Heard about this very interesting opinion in a webinar. Although this has yet to be decided on Lazada, an SEC Opinion states that a corporation which offers internet and mobile technology as a primary medium to sell and market products to the public falls within the purview of mass media, subject to the foreign equity limitations of the 1987 Constitution.

On 08 May 2014, SEC released an opinion where the main issue was whether a foreign-owned corporation can provide a digital platform to clients, merchants or marketers to promote their products.

Under the most recent Foreign Negative List or Executive Order No. 65 (“EO 65”), no foreign equity is allowed in mass media, except those engaged in recording and internet business. On the other hand, those engaged in advertising are allowed only up to 30% foreign equity.

What do you mean by the phrase “mass media, except those engaged in recording and internet business”?

The Constitution mandates that a corporation must be wholly-owned and managed by Filipino citizens so that a corporation can validly undertake mass media activities. This is to prevent foreigners from influencing the public in any way that is detrimental the the nation’s best interest (Opinion 14-05 citing SEC Corporate Legal Department Opinion dated 02 September 1988).

However, those engaged in the internet business are not considered mass media according to DOJ Opinion 040, Series of 1998. It opined that if the business only serves to be an access provider transmitting of messages to a limited number people, it cannot be considered mass media as it neither involves the any creation of messages/information or any transmission to the general public.

On the other hand, should a corporation be engaged in “transmittal and creation/publication, gathering and distribution of the news, information, messages and other forms of communication to the general public”, it is considered as mass media even if it is done through the internet or mobile technology.

Mass media refers to “any medium of communication to reach the masses and tends to set the standards, ideals and aims of the masses, the distinctive feature which is the dissemination of information and ideas to the public, or a portion thereof”. (DOJ Opinion No. 40, series of 1998, cited in SEC-OGC Opinion No. 11-08 dated 03 March 2011). As such, internet and mobile technology have become recognized platforms for mass medium because of its increasing use as digital communication.

Applying the following, a corporation engaged in the “internet business” is open to foreign ownership. Conversely, if it involves communication to the general public or any form of creation or publication of information, it is considered mass media which can only be owned and managed by Filipino citizens.

What is the difference between “mass media” and “advertising”?

“Advertising” is defined in Article 4(b) of Republic Act No. 7394 (RA No. 7394) as the business of conceptualizing, presenting or making available to the public, through any form of mass media, fact, data or information about the attributes, features, quality or availability of consumer products, services or credit. (Opinion 14-06).

Based on the above, while a corporation creates or transmits information to the public as consumers, it is for the purpose of campaigning for and in behalf the advertiser (the seller). Hence, even if it uses mass media, a corporation engaged in advertising may be owned and managed by foreigners up to 30% of its equity if it is for the purpose of consumerism.

Likewise, this applies to the use of internet and mobile technology as a form of mass media.

In conclusion, if a company provides digital platforms to advertise and sell products and services, there is a high risk that it may be covered by restrictions on foreign ownership by our Constitution.

Additional reference: https://business.inquirer.net/171449/internet-sale-is-mass-media