its assessment, the Bureau takes into consideration several factors such as if
there are any rights attached to minority interest shareholdings, the state of competition in the
market, special powers such as veto rights, arrangements that are highly influential, board
composition, and the responsibilities and rights of the interlocking director.303
In the case of Sogides Ltee / Quebecor Media Inc., Quebecor bought the publishing
business of Sogides. Sogides’ President, Pierre Lesperance, wanted to be a director of a
Gestion Renaud-Bray Inc., a bookstore chain, which was a competitor of Quebecor’s own
chain – Archambault Group Inc. Bookstores. The Bureau believed that such could lead to
299
Id.
300
Id.
301
Id.
302
Katz, supra note 295.
303
Id.
66
exchange of sensitive information with anti-competitive implications. Hence, Lesperance was
asked to resign from Renaud-Bray’s board of directors.304
O. JAPAN
Japan has its own comprehensive competition law in the form of the Act on Prohibition
of Private Monopolization and Maintenance of Fair Trade or The Antimonopoly Act enacted
in 1947 under the influence of American antitrust laws 305. The Antimonopoly Act prohibits
the following: 1) private monopolies, 2) unreasonable restraints of trade, and 3) unfair
business practices.306 To qualify for a violation of the prohibition on unreasonable restraints
of trade, the company must engage in activities that “substantially restrict competition in a
particular field of trade.”307 This requirement is also applicable to the provision dealing with
restrictions against interlocking directorates.308
Article 13 (1) of the Antimonopoly Act provides:
An officer or an employee of a company may not hold a position as an officer of another

company at the same time, if the person's doing so substantially restrains competition in
any particular field of trade.309
According to Article 2(3) of the law, an officer is “a trustee, director, executive, partner with
unlimited liabilities and executive power, an auditor or any person with a similar position, a
manager or other employee in charge of the business of the main or branch office”.310
Interlocking directorates is usually reviewed in the context of business combinations
304
Id.
305
Iyori, supra note 167, at 63.
306
Mitsuo Matsushita, Antimonopoly Law of japan – Relating to International Business Transactions, 4 CASE
WESTERN RESERVE JOURNAL OF INTERNATIONAL LAW 124, 125 (1972).
307
Matsushita, supra note 306.
308
Id.
309
Act on Prohibition of Private Monopolization and Maintenance of Fair Trade (The Antimonopoly Act), Act
No. 54, art. 13(1) (1947) (Japan).
310
Id. art. 2(3).
67
and when it forms joint relationships.311 In order to determine the existence of such a joint
relationship, the following may be taken into consideration:
1) whether there is an interlocking directorate formed by the full-time or representative

directors;
2) the ratio of officers or employees of one of the interlocking companies to the total
number of officers of one of the other interlocking companies;
3) mutual holding of voting rights’ conditions between the interlocking companies; and
4)the trading relationships (including financial relationships), business alliance and other
relationships between the interlocking companies.312
Unlike the Clayton Act, it is not a per se prohibition. The focus of the law is not on the
existence of an interlock between competing companies.313 Instead, it looks into the effects of
the restraint.314 In short, it follows the rule of reason analysis. Mere existence of a horizontal
interlock does not automatically warrant sanctions. Rather, there must be an investigation
first as to whether or not it really violates antitrust policies before any liability is imposed. It
also removes the burden of having to prove that the corporations are competitors. 315 The
coverage of the law is also generally broader than the Clayton Act. It does not limit itself
merely to horizontal interlocks.316 It may apply to vertical ones as well because as was
already mentioned, the focus is on the effects of such a relationship.317
There was a case in Japan regarding the company, Hiroshima Electric Railway. It
operated transportation vehicles in Hiroshima City. Hiroshima Bus, another corporation, on
the other hand, operated buses. The two companies were competitors. Eventually, Hiroshima
Electric Railway bought 110,000 shares of 130,000 issued shares of Hiroshima Bus. Four
311
312
Id.
313
314
315
Id.
316
Id.
317
Id.
68
people held important positions in both companies either as a board member, auditor, or
executive official. It was held that there was a violation of the prohibition on interlocks in
Article 13(1) so the aforementioned individuals were asked to resign.318
P. SOUTH KOREA
South Korea is governed by the Monopoly Regulation and Fair Trade Act. The law also
has a specific provision regarding interlocking directorates. It is similar to Japan in the sense
that it follows the rule of reason analysis and is used in the context of mergers. Determination
of anti-competitive behavior by the Fair Trade Commission must be accomplished first
before the imposition of any sanctions.319 Article 12320 of the law provides that if an
executive official or employee of a large corporation, which has total assets exceeding two
trillion won, is also a director of another company, the two aforementioned firms must
submit to a merger notification process to the Korean Federal Trade Commission 321. If the
merger is anti-competitive, the interlock is immediately considered illegal. 322 Prohibited
interlocks generally result to resignation of the individual involved.323
There was a case involving Samick Musical Instruments, which is a prominent piano
manufacturer. It acquired shares of Young Chang, a competitor. The executive director of
Samick also functions in the same position in Young Chang. The two corporations
participated in a price cartel, which was made possible through the interlock. The merger was
eventually declared illegal.324
318
319
Jacobs, supra note 37, at 646-47.
320
Monopoly Regulation and Fair Trade Act, art. 12 (1980) (S. Kor.)
321
322
Id.
323
Id.
324
Id.
69
Q. INDONESIA
In Indonesia, a Limited Liability Company, otherwise known as Perseroan Terbatas, is
the most common type of legal entity.325 It has a Board of Directors and a Board of
Commissioners.326 The Board of Directors is in charge of the ordinary course of business. 327
The Board of Commissioners basically watches over and supervises the board of directors. 328
The Indonesian Competition Law provides a provision addressing the threat of interlocking
directorates. Article 26 of the law states:
A person who serves as the director or commissioner of a company is prohibited from

concurrently being the director or commissioner at other enterprises, if the said enterprises:
 are in the same relevant market; or
 are closely related to the field and/or type of business; or
 can jointly control the market share of certain goods and/or services, which could
cause monopolistic practices and/or unfair business competition.329
The law is applicable to members of both boards so long as the interlock would allow illegal
dominance of the market.330 The provision falls under the section on abuse of dominance.331
The Indonesian Competition Authority has also clarified, in one of its report to the
Organization for Economic Co-operation and Development, that it makes use of the rule of
reason analysis.332 Evidence must first be presented to prove that the firms are in the same
relevant market.333 These pieces of evidence must show that: 1) the interlocks are between
325
326
Id.
327
Id.
328
Id.
329
Law No. 5 of 1999 concerning The Prohibition of Monopolistic Practices and Unfair Business Competition,
art. 26 (1999) (Indon.).
330
331
Id.
332
333
Id.
70
companies in the same related market or in similar goods (or services) market and 2) the
interlocks allow domination of the industry by the corporations involved.334
R. ASEAN COMPETITION GUIDELINES

The ASEAN Guidelines do not have a specific provision addressing general interlocks.
The only reference to it is found in the definition of a merger. A merger is said to include
“transactions whereby two companies legally merge into one (“mergers”), one firm takes sole
control of the whole or part of another (“acquisitions” or “takeovers”), two or more firms
acquire joint control over another firm (“joint ventures”) and other transactions, whereby one
or more undertakings acquire control over one or more undertakings, such as interlocking
directorates.”335 Regulations for interlocks outside the merger process do not exist in the
Guidelines.
334
335
ASEAN Regional Guidelines on Competition Policy, supra note 191.
71
CHAPTER 4: RELEVANT PROVISIONS RELATED TO INTERLOCKING

DIRECTORATES IN THE PHILIPPINE CONTEXT
Since the topic at hand deals with the board of directors of corporations, a study of the
relevant provisions in the Corporation Code should be done to clarify the issue that this paper
seeks to present and address. A look into the concept of independent directors will also be
done. Afterwards, there will be a rundown of the legislative history of competition principles
in the Philippines before the 2015 competition law was enacted. Then, there will be a
discussion on the relevant provisions in the Philippine Competition Act and other relevant
special laws.
A. CORPORATION CODE OF THE PHILIPPINES

According to the Corporation Code, “a corporation is an artificial being created by
operation of law, having the right of succession and the powers, attributes, and properties
expressly authorized by law or incident to its existence.”336 The corporation is merely an
instrument through which people can engage in commercial activities. The Corporation Code
requires a total of five to fifteen directors to sit on the board. 337 How a corporation makes
decisions and conducts its activities is actually through this board of directors. According to
the case of Mendezona v. Philippine Sugar Estates Development Company, “the corporation
may be bound by the acts of the directors acting within the scope of their authority, in the
same way that agents of natural persons can bind their principal.”338
336
The Corporation Code of the Philippines [CORPORATION CODE], Batas Pambansa Blg. 68, §2 (1980).
337
Id. §10.
338
Mendezona v. Philippine Sugar Estates Development Company, G.R. No. L-13659, Mar. 22, 1921.
72
One of the theories surrounding the source of the power of the Board is known as the
Theory of Delegated Power.339 Such a theory states that the stockholders delegates power to
the board.340 Thus, the directors of the board function as agents of the stockholders, who are
the real owners of the company.341 This is also the reason why it is the latter who has the
power to elect the members of the board.342 On the other hand, former Dean Cesar Villanueva
describes the corporate system as one that relies on business trust.343 In this scenario, the
corporation, itself, is the trustor. The Board would be the trustee. The stockholders would be
the beneficiaries. Whether the relationship is that of an agency or trust is not really relevant
for this paper. What is important is that both bestow a fiduciary duty on the members of the
board to the corporation.344
There are three main duties of a board member namely: a) duty of obedience, b) duty
of diligence, and c) duty of loyalty. 345 The duty of obedience requires directors to act only in
accordance with the law and the obligations imposed upon them.346 It involves the exercise of
one’s powers only for the purposes for which they were created. 347 This is in line with the
law, which defines a corporation as an entity with only limited powers. 348 Violating this duty
of obedience has consequences. The acts may be considered void, if they were illegal. 349 On
339
CESAR VILLANUEVA & TERESA VILLANUEVA-TIANSAY, PHILIPPINE CORPORATE LAW 306 (2013 ed.).
340
Id.
341
Id.
342
Id. at 307.
343
Id. at 310.
344
Id.
345
VILLANUEVA & VILLANUEVA-TIANSAY, supra note 339, at 381.
346
Id. at 388.
347
Id.
348
Id. at 387.
349
Soledad M. Cagampang, The Fiduciary Duties of Corporate Directors under Philippine Law, 46 PHIL. L.J.
513, 558(1971).
73
the other hand, merely acting outside the scope of one’s powers would be considered ultra
vires and unenforceable unless ratified.350 The director’s liability would depend on whether or
not he acted with good faith.351
The duty of diligence requires at least ordinary diligence, which, in the Philippines, is
referred to as the diligence of a good father of a family. 352 The required care is also dependent
on the nature of the obligation and factual circumstances.353 This duty is said to be
exemplified in Section 31 of the Corporation Code. 354 The provision basically states that
directors who willingly or knowingly agreed to unlawful acts, was grossly negligent or acted
in bad faith shall be jointly and severally liable for damages. 355 The law clearly specifies
“willingly”, “gross”, and “bad faith”. This shows that the standards for violation are quite
high.356 A simple mistake or negligence is not enough to make the director liable.
Lastly, the duty of loyalty or fidelity requires the director to ensure that the
corporation always comes first before himself.357 His own pecuniary interests will always be
subordinate to that of the corporation’s. 358 This duty is derived from certain rules provided in
the Civil Code governing agency relationships.359 According to the Civil Code, an agent may
be held liable if 1) there is a conflict between his own and his principal’s interests and he
chooses the former360, or 2) he does not render an account of his transactions and deliver
350
351
Cagampang, supra note 349, at 542.
352
Id. at 527.
353
Id.
354
355
CORPORATION CODE, § 31.
356
357
Cagampang, supra note 349, at 541.
358
Id.
359
360
74
them to the principal as required by law.361 The Corporation Code has three provisions
dealing with the duty of loyalty. These are Sections 32-34. Section 32 basically states that a
corporate contract with a director is voidable unless the following requisites are complied
with: 1) the director was not needed to constitute a quorum, 2) the director’s vote was not
required to approve the contract, and 3) the contract was fair and generally reasonable. 362 If
either of the first two requirements is not satisfied, the contract may still be ratified by the
votes of the stockholders who represent at least 2/3 of the total outstanding capital stock. 363
Next, Section 33 deals with interlocking directorates. The law states that a contract between
companies with interlocking directorates is not necessarily invalid on its face so long as the
contract is fair and reasonable.364 However, if 1) in case of fraud, or 2) the director has a
substantial interest (at least 20% stockholdings) in one corporation and a nominal one in the
other, the contract must be ratified before it may be considered valid. 365 Lastly, Section 34
involves a situation wherein the director takes a business opportunity from the corporation
for his own benefit. 366 In this scenario, he is required to account for all the earnings and
refund the same to the corporation, unless his actions are ratified by the board.367
While the Corporation Code has provisions which addresses conflict of interests
situations, it fails to discuss the possible consequences of interlocking directors, who are
forced to work for the best interests of two corporations due to their fiduciary duties to both
entities, on market competition. The provisions merely focus on conflicts between a

361
Id. art. 1891.
362
363
364
365
Id.
366
Id. § 34.
367
Id.
75
director’s own interests and that of the corporation he is serving. Although the codals do not
seem to touch upon competition issues, jurisprudence has somewhat dealt with the problem.
This was seen in the case of Gokongwei v. SEC368, wherein a stockholder of San Miguel
Corporation wanted to sit in its board despite also being the President of Universal Robina
Corporation, a competitor of San Miguel. The issue was technically whether or not the
amended by-laws of San Miguel Corporation is valid as it prohibited a stockholder who is
affiliated with a competitor company from sitting in the board of San Miguel. The Court held
that the by-laws were valid. It discussed the fiduciary nature of the director and the doctrine
of corporate opportunity by emphasizing that “a director or officer of a corporation may not
enter into a competing enterprise which cripples or injures the business of the corporation of
which he is an officer or director.”369 In relation to competition, on the other hand, the Court
cited the Constitutional provision in Article XIV, Article 186 of the Revised Penal Code, and
even the Clayton Act of the United States. To be specific, the Supreme Court cited a U.S.
academic journal to explain the conflict brought about by the interlock:
The argument for prohibiting competing corporations from sharing even one director is that the
interlock permits the coordination of policies between nominally independent firms to an extent
that competition between them may be completely eliminated. Indeed, if a director, for example,
is to be faithful to both corporations, some accommodation must result. Suppose X is a director
of both Corporation A and Corporation B. X could hardly vote for a policy by A that would
injure B without violating his duty of loyalty to B at the same time he could hardly abstain from
voting without depriving A of his best judgment. If the firms really do compete — in the sense
of vying for economic advantage at the expense of the other — there can hardly be any
reason
for an interlock between competitors other than the suppression of competition.370
S. CORPORATE GOVERNANCE PRINCIPLES
368
Gokongwei, Jr., G.R. No. L-45911.
369
Id.
370
Arthur H.Travers, Interlocks in Corporate Management and the Anti Trust Laws, 46 TEXAS L. REV. 819, 840
(1968).
76
In the Philippines, the Securities and Exchange Commission first enacted the Code of
Corporate Governance in 2002. Later in 2009, the Revised Code of Corporate Governance
was promulgated. Then lastly, in 2016, the Code of Corporate Governance for Publicly-
Listed Companies was put into effect. These issuances are important as they introduced the
concept of independent directors. An independent director has been defined as “a person who
is independent of management and the controlling shareholder, and is free from any business
or other relationship which could, or could reasonably be perceived to, materially interfere
with his exercise of independent judgment in carrying out his responsibilities as a director.”371
An independent director must also be one who:
a) is not, or has not been a senior officer or employee of the covered company unless there has been a
change in the controlling ownership of the company;
b) is not, and has not been in the three years immediately preceding the election, a director of the
covered company; a director, officer, employee of the covered company’s subsidiaries, associates,
affiliates or related companies; or a director, officer, employee of the covered company’s substantial
shareholders and its related companies;
c) has not been appointed in the covered company, its subsidiaries, associates, affiliates or related
companies as Chairman Emeritus, Ex-Officio Directors/Officers or Members of any Advisory Board,
or otherwise appointed in a capacity to assist the Board in the performance of its duties and
responsibilities within three years immediately preceding his election;
d) is not an owner of more than two percent (2%) of the outstanding shares of the covered company,
its subsidiaries, associates, affiliates or related companies;
e) is not a relative of a director, officer, or substantial shareholder of the covered company or any of
its related companies or of any of its substantial shareholders. For this purpose, relatives include
spouse, parent, child, brother, sister and the spouse of such child, brother or sister;
f) is not acting as a nominee or representative of any director of the covered company or any of its
related companies;
g) is not a securities broker-dealer of listed companies and registered issuers of securities;
h) is not retained, either in his personal capacity or through a firm, as a professional adviser, auditor,
consultant, agent or counsel of the covered company, any of its related companies or substantial
Securities and Exchange Commission, Code of Corporate Governance for Publicly-Listed Companies, SEC
371
Memorandum Circular No. 19, Series of 2016 [SEC Memo. Circ. No. 19 (2016)] (Nov. 22, 2016).
77
shareholder, or is otherwise independent of Management and free from any business or other
relationship within the three years immediately preceding the date of his election;
i) does not engage or has not engaged, whether by himself or with other persons or through a firm of
which he is a partner, director or substantial shareholder, in any transaction with the covered
company or any of its related companies or substantial shareholders, other than such transactions that
are conducted at arm’s length and could not materially interfere with or influence the exercise of his
independent judgment;
j) is not affiliated with any non-profit organization that receives significant funding from the covered
company or any of its related companies or substantial shareholders; and
k) is not employed as an executive officer of another company where any of the covered company’s
executives serve as directors.”372
Under the 2002 Code of Corporate Governance, independent directors were only
required for public companies.373 These corporations were mandated to have either 1) two
independent directors or 2) independent directors constituting at least 20% of the whole
board, whichever option will result to a lesser number of independent directors. 374 Hence, if
20% only results to 1 director, only that one director will be an independent one. 375 In the
2009 version of the Code, the number of independent directors must at least be two. 376 The
2016 Code of Corporate Governance, on the other hand, increased the requirement to at least
either 1) three independent directors or 2) such number of independent directors constituting
at least 1/3 of the whole board, whichever will bring about more independent directors. 377
However, this issuance refers to only publicly-listed companies. 378 Another requirement that
must be noted under the newest SEC Memorandum is that the term of an independent
372
SEC Memo. Circ. No. 19 (2016).
373
Simeon Ferrer & Ricardo Gutierrez, Philippines FDI Special Focus: Board Composition – The Way Forward,
available at https://www.syciplaw.com/Documents/LegalResources/2017/IFLR_Philippines_Board
0517%20pages.pdf (last accessed Aug. 3, 2018).
374
Securities and Exchange Commission, Code of Corporate Governance, SEC Memorandum Circular No. 2,
Series of 2002 [SEC Memo. Circ. No. 2 (2002)] (Apr. 5, 2002).
375
Ferrer & Gutierrez, supra note 373.
376
Securities and Exchange Commission, Revised Code of Corporate Governance, SEC Memorandum Circular
No. 6, Series of 2009 [SEC Memo. Circ. No. 6 (2009)] (June 22, 2009).
377
SEC Memo. Circ. No. 19 (2016).
378
Id.
78
director should not exceed a maximum cumulative period of nine years. 379 After the nine-year
period, he is no longer allowed to serve as an independent director. The only exception is if
there are meritorious reasons and approval from the shareholders. 380 The reason for the time
limit is that the director may become less and less independent or objective as he becomes
more immersed in the firm.381 A fresh and new perspective is also advisable so as to help the
company improve.
The SEC has been trying to put an emphasis on the need to avoid conflict of interests
situations as they pose detrimental effects to the corporations involved. The institution of
independent directors was made a requirement by law to lessen instances of breach of
fiduciary duties. However, like the Corporation Code, the rules on independent directors are
insufficient to resolve the problems of horizontal and vertical interlocks. Independent
directors are considered unbiased because they do not have much pecuniary interests in the
companies they work for. However, they still owe fiduciary duties to their employer
corporations and are not prohibited from serving two or more companies in the same
industry. Hence, an independent director still faces the same problem of “fiduciary tensions”
that a non-independent one does in horizontal or vertical interlock situations, which is what
causes antitrust issues.
T. EVOLUTION OF COMPETITION POLICIES IN THE PHILIPPINES

For the longest time, the Philippines was one of the few countries in the Southeast Asian
region that did not have a comprehensive competition law. Before 2015, antitrust legislation
was embedded in different laws. To begin with, the 1973 Constitution Article XIV Section 2
379
Id.
380
Id.
381
Id.
79
provided that “the State shall regulate or prohibit private monopolies when the public interest
so requires. No combinations in restraint of trade or unfair competition shall be allowed.” 382
The 1987 Philippine Constitution Article XII Section 19 retained the provision but removed
the word “private” so that all types of monopolies may be subject to antitrust regulations.”383
This was based on the Sherman Act of the United States. 384 The law does not prohibit
monopolies per se.385 Its legality depends upon its effect on public welfare. 386 On the other
hand, combinations in restraint of trade or unfair competition are per se prohibited.387 The
problem, however, lies on the fact that the law does not further define what constitutes
combinations in restraint of trade or unfair competition. 388 The Constitution left it up to the
Court to interpret these phrases provided in the law. 389 The Supreme Court has held that the
provision in the Constitution is not only limited to monopolies or combinations in restraint of
trade.390 It is “anti-trust in history and spirit.”391 It was basically meant to enforce fair
competition, which means that anything that curbs competition would constitute a
violation.392 At the same time, however, the Constitution does not propagate “unfettered
competition”, since the State can intervene under certain circumstances.393
382
1973 PHIL. CONST. art. XIV, § 2 (superseded 1987).
383
384
PHILIPPINE APEC STUDY CENTER NETWORK & PHILIPPINE INSTITUTE FOR DEVELOPMENT STUDIES, TOWARD
A NATIONAL COMPETITION POLICY FOR THE PHILIPPINES (Erlinda Medalla ed., 2002).
385
Id.
386
Id.
387
Id.
388
Id.
389
Id.
390
Tatad v. Secretary of Department of Energy, G.R. No. 124360, November 5, 1997.
391
Id.
392
Olandesca, supra note 7.
393
Tatad, G.R. No. 124360.
80
The Revised Penal Code in Articles 186 is one of the first laws created to satisfy the
Constitutional mandate. Article 186 punishes combinations in restraint of trade, illegal
monopolies, and manufacturers, producers, processors, or importers who combine, conspire
or agree to engage in activities that would prejudice those involved in lawful commerce. 394
Under this provision, one can be subjected to imprisonment or fines for violations. 395 This
was, again, based on the Sherman Act. 396 However, unlike the U.S., there wasn’t much case
law on Article 186.397
The Civil Code of the Philippines in Article 28 states that “unfair competition in
agricultural, commercial or industrial enterprises or in labor through the use of force,
intimidation, deceit, machination or any other unjust, oppressive or highhanded method shall
give rise to a right of action by the person who thereby suffers damage.” 398 Unfair
competition was not defined in the Civil Code but it has been expanded by jurisprudence in
intellectual property cases.399 It has also been defined much more recently in the case of
Willaware Products Corporation v. Jesichris Manufacturing Coporation.400 The case held
that unfair competition requires two essential characteristics namely:
(1) it must involve an injury to a competitor or trade rival, and (2) it must involve acts which
are characterized as “contrary to good conscience,” or “shocking to judicial sensibilities,” or
otherwise unlawful; in the language of our law, these include force, intimidation, deceit,
394
REVISED PENAL CODE, art. 186.
395
Id.
396
FRANCISCO LIM & ERIC RICALDE, THE PHILIPPINE COMPETITION ACT: SALIENT POINTS AND EMERGING
ISSUES 16 (2016).
397
Id. at 17.
398
399
LIM & RICALDE, supra note 396, at 17.
400
Willaware Products Corporation v. Jesichris Manufacturing Corporation, G.R. No. 195549, September 3,
2014.
81
machination or any unjust, oppressive or high-handed method.401
Another competition law, which allows the granting of treble civil damages to private injured
parties, is Act 3247 entitled “An Act to Prohibit Monopolies and Combinations in Restraint
of Trade”.402
Aside from the provisions cited above already, there are certain special laws that also
touched upon antitrust issues. The Intellectual Property Code of the Philippines provide
regulations to ensure that there is no abuse of intellectual property rights that may have an
effect on competition.403 There is also the Revised Securities Act, which addressed insider
trading and security price manipulation problems.404 In 1999, the Anti-dumping Act was also
enacted.405 This law was meant to protect the Filipino market against unfair trade and
competition from abroad.406 There are also other laws such as the Price Act and the
Consumer Act of the Philippines. The Price Act was created to regulate pricing of goods in
the market, especially during times of economic crisis. 407 The Consumer Act of the
Philippines, on the other hand, ensures quality consumer products. 408 There are also certain
laws that deal specifically with particular industries such as the Downstream Oil Industry
Regulation Act, Electric Power Industry Regulation Act, and Universally Accessible Cheaper
and Quality Medicines Act of 2008.409 All these special laws designate different agencies to
401
Id.
402
403
Id.
404
Id.
405
Id.
406
Id.
407
Id.
408
409
82
oversee competition practices in the industry.410 There was no main competition office until
Executive Order 45 in 2011.411 This issuance created the Office for Competition of the
Department of Justice, which was tasked to deal with antitrust issues.412
Several attempts were made to come up with a comprehensive national competition
law since the 11th Congress.413 Before the bills of Senator Bam Aquino were passed, there
were several other bills drafted in the House of Representatives and the Senate. There was a
House Bill and a Senate Bill authored by Juan Ponce Enrile. 414 Both these bills actually
included specific provisions on interlocking directors between competing corporations. 415
The proposed provisions states that:
No person shall be a director in any two or more corporations engaged in whole or in part in
commerce in the Philippines at the same time, other than banks, banking associations,
investment companies, and trust companies, if such corporations are or shall have been
theretofore, by virtue of their business and location of operation, competitors, so that the
elimination of competition by agreement between them would constitute a violation of any
provisions of this Act or any anti-trust law of the Philippines, particularly Article 186 of the
Revised Penal Code of the Philippines.416
The provision was probably based on the Clayton Act, as the two laws are similarly worded.
This just goes to show that at some point, Congress did recognize the antitrust problems
presented by such interlocks. However, because of certain resistance from the private sector
about the past proposed bills, a new draft bill was made, which scrapped off the provision on
interlocks, and eventually became the Philippine Competition Act of 2015.

410
PHILIPPINE APEC STUDY CENTER NETWORK & PHILIPPINE INSTITUTE FOR DEVELOPMENT STUDIES, supra
note 384.
411
412
Id.
413
414
Id.
415
Id.
416
An Act Prohibiting Monopolies, Attempt to Monopolize an Industry or Line of Commerce, Manipulation of
Prices of Commodities, Asset Acquisition and Interlocking Memberships in the Board of Directors of
Competing Corporate Bodies and Price Discrimination among Customers, Providing Penalties Therefore, and
for Other Purposes, S.B. No. 123, 14th Cong., 1st Reg. Sess. (2008).
83
U. PHILIPPINE COMPETITION ACT OF 2015

The Philippine Competition Act aims to be able to protect market competition as it
assures proper allocation of goods and services for the consumers. 417 The law created the
Philippine Competition Commission. It is the quasi-judicial body with original jurisdiction
over the implementation and enforcement of the provisions in the competition law. 418 The
Commission has inquisitorial functions. They can conduct preliminary inquiries to determine
whether there is a reasonable ground for a full-fledged administrative investigation. 419 They
can also conduct the administrative investigation, itself, before finding the entities guilty of
violating the competition law.420 The Commission may also issue injunctions, divestment
orders, or orders for corporate reorganization. 421 The Office of Competition of the
Department of Justice only takes over if 1) a criminal case is filed and 2) after the
Commission files a complaint before it.422 It can conduct the preliminary investigations and
prosecution of the criminal offenses.423
According to Section 3 of the law, the current law applies to “any person or entity
engaged in any trade, industry and commerce in the Republic of the Philippines. It shall
likewise be applicable to international trade having direct, substantial, and reasonably
foreseeable effects in trade, industry, or commerce in the Republic of the Philippines,
417
Philippine Competition Commission, The Philippine Competition Act: A Primer, available at https://phcc
.gov.ph/wp-content/uploads/2017/03/PCC-Primer_WITH-COVER-1.pdf (last accessed July 28, 2018).
418
419
Philippine Competition Commission, Rules of Procedure of the Philippine Competition Commission, [2017
PCC Rules of Procedure], Rule VI, § 6.3 (September 11, 2017).
420
Id. § 2.8.
421
Philippine Competition Act, § 12.
422
423
Id. § 13.
84
including those that result from acts done outside the Republic of the Philippines.” 424 Entity is
defined as “any person, natural or juridical, sole proprietorship, partnership, combination or
association in any form, whether incorporated or not, domestic or foreign, including those
owned or controlled by the government, engaged directly or indirectly in any economic
activity.”425 The law is broad so it covers almost everything except combinations of workers
or agreements with employers for collective bargaining purposes. 426 Trade associations are
not prohibited by the law unless it is used as a means through which violations are
committed.427 The law is also fairly new so there is not much case law based on its
provisions. There are still many factors that have not been taken into proper consideration.
The prohibited acts specified in the law involve a) anti-competitive agreements, b) abuse
of domination positions and c) mergers and acquisitions. Anti-competitive agreements are
embodied in Section 14.428 Section 14 is divided into 3 parts. Section 14(a) are per se
prohibitions.429 As explained earlier, per se prohibitions are those that are illegal on its face.
No further analysis is needed. In the Philippines, the only per se prohibited agreements are
price fixing and bid rigging.430 Section 14(b) discusses output limitation and market
sharing.431 These are only prohibited if they have “the object or effect of substantially
preventing, restricting or lessening competition.”432 The agreement must foreclose
424
Id. § 3, ¶ 1.
425
Id. § 4(h).
426
Id. § 3, ¶ 2.
427
428
Philippine Competition Act, §14.
429
Philippine Competition Act, § 14(a).
430
Id.
431
Philippine Competition Commission, Self-Study Module No. 2: On Anti-Competitive Agreement, available
at https://phcc.gov.ph/wp-content/uploads/2017/04/PCC-MODULE-2-1.pdf (last accessed July 27, 2018).
432
Philippine Competition Act, § 14(b).
85
competition. Both Section 14(a) and (b) are applicable to horizontal agreements only. 433 Both
are also the only two provisions in the Act that have a criminal consequence in line with
Section 30 of the law.434 Imprisonment is inflicted on those “officers, directors, or employees
holding managerial positions who are knowingly and willfully responsible for such
violation.”435 Lastly, Section 14(c) is the catchall provision.436 It prohibits “other agreements,
which also have the object or effect of substantially preventing, restricting, or lessening
competition”.437 If the agreement ensures consumer welfare, it will not fall under Section
14(c) since there is no foreclosure effect. Violation of any of the prohibited activities under
Section 14 is punishable by fines.
The second type of conduct that is regulated by the Philippine Competition Act is
abuse of dominant position, which is specified in Section 15. Abuse of dominance occurs
“when an entity with a significant degree of power in a market engages in conduct that
substantially prevents, restricts or lessens competition.” 438 It is important to note that the Act
does not prohibit dominance but merely the misuse and abuse of it. In fact, the law is specific
when it states that acquiring a dominant position is allowed if done through “legitimate
means” and does not “substantially prevent, restrict, or lessen competition.” 439 The provision
further adds that conduct, which basically improves economic progress and upholds
consumer welfare, will not be classified as abuse of dominance. 440 Section 15 is definitely not
433
434
435
436
437
Philippine Competition Act, §14(c).
438
Philippine Competition Commission, Self-Study Module No. 4: On Abuse of Dominant Position, available at
https://phcc.gov.ph/wp-content/uploads/2017/04/PCC-MODULE-4-1.pdf (last accessed July 27, 2018).
439
440
Id.
86
a per se prohibition and requires a rule of reason analysis on the alleged illegal conduct’s
effects on competition.441 The law specifies the types of conduct that constitute abuse of
dominant position such as predatory pricing, imposing barriers, tying and bundling,
monopsony, and many more.442 Violations under Section 15 result to merely administrative
fines or penalties.443
The fines imposed for violations under Section 14 and 15 “shall be up to thirty
percent (30%) of the Relevant Turnover of the Respondent, depending on the gravity of the
violation and multiplied by the duration of the infringement in years.” 444 The Relevant
Turnover refers to the “sales of the Respondent in the Philippines in the Relevant Market/s
affected by the violation for the applicable financial year, after deduction of the output value-
added taxes and excise taxes.”445 The Commission shall also take the following into
consideration: “nature of the infringement, combined market share of all entities involved,
geographic scope of the violation, the implementation of the agreement in case of violations
of Section 14(a) of the Act, and the direct or indirect impact and effect of the violation on the
Relevant Market/s.”446
Lastly, the law also governs mergers and acquisitions in Sections 16 to 23. The
Philippine Competition Commission has the power to review mergers and acquisitions. 447 A
merger is “the joining of two or more entities into an existing entity or to form a new
441
442
Self-Study Module No. 4: On Abuse of Dominant Position, supra note 425.
443
444
2017 PCC Rules of Procedure, Rule VI, § 6.3.
445
Philippine Competition Act, § 6.2(a).
446
Philippine Competition Act, § 6.3.
447
Id. §16.
87
entity.”448 Acquisition, on the other hand, “refers to the purchase of securities or assets,
through contract or other means, for the purpose of obtaining control by 1) one entity of the
whole or part of another, 2) two or more entities over another; or 3) one or more entities over
one or more entities.”449 Mergers and acquisitions are not prohibited per se. The prohibitions
are ex ante in nature since it would entail more costly measures to tear down the merger once
it is completed. Only mergers and acquisitions that would “substantially prevent, restrict, or
lessen competition” will be prohibited.450 However, there are certain prohibited mergers or
acquisitions that may be exempt from the law. Exemptions include 1) those mergers or
acquisitions, which would result to more efficiency gains than hindrances to competition, and
2) those used as a means to resolve financial issues.451
Parties to a merger would have to go through a notification process. Notification can
be compulsory or voluntary. Whether or not compulsory notification is necessary is subject
to the size of the person and size of the transaction tests. 452 If the merger or acquisition
involves firms or activities that satisfy the thresholds set, then notification is required. For the
size of the person test, the aggregate value of the assets should exceed at least P5, 000, 000,
000.453 For the size of the transaction, the aggregate value of assets should exceed P2,
000,000,000.454 Despite not meeting the thresholds, the parties may also opt for voluntary
448
Id. § 4(j).
449
Id. § 4(a).
450
Id. §20.
451
Id. §21.
452
453
Philippine Competition Commission, Amendment of Rule 4, Section 3 of the Implementing Rules and
Regulations and Republic Act. No. 10667 (Threshold Adjustment), PCC Memorandum Circular 18-001 [PCC
Memo. Circ. No. 18-001 (2018)] (Mar. 1, 2018).
454
Id.
88
notification.455 Notification must come from both the acquired and acquiring entities’
notifying groups. The Commission also has the power to conduct motu propio investigations
should it be necessary.456 These merger reviews require extensive economic analysis and
must take into consideration the determination of the relevant markets and factors such as the
competitors in the market, barriers to entry, switching costs, and many more.457 The
Commission may either 1) approve the merger 2) prohibit the merger or acquisition
completely, or 3) prohibit it, unless certain changes be made to ensure competition despite
the merger or acquisition.458 Once the merger or acquisition has been approved by the
Commission, it can no longer be contested unless evidence of fraud may be shown.459
V. SPECIAL RULES ON INTERLOCKING DIRECTORATES IN CERTAIN INDUSTRIES

Although as a general rule, there is currently no law that prohibits all types of interlocks
in the Philippines, there are certain industry-specific legislations that address interlocks.
Section 193 of the Insurance Code prohibits a person from being a director in an insurance
company and an adjustment company.460 Insurance corporations are also governed by the
Corporate Governance Principles and Leading Practices issued by the Philippine Insurance
Commission.461 The law requires them to have at least 2 independent directors in their
boards.462 Another law, which has provisions on director interlocks, is the Investment House
455
456
The Philippine Competition Act: A Primer, supra note 417.
457
Id.
458
459
Id. §23.
460
The Insurance Code of the Philippines [THE INSURANCE CODE], Presidential Decree No. 612, §193 (1974).
461
Dr. Jesus Estanislao, Dr. Cesar Saldana & Atty. Alex Fider, The Role of the Board of Directors: Philippine
Legal & Regulatory Framework, and Practice, available at http://www.oecd.org/corporate/ca/corporate
governanceprinciples/1873206.pdf (last accessed Aug. 7, 2018).
462
Governing the Establishment, Operation, and Regulation of Investment Houses, [The Investment Houses
Law], Presidential Decree 129, § 6 (1973).
89
Law. According to Section 6 of P.D. 129, a director of an Investment House cannot be a
director also of a bank at the same time unless 1) allowed by the Monetary Board or 2) the
Investment House is substantially owned by the bank.463 Lastly, the BSP has also issued
regulations prohibiting interlocking directorates between banks or between a bank and a
quasi-bank or a non-bank financial institution, unless allowed by the Monetary Board,
subject to certain conditions.464 But in a recent amendment in 2017, the BSP has relaxed the
rules for government representatives. The rule only applies to “representatives of the
government or government-owned or controlled entities holding voting shares of stock of
banks / quasi-banks / non-bank financial institutions / trust corporations unless otherwise
provided under existing laws.”465 The regulations also require the institution of independent
directors. The number of independent directors should be 1/3 of the total board or at least two
directors, whichever will bring about more independent directors.466
463
Id. § 6.
464
Bangko Sentral ng Pilipinas, Manual of Regulations for Banks, available at http://www.bsp.gov.ph/
downloads/Regulations/MORB/MORB1.pdf (last accessed July 31, 2018).
465
Bangko Sentral ng Pilipinas, Amendment to the Regulation on Interlocking Directorships and /or Officerships
of Representatives of Government, BSP Circular No. 953, Series of 2017 [BSP Circ. No. 953 (2017)] (Mar. 27,
2017).
466
BSP Raises Bar on Corporate Governance, available at http://www.bsp.gov.ph/publications/media.asp?id=
4450&yr=2017 (last accessed July 31, 2018).
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CHAPTER 5: LEGAL ANALYSIS
A. OVERVIEW
As was discussed earlier, the 1987 Philippine Constitution prohibits illegal monopolies,
combinations in restraint of trade or unfair competition. 467 The Philippine Competition Act
has similar goals as it aims to ensure market efficiency for the benefit of the consumers. 468
Philippine laws have basically been created to safeguard competition and to counter activities
or conducts, which may lead to its foreclosure. Since the national comprehensive competition
law is fairly new, there hasn’t been much jurisprudence on it that could help in the
interpretation of the provisions.
Upon the enactment of the law, certain questions have arisen. One of them is the legal
issue presented in this paper: Does the existence of horizontal and vertical interlocks violate
the current Philippine Competition Act and general competition policies that the 1987
Constitution upholds? Is the current law sufficient to cover the anti-competitive effects that
arise out of interlocks? This question was originally posed by Attorney Francis Lim in his
book469 but his inquiry was limited to horizontal interlocks. It has also been a question in
other jurisdictions. Some have addressed it like the countries mentioned earlier and others
have not. Under Philippine laws, it seems it is still subject to interpretation.
Interlocking directorates, in general, are not anti-competitive. Antitrust issues arise on a
case-to-case basis depending on factors such as the type of interlock. Horizontal and vertical
interlocks pose antitrust concerns. Horizontal interlocks are currently the most problematic
type of interlock under competition law. It has already been touched upon by Gokongwei v.
467
468
469
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SEC, as already mentioned before. The Court acknowledged the anti-competitive effects of
such an interlock. It explained that:
Shared information on cost accounting may lead to price fixing. Certainly, shared information
on production, orders, shipments, capacity and inventories may lead to control of production for
the purpose of controlling prices. Obviously, if a competitor has access to the pricing policy and
cost conditions of the products of San Miguel Corporation, the essence of competition in a free
market for the purpose of serving the lowest priced goods to the consuming public would be
frustrated. The competitor could so manipulate the prices of his products or vary its marketing
strategies by region or by brand in order to get the most out of the consumers. Where the two
competing firms control a substantial segment of the market this could lead to collusion and
combination in restraint of trade. Reason and experience point to the inevitable conclusion that
the inherent tendency of interlocking directorates between companies that are related to each
other as competitors is to blunt the edge of rivalry between the corporations, to seek out ways of
compromising opposing interests, and thus eliminate competition.470
Despite this ruling, however, the case is not enough to conclude that horizontal interlocks are
completely prohibited in the Philippines. The basis for which the Court based its ruling,
Article 186 of the Revised Penal Code, has already been repealed by the enactment of the
Philippine Competition Act of 2015.471 Furthermore, the issue in Gokongwei was actually the
validity of the by-laws so the explanation related to antitrust issues was merely a supplement
to the actual corporate dispute involved.472 As of today, horizontal interlocks are technically
still allowed despite the obvious anti-competitive concerns such a relationship creates, which
is a problem because it creates a means through which antitrust principles are violated.
Globally, interlocks have been recognized as a detriment to fair competition. This is why
some countries actually specifically regulate it such as the United States through the Clayton
Act.
The anti-competitive effects arising from vertical interlocks are not as prominent as
horizontal interlocks but they exist. It leads to preferential treatment in the form of exclusive
470
471
472
92
dealings, tying and bundling arrangements, price discriminations and the like between the
companies with the interlocking director so as to benefit them both to the detriment of
competitors in the same industry.473 This type of interlock is regulated by countries like
Japan, Indonesia, and Korea.
W. CONFLICT BETWEEN CORPORATE LAW AND COMPETITION PRINCIPLES

In the Philippines, the problem of interlocks is due to the conflict between the
requirements of corporate law and competition law. As already explained before, under the
Corporation Code, a director has a fiduciary duty to the corporation. He is specifically
elected by the stockholders to do what is best for the corporation. The duty entails obedience,
diligence, and loyalty to the company.474 The trust relationship requires the trustee - the
directors - to work for the benefit of the beneficiary – the stockholders. 475 Breach of the
fiduciary duty entails consequences, such as the filing of derivative suits by a stockholder. If
an individual serves as a director in two or more companies, he is required to observe the
same fiduciary duties towards each and every one of these companies. Conflict of interest
situations are unavoidable in these instances, especially if the companies involved have a
horizontal or vertical relationship. There is what was labeled earlier as “fiduciary tension.” 476
As explained in Gokongwei, “A person cannot serve two hostile and adverse master, without
detriment to one of them. A judge cannot be impartial if personally interested in the cause.
No more can a director. Human nature is too weak for this.” 477 For competing corporations
with interlocking directorates, the directors would be forced to find a way to compromise in a
473
474
475
Id. at 310.
476
477
93
manner that is always best for all the companies they serve, in order to prevent a breach of
their fiduciary duties. Using information from both companies, such directors may end up
causing the companies to collude or at least engage in parallel behavior, as it is usually the
best way to compromise, despite not agreeing to do so. With regard to vertical interlocks,
conflicts of interests would not necessarily cause collusion since the corporations are not
competitors. However, fiduciary duties may also force the director to get the best deals for
both companies so it is possible for him to be the means through which the two firms can
dominate the industry through exclusive dealings.
The Corporation Code did try addressing the conflict brought about by interlocks.
However, the provisions focused on situations wherein the director would have to choose
between benefiting the company or himself. But, what if the interlocking director finds a way
to benefit both corporations? From the corporate aspect, that would be good because the
director would still be fulfilling his fiduciary duties. The provisions regulating the conflicts
brought about by interlocks would not be needed in this instance since the director still works
for what is best for all the companies involved. In the United States, the overall fairness test
is used to evaluate contracts between companies with an interlocking director. 478 If the
contract would be beneficial for both firms, it would not be invalidated and the director will
not be punished for breach of fiduciary duties.479 It’s similar in the Philippines because
Section 33 of the Corporation Code does not invalidate the contract right away but
determines first whether it is fair and reasonable. 480 From the competition aspect, however,
478
Idornigie, supra note 68, at 78.
479
Id.
480
94
this is problematic. The interlock intervenes with fair competition. Because the director has
access to sensitive information from both firms, it affects his decisions and how the two
companies perform in the market. 481 If there was no interlock, neither firm could accurately
predict the other firm’s actions so both would do their best in trying to come up with
strategies that would be better than the other’s in the form of product innovations, better price
offers, and the like.482
The Corporation Code provides certain remedies in cases of interlocks. If the
company deals with another corporation, for which the interlocking director also works for,
such director can be inhibited from participating in discussions relating to transactions
between such corporations. Such is unrealistic especially in the context of competing
companies or horizontal interlocks because everything the board discusses would be useful
information for the other company. They are in the same industry, after all, and engaged in
providing the same, similar, or related products or services. The director cannot be excluded
from all discussions; otherwise, it would be better to have him removed as director instead.
Hence, the Corporation Code remedies cannot be deemed sufficient to regulate conflicts
arising from horizontal and vertical interlocks. There is a need to generally find a balance
between the director’s fiduciary duties to his companies and ensuring fair competition in the
market. Currently, there is still a conflict between the two that is not properly addressed by
the existing laws; hence, compliance with the corporate requirements may lead to violation of
antitrust principles. In order to ensure acquiescence to fiduciary duties without violating
competition laws, horizontal and vertical interlocks have to be regulated.
481
482
Id.
95
X. INSUFFICIENCY OF THE CURRENT PHILIPPINE COMPETITION ACT

Just to reiterate, the current Philippine Competition Act prohibits a) anti-competitive
agreements, b) abuse of dominant position, and c) certain mergers and acquisitions. There is
no specific prohibition of interlocking directorates under any circumstances. The questions
now are: 1) Can interlocking directorates be considered a violation of any of the
aforementioned prohibited activities or conducts? 2) Is the current competition law enough to
address the issues arising from horizontal and vertical interlocks? The Philippine
Competition Commission has not yet addressed this situation so there is no specific
Philippine case law to determine the answers to these questions.
1. Anti-Competitive Agreements (Section 14 of the Philippine Competition Act)
First, what are anti-competitive agreements exactly? In order to be liable under
Section 14 of the Philippine Competition Act for anti-competitive agreements, the following
must be complied with:
1) parties are competitors,

2) there is an understanding between or among parties towards the accomplishment of a
particular object,
3) the agreement must have substantial foreclosure effect on the relevant market (for non-per se
violations), and
4) there is no objective justification for such understanding.483
Under the Philippine Competition Act, an agreement “refers to any type or form of contract,
arrangement, understanding, collective recommendation, or concerted action, whether formal
or informal, explicit or tacit, written, or oral.” 484 Hence, based on the definition, an agreement
does not have to be written. In fact, more often than not, agreements are not in contractual
printed form. They are usually informal and orally done in order to avoid detection. What is
483
484
Philippine Competition Act, §4(b).
96
important is that there is an understanding between the companies involved towards a
particular anti-competitive goal.
Horizontal and vertical interlocks do not fall under Section 14 (a) or (b) as there are
already specific acts that fall under these provisions. However, Section 14(c) is generally
broad as it refers to all other anti-competitive agreements that substantially foreclose
competition. Horizontal interlocks may be indirectly addressed under this, if the effects of
such an interlock satisfy the aforementioned elements for violating Section 14. The difficult
part is determining whether or not an interlock could be considered an agreement.
As was already mentioned earlier, horizontal interlocks have coordinated and non-
coordinated or unilateral risks.485 Coordinated risks include actual collusions wherein two or
more companies purposely use or elect the director as a means to control competition in the
market.486 Section 14(c) of the Philippine Competition Act may be used as basis to indirectly
penalize horizontal interlocks producing these coordinated risks if 1) there is an agreement,
whether actual or implied, 2) the agreement is between competitors, and 3) the agreement is
used for an anti-competitive purpose. To clarify, however, it is the effect of the interlock –
the agreement to collude through the interlock - that is actually being punished. The
interlock, itself, is not. It is merely indirectly addressed as a consequence of the agreement or
collusion.
Coordinated risks may also include parallel behavior, which refers to similar conduct
between two companies in the market. Parallel behavior is not necessarily unlawful under
485
486
Id.
97
Article 101 of the TFEU, the basis of Section 14 of the Philippine Competition Act. 487 The
European Union has held that: “The finding of common or parallel courses of conduct of
undertakings may not, in itself, be sufficient to amount to a concerted practice.” 488 There
must be proof of agreements. Parallel behavior does not equate to collusion. This is further
affirmed by jurisprudence in the United States. In Bell Atlantic Corp. V. Twombly, the Court
basically held that a complaint alleging antitrust conspiracy could be dismissed if it is based
only on allegations of parallel activities. 489 To be specific, it stated that “while a showing of
parallel business behavior is admissible circumstantial evidence from which agreement may
be inferred, it falls short of conclusively establishing agreement or … itself constituting a
Sherman Act offense.”490 Attorney Polinar, Director of the Competition Enforcement Office
of the Philippine Competition Commission, also confirmed, in an interview, that parallel
behavior is not enough to constitute a violation of Section 14(c) of the Philippine
Competition Act.491 He further added that with regard to interlocking directorates, because
there is no specific provision on the matter, the Commission cannot immediately investigate
without proof that it resulted to anti-competitive agreements. 492 Evidence of agreement,
through direct or indirect evidence, must be shown before liability may be imposed.493
The existence of unilateral risks of interlocks is the reason why certain jurisdictions
prefer to address interlocks specifically in their laws. It is important to remember that not all
487
488
Suiker Unie and Others v. Commission, 1975 (ECJ).
489
Bell Atlantic Corp. V. Twombly, 550 U.S. 544 (2007)(U.S.).
490
Id.
491
Interview with Orlando Polinar, Director of the Competition Enforcement Office, Philippine Competition
Commission, in Quezon City, Metro Manila (Aug. 1, 2018).
492
Id.
493
Id.
98
interlocks are planned ahead of time. Companies may choose the same director
coincidentally and they cannot be faulted for that since a corporation has a right to choose
who will represent it. They may also not actually come to any agreement to collude despite
the interlocking director and yet competition remains stifled. Critics of the European
Competition Law have actually debated about this matter already. Article 101 of the TFEU,
which is the basis for Section 14 of the Philippine Competition Act, was considered
insufficient in tackling the anti-competitive risks of horizontal interlocks because it is limited
to dealing with certain forms of coordinated risks.494 Unilateral risks of such interlocks do not
fall under Article 101 (and Section 14 of the PCA) because one of the essential ingredients
for the violation – an agreement – is absent in this scenario. 495 An agreement requires at least
a tacit meeting of the minds.496
Unilateral risks include exchange of information between the companies without
collusion, which may soften competition between the rival companies.497 Second, it is also
possible to interfere with competition even without the disclosure of such information to the
two corporations.498 As explained earlier regarding the conflict between corporate and
competition law requirements, the interlocking director, himself, can manipulate corporate
action based on knowledge acquired from the two firms, without disclosing such sensitive
information to the other firm, in order to benefit all the companies, which may affect
competition in the market. 499 Hence, under the current competition law, Section 14 (c) on
494
495
Id.
496
Id.
497
498
Id.
499
Id.
99
Anti-Competitive Agreements does not seem to sufficiently cover or address all problems,
particularly unilateral risks and parallel behavior, created by horizontal interlocks.
2. Abuse of Dominant Position (Section 15 of the Philippine Competition Act)
As for vertical interlocks, the antitrust violations that may arise are usually activities
that are normally classified under abuse of dominance. But, horizontal interlocks may also be
used to conduct these types of anti-competitive conduct. For this part of the analysis, it must
first be determined whether or not the list of abuse of dominance activities in the law is
exclusive. Congress removed the original phrase “includes, but is not limited to the
following” in the final draft of the law itself, which implies that the list is exclusive.500 There
is no catchall provision for this particular anti-competitive conduct in the law. During
deliberations, Representative Rodriguez held that:
It’s always good for those who will be regulated to exactly know what are really prohibited
because we are talking here of prohibited acts. We’re not only defining what are the elements
of or what is dominant position or what. Senator Villar is right, if we want to be clear-- to the
regulated that these are the acts they should not do, then we should do it, it should be here. 501
He further clarified that because penalties are involved in the violation of Section 15, even if
merely in the form of administrative fines, “there should be, you know a listing that if it’s not
there, then you don’t give the commission so much discretion on defining what the crime is
.”502 Representative Gutierrez supported Representative Rodriguez by emphasizing that:
The problem with including a catchall provision in a law which has administrative penalties is
that it can be subject to-well, attack constitutionally. Because the idea here is you’re imposing
a penalty but you’re basing the penalty on a vague provision of law. There should be a certain
degree of specificity here.503
500
501
Bicameral Conference Committee on the Disagreeing Provisions of Senate Bill No. 2282 and House Bill No.
5286 (Fair Competition Act of 2015), Deliberations on the Disagreeing Provisions of Senate Bill No. 2282 and
House Bill No. 5286 (Fair Competition Act of 2015), at 9-10, 16th Cong. (June 5, 2015).
502
Id.
503
Id. at 73.
100
The basis for the arguments of the Congressmen is due to the penal nature of the
Philippine Competition Act. Not all the provisions impose criminal penalties. In fact, most
violations result to administrative fines. However, in the case of Buenaseda v. Flavier, the
Court held that penal law refers to “all statutes, which command or prohibit certain acts, and
establish penalties for their violation.”504 It does not distinguish between criminal and
administrative penalties.505 According to statutory construction, penal laws must be strictly
construed. Hence, if the law provides a listing without a catchall clause, the principle of
expressio unius est exclusio alterius applies. As a result, only those explicitly listed under
Section 15 can be considered as abuse of dominance under the current legal framework. In
the Indonesian Competition Law, there is a specific provision on interlocking directorates as
a form of abuse of dominance. However, in the Philippines, because the list in Section 15 is
exclusive, it does not adequately cover the abuse of dominance effects of interlocking
directorates.
The only time Section 15 can possibly apply is through indirect means. If the director is
used as means through which prohibited activities listed in the law are violated, the
Philippine Competition may be used. As an example, if horizontal or vertical interlocks are
used to conduct discriminatory behavior, which may serve as barriers to entry, the companies
may be liable for the abuse of dominance activity conducted through the interlock, assuming
all the elements constituting violation of Section 15 are satisfied.506 But, again, what is
punished is not the interlock, itself, but the acts resulting from the interlock, which constitute
504
Buenaseda v. Flavier, G.R. No. 106719, September 21, 1993.
505
Id.
506
101
abuse of dominance. The interlock is merely indirectly taken into consideration for playing a
role in the violation of the law. If the abuse of dominance activity caused by the interlock is
not covered by the list in the law, the interlock cannot be penalized for violation of Section
15.
The elements constituting violation of Section 15 of the Philippine Competition Act
on Abuse of Dominance are:
1) the entity must have a dominant position in the relevant market,

2) the entity commits abusive conduct,
3) the conduct must have substantial foreclosure effect on the relevant market, and
4) there is no objective justification for the conduct.507
What is important to remember is that the law requires that the party or parties (in cases of
collective dominance) involved have a dominant position in the market. Dominant position is
defined as “a position of economic strength that an entity or entities hold which makes it
capable of controlling the relevant market independently from any or a combination of the
following: competitors, customers, suppliers, or consumers.” 508 Furthermore, under the law,
dominance can be presumed if the entity has a market share of at least 50% within the
relevant market.509 It can be said that Section 15 is very specific. If the parties allegedly
accused of abusive conduct do not have a dominant position in the market, they cannot be
held liable under Section 15. In relation to interlocks, only interlocks between companies
with dominant positions may be covered by the provision. Horizontal or vertical interlocks
between companies, who do not possess a dominant position in the market, cannot be
punished under Section 15.
507
508
Philippine Competition Act, §4(g).
509
Id. §27.
102
3. Mergers and Acquisitions (Sections 16-23 of the Philippine Competition Act)
With regard to mergers or acquisitions, the Philippine Competition Commission has
the power to address interlocking directorates. In an interview with Attorney Krystal Uy,
Director of the Mergers and Acquisitions Office of the Philippine Competition Commission,
she explained that, although the Merger Review Guidelines do not specifically mention
director interlocks, if the Commission deems that such a relationship would make the merger
or acquisition anti-competitive, the Commission may consider such merger prohibited, unless
the anti-competitive structures are addressed.510 Normally, the acquiring and to-be acquired
entities, in response to this, would simply remove the interlocking directorate from the two
companies.511 The Commission could also ask for a divestment of shares, which could in
return affect the position of the interlocking director. 512 However, it is important to remember
that this only applies in the context of mergers.
Y. INSUFFICIENCY OF THE OTHER COMPETITION-RELATED LAWS

The 1987 Constitution Article XII Section 19 can be interpreted to cover interlocks
because it is meant to fight any form of unfair competition. However, it is not a self-
executing provision so Congressional legislation is required to breathe life into the
constitutional mandate. The Revised Penal Code cannot be used to address interlocking
directorates because it has been expressly repealed by the Philippine Competition Act.513 The
Civil Code provision has not been repealed by the new competition law but Article 28 is not
sufficient. It is limited only to the “agricultural, commercial, industrial enterprises or in

510
Interview with Krystal Uy, Director of the Mergers and Acquisitions Office, Philippine Competition
Commission, in Quezon City, Metro Manila (Aug. 1, 2018).
511
Id.
512
513
Id. § 55.
103
labor.”514 Another important thing to note is that the Civil Code grants damages to private
persons.515 The same goes for Act 3247 with regard to its rules on treble damages. 516 What
happens if the interlock does not really cause injury to a particular private injured party?
Unlike the Civil Code, the Philippine Competition Act punishes entities for anti-competitive
activities conducted to the detriment of consumer welfare. No particular person has to be
injured. The administrative fine is a penalty, meant to deter anti-competitive conduct in the
market. The Civil Code is only meant to compensate the private party. The Philippine
Competition Act aims to be able to compensate the affected market. As for the BSP
Regulations, the Investment House Law, and the Insurance Code, they address interlocks but
only in the financial sector.
Z. SUMMARY
To summarize, since the current competition law and jurisprudence after the
enactment of such law, do not specifically address horizontal and vertical interlocks, some
believe, especially the private sector, that these types of interlocks are not violative of
competition principles. They are considered legal in light of the fact that the corporation has
the right to choose the members of its board, without interference from the State, so long as
the requirements of corporate law are complied with. But, the interlocks may serve as
instruments through which individuals can circumvent the law and contravene the very
competition principles that the 1987 Constitution and the Philippine Competition Act aims to
protect. As of today, the only regulations specifically addressing interlocking directorates are
industry-specific. The financial industry, as already discussed earlier, provides certain rules
514
515
Id.
516
An Act to Prohibit Monopolies and Combinations in Restraint of Trade, Act No. 3247 (1925).
104
on interlocking directorates for insurance companies, banks, and investment houses. The old
laws in the Civil Code and Act 3247 on the other hand, are also not sufficient as they are
meant to merely compensate private parties. This is not enough to deter anti-competitive
conduct.
Because interlocks are not specifically regulated by law, the Commission can only
look into these structural links after they produce anti-competitive behavior punishable by the
law in the form of anti-competitive agreements, abuse of dominant positions, and prohibited
mergers and acquisitions. The law basically does not really address the interlocks,
themselves, but the effects of the interlocks, if they can be classified under Sections 14-23.
Interlocks are only indirectly regulated in these situations. This method, however, is
insufficient and fails to address anti-competitive issues created by interlocks outside the
scope of those explicitly prohibited by law such as the unilateral risks of horizontal interlocks
in the form of information exchange or director manipulation, coordinated risks in the form
of parallel behavior, and other forms of abuse of dominance. It is important to take note of
the fact that interlocks, themselves, are conducive to all sorts of antitrust violations. The
fiduciary tension the interlocking director faces due to conflicting requirements of corporate
and competition law influences how the companies he serves act in the market. Since the
anti-competitive effects of interlocks are evident, there is no reason why specific rules or
guidelines governing its existence should not be created to ensure compliance with the
Constitutional obligation to protect fair competition and to address the conflict between
corporate and competition law. Under the current law, anti-competitive interlocks can only
be assailed once the economy is already adversely affected.

105
Some competition authorities have pointed out that interlocks are similar to mergers
or acquisitions so both should be specifically addressed by law. Like mergers, interlocks
create structural links between corporations that could affect how they perform in the
market.517 The only difference is that mergers involve larger transactional costs and “destroy
the autonomy of the firms”518 since the previously separate companies become one juridical
entity. Interlocks, however, still preserve the corporations’ independence.519 Like interlocks,
not all types of mergers are unlawful. It would depend on the factual circumstances. But
unlike interlocks, mergers are actually specifically regulated. They are investigated even
before they produce anti-competitive effects on the economy. Why shouldn’t interlocks also
be directly regulated in the same manner? Both pose as threats to competition and the
Constitutional mandate against anti-competitive behavior. The anti-competitive risks of
interlocks have already been confirmed by jurisprudence in different jurisdictions, including
the Philippines in the case of Gokongwei.520 Horizontal and vertical interlocks are generally
difficult to detect, especially if the interlocks are indirect. This is what makes them so
dangerous from inception. Even if eventually detected, the anti-competitive effects must then
be proven to fall under Section 14, 15 or 16-23 and this process may take a while. The failure
of the law to properly regulate horizontal and vertical interlocks leaves the conflict between
corporate fiduciary duties and competition policies unresolved. It also allows entities to
engage in certain anti-competitive conducts through the interlock free from any form of
liability despite causing damage to consumer welfare and the general relevant market, which
517
518
Id.
519
Id.
520
106
is against the policy stipulated in the Philippine Competition Act and 1987 Philippine
Constitution, propagating fair competition.

107
CHAPTER 6: CONCLUSIONS AND RECOMMENDATIONS
A. CONCLUSIONS
For the longest time, the Congress of the Philippines strove for the enactment of a
comprehensive competition law. The 1987 Constitution provided that competition must be
fostered.521 Monopolies and any other form of restraint of trade should be prohibited. 522
Because competition policies were scattered across different statutes, it was difficult to
enforce. No central authority existed to ensure protection of antitrust principles. The
enactment of the Philippine Competition Act of 2015 was supposed to pave the way towards
a better enforcement of competition policies, especially in a country where major industries
are controlled by only a few players in the market. Since the law is still generally novel,
jurisprudence to help interpret the provisions are still lacking. Hence, as of today, decisions
of the Philippine Competition Commission are still highly influenced by global practices.
In the first chapter of this thesis, the legal question and objectives were clarified. The
issue that this paper seeks to address is whether or not the existence of horizontal and vertical
interlocks violate the Philippine Competition Act and other competition policies of the
country? Are the current rules in place sufficient to address the anti-competitive risks of
horizontal and vertical interlocks? The current Philippine Competition Act is not completely
clear as to how it addresses interlocks. The law does not explicitly address them since it is
limited to anti-competitive agreements, abuse of dominance, and mergers and acquisitions.
Even older competition laws are not sufficient to cover horizontal and vertical interlocks.
521
522
108
There is also no recent jurisprudence on the matter. Gokongwei was released way before the
Philippine Competition Act was enacted. Because of this, many believe that they should not
be prohibited especially since a corporation has a right to elect its own board of directors.
However, the conflict presented by corporate law requirements regarding fiduciary duties and
antitrust principles is undeniable.
In the second chapter of this thesis, the different types of interlocks were discussed.
Interlocks can be classified into two categories either 1) based on the person who will be
placed in the boards as an interlocking director or 2) based on the type of relationship the
corporations have with each other. Under the first category, interlocks can be classified as
direct or indirect.523 Under the second category, interlocks are either horizontal or vertical. 524
The discussion also included the anti-competitive concerns regarding these interlocks.
Horizontal interlocks produce both unilateral and coordinated risks.525 Coordinated risks
include 1) instances wherein the companies involved actually come to an agreement to use
the director as a means of colluding and controlling their share in the market and 2) parallel
behavior.526 Unilateral risks come in the form of exchange of sensitive information and
director manipulation, which do not require an agreement or understanding to produce
antitrust problems.527 Lastly, the chapter also discussed the two types of prohibition in
competition law. These are 1) per se prohibitions and 2) prohibitions based on the rule of
reason analysis.528
523
Jacobs, supra note 37, at 648-50.
524
525
Id.
526
Id.
527
Id.
528
109
In the third chapter, an analysis of foreign laws and jurisprudence was done. The
countries, which have specific rules on interlocks, are the United States, Japan, Indonesia,
and Korea. The United States has the Clayton Act.529 In Section 8 of this law, horizontal
interlocks are per se prohibited, subject to certain exceptions.530 No further economic analysis
is required to determine whether or not the law is violated, as the mere existence of the
interlock is enough to be punishable under the law. 531 US case law explained that the law
applies to both direct and indirect interlocks since the anti-competitive effects of both are the
same.532 Allowance of indirect interlocks would defeat the purpose of the law. Upon
discovery of interlocks, remedies include civil damages or voluntary or compulsory
resignation of the director.533 In Japan and Korea, their competition laws address interlocking
directorates in the context of anti-competitive combinations or mergers and acquisitions. 534
They both use the rule of reason analysis to determine the legality of the interlock. 535 Mere
existence of the interlock does not constitute a violation of the law. Further analysis of the
facts and circumstances surrounding the interlock is required. The situation in Indonesia is
similar. However, instead of laws in the context of combinations in restraint of trade, the rule
on interlocks is provided under abuse of dominance. 536 The rule of reason analysis is also
used to be able to determine whether or not the interlocks are violative of competition
529
530
United States v. Sears, Roebuck & Co., 111 F. Supp. 614, 616 (S.D.N.Y. 1953) (U.S.).
531
Id.
532
533
534
535
Id.
536
Law No. 5 of 1999 concerning The Prohibition of Monopolistic Practices and Unfair Business Competition,
art. 26 (1999) (Indon.).
110
principles.537 The European Union does not have provisions directly addressing interlocks.
The only instances when they are directly addressed are in the context of mergers. 538 Many
competition authorities still find Article 101 and 102 of the TFEU to be insufficient to
address interlocks.539
The fourth chapter first discussed the Corporation Code and the relevant provisions in
relation to horizontal and vertical interlocks. Although the Corporation Code has certain
provisions that are meant to serve as a remedy for conflict of interest situations, they are
insufficient to address the antitrust issues created by interlocks. Only the financial sector
currently has legislations on interlocking directorates. The chapter then proceeded to
expound on the history of Philippine competition policies until the enactment of the
Philippine Competition Act. The important provisions of the Philippine Competition Act
were also discussed, particularly those pertaining to the three prohibited acts in the form of
anti-competitive agreements, abuse of dominance, and mergers and acquisitions.
The fifth chapter focused on the legal analysis. There are people who argue that the
existence of interlocking directorates in the Philippines does not violate any of the existing
competition legislations in the country because these interlocks continue to exist today.
Despite Gokongwei discussing the issue, the case could not be considered a conclusive ruling
on the status of horizontal interlocks because the issue revolved around the validity of the
amended by-laws and the justification was based on the Revised Penal Code provision,
which has already been repealed.540
537
Id.
538
539
540
111
Despite there being no specific provision in the competition laws of the Philippines
addressing interlocks, the existence of horizontal and vertical interlocks still violate general
competition principles and the Philippine Competition Act under certain conditions.
Interlocks may be indirectly penalized under the law. If the horizontal interlock results to
coordinated risks in the form of anti-competitive agreements, it can be punished under
Section 14.541 If a vertical interlock is the means through which abuse of dominance activities
listed in the law are conducted, Section 15 may be applied, on the assumption that the
companies involved hold a dominant position in the market.542 In cases of mergers or
acquisitions, a merger may be considered prohibited until the interlocking director is
removed from his position.543 It is important to emphasize, however, that what the law
addresses are the effects of the interlock in Sections 14-15. It does not really regulate the
interlock, itself. Hence, if the anti-competitive effects of the interlock are outside the
coverage of the current law, the interlock would not be considered anti-competitive. This is
why the law is still insufficient because there are other types of anti-competitive risks that do
not fall under the prohibited acts in the Philippine Competition Act. Such risks include
unilateral ones, such as exchange of sensitive information and director manipulation, parallel
behavior, and other forms of abuse of dominance not included in the list found in the law.
These risks do not fall under Section 14, due to the lack of an agreement, Section 15 because
the enumerated list is exclusive, or Sections 16-23, which only applies if in the context of a
merger or acquisition. The Civil Code, on the other hand, is limited to certain industries and
541
Id. §14.
542
Id. §55.
543
Id. §§16-23.
112
merely provides remedies for private injured parties.544 It does not address the need to deter
anti-competitive behavior to protect general consumer welfare, unlike the Philippine
Competition Act, which imposes penalties for the damage to the industry or market.
Again, the 1987 Philippine Constitution prohibits illegal monopolies, combinations in
restraint of trade, and unfair competition. 545 The Supreme Court has clarified this to be
“antitrust in history and spirit”.546 The provision basically mandates fair competition.
Anything in violation of that would be unconstitutional.547 Congressional laws should be
enacted in accordance with the constitutional requirement. Horizontal and vertical interlocks
have been established to create anti-competitive risks that have not been addressed
sufficiently by the current law. The failure of the law to regulate this structural link creates a
gap that leaves the conflict between corporate fiduciary duties and competition policies
unresolved. It also allows entities to engage in certain anti-competitive conducts through the
interlock free from any form of liability despite causing damage to consumer welfare and the
general relevant market, which is against the policy stipulated in the Philippine Competition
Act propagating fair competition.
AA. RECOMMENDATIONS
As mentioned earlier, Japan and Korea has provisions specifically addressing interlocks
but usually in the context of mergers and acquisitions. Indonesia, on the other hand, classifies
544
545
546
Tatad, G.R. No. 124360.
547
113
interlocks as a form of abuse of dominance. The United States through the Clayton Act is the
only statute that addresses interlocks even outside the context of mergers and is seen as an
anti-competitive conduct on its own. However, it is a per se prohibition and limited only to
horizontal interlocks. A per se prohibition is not recommended for the Philippines because
horizontal and vertical interlocks are not anti-competitive at all times. They threaten
competition in the market but sometimes the benefits overrides the disadvantages to
competition. As advocates of interlocking directorates would argue, interlocking directorates
may occur simply because the director is sought after by many companies due to his
professional skill and experience.
This thesis recommends that a provision on interlocks be added as a prohibited activity in
the Philippine Competition Act. The proposed provision would be in this firm:
Section XX. Horizontal and Vertical Interlocks. No person or his agent shall, at
the same time, serve as a director in any two or more corporations that are
competitors or in a vertical relationship with each other, if such person's doing
so has the object or effect of substantially preventing, restricting, or lessening
competition in any particular field of trade: Provided, those which contribute to
improving production or distribution of goods or services within the relevant
market, or to promoting technical or economic progress while allowing
consumers a fair share of the resulting benefits, may not necessarily be deemed
a violation of this Act.
For this provision to apply, each of the corporations must have capital, surplus,
and undivided profits aggregating more than (an amount to be set by the
Philippine Competition Commission, in accordance with the current state of the
national economy). This amount will be adjusted annually.
An entity that controls, is controlled by, or is under common control with

another entity or entities, have common economic interests, and are not
otherwise able to decide or act independently of each other, shall not be
considered competitors for purposes of this section.
This section shall also not cover horizontal or vertical interlocks that are already
regulated by other industry specific legislations.
114
1. Applicability to Different Types of Interlocks
To what types of interlocks will this provision apply? The provision will apply to both
horizontal and vertical interlocks. As explained by the earlier chapters, even vertical
interlocks have anti-competitive risks that are not properly addressed by the law. The section
will also apply to both direct and indirect interlocks. In the United States, the Clayton Act
was, in the beginning, limited to direct horizontal interlocks but jurisprudence eventually
declared that it should be applicable as well to indirect interlocks. 548 With regard to
deputization, because of the nature of an agency relationship which must be proven to exist,
an agent is merely a representative of the principal and the former’s actions equate to the
latter’s. Even if a person does not directly sit as a board member of two boards of different
companies with a horizontal or vertical relationship, if his agents do so instead, the anti-
competitive risks are the same. The agent’s knowledge is the principal’s knowledge since the
former basically works for the latter. As for indirect interlocks through parent-subsidiary
relationships, because the companies involved constitute a single economic entity,
knowledge of the subsidiary company is generally the knowledge as well of the parent
company and vice versa. The control over the subsidiary, however, must be proven for there
to be an indirect interlock. Section 25 of the current law entitled “Control of an Entity” may
be used as reference.549 If indirect interlocks were allowed, it would be a means of
circumventing the law.
2. Defining the Relevant Markets
In order to constitute an illegal horizontal interlock, it must be proven that the

548
549
115
companies are competitors. To prove this, a determination of the relevant market is
necessary. In the United States, the relevant product market is “determined by the reasonable
interchangeability of use or the cross price-elasticity of demand between the product itself
and substitutes for it.”550 On the other hand, the relevant geographic market must “both
correspond to the commercial realities of the industry and be economically significant.” 551
There are several tests created by US jurisprudence to identify the relevant product and
geographic market. One of them is the Hypothetical Monopolist Test or the Small but
Significant and Non-Transitory Increase in Price (SSNIP) Test 552 This is the most common
method of ascertaining the relevant market all over the world. In fact, it is used in the
analysis of the legality of mergers and acquisitions in the Philippines. 553 The SSNIP test can
be used for interlocks since such is what is used in the United States and the Philippine
Competition Commission is already familiar with the method. Jurisprudence applying
Section 8 of the Clayton Act mostly applies the quantitative analysis, which makes use of the
cross-price elasticity of demand and the reasonable interchangeability of use test to determine
whether or not the companies involved are in a horizontal relationship.
The Philippine Competition Commission uses the SSNIP test in this manner to identify
the relevant product market:
The Commission applies the SSNIP test to a candidate market of each product produced or sold by
each of the merging firms, assessing what would happen if a hypothetical monopolist of that
product imposed at least a SSNIP on that product, while the terms of sale of all other products
remained constant. If the hypothetical monopolist would not profitably impose such a price increase
because of substitution by customers to other products, the candidate market is not a relevant
product market by itself. The Commission then adds to the product group the product that is the
550
551
Id.
552
Harkrider, supra note 199.
553
Philippine Competition Commission, Merger Review Guidelines, available at https://phcc.gov.ph/wp-
content/uploads/2017/03/PCC_Merger_Guidelines_MAO_03232017.pdf (last accessed Aug 10, 2018).
116
next-best substitute for the merging firm’s product and apply the SSNIP test to a candidate market
of the expanded product group. This process continues until a group of products is identified such
that a hypothetical monopolist supplying the product(s) would be able to exercise market power and
profitably impose a SSNIP in the candidate market. The relevant product market generally will be
the smallest group of products that satisfies this test.554
To identify the relevant geographic market:
The Commission applies the SSNIP test to a candidate market of each location in which each
merging firm produces or sells the relevant product, assessing what would happen if a hypothetical
monopolist in that location imposed at least a SSNIP on sales of the product in that location, while
the terms of sale in all other locations remained constant. If the hypothetical monopolist would not
profitably impose such a price increase because of substitution by customers to products from other
geographic areas, the candidate market is not a relevant geographic market by itself.555
A 5%-10% SNIPP is usually used as a reference point to determine price increases
while a one year to three year period is considered as non-transitory in the Philippines. To
reiterate, the SNIPP test involves 1) determining the cross price-elasticity of demand between
the hypothetical monopolist’s products and substitute products,556 2) computing for the
diversion ratio by comparing the cross price-elasticity of demand with the hypothetical
monopolist’s elasticity of demand,557 3) a critical loss analysis of the substitute goods, 558 and
4) determining the profitability of the SNIPP by a comparison of the Diversion Ratio and
break-even Critical Loss point.559 If the Diversion Ratio or Actual Loss is greater than the
Critical Loss, the products are within the same market. 560 If Critical Loss is greater than the
Diversion Ratio, the goods in question do not belong to the same market.561
The cross-price elasticity of demand basically refers to “the rate at which the quantity
554
Merger Review Guidelines, supra note 553.
555
Id.
556
557
supra note 196.
558
559
Policy Roundtables Market Definition, supra note 197.
560
Id.
561
Id.
117
of a product sold changes when the price of another product goes up or down.” 562 The goods
are substitutes if the cross-price elasticity is positive.563 A negative result means that the
goods are complements.564 Lastly, if there is zero-elasticity then that means the goods are not
related at all.565 Diversion Ratios, on the other hand, is basically “percentage of lost sales of
product A which are diverted to product B, should A increase its price.”566 A higher diversion
ratio means that the companies offering products A and B are most likely competitors.567
After a determination of the relevant market, it can be much more easily assessed
whether or not the two companies are competitors. It’s the same with abuse of dominance
cases perpetuated through interlocks. The relevant market must be identified so as to be able
to determine whether or not the company exerts a dominant position over the market and is
susceptible to abuse of dominance conduct.
Another important thing to note is that the proposed provision also includes a
paragraph similar to Section 14 of current law that explains the single economic entity
doctrine. Basically, if the interlock is between a parent company and a subsidiary in which
the parent company holds a substantial share or control, no violation can occur because the
two entities are not competitors.568 They are considered as a single economic entity with the
same interests.569
3. Per Se Prohibition or Rule of Reason Analysis
562
563
Id.
564
Id.
565
Id.
566
Id.
567
Id.
568
569
Id.
118
This provision would be based on the rule of reason analysis. Again, like mergers and
acquisitions, interlocks need to be analyzed on a case-to-case basis. Under the rule of reason
analysis, the entities accused of anti-competitive behavior will not immediately be considered
guilty of violating the provision in the law. After being notified of the alleged illegal
interlock, the Commission is required to first and foremost investigate the actual effects of
such interlocks on the market before charging or punishing the parties involved. Mere
existence of the horizontal or vertical interlock is not enough to constitute a violation of the
law.
4. Substantial Lessening of Competition Test (SLC Test)
Earlier, it was explained that the current law is only able to indirectly address interlocks if
the effects can be considered covered under Sections 14 and 15. The problem is that not all
types of anti-competitive behavior are sufficiently addressed by these two provisions. Hence,
this paper proposes that horizontal and vertical interlocks should be subject to the general
substantial lessening of competition test. This is usually used in the context of mergers and
acquisitions in different jurisdictions, including the Philippines. 570 Under this test, a merger is
considered anti-competitive if it would “substantially prevent, restrict, or lessen” competition
in the market.571 The focus is on the possible effects of the merger to be able to determine
whether it should be prohibited or not.572 The Philippine Competition Act also uses the same
test for Sections 14 and 15.573
570
Organization of Economic Co-operation and Development, The Standard for Merger Review, with a
Particular Emphasis on Country Experience with the Change of Merger Review Standard from the Dominance
Test to the SLC/SIEC test, DAF/COMP (2009) 21. [hereinafter The Standard for Merger Review]
571
Id.
572
573
Philippine Competition Act, §§14-15.
119
It is proposed that interlocks be governed in the same manner. The SLC test is broader
and would encapsulate all types of anti-competitive behavior even those outside the scope of
Section 14 and 15 of the Philippine Competition Act. It would also be a way of striking a
balance between the competitive benefits and disadvantages interlocks can bring. Interlocks
that facilitate more anti-competitive conducts than economic advantages would be prohibited
while those that contribute more to the improvement of the economy than to its detriment
will be considered legal. The Commission will be charged with the economic analysis of the
facts and circumstances surrounding the interlock.
Some Tools to Help in SLC Analysis
Efficiency Gains Test
As explained earlier, the proposed provision seeks to ensure that only illegal interlocks
will be prohibited by law. In the Merger Review Guidelines of the Philippine Competition
Commission, companies who are able to satisfy the efficiency test may be exempt from the
requirements of the law.574 The efficiency test is basically proof that “the merger has brought
about or is likely to bring about gains in efficiencies that are greater than the effects of any
limitation on competition that result or are likely to result from the merger or acquisition.” 575
The burden of proof, however, is on the entities involved in the merger or acquisition, not the
government.576 This can be applied to horizontal and vertical interlocks. Interlocks, which
would result to more gains than anti-competitive effects, are valid as it fosters competition,
rather than deters it.
574
575
Id.
576
Id.
120
Market Concentration
Another factor that must be considered in determining the legality of the interlock is
market concentration. Interlocks in markets, which are more concentrated, would have a
more detrimental effect on competition. An economic tool used by experts is the Herfindahl-
Hirshman Index (HHI).577 It is computed by adding the squares of the market shares of all the
companies in the industry.578 The higher the HHI, the more concentrated the market is. 579 In
merger or acquisition cases, the Philippine Competition Commission takes note of the HHI
before and after the merger or acquisition to determine the implications of such kinds of
combinations.580 This may be applied in analyzing interlocks. A comparison of the HHI of the
market before and after the horizontal and vertical interlock may be done in order to assess
whether or not the interlock had an anti-competitive effect on the market.
5. Exceptions
In the United States, certain exceptions were provided for in the law. Smaller
companies generally have lesser impact on the market so they are excluded from complying
with the prohibition.581 The Clayton Act provided thresholds for “capital, surplus and
undivided profits” of the corporations involved as basis for whether or not the companies are
exempt from the prohibition. 582 The proposed provision also includes a similar exception.
The thresholds have not been set and may be left to the Philippine Competition Commission
to set, as it has more in-depth knowledge about the economic state in the country. The second
577
Id.
578
Id.
579
Id.
580
581
582
Id.
121
exception provided for in the proposed rules applies to industries, which are already
governed by specific regulations regarding interlocking directorates. This is to ensure that
there will be no conflict between the proposed provision and existing special laws.
6. Administrative Sanctions and Remedies
In line with the proposed provision presented above, the current rules on
administrative fines must be amended. The original states:
“(a) Administrative Fines. – In any investigation under Chapter III, Sections

14 and 15, and Chapter IV, Sections 17 and 20 of this Act, after due notice
and hearing, the Commission may impose the following schedule of
administrative fines on any entity found to have violated the said sections”583
The amended version will include the new provision aside from the current Sections 14-15
and 17 and 20 of the law. Section 12 584 of the Philippine Competition Act discussing the
powers of the Commission will also be amended to look like this:
“(d) Upon finding, based on substantial evidence, that an entity has entered
into an anti-competitive agreement, has abused its dominant position, or has
engaged in illegal horizontal or vertical interlocks after due notice and
hearing, stop or redress the same, by applying remedies, such as, but not
limited to, issuance of injunctions, requirement of divestment, removal of the
interlocking director, and disgorgement of excess profits under such
reasonable parameters that shall be prescribed by the rules and regulations
implementing this Act”
Other remedies in the current Philippine Competition Act will also apply. The companies
guilty of violating the proposed provision can avail of consent orders. A consent order is a
way through which the entity guilty of violating the provisions of this Act can minimize its
administrative fines.585
583
584
Id. §12(d).
585
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UNTANGLING THE INTERLOCKS:

ESTABLISHING THE LEGAL PARAMETERS AND LIMITATIONS

DANIELLE LAUREN K. LIM

A thesis presented in partial fulfilment

Thank you to the Backseat Girls, Selynn, Jasmine, Jill, and Alexa for always believing in me

Thank you to TEAM Hortons for that fruitful Baclaran trip.

A. Background of the Study 1

B. Statement of the Problem 12

C. Objectives of the Study 13

D. Significance of the Study 14

E. Scope and Limitation 15

CHAPTER 2: INTERLOCKING DIRECTORATES 21

A. Defining Interlocking Directorates 21

B. Origins of Interlocking Directorates 22

D. Interlocking Directorates: A Problem in Competition Law 30

E. Per Se Prohibition Approach vs. Rule of Reason Analysis 36

CHAPTER 3: INTERNATIONAL AND FOREIGN COMPETITION LAW OR POLICIES ON

G. Asean Competition Guidelines 70

CHAPTER 4: RELEVANT PROVISIONS RELATED TO INTERLOCKING DIRECTORATES IN THE

A. Corporation Code of the Philippines 72

B. Corporate Governance Principles 77

C. Evolution of Competition Policies in the Philippines 80

D. Philippine Competition Act of 2015 84

E. Special Rules on Interlocking Directorates in Certain Industries 89

CHAPTER 5: LEGAL ANALYSIS 92

B. Conflict between Corporate Law and Competition Principles 94

C. Insufficiency of the Current Philippine Competition Act 97

D. Insufficiency of the Other Competition-Related Laws 104

CHAPTER 6: CONCLUSIONS AND RECOMMENDATIONS 108

A. BACKGROUND OF THE STUDY

The Philippine Competition Act came about only in 2015.

Philippine Competition Act was finally created.10

not yet passed its own law.13

Seeing as how many nations clearly value the implementation of a comprehensive

and why there is a need for it.

2. Objectives and Rationale of Competition Law

Competition is as a “process of rivalry between firms, seeking to win customers’

products.15 In general, competition gives consumers options.

power.17 This helps in eliminating poverty and fostering social equity.18

Competition law is vital in achieving different kinds of efficiencies, namely productive,

technological growth.22 This protects consumer welfare. In a competitive market, consumer

surplus is at its greatest.

To get a better perspective on the significance of competition laws, it would be best to

the mobile industry did.

be for the consumers’ and general economy’s benefit.

companies also own Bayantel Communications and Smart Communications, respectively.

issued directives to the National Telecommunications Commission and Department of

3. Interlocking Directorates and its Relation to Competition Law

The current Philippine Competition Act focuses on the following: 1) anti-competitive

agreements, 2) abuse of dominant positions, and 3) mergers and acquisitions. 33 Price-fixing

firms or horizontal interlocks, subject to certain de minimis exceptions.36 Indonesia, Japan,

violates competition policies.37

the financial sector.38 Institutional interlocks refer to situations wherein a director in a

interlocks to circumvent antitrust principles. No actual agreements need to be made in order

make decisions that would be beneficial to the corporation he is serving. If he is providing

Generally, whether or not an interlocking director intends to violate antitrust principles, it

may happen due to conflicting interests.

Levinson left Google.40

In the Philippines, jurisprudence directly disallowing interlocking directorates does not