Competition Case : Exclusive Dealership Agreement

Company A is a foreign private corporation organized under a foreign law but doing business by virtue of an Exclusive Dealership Agreement with Company X a local private corporation organized and existing under Philippine laws.

During the initial 10 years of operation in the Philippines the products manufactured by a Company A, consisting of fluorescent bulbs and lighting fixtures and accessories had been unduly known and widely accepted by the local consumers thru the effective management and promotional activities conducted thereby by Company X via multi-media.

It must be noted that Company A's products bearing the TM "OSRAM" for lights and lighting fixtures gained recognition during the said span of time despite the presence of other foreign competitors dealing on similar products by 20% to 30% thru Company "X" 's adept and effective management style i.e. big discount on wholesale and protection of loyal patrons/clients.

However, the good business relationship between Company A and Company X hit a snag when the former wanted to effect a business buy-back arrangement and/or merger of some sort and thus requiring Company X to:

1. Submit all the remaining inventories/stocks still undisposed of all Company A's products as of July, 1999;
2. Submit all the lists of old and new clients including addresses and volume of purchases on a 6 months basis effective upon the signing of the Exclusive Distributorship/Dealership Agreement;
3. Execute a Deed of Assignment in favor of Company A of all the production/manufacturing Company X pertaining to all products of Company A;
4. Execute an agreement containing anti competitive restrictions on the distribution ability to resell the product of Company A in the local market, otherwise Company A will no longer renew the Exclusive Distributor Agreement and stop the delivery of Company A products to Company X;

The intention of Company A for the said buy-out/merger is to establish a private corporation in accordance with Philippine law and to directly distribute and sell of its product in the Philippines through the same, observing however the Philippine Constitution's prohibition on foreign equity participation of 60%/40% here in the Philippines but nonetheless making Company X merely as a nominal stock holder.

The intended buy out and/or merger did not materialize.

A problem cropped up when Company A tried to convince Company X to execute the Deed of Assignment as a form of buy-back arrangement with a side Contract of Absolute Sale, based on the requirements of the Philippine Bulk Sales Law, wherein all the inventory of products still unsold will be transferred to Company "A" for a consideration, including the Business Name of Company "X" and other industrial properties related to the production, manufacture and or re-packing of Company A's products. However, Company X opted not to make a definite commitment thereto until and after the issue on whether or not the sale of a Business Name only falls under the Bulk Sales Law which requires, among others:

1. Submission of a sworn statement of names and addresses of all creditors of vendor and the amount of indebtedness
2. Inventory of stocks
3. Notice to the creditors
4. Deed of Sale/Assignment

As a result and based on the adverse ruling made by the Department of Trade and Industry on the issue adverted to above, i.e., the sale of business name only is not considered a sale under the Bulk Sales Law but rather a plain Deed of Sale generally termed and accepted in the legal parlance, the supposed buy-out and merger arrangements as initiated by and with the best interest for Company "A" did not push through as both Companies failed to meet on the terms and conditions mutually beneficial to both of them.

Hence, the Parties opted just to continue with the Exclusive Distributorship/Dealership Agreement with a definite term, however.