{"id":114130,"date":"2025-10-09T13:37:41","date_gmt":"2025-10-09T13:37:41","guid":{"rendered":"https:\/\/my.legal500.com\/guides\/?post_type=comparative_guide&#038;p=114130"},"modified":"2025-10-09T13:37:41","modified_gmt":"2025-10-09T13:37:41","slug":"philippines-franchise-licensing","status":"publish","type":"comparative_guide","link":"https:\/\/my.legal500.com\/guides\/chapter\/philippines-franchise-licensing\/","title":{"rendered":"Philippines: Franchise &amp; Licensing"},"content":{"rendered":"","protected":false},"template":"","class_list":["post-114130","comparative_guide","type-comparative_guide","status-publish","hentry","guides-franchise-licensing","jurisdictions-philippines"],"acf":[],"appp":{"post_list":{"below_title":"<div class=\"guide-author-details\"><span class=\"guide-author\">Cruz Marcelo &amp; Tenefrancia<\/span><span class=\"guide-author-logo\"><img src=\"https:\/\/my.legal500.com\/guides\/wp-content\/uploads\/sites\/1\/2019\/03\/Logo-Full-Color-Vertical.png\"\/><\/span><\/div>"},"post_detail":{"above_title":"<div class=\"guide-author-details\"><span class=\"guide-author\">Cruz Marcelo &amp; Tenefrancia<\/span><span class=\"guide-author-logo\"><img src=\"https:\/\/my.legal500.com\/guides\/wp-content\/uploads\/sites\/1\/2019\/03\/Logo-Full-Color-Vertical.png\"\/><\/span><\/div>","below_title":"<span class=\"guide-intro\">This country specific Q&amp;A provides an overview of Franchise &amp; Licensing laws and regulations applicable in Philippines<\/span><div class=\"guide-content\"><div class=\"filter\">\r\n\r\n\t\t\t\t<input type=\"text\" placeholder=\"Search questions and answers...\" class=\"filter-container__search-field\">\r\n\t\t\t<\/div>\r\n\r\n\t\t\t\r\n\r\n\r\n\t\t\t<ol class=\"custom-counter\">\r\n\r\n\t\t\t\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is there a legal definition of a franchise and, if so, what is it?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Executive Order (\u201cEO\u201d) No. 169 defines \u201cfranchise\u201d as \u201ca 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 franchisor; (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 franchisor or relating to the franchisor; (iii) the franchisor possesses the right to control the administration over the franchisee&#8217;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.\u201d<\/p>\n<p>Notably, EO No. 169 specifically applies to franchises involving micro, small and medium enterprises (\u201cMSME\u201d). Nevertheless, this definition is conceptually broad enough to encompass any type of franchise.<\/p>\n<p>On the other hand, DTI Bureau Order No. 10-24, or the <em>Advisory on Due Diligence to be Undertaken by a Prospective Franchisee<\/em>, also sheds light on the concept of a \u201cfranchise\u201d by defining a \u201cfranchise agreement\u201d. Particularly, it describes a \u201cfranchise agreement\u201d as \u201ca written contract or agreement between two or more parties by which a Franchisor grants the Franchisee right to engage in the business of offering, selling, or distributing goods or services under a marketing plan\/system\/concept, 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.\u201d<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any requirements that must be met prior to the offer and\/or sale of a franchise? If so, please describe and include any potential consequences for failing to comply.<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Currently, there are no laws or rules that specifically regulate the requirements for the offer and\/or sale of a franchise.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any registration requirements for franchisors and\/or franchisees? If so, please describe them and include any potential consequences for failing to comply. Is there an obligation to update existing registrations? If so, please describe.<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Franchisors and franchisees which are juridical entities must be duly registered in their origin country to have the legal capacity to enter into franchise agreements. In the Philippines, domestic corporations must be registered with the Philippine Securities and Exchange Commission (\u201cSEC\u201d) and comply with post-registration requirements. Other than the foregoing, there are no specific registration requirements for franchisors and franchisees.<\/p>\n<p>With respect to franchise agreements, there are registration requirements which differ depending on whether it involves MSMEs as franchisees.<\/p>\n<p>As a general rule, under the Intellectual Property Code of the Philippines (\u201cIP Code\u201d), Technology Transfer Arrangements (\u201cTTA\u201d), such as franchise agreements, need not be registered with the Documentation, Information and Technology Transfer Bureau (\u201cDITTB\u201d) of the Philippine Intellectual Property Office (\u201cIPO\u201d) if they comply with the provisions on voluntary licensing, particularly the prohibited and mandatory clauses under Sections 87 and 88 of the IP Code.<\/p>\n<p>Relevantly, the provisions under Sections 87 and 88 of the IP Code apply only when the agreement involves a TTA which are broadly defined as \u201ccontracts 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\u201d (IP Code, Section 4.2).<\/p>\n<p>Rule 1 (n) of IPO Memorandum Circular 2020-002 further qualifies the definition of a TTA to those that involves the transfer of \u201csystematic knowledge.\u201d The term \u201csystematic knowledge\u201d is not specifically defined under local regulation or jurisprudence and remains subject to interpretation.<\/p>\n<p>Under Section 91 of the IP Code, an exemption from the application of Sections 87 and 88 of the IP Code may be allowed upon application with the DITTB and only in exceptional and meritorious cases where substantial benefits will accrue to the economy.<\/p>\n<p>If the franchisee is an MSME, the franchise agreement must meet the minimum terms and conditions as provided under Section 2 of EO No. 192 and be registered with the Philippine Department of Trade and Industry (\u201cDTI\u201d). Further, the said EO provides that it is the obligation of the franchisor to register the franchise agreement with the DTI, as well as execute an undertaking that all future franchise agreements with MSME franchisees shall incorporate the minimum terms and conditions prescribed under the said EO.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any disclosure requirements (franchise specific or in general)? If so, please describe them (i.e. when and how must disclosure be made, is there a prescribed format, must it be in the local language, do they apply to sales to sub-franchisees) and include any potential consequences for failing to comply. Is there an obligation to update and\/or repeat disclosure (for example in the event that the parties enter into an amendment to the franchise agreement or on renewal)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>DTI issued Bureau Order No. 10-24 which advises the prospective franchisee 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.<\/p>\n<p>Notably, the issuance is merely an advisory and does not impose an obligation on the part of the franchisor to provide Disclosure Information. Neither does it indicate a prescribed manner or format by which the information should be disclosed to the requesting franchisee.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">If the franchisee intends to use a special purpose vehicle (SPV) to operate each franchised outlet, is it sufficient to make disclosure to the SPVs\u2019 parent company or must disclosure be made to each individual SPV franchisee?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Disclosure by the franchisor to the franchisee is currently not required under Philippine law [cf. item 3].<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What actions can a franchisee take in the event of mis-selling by the franchisor? Would these still be available if there was a disclaimer in the franchise agreement, disclosure document or sales material?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>In the absence of a standalone franchise law in the Philippines, the general law on contracts shall apply. Thus, if the consent of the franchisee is vitiated by mistake, violence, intimidation, undue influence or fraud, the franchisee may have the contract annulled <em>(Philippine Civil Code, Article 1390)<\/em>, despite a disclaimer in the franchise agreement, disclosure document or sales material. However, if the franchisee has been made aware of facts and circumstances which requires the conduct further due diligence, it may be construed as implied acquiescence or consent.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Would it be legal to issue a franchise agreement on a non-negotiable, \u201ctake it or leave it\u201d, basis?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>It is legal to issue a franchise agreement on a non-negotiable, \u201ctake it or leave it\u201d basis. A contract of adhesion, wherein one party imposes a ready-made form of contract on the other, is as binding as ordinary contracts because the party who adheres to the contract is free to reject it entirely. Nevertheless, its validity or enforceability is dependent on the peculiar circumstances and the situation of the parties concerned <em>(<strong>Di<\/strong><\/em><strong><em>o v. St. Ferdinand Memorial Park, Inc.<\/em><\/strong><em>, <\/em><em>G.R. No. 169578, 2006)<\/em>.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">How are trademarks, know-how, trade secrets and copyright protected in your country?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Trademark rights and protection shall be acquired through registration made validly in accordance with the provisions of the IP Code (IP Code, Section 122). However, trade names are protected, even prior to or without registration, against any unlawful act committed by third parties (IP Code, Section 165). Meanwhile, literary and artistic works are protected by copyright from the moment of their creation even without registration (IP Code, Section 172). Similarly, undisclosed information, which may include trade secrets and know how, are likewise granted protection even without registration (IP Code, Section 4).<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any franchise specific laws governing the ongoing relationship between franchisor and franchisee? If so, please describe them, including any terms that are required to be included within the franchise agreement.<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>There are currently no franchise-specific laws or government agencies exclusively regulating the ongoing relationship between the franchisor and the franchisee. The relationship between franchisor and franchisee is governed by the Philippine Civil Code provisions on contracts, the IP Code, and EO No. 192 for MSME franchisees. Other notable laws include the Philippine Competition Act (\u201cPCA\u201d), which codifies the competition policy of the Philippines; 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 labour 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.<\/p>\n<p>The franchise industry in the Philippines self-polices its own ranks through franchise associations, such as the Philippine Franchise Association (\u201cPFA\u201d). 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.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any aspects of competition law that apply to the franchise transaction (i.e. is it permissible to prohibit online sales, insist on exclusive supply or fix retail prices)? If applicable, provide an overview of the relevant competition laws.<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Section 15 of the PCA generally prohibits entities from abusing their dominant position by engaging in conduct that would substantially prevent, restrict or lessen competition. Particularly, the PCA prohibits the imposition of restrictions on the contract for sale of goods or services but also identifies franchising, licensing, exclusive merchandising and distributorship agreements, which give each party the right to unilaterally terminate the agreement, as permissible.<\/p>\n<p>Notably, the PCA must be read in conjunction with the IP Code which prohibits clauses expressly enumerated under Section 87 and other clauses which similarly have anti-competitive effects. These clauses are considered <em>prima facie <\/em>to have an adverse effect on competition and trade.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are in-term and post-term non-compete and non-solicitation clauses enforceable and are there any limitations on the franchisor's ability to impose and enforce them?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>In-term and post-term non-compete and non-solicitation clauses are generally enforceable in the Philippines and are not necessarily void for being a restraint of trade as long as there are reasonable limitations as to time, trade, and place, which may be assessed on a case-to-case basis.<\/p>\n<p>The IPO has previously allowed non-compete clauses for a period limited to one (1) year from the termination of the agreement. However, in <strong><em>Blue Sky Holdings Limited v. DITTB<\/em><\/strong>, IPO Appeal No. 05-2012-0001 (30 April 2013), the IPO ruled that a non-compete clause for a period of 2 years following the termination of the franchise agreement is a prohibited anti-competitive clause. Notably, however, the IPO stated that, while a request for exemption may be granted by the DITTB on a case-to-case basis, the franchisor failed to provide evidence of substantial benefits that will accrue to the economy as a result of the agreement.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is there an obligation (express or implied) to deal in good faith in franchise relationships?  If so, what practical effects does this have on the relationship between franchisor and franchisee?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Article 1159 of the Philippine Civil Code expressly states that \u201cobligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.\u201d If one of the parties acts in bad faith, such party is liable for damages <em>(Philippine Civil Code, Article 1170)<\/em>.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any employment or labour law considerations that are relevant to the franchise relationship? Is there a risk that the staff of the franchisee could be deemed to be the employees of the franchisor? What steps can be taken to mitigate this risk?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Philippine jurisprudence uses the four-fold test in determining if there is an employer-employee relationship between parties, which considers the: (1) selection and engagement of the employee; (2) payment of wages; (3) power of dismissal; and (4) power of control.<\/p>\n<p>The power to control the employee is the most important factor and pertains not only to the result of the work to be done but also the means and methods by which the same is to be accomplished.<\/p>\n<p>The existence of employer-employee relationship is determined by law and not by contract. Thus, if the four-fold test is satisfied, there is a risk that the staff of the franchisee could be deemed as the employees of the franchisor. To mitigate this risk, it must be clear from the franchise agreement that the means or methods to be employed in attaining the mutually desired results by the parties must not be dictated by the franchisor.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is there a risk that a franchisee could be deemed to be the commercial agent of the franchisor? What steps can be taken to mitigate this risk?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Article 1868 of the Philippine Civil Code defines the contract of agency as one whereby a person binds himself to render some service or to do something in representation for or on behalf of another with the consent or authority of the latter. Thus, as agency is principally a matter of contract, it must be clear from the franchise agreement that the franchisee is not an agent of the principal.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any laws and regulations that affect the nature and payment of royalties to a foreign franchisor and\/or how much interest can be charged? Are there any requirements for payments in connection with the franchise agreement to be made in the local currency?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>There are currently no specific laws and regulations that affect the nature and payment of royalties to a foreign franchisor. As to the interest, Article 2209 of the Philippine Civil Code states that if the obligation consists in the payment of a sum of money, and the debtor incurs in the delay, the interest shall be what is agreed upon by the parties, and in the absence of stipulation, the legal interest, which is 6% per annum. Based on the foregoing, the interest will be what is stipulated in the franchise agreement.<\/p>\n<p>There are currently no laws or regulations that potentially hinder the payment of franchise fees in foreign currency. Generally, monetary obligations in the Philippines must be settled in Philippine currency which is legal tender in the Philippines, unless the contracting parties stipulate that foreign currencies may be used for settling obligations (Section 1, Republic Act No. 8183).<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is it possible to impose contractual penalties on franchisees for breaches of restrictive covenants etc.? If so, what requirements must be met in order for such penalties to be enforceable?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Article 1226 of the Philippine Civil Code permits parties to impose contractual penalties for breach of contract. In such case, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary.<\/p>\n<p>Generally, the parties 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. In case of the imposition of interest as part of the contractual penalty, the same must be in accordance with usury laws. Since the effectivity of the Usury Law is suspended, the lender and borrower may agree on the interest, provided that the same is not unconscionable.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What tax considerations are relevant to franchisors and franchisees? Are franchise royalties subject to withholding tax?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p><em><u>Value-Added Tax (\u201cVAT\u201d)<\/u><\/em><\/p>\n<p>The Philippine National Internal Revenue Code, as amended (\u201cNIRC\u201d) imposes a VAT equivalent to 12% of gross receipts derived from the sale, barter, exchange or lease of goods or properties. The licensor is liable to pay the VAT if such licensor transfers or leases the right to use intellectual property in the course of trade or business. The transaction is subject to VAT irrespective of the place where the license agreement is executed provided that the property is leased or used in the Philippines.<\/p>\n<p><em><u>Final Tax on Royalties<\/u><\/em><\/p>\n<p>The NIRC also imposes a final tax on royalties, the rate of which depends on the taxpayer involved, <em>i.e.<\/em>, an individual, a non-resident alien not engaged in trade or business in the Philippines, a domestic corporation, and a non-resident foreign corporation.<\/p>\n<p>Additionally, it is mandatory that the Philippine taxes relating to the same be borne by the licensor pursuant to Section 88.4 of the IP Code.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">How is e-commerce regulated and does this have any specific implications on the relationship between franchisor and franchisee?  For example, can franchisees be prohibited or restricted in any way from using e-commerce in their franchise businesses?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The specific terms in franchise\/license agreements in relation to e-commerce are subject to the agreement of the parties, provided that such terms are not contrary to law, morals, good customs, public order, or public policy. Thus, parties may stipulate whether using e-commerce in the franchise business is allowed or prohibited. In any event, if the parties opt to allow using e-commerce in franchise business, it shall be subject to regulatory requirements. The Internet Transactions Act (\u201cITA\u201d) outlines the obligations of e-commerce platforms, online sellers, and online customers. Thus, if the franchise business also involves the use of e-commerce platforms, it must comply with the ITA, including the responsibilities of an online merchant, such as procuring the necessary permits for regulated products and ensuring that the products delivered to the customer are complete and their quality, type, and condition are as advertised. Notably, the ITA has extraterritorial application. Thus, a person or entity who engages in e-commerce in the Philippine market, shall be subject to applicable Philippine laws and regulations and cannot evade legal liability in the Philippines despite lack of legal presence in the country.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What are the applicable data protection laws and do they have any specific implications for the franchisor\/franchisee relationship?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>With regard to data protection relevant to the franchisor-franchisee relationship, Section 4(g) of the IP Code provides that \u201cintellectual property rights\u201d includes the protection of undisclosed information such as client databases. In terms of non-disclosure and confidentiality obligations, the parties are generally free to stipulate on the specific terms and periods in the contract. A non-disclosure obligation may also be imposed on the licensee following termination of the licensing agreement, as there is no legislative prohibition on the matter.<\/p>\n<p>Additionally where personal information is obtained by the franchisor or franchisee, such as from suppliers, distributors, or customers, the provisions under the DPA regarding the processing and storage of personal information must be complied with.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is the franchisor permitted to restrict the transfer of (a) the franchisee's rights and obligations under the franchise agreement or (b) the ownership interests in the franchisee?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>There are no existing laws restricting the transfer of the franchisee\u2019s rights and obligations under the franchise agreement and the franchisee\u2019s ownership interest. The same is subject to the agreement of the parties provided that they are not contrary to law, morals, good customs, public order, or public policy.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Does a franchisee have a right to request a renewal on expiration of the initial term? In what circumstances can a franchisor refuse to renew a franchise agreement? If the franchise agreement is not renewed or it if it terminates or expires, is the franchisee entitled to compensation? If so, under what circumstances and how is the compensation payment calculated?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Grounds for termination and procedural requirements, including matters such as survival of terms, extension or renewal of the agreement, filing requirements or other termination formalities, are subject to the agreement of the parties.<\/p>\n<p>An agreement can be terminated on the ground of default, and the parties are free to stipulate on what are deemed 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 PCA provides that franchising, licensing, exclusive merchandising and distributorship agreements which give each party the right to unilaterally terminate the agreement are permissible.<\/p>\n<p>In case of insolvency, applying Section 57 of the Financial Rehabilitation and Insolvency Act of 2010, a license cannot be unilaterally terminated on the ground of mere insolvency of the licensee or licensor and will remain valid and effective despite a subsequent declaration of the insolvency of either or both parties.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any mandatory termination rights which may override any contractual termination rights? Is there a minimum notice period that the parties must adhere to?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>As discussed in item 19 above, the grounds for termination and procedural requirements are subject to the agreement of the parties.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any intangible assets in the franchisee\u2019s business which the franchisee can claim ownership of on expiry or termination, e.g. customer data, local goodwill, etc.<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Post-termination or post-expiry terms are generally subject to the agreement of the parties, provided that such terms must not be contrary to law, morals, good customs, public order, or public policy. However, the IP Code provides that clauses which restrict the use of the technology supplied after the expiration of the agreement are prohibited, except in cases of early termination of the technology transfer arrangement due to reason(s) attributable to the licensee.<\/p>\n<p>Moreover, pursuant to the standard confidentiality clauses in franchise\/license agreements, trade secrets and other confidential information, which may include customer data, are not retained by the franchisee upon expiration or termination of the franchise\/license agreement.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is there a national franchising association? Is membership required? If not, is membership commercially advisable? What are the additional obligations of the national franchising association?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>As stated in item 9 above, the PFA is a franchise association in the Philippines where membership is purely voluntary. Nevertheless, membership in the PFA is commercially advisable since it adds credibility to the franchise business and guarantees the franchise\u2019s clientele that it adheres to the Fair Franchising Standards implemented by the PFA and adhered to by its members. Further, it gives the business a platform for expansion opportunities and can provide support to the business in case of issues relevant to the business\u2019 sector.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are foreign franchisors treated differently to domestic franchisors? Does national law\/regulation impose any debt\/equity restrictions? Are there any restrictions on the capital structure of a company incorporated in your country with a foreign parent (thin capitalisation rules)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Foreign equity ownership is restricted or limited as enumerated in the Foreign Investment Negative List (\u201cNegative List\u201d) issued pursuant to the Foreign Investment Act, as amended, which periodically cover investments areas\/activities which are open to foreign investors and\/or reserved to Filipino nationals. The maximum amount of equity that can be held by a foreign national in a corporation will therefore depend on the nature of business activity that it will engage in.<\/p>\n<p>If the franchisor is a branch office or a domestic corporation which will have foreign ownership that exceeds 40% of its outstanding capital stock, the minimum inward remittance or paid-up capital in said entity should be at least US$200,000.00 or its equivalent, provided that the line of business of the entity does not fall under any of the nationalized activities under the Negative List. Under the\u00a0 most recently issued list, the business of operating a franchise is not among the nationalized or partly-nationalized activities in the Philippines.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Must the franchise agreement be governed by local law?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Under the IP Code, it is mandatory for the agreement to provide that the laws of the Philippines shall govern the interpretation of the same and in the event of litigation, the venue shall be the proper court in the place where the licensee has its principal office. Otherwise, the franchise agreement will be deemed unenforceable in the Philippines.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What dispute resolution procedures are available to franchisors and franchisees? Are there any advantages to out of court procedures such as arbitration, in particular if the franchise agreement is subject to a foreign governing law?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The IP Code requires that, in the event the agreement shall provide for arbitration, the Procedure of Arbitration of the Arbitration Law of the Philippines, the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL) or the Rules of Conciliation and Arbitration of the International Chamber of Commerce (ICC) shall apply, and the venue of arbitration shall be the Philippines or any neutral country (see Section 88).<\/p>\n<p>Resort to dispute resolution such as arbitration would be more advantageous due to its efficient procedure. Additionally, the parties are free to stipulate on the terms of the arbitration clause, such as the number of arbitrators and the language of the proceedings, as long they are consistent with the arbitration law agreed upon by the parties.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Must the franchise agreement and disclosure documents be in the local language?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>There is no legal requirement in the Philippines for an agreement to be drafted in a certain language, but in practice, most commercial documents are in English. However, the document should be written or translated into English if it shall be submitted as evidence before the local courts (Rule 132, Section 33, Revised Rules of Evidence). Moreover, if an agreement which is not in English is to be submitted for recordal or registration with the IPO, it must also be accompanied by an English translation.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is it possible to sign the franchise agreement using an electronic signature (rather than a wet ink signature)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Contracts shall be obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present. Moreover, the use of electronic signatures is valid and recognized under the E-Commerce Act. However, there is still no jurisprudence where the due execution or authenticity of a digitally-signed contract is in issue.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Do you foresee any significant commercial or legal developments that might impact on franchise relationships over the next year or so?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Apart from the IPO, another agency involved in the regulation of franchise and license agreements in the Philippines is the PCC. At present, the review of franchise and license agreements are done by the IPO, particularly the DITTB, including the determination of whether the agreement has anti-competitive effects. \u00a0There are discussions on the transfer of their review from the IPO to the PCC, but it has yet to be formalized into a bill. If codified into law, it would have an impact on franchise relationships since the transfer would entail compliance with a new set of stricter regulations that the PCC would enforce.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\r\n<div class=\"word-count-hidden\" style=\"display:none;\">Estimated word count: <span class=\"word-count\">4569<\/span><\/div>\r\n\r\n\t\t\t<\/ol>\r\n\r\n<script type=\"text\/javascript\" src=\"\/wp-content\/themes\/twentyseventeen\/src\/jquery\/components\/filter-guides.js\" async><\/script><\/div>"}},"_links":{"self":[{"href":"https:\/\/my.legal500.com\/guides\/wp-json\/wp\/v2\/comparative_guide\/114130","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/my.legal500.com\/guides\/wp-json\/wp\/v2\/comparative_guide"}],"about":[{"href":"https:\/\/my.legal500.com\/guides\/wp-json\/wp\/v2\/types\/comparative_guide"}],"wp:attachment":[{"href":"https:\/\/my.legal500.com\/guides\/wp-json\/wp\/v2\/media?parent=114130"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}