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Philippines: President inks executive order ordering the registration of franchise agreements involving MSMEs

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The President signed an Executive Order directing the registration with the DTI of franchise agreements involving MSMEs, as well as the establishment of a franchise registry.

In brief

On 12 May 2022, the President issued Executive Order No. 169 (“EO 169“), which seeks to intensify government efforts in strengthening the franchising industry and to help businesses, especially micro, small and medium enterprises (MSMEs), by developing a transparent and business-friendly environment, and promoting fair and equitable practices.

‘MSME’ refers to a micro, small or medium enterprise or any business activity or enterprise engaged in industry, agribusiness and/or services, whether as a single proprietorship, cooperative, partnership or corporation, whose total assets, inclusive of those arising from loans, but exclusive of the land on which the particular business entity’s office, plant and equipment are situated, must have value falling under the following categories:

i.    Micro: less than PHP 50,000

ii.   Cottage: PHP 50,001-PHP 500,000

iii.  Small: PHP 500,001-PHP 5,000,000

      Medium: PHP 5,000,001-PHP 20,000,000

Contents

  1. Recommended actions
  2. In more detail

Some of the notable requirements under EO 169 are the inclusion of minimum terms and conditions in franchise agreements involving MSME franchisees, the registration of such franchise agreements with the DTI, and the creation of an MSME Registry of Franchise Agreements.

EO 169 is now in effect following its publication on the Official Gazette last 16 May 2022.

Recommended actions

Franchisors who are currently in business with or intends to be in business with MSMEs as their franchisees are strongly encouraged to comply with EO 169 in order to avail of the incentives or benefits to be rolled out by the Philippine government in the future. Accordingly, franchisors must ensure that their franchise agreements with their MSME franchisees contain the minimum terms and conditions under the executive order, as well as timely register such franchise agreements with the DTI once the MSME Registry of Franchise Agreements is established.

Our firm is closely monitoring the implementation of EO 169, as well as the promulgation of its implementing rules and regulations by the DTI. We shall update this client alert in due course.

In more detail

Registration requirement

Under EO 169, franchisors are responsible for registering with the DTI their franchise agreements with MSME franchisees, provided that franchisors that are members of duly registered franchise associations are only required to register with the DTI their Standard Franchise Agreement, as well as execute an undertaking that all future franchise agreements with MSME franchisees shall incorporate the minimum terms and conditions enumerated in the executive order.

However, in the case of franchisors that are not members of any duly registered franchise association, they are required to register all franchise agreements entered into with MSME franchisees within 30 days from execution thereof.

Creation of the MSME Registry of Franchise Agreements

EO 169 also orders the DTI to create the MSME Registry of Franchise Agreements. Under the executive order, only franchise agreements entered into by and between a franchisor and an MSME franchisee, which are compliant with the minimum terms and conditions set forth in the executive order, may be registered in said registry.

Minimum terms and conditions

EO 169 provides for minimum terms and conditions of franchise agreements involving MSME franchisees, namely:

  • Name and description of the products or services under the franchise
  • Specific rights granted to the MSME franchisee, such as, but not limited to, the right to use the mark or any other intellectual property rights duly registered with the Intellectual Property Office of the Philippines
  • Full disclosure of any presigning, initial or recurring fees, such as, but not limited to, franchise fee, promotion fee, royalty fee, or any related type of fee that may be imposed on the MSME franchisee
  • Detailed responsibilities of the franchisor, which shall include the enumeration of the types and particulars of assistance and the submission of the franchise agreement to the DTI
  • Detailed responsibilities of the MSME franchisee
  • Nondiscrimination provisions
  • Duration of the franchise and the terms and conditions for renewal
  • Effects of and grounds for pretermination, termination or expiration of the franchise agreement
  • Provision on ‘cooling off’ period where the MSME franchisee is given the option to terminate the agreement
  • Mechanism for dispute resolution, which shall include a stipulation that parties may seek voluntary mediation under Republic Act No. 9285, otherwise known as the Alternative Dispute Resolution Act
  • Remedies of the parties in case of any violation of the terms and conditions of the franchise agreement

While the inclusion of the foregoing terms and conditions is not mandatory in the case of non-MSME franchisees, franchisors may consider the same as best practice clauses and incorporate them in their respective franchise agreements.

Note that the inclusion of such terms and conditions in the franchise agreement may entitle the franchisor to incentives or benefits to be provided by the Philippine government. As of this writing, however, these incentives or benefits have yet to be rolled out to the public, but the DTI is tasked with the formulation of the same pursuant to EO 169.

Effect on existing franchise agreements

EO 169 clarifies that franchisors with existing franchise agreements with MSME franchisees are required to comply with both the inclusion of the foregoing minimum terms and conditions and the registration requirements upon renewal of their franchise agreements with their MSME franchisees.

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Author

Divina Ilas-Panganiban is a partner in Quisumbing Torres’ Intellectual Property, Data and Technology Practice Group and co-heads the Technology, Media & Telecommunications (TMT) Industry Group. She participates in initiatives of Baker & McKenzie International of which Quisumbing Torres is a member firm. She is a member of Baker & McKenzie International's Asia Pacific TMT Steering Committee. She currently serves as the Vice-President and Director of the Philippine Chapter of the Licensing Executives Society International, the Chairperson of the Committee on Intellectual Property Rights, The American Chamber of Commerce of the Philippines, and the Chairperson of the Committee on Intellectual Property Rights of the European Chamber of Commerce. Divina heads the Subcommittee for East Asia and the Pacific of the Unreal Campaign of the International Trademarks Association (INTA) and is a Certified Information Privacy Manager by the International Association of Privacy Professionals (IAPP).

Author

Michael Macapagal is a partner in Quisumbing Torres' Dispute Resolution Practice Group. He is a member of the Energy, Mining & Infrastructure Industry Group, the Compliance and Competition focus groups. He has 13 years of legal practice involving arbitration, construction, healthcare disputes, compliance, civil and criminal litigation, labor law, intellectual property law, public private partnerships, project finance and joint venture matters. Michael received the sixth highest score in the 2008 Philippine bar examinations. He has been recently cited as a Next Generation Partner in Dispute Resolution as well as Real Estate and Construction by The Legal 500 Asia Pacific for 2020 and 2022. He is also the Deputy Secretary General for Case Administration of the Philippine International Center for Conflict Resolution (PICCR). Michael teaches civil and criminal law courses at leading Philippine law schools. He is also a regular lecturer on international arbitration and competition law at the Mandatory Continuing Legal Education (MCLE) sessions hosted by the University of the Philippines Law Center. He has also acted as speaker and moderator at various arbitration-related and construction-related events. He co-authored the Philippine chapter of Baker McKenzie's Global Guide to Competition Litigation and Chambers Construction 2021 Guide. Previously, he was an associate counsel at the Singapore International Arbitration Centre and an associate solicitor at the Office of the Solicitor General. As an associate solicitor, he was part of teams that assisted government agencies in right-of-way acquisitions for expressways and other infrastructure projects. He was also part of teams that assisted in arbitrations involving the Philippine government.

Author

Reena Mitra-Ventanilla is a partner in Quisumbing Torres’ Intellectual Property, Data and Technology Practice Group. She is a member of the Consumer Goods & Retail and Financial Institutions Industry Groups. She has 13 years of experience handling intellectual property and technology matters. She is currently the corporate secretary of the Philippine Chapter of the Licensing Executives Society International and the assistant corporate secretary of the Philippine Franchise Association. Reena is recently cited as a Next Generation Partner in Intellectual Property by the Legal 500 Asia Pacific 2021.

Author

Jose Angelo Tiglao, CIPM, CIPP/E, CIPT, is an associate with the Intellectual Property, Data and Technology Practice Group as well as the Consumer Goods and Retail Industry Group at Quisumbing Torres. He is a Certified Information Privacy Professional (Europe), a Certified Information Privacy Manager, and a Certified Information Privacy Technologist by the International Association of Privacy Professionals (IAPP). He is currently the Young Privacy Professional of the IAPP KnowledgeNet Philippine Chapter and previously served as the Assistant Corporate Secretary of the Licensing Executives Society Philippines. He is also actively engaged in teaching several law subjects in the De La Salle University College of Law.

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