The year 2020 has been off to a rough start for the Philippines. With the eruption of the Taal Volcano in January and the COVID-19 pandemic reaching Philippine shores shortly afterwards, the demand for N95 masks seemed to have reached an all-time high. The increased demand for these particulate respirators resulted in a shortage of supply and a surge in prices up to a level where government price regulation had to be in place.
Since January 31, 2020 a price freeze has been imposed by the Department of Health (DOH) under Department Circular No. 2020-0058 series on certain essential emergency medicines and medical devices in response to the COVID-19 pandemic. The list of essential medical devices included N95 masks among others, with the said mask having an imposed lowest selling price of Forty-Five Pesos (Php45.00) or approximately 90/100 United States Dollars (US$0.90) and an imposed price ceiling of One Hundred Ninety-Five Pesos (Php105.00) or approximately Two and 10/100 United States Dollars (US$2.10).
Soon thereafter, other Philippine administrative agencies released respective issuances in conjunction with the price freeze imposed by the DOH. The Food and Drug Administration (FDA) issued FDA Circular No. 2020-005 prohibiting the online selling of medical supplies listed under DOH Circular No. 2020-058 beyond the imposed price ceiling.
On 18 March 2020, after the region of Luzon has been placed under Enhanced Community Quarantine (ECQ) restricting unessential travel, Joint Memorandum Circular No. 2020-01 (JMC No. 2020-01) was issued by the Department of Agriculture (DA), Department of Trade and Industry (DTI) and the DOH. JMC No. 2020-01 reiterate the price freeze on basic necessities, medicines, and medical supplies and imposed the penalties provided under the Republic Act No. 7581 as amended, also known as the Price Act, to all persons who sell or offer for sale basic necessities beyond the price ceiling.
Consumer protection laws like the Price Act and Republic Act No. 9502 or the Cheaper Medicines Act, empower administrative agencies in the Philippines to enact the foregoing directives to regulate the prices of essential medicines in the Philippines. Under Section 19(A) of the Cheaper Medicines Act, the Secretary of Health has the power to determine and recommend for approval of the President the maximum retail prices of drugs and medicines. In conjunction with his power to recommend maximum retail prices of drugs and medicines, the Secretary has the power to order the inclusion of drugs and medicines to the list which may be subject of price regulation whenever public interest requires pursuant to Section 23 of the same law.
On the other hand, the Price Act includes price regulation provisions triggered by the occurrence of certain crises in a particular area. Section 6 of the said law automatically imposes a price freeze on basic necessities whenever the following circumstances occur:
(1) An area is proclaimed or declared a disaster area or under a state of calamity;
(2) An area is declared under an emergency;
(3) The privilege of the writ of habeas corpus is suspended in that area;
(4) An area is placed under martial law;
(5) An area is declared to be in a state of rebellion; or
(6) A state of war is declared in that area.
Meanwhile Section 7 of the Price Act grants the president the power to impose a price ceiling on any basic or prime commodity, upon the recommendation of the implementing agency, if any of the following conditions warrants:
(1) The impendency, existence, or effects of a calamity;
(2) The threat, existence, or effect of an emergency;
(3) The prevalence or widespread acts of illegal price manipulation:
(4) The impendency, existence, or effect of any event that causes artificial and unreasonable increase in the price of the basic necessity or prime-commodity; and
(5) Whenever the prevailing price of any basic necessity or prime commodity has risen to unreasonable levels.
Crucial in the understanding of the scope and application of the Price Act are the definition of basic necessities and prime commodities. Section 3(1) of the Price Act, as amended by Republic Act No. 10623, defines “basic necessities” as:
“…[G]oods vital to the needs of consumers for their sustenance and existence in times of any of the cases provided under Section 6 or 7 of this Act such as, but not limited to, rice, corn, root crops, bread; fresh, dried or canned fish and other marine products; fresh pork, beef and poultry meat; fresh eggs; potable water in bottles and containers; fresh and processed milk; fresh vegetables and fruits; locally manufactured instant noodles; coffee; sugar; cooking oil; salt; laundry soap and detergents; firewood; charcoal; household liquefied petroleum gas (LPG) and kerosene; candles; drugs classified as essential by the Department of Health and such other goods as may be included under Section 4 of this Act;"
Noticeably, the cited provision includes drugs classified as essential by the DOH in the definition of basic necessities. It is arguable that under the rules of statutory construction the said provision also includes medical supplies since these are vital to the needs of consumers for their existence in times of the current Covid-19 pandemic, so as to further advocate the purpose of the Price Act which is to ensure the availability of basic necessities and prime commodities at reasonable prices during emergency situations.
Section 3(8) of the said legislative measure, as amended by Republic Act No. 10623, defines “prime commodities” as:
“…[G]oods not considered as basic necessities but are essential to consumers in times of any of the cases provided under Section 7 of this Act such as, but not limited to, flour; dried, processed or canned pork, beef and poultry meat; dairy products not falling under basic necessities; onions, garlic, vinegar, patis, soy sauce; toilet soap; fertilizer, pesticides and herbicides; poultry, livestock and fishery feeds and veterinary products; paper; school supplies; nipa shingles; sawali; cement; clinker; GI sheets; hollow blocks; plywood; plyboard; construction nails; batteries; electrical supplies; light bulbs; steel wire; all drugs not classified as essential drugs by the Department of Health and such other goods as may be included under Section 4 of this Act."
Both the definitions above are relative to the extraordinary circumstances listed under Sections 6 and 7 of the Price which may affect the needs of consumers and the prices of commodities due to the disruption of normal production and supply of goods.
1- Overpricing Essential Medicines and Medical Supplies Amid COVID-19 Punishable Under the Price Act and the Cheaper Medicines Act
The act of selling or offering for sale of drugs and medical supplies classified as essential by the DOH is characterized as “profiteering”, which is considered as one of the illegal acts of price manipulation under Section 5(2) of the Price Act. The said provision penalizes any person habitually engaged in the production manufacture, importation, storage, transport, distribution, sale or other methods of disposition of goods who sells or offers for sale any basic necessity or prime commodity at a price grossly in excess of its true worth. It must be noted that the legislation in question does not include a definition or metric to determine whether a person is habitually engaged in the production manufacture, importation, storage, transport, distribution, sale or other methods of disposition of goods. The Price Act, however, provides in its Section 5(2)that there is prima facie evidence of profiteering whenever a basic necessity or prime commodity being sold has no price tag, is misrepresented as to its weight or measurement, is adulterated or diluted, or whenever a person raises the price of any basic necessity or prime commodity he sells or offers for sale by more than ten percent (10%) of its price in the immediately preceding month. The prima facie provision does not apply to agricultural crops, fresh fish, fresh marine products, and other seasonal products.
In consonance with the Price Act, Section 24 of the Cheaper Medicines Act likewise sanctions any manufacturer, importer, trader, distributor, wholesaler, retailer, or any person engaged in any method of disposition of drugs and medicines who commits any of the illegal acts of price manipulation under the Price Act, such as hoarding, profiteering, or illegal combination or forming a cartel, as well as other acts committed in restraint of trade.
In view of the scope of the Price Act and the relevant provisions of the Cheaper Medicines Act, it seems that profiteering or overpricing of basic necessities and prime commodities is only punishable in the Philippines when the following elements are present:
a. The perpetrator is a person habitually engaged in the production, manufacture, importation, storage, transport, distribution, sale or other methods of disposition of goods;
b. The perpetrator is selling or offering for sale of any basic necessity or prime commodity at a price grossly in excess of its true worth; and
c. The act is committed during any of the exigencies listed in Section 6 or 7 of the Price Act.
Penalties for Profiteering
Under Section 15 of the Price Act, any person habitually engaged in the production, manufacture, importation, storage, transport, distribution, sale or other methods of disposition of goods who are liable for profiteering of basic necessities and prime commodities shall suffer the penalty of imprisonment for a period of not less than five (5) years nor more than fifteen (15) years, and shall be imposed a fine of not less than Five thousand pesos (P5,000) nor more than Two million pesos (P2,000,000).
On the other hand, under the Cheaper Medicines Act, any manufacturer, importer, trader, distributor, wholesaler, retailer, or any person engaged in any method of disposition of drugs and medicines liable for profiteering drugs and medicines drugs and medicines shall suffer the penalty of imprisonment for a period of not less than five (6) years nor more than fifteen (15) years or shall be imposed a fine of not less than One hundred thousand pesos (Php100,000.00) nor more than Ten million pesos (Php10,000,000.00), at the discretion of the court. The court may also order the suspension or revocation of its license to operate (LTO), professional or business license.
Potential Overreach of JMC No. 2020-01
Undoubtedly, the enabling legislation for the issuance of JMC No. 2020-01 is the Price Act as indicated in the whereas clauses of the said circular. While the Price Act only holds liable for profiteering those habitually engaged in the production, manufacture, importation, storage, transport, distribution, sale or other methods of disposition of goods, JMC No. 2020-01 seemed to have stretched the scope of the enabling law by stating that its provisions apply to “all persons natural or juridical, including those using the internet platform or other medium, who sell or offer for sale all basic necessities”(Sec. 2, JMC) and that “any person or entity found violating the Price Act” shall be held liable accordingly.
Under the Price Act alone, isolated transactions of persons not habitually engaged in the production, manufacture, importation, storage, transport, distribution, sale or other methods of disposition of goods are not punishable. However, JMC No. 2020-01 seemed to have included these isolated transactions by virtue of its sweeping scope to include all persons selling or offering for sale basic necessities under the purview of the Price Act.
2- Unfair or Unconscionable Sales Act or Practice under the Consumer Act of the Philippines
Republic Act No. 7394, also known as the Consumer Act of the Philippines (the “Consumer Act) includes a punitive measure against unfair or unconscionable sales practices which may include the act of overpricing products.
Under Article 52 of the Consumer Act, an act or practice shall be deemed unfair or unconscionable whenever the producer, manufacturer, distributor, supplier or seller, by taking advantage of the consumer's physical or mental infirmity, ignorance, illiteracy, lack of time or the general conditions of the environment or surroundings, induces the consumer to enter into a sales or lease transaction grossly inimical to the interests of the consumer or grossly one-sided in favor of the producer, manufacturer, distributor, supplier or seller.
In the same article, the following circumstances shall be considered in determining whether an act or practice is unfair or unconscionable:
a. The producer, manufacturer, distributor, supplier or seller took advantage of the inability of the consumer to reasonably protect his interest because of his inability to understand the language of an agreement, or similar factors;
b. When the consumer transaction was entered into, the price grossly exceeded the price at which similar products or services were readily obtainable in similar transaction by like consumers;
c. When the consumer transaction was entered into, the consumer was unable to receive a substantial benefit from the subject of the transaction;
d. When the consumer was entered into, the seller or supplier was aware that there was no reasonable probability or payment of the obligation in full by the consumer; and
e. The transaction that the seller or supplier induced the consumer to enter into was excessively one-sided in favor of the seller or supplier.
Considering the aforesaid provisions the Consumer Act, it is possible that selling products with exorbitant prices with the view of taking advantage of the consumer or the general conditions of the environment may be considered an unfair or unconscionable sales practice. This is punishable under Article 60 of the Consumer Act by the imposition of a fine of not less than Five Hundred Pesos (P500.00) but not more than Ten Thousand Pesos (P10,000.00) or imprisonment of not less than five (5) months but not more than one (1) year or both, upon the discretion of the court.
Unlike the provisions of the Price Act which are limited to those habitually engaged in the production, manufacture, importation, storage, transport, distribution, sale or other methods of disposition of goods and only during extraordinary circumstances listed under its Sections 6 and 7, the provisions on unfair or unconscionable sales practices under the Consumer Act holds liable any person under any circumstance whether during times of calamity or emergency or under normal conditions.
3-Possible Liability Under Philippine Intellectual Property Laws
The doctrine of exhaustion of intellectual property (“IP”) rights scattered in the different provisions of Republic Act No. 8293 as amended, also known as the Philippine Intellectual Property Code (the “IP Code”), limits the commercial exploitation of the IP of an already sold product. While this doctrine and the definitions of trademark and patent infringement under the IP Code bar any action of IP rights enforcement on the mere act of overpricing essential medicines and medical supplies, it is hypothesized that price gouging of essential medicines and medical supplies may be a means of committing unfair competition under the IP Code.
There are many ways through which an individual may be deemed guilty of unfair competition. Under Section 168.3(c) of the IP Code, a person may be held liable for unfair competition if he shall commit any act contrary to good faith of a nature calculated to discredit the goods, business or services of another. A key element of unfair competition in the Philippines is the violator’s intent to engage in actions constituting unfair competition. Thus, if price gouging of essential medicines or medical supplies is done with the intention to discredit the goods, business or services of the IP owner of the products being sold then the seller may face legal actions for unfair competition in addition to other actions arising from violations of the Price Act or the Consumer Act whenever applicable. An illustrative example would be when a competitor commits price gouging in order to make it appear that the IP owner is unduly taking advantage of a crisis situation through opportunistic pricing, thereby discrediting the business of the IP owner.
With the Philippines placed under a State of Calamity as of March 16, 2020 through Presidential Proclamation No. 929, the automatic price freeze on basic necessities, which includes essential medicines and medical supplies, under the Price Act is currently at play. This automatic price freeze in addition to the DOH imposition of price ceilings puts to light relevant provisions of the Price Act and the Consumer Act, as well as unfair competition laws, which may zap the hands of unscrupulous sellers of exorbitantly priced medicines and medical supplies.
The above article expresses views of the authors only and not those of Villaraza & Angangco. This article has been prepared for informational purposes only and should not be considered as legal advice.