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
5. Duration, Renewal and Termination 5.1 Duration of a Franchise Agreement The duration of a franchise agreement is subject to the agreement of the parties. There is no statutory maximum or minimum duration under the law. 5.2 Franchise Renewal Philippine law does not provide for any statutory renewal rights, compensation payable upon non- renewal or goodwill compensation payable under commercial agency laws. These terms are subject to the agreement of the parties. 5.3 Termination of the Franchise Agreement The grounds for termination are subject to the agree - ment of the parties. Generally, agreements provide for termination on the ground of default, and the par - ties are free to stipulate what they deem events of default. The parties may also agree on the effects of such events of default, for instance by adopting an automatic termination clause. The Competition Act provides that franchising, licensing, exclusive mer - chandising and distributorship agreements that give each party the right to unilaterally terminate the agree - ment are permissible. In case of insolvency, applying Section 57 of the Financial Rehabilitation and Insolvency Act of 2010, a licence cannot be unilaterally terminated on the ground of mere insolvency of the licensee or licensor and will remain valid and effective despite a subse - quent declaration of the insolvency of either or both parties. 6. Restrictions on Competition in Franchise Agreements 6.1 Treatment of Competition Restrictions in Franchise Agreements Section 15 of the Competition Act generally prohib - its entities from abusing their dominant position by engaging in conduct that would substantially prevent, restrict or lessen competition. Particularly, the Com - petition Act prohibits the imposition of restrictions on the contract for sale of goods or services where the
object or effect of the restrictions is to prevent, restrict or lessen competition substantially. Notably, the Competition Act must be read in con - junction with the IP Code, which prohibits clauses expressly enumerated under Section 87 and other clauses that similarly have anti-competitive effects. These clauses, which include anti-competitive claus - es, stipulations in restraint of trade and purchase ties, are considered prima facie to have an adverse effect on competition and trade. 6.2 Exclusive Territories and Competing Businesses Exclusive territories and similar clauses are generally permitted in franchise agreements in the Philippines, subject to the general limitations of contract law. Par - ties may freely establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy. Furthermore, such exclusivity clauses must not vio - late Philippine competition laws. The Competition Act prohibits anti-competitive agreements and specific restrictive contractual practices (such as price-fixing, market allocation and unfair trade restrictions) when these significantly prevent, restrict or lessen com - petition. However, it expressly permits “permissible franchising, licensing, exclusive merchandising, or exclusive distributorship agreements”, provided they do not result in a substantial anti-competitive effect. On the other hand, in-term and post-term non-com - pete clauses are generally enforceable in the Philip - pines and are not necessarily void for constituting restraint of trade, provided there are reasonable lim - itations as to time, trade and place, which may be assessed on a case-to-case basis. The IPOPHL has previously allowed non-compete clauses for a period limited to one year from the termi - nation of the agreement. In Blue Sky Holdings Limited v DITTB , IPOPHL Appeal No 05-2012-0001 (30 April 2013), the IPOPHL ruled that a non-compete clause for a period of two years following the termination of the franchise agreement is a prohibited anti-competi - tive clause. Notably, however, the IPOPHL stated that,
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