Section 19, Article XII

1987 Constitution

Group Members :

Cynthia V. Pantoñal
Nomer Gonzales
 Sec. 19, Art. XII

The State shall regulate or prohibit

monopolies when the public interest so
requires. No combinations in restraint of
trade or unfair competition shall be
allowed.
 MONOPOLIES

A privilege or peculiar advantage vested in

one or more persons or companies,
consisting in the exclusive right (or power)
to carry on a particular business or trade,
manufacture a particular article, or control
the sale of a particular commodity. (Agan,
Jr. v. Philippine International Air Terminals
Co., Inc. (PIATCO), G.R. No. 155001, May 5,
2003)
 REGULATION OF MONOPOLIES

The Constitution strictly regulates monopolies,

whether private or public, and even provides for
their prohibition if public interest so requires.
Clearly, monopolies are not per se prohibited but
maybe permitted to exist to aid the government in
carrying on an enterprise or to aid in the
performance of various services and functions in
the interest of the public. Nonetheless, a
determination must first be made as to whether
public interest requires a monopoly. As monopolies
are subject to abuses that can inflict severe
prejudice to the public, they are subject to a higher
level of state regulation than an ordinary business
undertaking. (Agan vs. PIATCO, supra)
 REGULATION OF MONOPOLIES

Private monopolies are not necessarily prohibited.

The use of the word "regulate" in the Constitution
indicates that some monopolies, properly
regulated, are allowed. Regulate means includes
the power to control, to govern, and to restrain,
but regulate should not be construed as
synonymous with suppress or prohibit (Kwong Sing
vs. City of Manila, 41 Phil. 108).
 REGULATION OF MONOPOLIES
"Competition can best regulate a free economy. Like
all basic beliefs, however, that principle must
accommodate hard practical experience. There are
areas where for special reasons the force of
competition, when left wholly free, might operate too
destructively to safeguard the public interest. Public
utilities are an instance of that consideration." (Oleck,
Modern Corporation Law,Vol. IV, p. 197).
 REGULATION OF MONOPOLIES

By their very nature, certain public services or

public utilities such as those which supply water,
electricity, transportation, telegraph, etc. must be
given exclusive franchises if public interest is to be
served. Such exclusive franchises are not violative
of the law against monopolies. (Philippine Port
Authority v. Mendoza, 138 SCRA 496)
 Sec. 19, Art. XII

The State shall regulate or prohibit

monopolies when the public interest so
requires. No combinations in restraint of
trade or unfair competition shall be
allowed.
 PUBLIC INTEREST

“Public interest" is a term that eludes exact

definition. Both terms embrace a broad spectrum
of subjects which the public may want to know,
either because these directly affect their lives, or
simply because such matters naturally arouse the
interest of an ordinary citizen. In the final analysis,
it is for the courts to determine on a case by case
basis whether the matter at issue is of interest or
importance, as it relates to or affects the public.
(Valmonte vs. Belmonte, G.R. No. 74930 February
13, 1989)
 Sec. 19, Art. XII

The State shall regulate or prohibit

monopolies when the public interest so
requires. No combinations in restraint of
trade or unfair competition shall be
allowed.
 COMBINATION IN RESTRANT OF
TRADE

Combination in Restraint of Trade is a trust, pool,

or other association of two or more individuals or
corporations having for its object to monopolize
the manufacture or traffic in a particular
commodity, to regulate or control the output,
restrict the sale, establish and maintain the price,
stifle or exclude competition, or otherwise to
interfere with the normal course of trade under
conditions of free competition. (Black’s Law
Dictionary)
 COMBINATION IN RESTRAINT OF
TRADE

Restraint of trade or occupation embraces acts,

contracts, agreements or combinations which
restrict competition or obstruct due course of
trade. From the wordings of the Constitution (Sec.
19, Art. XII), truly then, what is brought about to
lay the test on whether a given agreement
constitutes an unlawful machination or
combination in restraint of trade is whether under
the particular circumstances of the case and the
nature of the particular contract involved, such
contract is, or is not, against public interest. (Avon
Cosmetics vs. Luna 511 SCRA 376)
PROHIBITIONS AGAINST MONOPOLY
AND COMBINATION IN RESTRAINT OF
TRADE

Article 186, which punishes certain forms of

monopolies and combinations and restraints of
trade, provides:

Art. 186. Monopolies and combinations in restraint

of trade. — The penalty of prision correccional in
its minimum period or a fine ranging from 200 to
6,000 pesos, or both, shall be imposed upon…
 Sec. 19, Art. XII

The State shall regulate or prohibit

monopolies when the public interest so
requires. No combinations in restraint of
trade or unfair competition shall be
allowed.
 UNFAIR COMPETITION

The Supreme Court held in Levis Strauss vs.

Martinez G.R. No. 162311 that generally, unfair
competition consists in employing deception or any
other means contrary to good faith by which any
person shall pass off the goods manufactured by him
or in which he deals, or his business, or services for
those of the one having established goodwill, or
committing any acts calculated to produce such
result. The elements of unfair competition under
Article 189(1) of the Revised Penal Code are:

(a) That the offender gives his goods the general

appearance of the goods of another manufacturer
or dealer;
 UNFAIR COMPETITION

(b) That the general appearance is shown in the :

(1) goods themselves, or in the
(2) wrapping of their packages, or in the
(3) device or words therein, or in
(4) any other feature of their appearance;

(c) That the offender offers to sell or sells those goods or gives
other persons a chance or opportunity to do the same with a
like purpose; and

(d) That there is actual intent to deceive the public or defraud a

competitor.
 RA 10667 – PHILIPPINE COMPETITIVE
ACT
Philippine Competition Act was passed into law on July 18, 2014 which aims to
liberalize key sectors in the economy”, and provide “equal opportunities to
all” in pursuit of the entrepreneurial spirit.

There are three main objectives of the law:

(a) Enhance economic efficiency and promote free and fair competition in
trade, industry and all commercial economic activities, as well as establish
a National Competition Policy to be implemented by the Government of
the Republic of the Philippines and all of its political agencies as a whole;

(b) Prevent economic concentration which will control the production,

distribution, trade, or industry that will unduly stifle competition, lessen,
manipulate or constrict the discipline of free markets; and

(c) Penalize all forms of anti-competitive agreements, abuse of dominant

position and anti-competitive mergers and acquisitions, with the objective
of protecting consumer welfare and advancing domestic and international
trade and economic development. (Sec. 2, Declaration of Policy)
 CASE STUDIES
Agan, Jr. v. Philippine International Air Terminals Co., Inc. (PIATCO)
G.R. No. 155001, May 5, 2003

Facts: In August of 1989, the DOTC conducted a comprehensive study of NAIA to

determine if the present airport can cope with the air traffic development up to
the year 2010. The study resulted that the future air traffic congestion cannot be
handled by the existing terminals at NAIA and it recommended for an expansion.

In 1993, business tycoons John Gokonwei, Andrew Gotianun, Henry Sy, Sr., Lucio
Tan, George Ty and Alfonso Yuchenco formed Asia’s Emerging Dragon Corp.
(AEDC) primarily to enter into a contract with the government for the expansion
and operation NAIA. It proposed for the construction of NAIA Terminal III and for
an operation agreement for a period of 25 years, renewable for another 25 years.

In 1984, DOTC opened the deal to the market for possible bidders. In response
thereto, PIATCO (a consortium of several companies) submitted its bid for the
project. AEDC subsequently submitted its own bid. Both proponents offered to
build the terminal for at least $350M at no cost to the government and to pay the
latter: 5% share in gross revenue for the first five years; 7.5% for the next ten years;
and 10% in the last 10 years of operation. However, in addition thereto, AEDC
offered to pay P135M as guaranteed payment for 27 years while PIATCO offered to
 CASE STUDIES
Agan, Jr. v. Philippine International Air Terminals Co., Inc. (PIATCO)
G.R. No. 155001, May 5, 2003

pay P135M as guaranteed payment for 27 years while PIATCO offered to pay
P17.75B for the same period. Obviously, PIATCO won the bidding. PIATCO is
supposed to build the NAIA 3 and is the sole operator of the whole NAIA
subject to supervision of MIAA.

AEDC now contends that PIATCO should not have in the first place qualified in
the pre-bidding qualifications as it does not have the financial capacity to
finance at least 30% of the project as required by the bidding rules. It avers that
one of the affiliates of the consortium, Security Bank valued at 2.7B, should not
count on face value. Under the prevailing banking laws, a bank cannot invest
more than 15% of its total assets. Ergo, PIATCO does not have the financial
capacity to shoulder at least 30% of the construction value.

Meanwhile, the employees’ organizations oppose in that they may lose their
jobs while the independent operators of the NAIA Terminals one and two
contend that their right over the existing contracts will be impaired. Also, sine
the case involves a public interest, the prohibition against monopoly is
obtaining
 CASE STUDIES
Agan, Jr. v. Philippine International Air Terminals Co., Inc. (PIATCO)
G.R. No. 155001, May 5, 2003

Issue: Is the contract between DOTC and PIATCO violative of Sec 19, Art. XII of
the Constitution?

Ruling: No. The operation of an international terminal is no doubt an undertaking

imbued with public interest. In entering into a build-operate-transfer contract, the
government has determined that public interest would be served better if private
sector resources will be used in its construction and an exclusive right to operate
be granted to the private entity undertaking the said project, in this case, PIATCO.
Nonetheless, the privilege given to PIATCO is subject to a reasonable regulation
and supervision by the government through the MIA, which is the agency
authorized to operate the NAIA complex, as well as DOTC. This is in accord with
the constitutional mandate that a monopoly which is not prohibited must be
regulated. While it is the declared policy of the state to encourage private sector
participation by providing a climate of minimum government regulations, the
same does not mean that the government must completely surrender its
sovereign power to protect public interest in the operation of a public utility as a
monopoly. Such operation cannot be done in an arbitrary manner to the
detriment of the public which it seeks to serve.
 CASE STUDIES
AVON COSMETICS vs. LUNA 511 SCRA 376

FACTS: Leticia Luna was employed as a Supervisor in Avon Cosmetics. Aside from her work as
a supervisor, respondent Luna also acted as a make-up artist of petitioner Avon’s Theatrical
Promotion’s Group, for which she received a per diem for each theatrical performance. The
contract was that: The Company agrees: 1) To allow the Supervisor to purchase at wholesale
the products of the Company. The Supervisor agrees: 1) To purchase products from the
Company exclusively for resale and to be responsible for obtaining all permits and licenses
required to sell the products on retail. The Company and the Supervisor mutually agree: 1)
That this agreement in no way makes the Supervisor an employee or agent of the Company,
therefore, the Supervisor has no authority to bind the Company in any contracts with other
parties. 2) That the Supervisor is an independent retailer/dealer insofar as the Company is
concerned, and shall have the sole discretion to determine where and how products purchased
from the Company will be sold. However, the Supervisor shall not sell such products to stores,
supermarkets or to any entity or person who sells things at a fixed place of business. 3) That
this agreement supersedes any agreement/s between the Company and the Supervisor. 4)
That the Supervisor shall sell or offer to sell, display or promote only and exclusively products
sold by the Company. 5) Either party may terminate this agreement at will, with or without
cause, at any time upon notice to the other. Later, respondent Luna entered into the sales
force of Sandre Philippines, engaged in selling vitamins and food supplements, which caused
her termination for the alleged violation of the terms of the contract. The trial court ruled in
favor of Luna that the contract was contrary to public policy thus the dismissal was not
proper.The Court of Appeals affirmed the decision, hence this petition.
 CASE STUDIES
AVON COSMETICS vs. LUNA 511 SCRA 376

ISSUE: Whether the Court of Appeals erred in ruling that the Supervisor’s Agreement was
invalid for being contrary to public policy?

HELD: First off, restraint of trade or occupation embraces acts, contracts, agreements or
combinations which restrict competition or obstruct due course of trade.

From the wordings of the Constitution, truly then, what is brought about to lay the test on
whether a given agreement constitutes an unlawful machination or combination in restraint
of trade is whether under the particular circumstances of the case and the nature of the
particular contract involved, such contract is, or is not, against public interest.

Thus, restrictions upon trade may be upheld when not contrary to public welfare and not
greater than is necessary to afford a fair and reasonable protection to the party in whose favor
it is imposed. Even contracts which prohibit an employee from engaging in business in
competition with the employer are not necessarily void for being in restraint of trade.

In sum, contracts requiring exclusivity are not per se void. Each contract must be viewed vis--
vis all the circumstances surrounding such agreement in deciding whether a restrictive
practice should be prohibited as imposing an unreasonable restraint on competition.
 Q &A

Define:
a. Monopoly
b. Public Interest
c. Combination in restraint of trade

Question : Is there a distinction between Monopoly

and combination in restraint of trade?

Answer : YES, combination of restraint of trade

refers to the means while monopoly refers to the
end. (Tatad and Lagman cases supra, citing 54 AM,
Jur. 2d. 669)