FRANCHISE AGREEMENT/BUSINESS PARTNERSHIP

A written contract or agreement between two or more parties by

which the Franchisor grants the Franchisee the right to engage in
the business of offering, selling or distributing goods or services
under a marketing plan/system/concept, for a certain
consideration.
o 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

Must contain all the mandatory provisions required by the

Intellectual Property Code (IPC). Not contain any of the prohibited
provisions under the IPC.

Are categorised as TECHNOLOGY TRANSFER ARRANGEMENTS

(TTAs). TTAs are defined in the Intellectual Property Code of the
Philippines as contracts or agreements that involve either:

 Transfer of systematic knowledge for the manufacture of a

product, the application of a process or rendering of a service,
including management contracts.

 Transfer, assignment or licensing of all forms of IP rights,

including the licensing of computer software (except computer
software developed for a mass market).

There are no specific laws governing franchising in the Philippines.

Franchise agreements are regulated by the applicable provisions of the:
INTELLECTUAL PROPERTY CODE (IPC)
 o Sections 871 and 882 of the IPC list prohibited and including franchise agreements. Such sections are intended
to prevent unfair competition and trade
1
SECTION 87. Prohibited Clauses. - Except in cases under Section 91, the following provisions o Failure to conform with said provisions would render the
shall be deemed prima facie to have an adverse effect on competition and trade: agreement unenforceable.
87.1. Those which impose upon the licensee the obligation to acquire from a specific source capital
goods, intermediate products, raw materials, and other technologies, or of permanently employing o Technology transfer arrangements (TTAs) are primarily
personnel indicated by the licensor;
regulated by the Documentation, Information, and
87.2. Those pursuant to which the licensor reserves the right to fix the sale or resale prices of the
Technology Transfer Bureau (DITTB), an agency under the
products manufactured on the basis of the license; Intellectual Property Office of the Philippines (IPOPHL). 
87.3. Those that contain restrictions regarding the volume and structure of production;
o Non-compete clauses have been found to violate section
87.4. Those that prohibit the use of competitive technologies in a non-exclusive technology transfer 87.9 of the Intellectual Property Code. However, the
agreement;
Director General of the Intellectual Property Office of the
87.5. Those that establish a full or partial purchase option in favor of the licensor; Philippines allowed non-compete clauses provided that the
duration is limited to one year from the termination of the
87.6. Those that obligate the licensee to transfer for free to the licensor the inventions or improvements agreement
that may be obtained through the use of the licensed technology;
o The franchise agreement may provide that, during the
87.7. Those that require payment of royalties to the owners of patents for patents which are not used; period of the agreement, the franchisee cannot divulge
confidential information or reproduce the Manual in any
87.8. Those that prohibit the licensee to export the licensed product unless justified for the protection of
the legitimate interest of the licensor such as exports to countries where exclusive licenses to way.
manufacture and/or distribute the licensed product(s) have already been granted;
87.15. Other clauses with equivalent effects. (Sec. 33-C (2), RA 165a)
87.9. Those which restrict the use of the technology supplied after the expiration of the technology
transfer arrangement, except in cases of early termination of the technology transfer arrangement due 2
SECTION 88. Mandatory Provisions. - The following provisions shall be included in voluntary
to reason(s) attributable to the licensee;
license contracts:

87.10. Those which require payments for patents and other industrial property rights after their
88.1. That the laws of the Philippines shall govern the interpretation of the same and in the event of
expiration, termination arrangement;
litigation, the venue shall be the proper court in the place where the licensee has its principal office;

87.11. Those which require that the technology recipient shall not contest the validity of any of the
88.2. Continued access to improvements in techniques and processes related to the technology shall
patents of the technology supplier;
be made available during the period of the technology transfer arrangement;

87.12. Those which restrict the research and development activities of the licensee designed to absorb
88.3. In the event the technology transfer arrangement shall provide for arbitration, the Procedure of
and adapt the transferred technology to local conditions or to initiate research and development
Arbitration of the Arbitration Law of the Philippines or the Arbitration Rules of the United Nations
programs in connection with new products, processes or equipment;
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
87.13. Those which prevent the licensee from adapting the imported technology to local conditions, or Philippines or any neutral country; and
introducing innovation to it, as long as it does not impair the quality standards prescribed by the
licensor;
88.4. The Philippine taxes on all payments relating to the technology transfer arrangement shall be
borne by the licensor. (n)
87.14. Those which exempt the licensor for liability for non-fulfilment of his responsibilities under the
technology transfer arrangement and/or liability arising from third party suits brought about by the use of
the licensed product or the licensed technology; and
  one or more entities from abusing their dominant
o If a franchise agreement contains provisions relating to the position by engaging in conduct that would
franchisee's use of the franchisor's registered trade mark, substantially prevent, restrict or lessen competition
the franchise agreement will need to be recorded with the
Bureau of Trade mark. Otherwise the provisions pertaining o Data Privacy Act of 2012
to the use of the trade mark will have no effect against third  protects individuals from unauthorised processing of
parties. personal information by regulating the collection,
recording, organisation, storage, updating or
CIVIL CODE modification, retrieval, consultation, use,
o Actions for remedies for breach, damages or recovery consolidation, blocking, erasure or destruction of
relating to franchise agreements are treated as regular civil personal data.
actions
o Bureau Order No. 10-24 Series of 2010 (Advisory on Due
CORPORATION CODE Diligence to be Undertaken by a Prospective Franchisee)
o Before it can conduct trade or business in the Philippines, a
foreign corporation must apply to the Securities and  Defines a franchise agreement as a written contract
Exchange Commission (SEC) for a licence to transact or agreement between two or more parties by which
business in the Philippines. a franchisor grants the franchisee the right to
engage in the business of offering, selling, or
RELEVANT SPECIAL LAWS distributing goods or services under a marketing
o While foreign corporations are generally governed in the plan, system or concept, for a certain consideration.
same manner as domestic corporations, the Retail Trade Unless otherwise provided, this right includes the
and Liberalisation Act prevents them from owning or use of a trade mark, service mark, trade
wholly owning a business below a certain amount of paid- name/business name, know-how, logo-type
up capital. advertising, or other commercial symbols associated
with a particular business.
o The Foreign Investment Negative List and the Foreign
Investments Act set out restrictions and prohibitions on  Advises potential franchisees to require the
foreign investors in relation to the sectors they can invest in franchisor to obtain a certificate of good standing
and how much they can invest. from the Securities and Exchange Commission, and
a certificate stating that the franchisor is a member
o The Philippine Competition Act prohibits: of any franchisor association and has no pending
 anti-competitive agreements; and cases against it
  Franchisees are also advised to consult any of the way because Philippine law prohibits foreign nationals and
following: foreign corporations from owning land in the Philippines
and from entering into certain sectors of the market
 A franchisor association.
 The SEC. USUAL PROCESS ON FRANCHISEE’S PART:
 The DTI or the nearest DTI regional/provincial
office. 1. Submit documents
 A certified franchise executive.  Letter of Intent
 A franchise consultant  Application Form (completely filled-out)
 Valid Government-Issued IDs
Types of Franchising:  Resume
 Target Site Location Details
1. PRODUCT DISTRIBUTION FRANCHISING
 is very much like a standard dealer-supplier relationship. 2. After the documents are submitted, the franchisor will reach out to the
Franchisees are allowed to use the franchisors’ trademarks and franchee to schedule a meeting and/or site inspection. In these meetings,
distribute their products, but in return, they must pay fees and franchisee will be interviewed and oriented on the details of the franchise. 
purchase a minimum amount of products.
3. Contract signing
2. BUSINESS FORMAT FRANCHISING  Franchisee to be contacted again if deemed qualified to be a
 the relationship between the two parties is much more complex franchisee. Review the contract thoroughly, and franchisee signs it
where there is also an emphasis on sharing business if there’s an agreement as to the terms and conditions.
methodologies, operating systems, and support. Depending on the
agreement, franchisees not only get the license to sell the
trademark products or services, but could also get access to the
business’s operating systems and a wide range of support on things
like site selection, training, quality control, and marketing. REPUTABLE FRANCHISE GROUPS:
 AFFI (Association of Filipino Franchisers, Inc.)
3. Other Methods [https://affi.com.ph/membership/our-members/]
 Conversion franchising, where an independent store owner in a  PFA (Philippine Franchise Association)
similar business converts his store into a franchise.  FIFA (Filipino International Franchise Association)
 Passive franchising, where the franchisee is interested in providing [http://verbandmanagement.net/fifa/members/]
capital but not in managing the franchise.
 Joint venture or master franchising agreements COMMON ISSUES
 International or overseas franchisors investing in the  Current Market Activity;
Philippines often choose to enter the Philippine market this  Franchising Regulatory Framework;
 Contractual Issues Relating To Franchising Agreements
o (Analysing Pre-Contract Disclosure Requirements,
Formalities, Parties' Rights And Obligations, Fees And
Payments, Term Of Agreement And Renewal, Termination
And Choice Of Law And Jurisdiction);
 Operations Manual;
 Liability Issues;
 Intellectual Property;
 Real Estate;
 Competition Law;
 Employment Issues;
 Dispute Resolution;
 Exchange Control And Withholding; And
 Proposals For Reform.

SUMMARY

1. As long as the requirements on Technology Transfer Agreements

under the Intellectual Property Code (Sections 87 and 88: refer to
footnote) are met, the Franchising Agreement will depend on the
contractual agreement between the Franchisor and the Franchisee.

2. There is no standard Franchising Agreement as contents therein

will depend on the commercial transaction and legal provisions that
the parties will agree on.

3. As a contract, the Franchising Agreement is subject to the laws and

rules that govern all contracts.