IPOPHL Issues Revised Rules on Voluntary Licensing

by Ma. Sophia Editha Cruz-Abrenica and Glaiza Narvacan
The Philippine Intellectual Property Code (“IP Code”) is clear in its intention to encourage technology transfer and prevent or control practices and conditions that may amount to an abuse of intellectual property rights, which will in turn have adverse effects on competition and trade (Sec. 85, IP Code). In this regard, the IP Code devotes a whole chapter on voluntary licensing, particularly Sections 85-92, which provide requirements that technological transfer arrangements should conform to. For further guidance, the Revised Rules and Regulations on Voluntary Licensing or IPOPHL Memorandum Circular No. 2020-002 (“Revised Rules”), was recently issued and made significant changes and clarifications to the 1998 rules. 
Technology Transfer Arrangements (“TTA”) is defined in the Revised Rules as follows: 
“...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. The transfer, assignment or licensing of intellectual property rights will be considered a technology transfer arrangement only if it involves the transfer of systematic knowledge.” [Emphasis supplied]
It must be emphasized that the above definition now explicitly requires that the transfer should involve the transfer of systematic knowledge in order to be considered a TTA. 
As a general rule, TTAs that do not contain any prohibited clauses (Section 87, IP Code) and has all the mandatory provisions (Section 88, IP Code) need not be registered with the Documentation, Information and Technology Transfer Bureau of the IPO (DITTB) also named as the Innovation Bureau. Non-conformance to any of the provisions in Sections 87 and 88 will render the TTA unenforceable unless the DITTB grants an exemption to an application therefor and the TTA is approved and registered with the DITTB. 
The prohibited clauses, which are elaborated in Section 87 of the IP Code and Rule 2 of the Revised Rules, are as follows: 
  1. Tie-in Purchase
  2. Price Fixing
  3. Restriction on Production Volume and Structure
  4. Prohibition on the Use if Competitive Technology in Non-Exclusive Agreement
  5. Full or Partial Purchase Option
  6. Free Grantback
  7. Payment for Unused Patents
  8. Export Restriction
  9. Restriction to Use the Technology after Term 
  10. Payment for Expired Patents
  11. Non-contestability of Patents
  12. Research & Development Restriction
  13. Adaptation or Innovation Restriction
  14. Hold Harmless
  15. 15Other Clauses with Equivalent Effects 

On the other hand, the following four mandatory provisions must be present in a TTA as required in Section 88 of the IP Code as well as Rule 3 of the Revised Rules: 
  1. Governing Law
  2. Continued Access to Improvement
  3. Arbitration
  4. Tax Liability
Nevertheless, an application for exemption in exceptional and meritorious cases, such as high technology content, increase in foreign exchange earnings, employment generation, regional dispersal of industries, substitution with or use of local raw materials and/or pioneer status registration with the Board of Investments, wherein substantial benefits will accrue to the economy, may be filed with the DITTB. If such application is granted and the TTA is approved and registered with DITTB, then the TTA containing the non-conforming provisions becomes enforceable (Section 92, IP Code; Rule 4 of the Revised Rules). 
In order to evaluate requests for exemption, the DITTB may consider acceptable worldwide industry standards and practices for licensing technology, options to purchase the licensee’s business (in cases where the TTA establishes a full or partial purchase option in favor of a licensor which is prohibited by Section 87.5 of the IP Code) recognition of valid intellectual property rights (in cases where there is restriction in the use of technology supplied after the expiration of the TTA which is prohibited under Section 87.9 of the IP Code), as well as current tax laws and issuances of the Bureau of Internal Revenue (BIR) (in cases where the TTA has provisions that do not require the licensor to pay Philippine taxes) (Section 5.1b(4), Revised Rules).
As a precautionary measure, parties to the TTA may also have their draft agreements undergo a preliminary review to ensure conformity with the IP Code provisions on voluntary licensing. 
The Revised Rules now also provide a clearer description on the registration process for TTAs, the steps for which are summarized below: 
If the DITTB finds that the applicant submitted incomplete or insufficient information and requirements, a Notice of Additional Requirements will be issued by the DITTB within three (3) working days from the filing of the request, instead of a Notice of Filing Date. The applicant will then have fifteen (15) working days from receipt of the Notice of Additional Requirements to comply. This period is extendible by another fifteen (15) working days upon request and payment of the corresponding fee. If the applicant is able to comply, the Notice of Filing Date will be issued, otherwise the file shall be archived and shall only be retrieved by the applicant upon complete requirements and payment of the Document Retrieval Fee (Rule 6.2, Revised Rules).
Upon applicant’s satisfactory response to the findings and subsequent compliance with the IP Code provisions and/or after obtaining a favorable decision, the DITTB shall issue a certificate within seven (7) days from receipt of the duly executed and notarized agreement and payment of the required fees. Either a Certificate of Registration (if the TTA has been granted certain exemption/s) or a Certificate of Compliance (if the TTA does not violate Sections 87 and 88 of the IP Code) shall be issued. A Certificate of Clearance will have to be issued by the DITTB prior to the recordal of a Trademark License Agreement (“TLA”) with the Bureau of Trademarks (Rule 6.5, Revised Rules).
After the issuance of a certificate, the DITTB shall enter the title of the TTA, the parties thereto, the registration number, the date of registration and the corresponding type of certificate in the Certificate Registry Book. (Rule 6.6, Revised Rules). The DITTB shall also publish in the IPO Gazette all agreements that are granted exemption, registered or cancelled (Rule 6.7, Revised Rules).   
A Certificate of Registration or Compliance shall be valid for a maximum of ten (10) years from the date of effectivity of the TTA or from the date of issuance of the Certificate, whichever is earlier. A Certificate of Clearance for a TLA shall have a maximum validity of ten (10) years but not to exceed the expiration of the mark itself (Rule 7.4, Revised Rules).  The grant of a license shall not prevent the grant of further licenses to third parties nor shall it prevent the licensor from exploiting the subject matter of the TTA, in the absence of a contrary provision in the TTA. The licensee, on the other hand, is entitled to exploit the subject matter of the TTA during the whole term of the TTA. (Rules 8 and 9, Revised Rules)
A TTA registration may be cancelled if the DITTB receives a duplicate original or certified true copy containing amendments violative of the prohibited clauses and mandatory provisions without approval by the DITTB. Cancellation may also be done if the DITTB establishes that the reason for exemption does not or has ceased to exist (Rule 7.5, Revised Rules).
Reconsideration and appeal are subject to IPOPHL’s Uniform Rules on Appeal.  The DITTB shall not act on any request where an issue involving a specific TTA has become the subject of a judicial proceeding. (Rule 10, Revised Rules)
This article is intended for informational purposes only and should not be construed as legal advice. 
Published in Lexology at: https://www.lexology.com/library/detail.aspx?g=4324b248-c37b-4658-b67e-ca83224db156
Published in the Asian Patent Attorneys Association ("APAA") e-Newsletter at: https://apaaonline.org/newsletter/issue-no-18-august-2020/