6. Licensing

A. Voluntary Licensing

To encourage the transfer and dissemination of technology, prevent or control practices and conditions that may constitute an abuse of intellectual property rights having an adverse effect on competition and trade.

All technology transfer arrangements must comply with the provisions of the IP Code¹.

Prohibited Clauses

The following provisions shall be deemed prima facie to have an adverse effect on competition and trade:

• 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 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 license;
• Those that contain restrictions regarding the volume and structure of production;
• Those that prohibit the use of competitive technologies in a non-exclusive technology transfer arrangement;
• Those that establish full or partial purchase option in favor of the licensor;
• Those that require payment of royalties to the owners of patents for patents which are not used;
• 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 manufacture and/or distribute the licensed product(s) have already been granted;
• 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 to reason(s) attributable to the licensee;
• Those which require payments for patents and other industrial property rights after their expiration or termination of the technology transfer arrangement;
• Those which require that the technology recipient shall not contest the validity of any of the patents of the technology supplier;
• Those which restrict the research and development activities of the licensee designed to absorb and adapt the transferred technology to local conditions or to initiate research and development programs in connection with new products, processes or equipment;
• Those which prevent the licensee from adapting the imported technology to local conditions, or introducing innovation to it, as long as it does not impair the standards prescribed by the licensor; and
• Those which exempt the licensor from liability for non-fulfillment 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.
• Other clauses with equivalent effects.

Mandatory Provisions

The following provisions shall be included in all voluntary license contracts:

• That the laws of the Philippines shall govern the interpretation of the agreement and in the event of litigation, the venue shall be the proper court in the place where the licensee has its principal office;
• That continued access to improvements in techniques and processes related to the technology shall be made available during the period of the technology transfer arrangement;
• That, in the event the technology transfer arrangement shall provide for arbitration, the Procedure of Arbitration Law of the Philippines or the Arbitration Law of the United Nations Commission on International Trade Law (UNCITRAL) or the Rules of Conciliation and Arbitration of the International Chamber of Commerce shall apply and the venue of arbitration shall be the Philippines or any neutral country; and
• That the Philippine taxes on all payments relating to the technology transfer arrangement shall be borne by the licensor.

Rights of Licensor

Absent a contrary provision in technology transfer arrangement, the grant of a license shall not prevent the licensor from granting further licenses to third persons nor from exploiting the subject matter of the technology transfer arrangement himself.

Rights of Licensee

The licensee shall be entitled to exploit the subject matter of the technology transfer arrangement during the whole term of the technology transfer arrangement.

Non-Registration

Technology transfer arrangements that conform with the previous requirements need not be registered with the Documentation, Information and Technology Transfer Bureau (DITTB). Nonconformance, however, shall automatically render the technology transfer arrangement unenforceable, unless it is approved and registered with the DITTB under the exceptional-case procedure in Sections 91 and 92 of RA 8293.

Exceptional Cases

Non-conformance with the requirements in a voluntary licensing contract may be allowed where, after evaluation by the DITTB, substantial benefits will accrue to the economy such as in the following exceptional or meritorious cases:

• High technology content,
• Increase in foreign exchange earnings,
• Employment generation,
• Regional dispersal of industries and/or,
• Substitution with or use of local raw materials, or
• Registered companies with pioneer status.

B. Compulsory Licensing

The Director of Legal Affairs may grant license to exploit patented invention, even without agreement of patent owner, in favor of any person who has shown his capability to exploit invention, under any of the following circumstances:

• National emergency or other circumstances of extreme urgency; or
• Where public interest, in particular, national security, nutrition, health or development of other vital sectors of national economy as determined by the appropriate agency of the Government, so requires; or
• Where a judicial or administrative body has determined that manner of exploitation by patent owner or his licensee is anti-competitive; or
• In case of public non-commercial use of patent by patentee, without satisfactory reason; or
• If patented invention is not being worked in Philippines on commercial scale, although capable of being worked, without satisfactory reason: Provided, that importation of patented article shall constitute working or using the patent; or
• Where the demand for patented drugs and medicines is not being met to an adequate extent and on reasonable terms, as determined by the Secretary of the Department of Health. (Sec. 96, IP Code)²

Use of Invention by Government

A Government agency or third person authorized by the Government may exploit the invention even without agreement of the patent owner where:

• The public interest, in particular, national security, nutrition, health or the development of other sectors, as determined by the appropriate agency of the government, so requires; or
• A judicial or administrative body has determined that the manner of exploitation, by the owner of the patent or his licensee is anti-competitive. (Sec. 74.1, IP Code)³

Terms and Conditions of the Compulsory License

• The scope and duration of such license shall be limited to the purpose for which it was authorized;
• The license shall be non-exclusive;
• The license shall be non-assignable, except with that part of the enterprise or business with which the invention is being exploited;
• Use of the subject matter of the license shall be devoted predominantly for the supply of the Philippine market;

Note: This shall not apply where the grant of the license is based on the ground that the patentee’s manner of exploiting the patent is determined by judicial or administrative process to be anti-competitive.

• The license may be terminated upon proper showing that circumstances which led to its grant have ceased to exist and are unlikely to recur;
• The patentee shall be paid adequate remuneration taking into account the economic value of the grant or authorization. (Sec. 100, IP Code)⁴

Amendment, Cancellation, Surrender of Compulsory License

Upon request of patentee, or licensee, Director of Legal Affairs may amend decision granting compulsory license, upon proper showing of new facts or circumstances justifying such amendment; upon request of the patentee, the Director may cancel compulsory license if:

• Ground for grant of compulsory license no longer exists and is unlikely to recur;
• Licensee has neither begun to supply domestic market nor made serious preparation therefore; or
• Licensee not complied with prescribed terms of license. (Sec. 101, IP Code)⁵

Licensee’s Exemption from Liability

Any person who works a patented product, substance and/or process under a compulsory license, shall be free from any liability for infringement. In case of voluntary licensing, it must be proven that no collusion with licensor existed. This is without prejudice to rightful patent owner to recover from licensor whatever he may receive as royalties under the license. (Sec. 102, IP Code)⁶