1. What is the current legal landscape for your practice area in your jurisdiction?

As there is currently no single comprehensive statute dedicated to franchising and licensing in the Philippines, this practice area is governed by general intellectual property and commercial laws and regulations.

Since franchise and license agreements are contracts, these must comply with the provisions of the Civil Code of the Philippines (“Civil Code”), which governs general contract law principles, particularly consent, capacity, object, cause and formalities, among others. While the Civil Code grants the party autonomy or the freedom 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 Intellectual Property Code of the Philippines (“IP Code”), which covers the law on trademarks, trade names, copyright, patents, and other IP rights that underpin franchising and licensing.

Under the IP Code, Technology Transfer Arrangements (“TTA”) are defined as “contracts or agreements, involving the transfer of systematic knowledge for the manufacture of a product, the application of a process, or rendering of a service including management contracts; and the transfer, assignment or licensing of all forms of intellectual property rights, including licensing of computer software except computer software developed for mass market”. Franchise agreements, being considered as TTA, must comply with the provisions on voluntary licensing to encourage the transfer and dissemination of technology and prevent or control practices and conditions that may constitute an abuse of intellectual property. Such rules are embodied in the IPO Rules and Regulations on Voluntary Licensing, which echo the mandatory and prohibited clauses of TTA and outline the steps for registration, clearance, certification, approval, and exemption with the Documentation, Information and Technology Transfer Bureau (“DITTB”).

Franchise and licensing agreements must also comply with the Philippine Competition Act (“PCA”), which codifies the competition policy of the Philippines and prohibits entities from abusing their dominant position by engaging in conduct that would substantially prevent, restrict, or lessen competition.

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 Consumer Act of the Philippines, which applies to certain aspects of franchising related to product quality, labelling and advertising for consumer protection; the Revised Corporation Code, which is the primary law applying to corporations with respect to establishing and structuring a franchising entity; the Labor Code of the Philippines, which governs the labor standards and relations of franchise personnel; the National Internal Revenue Code, which provides for tax rates and the procedure 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 protection of the right to privacy.

In addition to being regulated by the foregoing laws, the franchise industry in the Philippines also self-polices its own ranks through franchise associations, such as the Philippine Franchise Association (“PFA”). The PFA is a self-regulating governing body for franchising in the Philippines and a private association which is not connected with the government. Membership therein, or in any franchise association, is purely voluntary.

While there has been no bill filed yet, there have been discussions on the transfer of the review of franchise and license agreements from the IPO’s DITTB to the Philippine Competition Commission (“PCC”), given the determination of the anti-competitive effects of such agreements. Should this change in reviewing body be made, this would require franchisors/franchisees and licensors/licensees to comply with a new set of stricter regulations that the PCC may enforce.

2. What three essential pieces of advice would you give to clients involved in your practice area matters?

First, an agreement must be reviewed from a holistic lens, as it must not only be compliant with the relevant franchising and licensing rules and regulations, but also the entire legal, commercial, and regulatory framework governing the same.

While compliance with the IP Code, specifically the rules on voluntary licensing, is crucial to avoid the risk of unenforceability due to non-compliance with the provisions of Sections 87 and 88 of the IP Code, as well as lack of effectivity against third parties, this only addresses one layer of the legal framework applicable to the agreement. As discussed, as there is no single franchising and licensing law in the Philippines, this practice area is governed by multiple laws from various fields (e.g. contract law, competition law, data privacy law, and tax law). Accordingly, each of these practice areas have independent requirements that are not satisfied merely because the agreement has been rendered compliant with the rules on TTA.

Therefore, compliance with the IP Code and the related franchising and licensing rules and regulations should be treated as the starting point of the review of agreement, not its full scope.

Second, the internal review of the agreement should not supplant but rather supplement the review of the DITTB for purposes of ensuring enforceability. While the review of the agreement by the parties and their respective external counsel is necessary to ensure compliance with local laws, proper protection of rights and fairness in the mandatory obligations, it is prudent to submit to the DITTB for preliminary review the licensing or franchising agreements that may qualify as TTA to ensure its conformity with the provisions on voluntary licensing under the IP Code. Although the preliminary review process with the DITTB is purely voluntary and is not a prerequisite to the validity of a contract between the parties or the commencement of the client’s franchise business, its value rests on securing the final determination of the DITTB that the contract is enforceable, i.e. whether the parties may go to court to enforce the contract’s terms in case there is any breach of such contract and whether the contract may be invoked against third persons.

Third, an agreement may be rendered ineffective without proper and consistent enforcement initiatives. Beyond ensuring that provisions of the agreement contain enforcement rights such as audit rights, reporting obligations and operational controls, proper implementation and compliance monitoring post-execution of the contract are central to effective franchise operations, especially for franchisors who are foreign-based and may have access limitations to franchisees’ local outlets.

3. What are the greatest threats and opportunities in your practice area law in the next 12 months?

One of the greatest threats in Philippine franchise law is the lack of any mandatory disclosure requirements to ensure that franchisees are able to access meaningful information on the franchisor prior to entering into a franchise arrangement. While DTI Bureau Order No. 10-24 advises prospective franchisees to secure from the franchisor disclosure information, consisting of information regarding its corporate existence and franchise operations, among others, as part of its due diligence measures before deciding to engage in or acquire a franchise business, it is merely an advisory issuance with no obligatory effect on the franchisor.

Further, another threat is the complex regulatory and compliance environment affecting franchises in the Philippines. As there is no single legal framework for franchises, there is a pressing need to sift through and have a comprehensive understanding not only of IP and contract law, but also of consumer protection, data privacy, competition, corporate, tax, and local regulatory requirements, among others. Additionally, franchises must keep abreast of any legal developments in each of these areas in order to ensure compliance and minimize risk exposure.

On the other hand, despite legal hurdles, there remains a steady growth of the Philippine franchising industry which presents substantial commercial opportunities for industry stakeholders. Described by the PFA as being in its Golden Age of Franchising, the sustained growth of the Philippine franchising industry increasingly creates demand for more comprehensive support beyond the preparation of a franchise agreement. In the next 12 months, we expect the most valuable role of franchise counsel to be increasingly preventive: identifying legal and commercial risks early and helping clients build scalable franchise structures that can adapt as their businesses grow.

4. How do you ensure high client satisfaction levels are maintained by your practice?

Apart from ensuring we are able to fully assist our clients throughout the entire IP lifecycle, we approach client satisfaction primarily through responsiveness, commercial understanding, and proactive advice. Clients in the franchise sector generally need advice that is not only legal, but also practical and aligned with their business objectives. Accordingly, we view issues from all angles and present the available options, taking into account the relevant risks and our recommended course of action, in a manner that allows the client to make an informed business decision. Finally, we go an extra mile by maintaining a strong network across all industries, allowing us to tap connections where needed and to substantiate our advice from different perspectives.

5. What technological advancements are reshaping your practice area law and how can clients benefit from them?

Technological advancements are significantly reshaping franchising and licensing in the Philippines by enabling businesses to operate, monitor, and expand more efficiently. Artificial intelligence, cloud-based systems, digital platforms, and data analytics are increasingly being used for customer management, inventory control, marketing, training, and franchisee performance monitoring. These technologies allow franchisors to standardize operations while reducing costs and improving the overall customer experience.

Technology is also expanding the scope of what can be commercialized and licensed. Businesses can now license not only trademarks and business concepts, but also software, digital platforms, proprietary systems, data-driven tools, and AI-enabled processes. This creates new revenue opportunities through technology fees, subscriptions, royalties, and other licensing arrangements. At the same time, digital commerce requires greater attention to intellectual property ownership, data privacy, cybersecurity, online infringement, and the appropriate allocation of rights and responsibilities between franchisors and franchisees.

6. Describe a particularly interesting or complex matter you have advised on recently, and explain the challenges involved, your approach, and the outcome achieved for the client?

We regularly advise clients who are prospective franchisors in the Philippines, and part of the scope of our services is submitting their franchise agreements for preliminary review with the DITTB. The DITTB’s stringent review process aims to protect the franchisee and therefore usually involves a strict application of Sections 87 and 88 of the IP Code.

Thus, a crucial part of our arsenal is the ability to not only to identify which clauses are important to protect our clients’ rights, but also to harmonize them with the IP Code and the DITTB’s findings. In this regard, there have been several instances that the DITTB has objected to a clause in a franchise agreement based on a supposed violation of Section 87 on prohibited clauses.

For instance, Section 87.9 prohibits clauses which restrict the use of the technology supplied after the expiration of the TTA. Thus, the DITTB has objected to a clause in a franchise agreement which required the franchisee to immediately cease to operate their franchise system as licensed under the agreement upon termination of such agreement. However, we have argued against a stringent literal application of Section 87 to give meaningful effect to guaranteed intellectual property rights of our clients. To this end, we have argued that Sections 87 and 88 should not be read in isolation but must be reasonably interpreted in the context of the other statutory rights granted under the IP Code. Specifically, while the aim of Sections 87 and 88 of the IP Code is to prevent or control abuse of intellectual property rights having an adverse effect on competition and trade, these should not render nugatory the rights granted to intellectual property owners for the exclusive right over their intellectual creations, which includes trademarks, copyrights, patents and trade secrets.

Further, Section 87.4 of the IP Code prohibits clauses which do not allow the use of competitive technologies in non-exclusive TTA, while Section 87.15 prohibits clauses with equivalent effects. In this regard, the DITTB objected to a clause in a client’s franchise agreement which prohibits the use of any other trademark, service mark, trade name, or intellectual property not provided under the agreement in connection with the franchise business without the Franchisor’s prior written consent.

In response to the DITTB’s objection, we argued that the subject clause is a reasonable measure of protection of the Franchisor’s business as it limits the franchise system only to IP which may be used in connection with the said business. We further argued that the clause is consistent with Section 150.1 of the IP Code, which requires that license contracts must provide for effective control by the licensor of the quality of the goods or services of the licensee in connection with which the mark is used. Finally, we argued that the subject clause does not actually contain a prohibition as the Franchisee may be allowed to use other IP upon prior written consent of the Franchisor. The DITTB accepted our arguments and withdrew its objection to the subject clause.

Finally, standard clauses such as non-compete clauses which are otherwise upheld in regular agreements are flagged by the DITTB in franchise agreements for having anti-competitive effects or for otherwise being non-compliant with the IP Code. This poses a challenge particularly when our client is the Franchisor which imposes reasonable limitations during the term and after the termination of the agreement. In this regard, we assist the client in drafting an acceptable non-compete clause based on the standards of the DITTB and securing a request for exemption as may be necessary.

The DITTB review process allows us to continuously develop our franchise expertise and craft creative ways to ensure our clients’ protection. Behind our practice and our assistance is a steadfast commitment to the growth of the franchise industry, and we have successfully represented our clients’ interests before the DITTB, which has granted clearance and registration to several of our clients’ franchise agreements.