PHILIPPINES Law and Practice Contributed by: Patricia A O Bunye, Anica Angela G Gomez, Angel Rae N Balbin and Bianca Marie J Angela M Rañola, Cruz Marcelo & Tenefrancia
the DTI, recognising the sector’s impact on economic growth, will provide financial support in the form of loans ranging from PHP200 million to PHP500 million, with 0% interest and no principal payments required for the first six months for aspiring franchisees joining the PFA. The PFA has also partnered with PLDT Enter - prise to equip franchises with digital tools to enhance their business operations, including next-generation connectivity, cloud solutions, AI-powered insights and robust cybersecurity. 1.2 Franchise Regulation The Philippines does not have a single comprehensive law that regulates franchising. Instead, franchising is governed by a combination of general laws and presi - dential issuances or orders. The current regulatory framework on franchising pri - marily includes the Civil Code of the Philippines (the “Civil Code”) and the Intellectual Property Code of the Philippines (the “IP Code”). Other notable laws include: • Executive Order (EO) No 169 (series of 2022), which aims to strengthen micro, small and medium enterprises (MSMEs) in the franchising industry; • the Philippine Competition Act (the “Competition Act”), which codifies the competition policy of the Philippines; • the Consumer Act of the Philippines, which applies to certain aspects of franchising related to prod - uct quality, labelling and advertising for consumer protection; • the Revised Corporation Code, which is the pri - mary law applying to corporations with respect to establishing and structuring a franchising entity; • the Labor Code of the Philippines, which governs the labour standards and relations of franchise personnel; • the National Internal Revenue Code (the “Tax Code”), which provides for tax rates and the proce - dure for tax registration and compliance; • the Local Government Code, which provides for the substantive requirements, such as permits and fees, which businesses must comply with in the localities where they intend to operate; and
• the Data Privacy Act of 2012, which regulates the processing of personal information for the protec - tion of the right to privacy. Since franchise agreements are contracts, they must comply with the provisions of the Civil Code, which governs general contract law principles – particu - larly consent, capacity, object, cause and formalities, among others. While the Civil Code grants the parties contractual autonomy to stipulate any clause in their franchise agreements, the clauses must not be contrary to law, morals, good customs, public order or public policy. Thus, the agreements must be consistent with the rights vested under the IP Code, which covers the law on trade marks, trade names, copyright, patents and other IP rights that are crucial to a franchise. Further, since a franchise agreement falls under the definition of a technology transfer arrangement (TTA) under Section 4.2 of the IP Code, it must comply with the provisions on voluntary licensing, particularly the prohibited and mandatory clauses under Sections 87 and 88 of the IP Code. TTAs are defined as “contracts or agreements, involv - ing the transfer of systematic knowledge for the man - ufacture of a product, the application of a process, or rendering of a service including management con - tracts; and the transfer, assignment or licensing of all forms of intellectual property rights, including licens - ing of computer software except computer software developed for mass market”. Despite the foregoing definition, not all contracts involving the licensing of IP rights will be considered a TTA. Rule 1 (n) of IPO Memorandum Circular 2020-002 further qualifies the definition of a TTA: “The transfer, assignment or licensing of intellectual property rights will be considered a [TTA] only if it involves the trans - fer of systematic knowledge”. The term “systematic knowledge” is not specifically defined under local regulation or jurisprudence. Thus, it remains subject to interpretation. However, the World Intellectual Property Organization has stated that technology licensing is not necessarily synony -
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