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
governing law, they take the risk of the agreement’s unenforceability in the Philippines. Additionally, the law is deemed written into every con - tract. Thus, the law may supplement the gaps in a franchise agreement where the latter failed to provide clarity or adequate relief. For instance, the provisions under the Civil Code, including those on termination in case of material breach, are deemed impliedly writ - ten in all agreements, whether it involves a TTA or not. However, it may also serve as a restriction on the parties’ contractual autonomy as the stipulations in the franchise agreement will yield to mandatory laws. 7.4 Prohibited Provisions in Local Law Section 87 of the IP Code lists the following prohibited clauses that may not be contained in the franchise agreement, as they are deemed prima facie to have an adverse effect on competition and trade: • those that impose upon the licensee the obligation to acquire from a specific source capital goods, intermediate products, raw materials and other technologies, or to permanently employ personnel indicated by the licensor; • those pursuant to which the licensor reserves the right to fix the sale or resale prices of the products manufactured on the basis of the licence; • those that contain restrictions regarding the volume and structure of production; • those that prohibit the use of competitive technolo - gies in a non-exclusive technology transfer agree - ment; • those that establish a full or partial purchase option in favour of the licensor; • those that obligate the licensee to transfer to the licensor, for free, inventions or improvements that may be obtained through the use of the licensed technology; • those that require payment of royalties to the own - ers of patents for patents that are not used; • those that prohibit the licensee from exporting the licensed product unless justified for the protec - tion of the legitimate interest of the licensor, such as exports to countries where exclusive licences to manufacture and/or distribute the licensed product(s) have already been granted;
• those that restrict the use of the technology sup - plied after the expiration of the TTA, except in cases of early termination of the TTA for reason(s) attributable to the licensee; • those that require payments for patents and other industrial property rights after their expiration; • those that require the technology recipient to not contest the validity of any of the patents of the technology supplier; • those that restrict research and development activ - ities of the licensee designed to absorb and adapt the transferred technology to local conditions, or to initiate research and development programmes in connection with new products, processes or equipment; • those that prevent the licensee from adapting the imported technology to local conditions or intro - ducing innovation into it, as long as this does not impair the quality standards prescribed by the licensor; • those that exempt the licensor for liability for non- fulfilment of their responsibilities under the TTA and/or liability arising from third-party suits brought about by the use of the licensed product or the licensed technology; and • other clauses with equivalent effects. Nevertheless, under Section 91 of the IP Code, an exemption from the application of Sections 87 and 88 of the IP Code may be allowed in exceptional and meritorious cases, as previously discussed. Further, the Competition Act prohibits anti-compet - itive agreements and certain restrictive practices in contracts, such as price-fixing, market allocation and unfair restrictions on trade, if these substantially prevent, restrict or lessen competition. However, it explicitly allows “permissible franchising, licensing, exclusive merchandising or exclusive distributor - ship agreements”, unless these are found to have a substantial anti-competitive effect. Furthermore, the Competition Act allows franchise agreements to include provisions for unilateral termination, as well as protections for IP, confidential information and trade secrets, provided these do not have a substantial anti- competitive effect.
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