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
mous with technology transfer as the latter requires an actual transfer of technology and knowledge by the licensor to the licensee, who learns how to effectively use, adapt and improve such technology and knowl - edge. In view of the foregoing, franchise agreements are considered TTAs as they involve the transfer of systematic knowledge. Thus, the agreement must not contain the prohibited clauses under Section 87 of the IP Code and must comply with the mandatory clauses under Section 88 of the IP Code. Additionally, EO No 169 likewise sets the minimum terms and conditions for franchise agreements for MSME franchisees. In this regard, said EO provides that the franchisor has an obligation to execute an undertaking that all future franchise agreements with MSME franchisees shall incorporate the minimum terms and conditions prescribed thereunder, which shall be registered under the Franchise Registry to be created under the DTI. In all cases, franchise agreements must comply with the Competition Act, which prohibits entities from abusing their dominant position by engaging in con - duct that would substantially prevent, restrict or less - en competition. While the franchising industry is subject to the regu - latory power of various government agencies, it also self-polices its own ranks through franchise associa - tions, such as the PFA. The PFA is a voluntary self- regulating governing body for franchising in the Phil - ippines that introduced, in 2005, the Fair Franchising Standards – a code of franchising ethics applying a fair set of provisions in the conduct of sale of their franchises that PFA members commit themselves to respecting. Notably, however, the PFA is a private association that is not connected with the govern - ment, and membership thereof – or of any franchise association for that matter – is purely voluntary. 1.3 Definition of a Franchise Agreement EO No 169 defines a “franchise” as “a contract or agreement between a franchisor and a franchisee where: (i) the franchisor grants to the franchisee the right to operate a business according to the franchise system and during a term as determined by the fran - chisor; (ii) the franchisor grants the franchisee the right
to use a mark, or a trade secret, or any confidential information or intellectual property owned by the fran - chisor or relating to the franchisor; (iii) the franchisor possesses the right to control the administration over the franchisee’s business operation during the franchise in accordance with the franchise system; and (iv) in return for the grant of the above rights, the franchisee is required to pay a fee or other form of consideration”. It further defines a “franchise agreement” as “a writ - ten contract or agreement between a franchisor and a franchisee by which the former grants the latter the right to engage in the business of offering, selling or distributing goods or services under a marketing sys - tem, technology transfer arrangements included, for a certain consideration. Unless otherwise provided, said right includes the use of a trademark, service mark, trade name/business name, know-how, logo-type advertising or other commercial symbols associated with a particular business”. On the other hand, DTI Bureau Order No 10-24, or the Advisory on Due Diligence to be Undertaken by a Prospective Franchisee, defines a “franchise agree - ment” as “a written contract or agreement between two or more parties by which a Franchisor grants the Franchisee right to engage in the business of offer - ing, selling, or distributing goods or services under a marketing plan/system/concept, for a certain consid - eration. Unless otherwise provided, said right includes the use of a trademark, service mark, trade name/ business name, know-how, logo-type advertising, or other commercial symbols associated with a particu - lar business”.
2. Franchise Disclosure 2.1 Mandatory Disclosure
DTI Bureau Order No 10-24 recommends that pro - spective franchisees obtain what it refers to as “Dis - closure Information” from the franchisor as part of the due diligence process prior to entering into or acquir - ing a franchise. Franchisors should provide the fol - lowing Disclosure Information when requested by a prospective franchisee:
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