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I OFFICE OF THE PRESIDENT !
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Filed 09 September 1998
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Applicant QUISUMBING TORRESS ATTORNEYS AT LAW
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NOTICE OF DECISION

II QUISUMBING TORRES
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ATTORNEYS AT LAW
1i h Floor Net 1Center
I 26th st. corner Bonifacio

j Global City, Taguig Metro Manila

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DIRECTOR CARMEN G. PERALTA

I Documentation, Information, and Technology

Transfer Bureau
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Intellectual Property Office
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II GREETINGS:

Please be informed that on 20 October 2003, the Office of the Director General
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rendered a Decision in the above-titled case (copy attached).
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!'. Makati City, 21 October 2003.

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I Very truly yours,

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ATTY. E~~~
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INTELLECTUAL PROPERTY OFFICE

IPO Building, 351 Sen. Gil Puyat Avenue. Makati City, Philippines
"

R~public "of the Philippines OFFICE Copy

OFFICE OF THE PRESIDENT

Request for : Pre-Clearance of a Shop Franchise Agreement

Filed 09 September 1998
Applicant QUISUMBING TORRESS ATTORNEYS AT LAW

NOTICE OF DECISION

QUISUMBING TORRES
ATTORNEYS AT LAW . '~, ~~'hRES
12th Floor Net 1Center
26th st. corner Bonifacio
Global City, Taguig Metro Manila
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BY: ~O~
DIRECTOR CARMEN G. PERALTA DATE: __.__ \0 - DZ -V
Documentation, Information, and Technology \ :2
Transfer Bureau flEce1Vi7J) 1fA1. ~'"">v Y.
Intellectual Property Office IO/etl JD3

GREETINGS:

Please be informed that on 20 October 2003, the Office of the Director General
rendered a Decision in the above-titled case (copy attached).

Makati City, 21 October 2003.

Very truly yours,

ATTY. E~~l ~~
Attornepi

INTELLECTUAL PROPERTY OFFICE

[PO Building, 35/ Sen. Gil Puyat Avenue. Makati City, Philippines
-. Republic of the Philippines
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OFFICE OF THE PRESIDENT

Request For: Pre-Clearance of a Shop Franchise Agreement

Filed: 09 September 1998
Applicant: QUISUMBING TORRES
ATTORNEYS AT LAW

DECISION

This is an appeal by the QUISUMBING TORRES ATTORNEYS AT

LAW (hereinafter referred to as the Appellants) from the decision of the

Documentation, Information, and Technology Transfer Bureau (DITTB)

declaring that Section 10 (A) 1 of a Shop Franchise Agreement (Agreement)

violates Section 87.92 of Republic Act No. 8293, also known by its short title

"Intellectual Property Code of the Philippines" or IP Code for brevity.

The main issue to be resolved in this case is:

I "Section 10. Covenant Against Competition.

A. Ownership or Operation of Other Food Service Businesses. In consideration of
Franchisor's providing operations and management training to Franchisee and disclosing
to Franchisee its operating procedures and other Trade Secrets, Franchisee especially
covenants and agrees that, during the Term of the Franchise and for two years after its
expiration or termination, Franchisee shall not engage, directly or indirectly (either as sole
proprietor, principal, agent, partner, consultant, independent contractor or employee, or
through an Affiliate or other Person Controlled by it or by any of its respective officers,
shareholders or employees), in any food service business, which is in competition with
the activities and services performed by Franchisor, within the area in which a Franchisor
owned or subfranchised Franchisor Shop, without its consent. Franchisor's consent will
be conditioned upon its receipt of absolute assurances that the Trade Secrets and the
Manual will not be used in any manner."
2 Rep. Act No. 8293, Sec. 87 provides: "Prohibited Clauses.- Except in cases under Section 91, the following
provisions shal be deemed prima facie to have an adverse effect on competition and trade: x x x 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 to reason(s) attributable to the
licensee."

OCI 2 Q2M!

INTELLECTUAL PROPERTY OFFICE

IPO Building, 351 Sen. Gil Puyat Avenue. Makati City, Philippines
- 'f'

WHETHER OR NOT SECTION 10 (A) OF THE SHOP

FRANCHISE AGREEMENT VIOLATES THE PROVISIONS OF

THE IP CODE.

Records show that on 07 September 1998, the Appellants submitted to

the DITTB a request for Pre-Clearance of a Shop Franchise Agreement to

determine whether or not said Agreement is in accordance with the provisions

of the IP Code. Said Agreement refers to the grant of a non-exclusive

Franchise for the Retail Operation of one Franchisor Shop. In a letter dated 03

November 1998, the DITTB informed the Appellants that Section 10(A) of the

Agreement did not conform with Section 87.9 of the IP Code and therefore,

unentorceabte."

Subsequently, the Appellants filed on 05 April 1999 a request for

reconsideration of the findings of the DITTB justifying that Section 10(A) of the

Agreement is a reasonable restriction, therefore, not in violation of the IP

Code. The DITTB, however, denied on 14 May 1999 said request for

reconsideration stating, among other things, that although Section 10 (A)

limits the restriction on time to just two (2) years, the provision is still

prohibited and as it is deemed restrictive in violation of the IP Code.

Undaunted by the initial actions of the DITTB, the Appellants filed with

the said Bureau a second request for reconsideration on 11 October 1999. In ~.

3 Rep. Act. No. 8293, Section 92, provides, "x x x Non-conformance with any of the provisions of
Section 87 and 88, however, shall render the technology transfer arrangement unenforceable, unless
said technology transfer arrangement is approved and registered with the Documentation, Information
and Technology Transfer Bureau under the provisions of Section 91 on exceptional cases."

haagen daz
Page 2 of20
 support thereof, the Appellants cited excerpts from the decisions of the

Supreme Court upholding the validity of agreements on reasonable

restrictions to compete. The DITT8, however, found no reason to disturb its

earlier findings and rendered a ruling on 24 December 1999 the pertinent

portion of which reads, as follows:

"3.Request for reconsideration on Section 10 (A,C) on restriction to

compete is hereby denied. Although we have noted that the Supreme
Court issued rulings in the past regarding anti-competition, these were
made prior to the passage of the Intellectual Property Code. Hence, our
previous finding that Section 10 (A,C) is not in conformity with Section
87.9 still stands."

Consequently, on 03 May 2000, the Appellants filed the instant appeal.

The Appellants now contend that the clauses under Section 87 of the

IP Code are not absolutely prohibited. According to them, parties to a

technology transfer arrangement adversely affected by any of the provisions

of the said arrangement may overcome the presumption that these provisions

shall have an adverse effect on competition and trade, citing the 1968 case of

Villa Rey Transit vs. Ferrer4 decided by the Supreme Court which upheld the

validity of stipulations in restraint of trade provided that there is a limitation

upon either time or place. They also sought consideration based on the

alleged uniqueness of the Franchise, claiming that in the industry, it is

acknowledged that limitations on business freedom are essential in

franchising. The Appellants also invoked the State policies in the IP Code

which liberalized the registration on the transfer of technology and recognize Iff'
425 seRA 845 (1968).

haagen daz
Page 3 of20
OCT 2 0 2013
that an effective intellectual and industrial property system is vital to the

development of domestic and creative activity, facilitates transfer of

technology, attracts foreign investments, and ensures market access for our

products"

In its comment" to the instant appeal, the DITTB parried the above

arguments of the Villa Rey case, to wit:

"2. On the argument that the restraint is limited in time and

space, it will be dangerous to apply this tenet in technology transfer
arrangements. The limitation will be subject to discretion of the parties
and of the approving authority and thus application of the law will be
subject to various interpretations. To create a scenario, what if we set a
precedent on this and a case comes up where a fast moving technology
becomes the subject of a TTA? If we allow a ten-year period as in the
case of Villa Rey Transit, then the technology will already be obsolete by
the time the licensee is allowed to apply the knowledge he has gained
out of the arrangement:'?

The DlnB likewise debunked the Appellants' claim, that the Franchise

is unique, saying that:

"A franchise agreement is no different from other types of

technology transfer arrangements. In fact, in this kind of transaction, it
is basically the licensee who has to shoulder most of the expenses
involved in putting up the business since retailing is still limited to
Filipinos. This is the reason why at the end or termination of a
franchise agreement, it is usually the local companies who are left with
most of the problems because after building up the business and
spending for a location which should conform with the look and style of
a franchise, he cannot use the same format and look as it will violate
the intellectual property rights of the franchisor."

5 Letter-Appeal dated 26 April 2000, pp. 5-6.

6 Memorandum dated 19 May 2000 for IPO Director General Emma C. Francisco.

7 Memorandum, supra, p. 4.

8 Ibid, supra, p. 5

haagen daz
Page 4 of20
;I!\
 Liberalization, according to the DITTB, should not be made an excuse

to get away from the requirements of the law, especially if such deviation

works against local businesses."

On 05 July 2001, this Office issued an Order directing the Appellants to

furnish this Office evidence necessary to overcome the presumption that

Section 10 (A) shall have an adverse effect on competition and trade. The

Appellants were also ordered to submit evidence that Section 10 (A) of the

Agreement is reasonably necessary under the circumstances as well as to

present the needed information to show that substantial benefits will indeed

accrue to the economy by allowing Section 10 (A) of the Agreement. The

Order required the submission of the above-mentioned evidence within fifteen

(15) days from receipt of the Order, or until 20 July 2001. Upon request of the

Appellants, however, this Office extended until 19 August 2001, the period

within which the Appellants must submit the evidence required.

On 17 August 2001, the Appellants, instead of submitting the evidence

required, filed a reply to the Order of this Office dated 05 July 2001. In the

reply, the Appellants maintain that:

"x x x. As recently as November 1998, the Court of Appeals, in Ticzon vs.

Guadiz [CA-G.R. SP No. 44370], re-affirmed the Del Castillo case, holding
that:

"These having been said, We cannot but bow to the doctrinal

mandate of Del Castillo v. Richmond, wherein it was held that:

haagen daz
Page 50f20
 'x x x Later, however, the rule became well-established that if the restraint
was limited to a 'certain time' and within 'a certain place,' such contracts were
valid and not 'against the benefit of the state'. Later cases, and we think the
rule is now well-established, have held that a contract in restraint of trade is
valid providing there is a limitation upon either time or place. x x x"
[emphasis supplied)."

They proceed to state that in June of 2000, the Supreme Court affirmed the

decision of the Court of Appeals in the Ticzon case above.

Reiterating their position that Section 10 (A) of the Agreement does not

have an adverse effect on competition and trade as it does not fall within any

of the prohibited clauses under Section 87 of the IP Code, the Appellants

c argue that Section 10 (A) of the Agreement is a non-compete clause.

According to them, the Technology Transfer Registry rules, which governed

technology transfer arrangements prior to the effectivity of the IP Code,

particularly those expressly prohibiting non-compete clauses, were omitted

from the enumeration of prohibited clauses when the IP Code was enacted.

The Appellants posit that since Section 10 (A) does not fall under any of the

prohibited clauses, there is no prima facie presumption that has to overcome.

The Appellants point out the obligation not to compete imposed on the

Franchisee is not absolute as the Agreement would also allow the Franchisee

to engage in competing activities subject to the consent of the Franchisor, and

that,

"This Honorable Office will note that the Franchisor's rights to the
Manual and the Trade Secrets are protected by law. As the author of the
Manual, the Franchisor has copyrights over the Manual, and these rights
are expressly protected under the IP Code x x x. Even the implementing

haagen daz
ft'
Page 60f20
-.", !
 rules and regulations for TTA's (the 'Rules') recognize the
licensor's/franchisor's intellectual property rights.

Further, the Appellants maintain that the approval of the Agreement is

essential to the operation of the Haagen Dazs franchise shops. By year 2004,

according to them, it is projected that there will be approximately eight (8)

shops operating throughout the Philippines.

This Office notes that the Appellants, in their response to the Order

c dated 05 July 2001, claim that to comply with what was directed would

expand the issue "beyond those which the parties (to the Agreement)

originally raised." Instead of complying, they again reiterated ancient cases,

whose time and context have long been overcome rendered dinosauric by

recent development and reality.

When the Appellants claim that the provision of the law, specifically,

Section 87 of the IP Code is merely a presumption, and this Office has given

them the opportunity to overcome this presumption by directing them to

present evidence to prove their claim, it is therefore, incumbent upon the

Appellants to comply. Having failed to do so, they not only betray the

weakness of their argument, but also their refusal to play by the rules of this

forum to which they submitted themselves, when the direction the case is

taking, does not look favorable for them.

haagen daz
Page 7 of20
DC" 2 0 2UU.)
 By refusinq to present proof to overcome the presumption of the law,

the Appellants have failed to overcome the same presumption.

In resolving this case, this office now reviews the State's existing

policies on technology transfer. Accordingly, public policy is the principle

under which freedom of contract or private dealing is restricted by law for the

good of the publlc." The Constitution itself provides that the State recognizes

the importance of science and technology for national development," shall

regulate the transfer and promote the adaptation of technology from all

c sources for the national benefit, and encourage the widest particlpatlon of

private groups, local governments, and community-based organizations in the

generation and utilization of science and techncloqy," and protect and secure

the exclusive rights of scientists, inventors, artists, and other gifted citizens to

their intellectual property and creations, particularly when beneficial to the

people, for such period as may be provided by law. 13 Republic Act No. 8293,

on the other hand, declares that the State recognizes that an effective

intellectual and industrial property system is vital to the development of

domestic creativity, facilitates transfer of technology and that the diffusion of

knowledge and information is necessary for the promotion of national

development and progress and the common good. 14 But the Act also provides

that to encourage the transfer and dissemination of technology, prevent or

10 Ferrazzini vs. Gsell, 34 Phil. 697 (1916).

11 Phil. Constitution (1987), Article XIV, Sec. 10.

12 Phil. Constitution (1987), Article XIV, Sec. 12.

13 Ibid., Article XIV, Sec. 13.

14 Rep. Act No. 8293, Sec. 2.

haagen daz
Page 80f20
 control practices and conditions that may in particular cases constitute an

abuse of intellectual property rights having an adverse effect on competition

and trade, all technology transfer arrangements shall comply with the

provisions of the said law. 15

That, notwithstanding, and for the purpose of expounding on the law

covering technology transfer, this office shall discuss the points by the

Appellants, academic they may be at this point.

c This Office finds the content of Section 10 (A) of the subject Agreement

restrictive and anathema to the intent and spirit of the IP Code and the

country's policy on technology transfer. There is no cogent reason, therefore,

to disturb the assailed decisions or rulings of the Dins.

Statutes should be construed in the light of the object to be achieved

and the evil or mischief to be suppressed, and they should be given such

construction as will advance the object, suppress the mischief, and secure the

benefits intended. When the statute is clear and explicit, there is hardly room

for any extended court ratiocination or rationalization of the law."

In the instant case, to allow the restrictive provision of Paragraph 10

(A) of the Agreement would go against the rationale and spirit of the .

15 Ibid., Sec. 85.

jJ(
16 Paat YS. Court of Appeals, 266 SCRA 167 (1997).

haagen daz
Page 9 of20
provisions of the IP Code on Voluntary Licensing and Technology Transfer

Arrangement. The objectives of transferring and disseminating technology

development and preventing practices that have adverse effects on

competition and trade will be rendered nugatory if Section 10 (A) of the

Agreement will be allowed. Precisely, the provision of law, that is, Section

87.9 of the IP Code, prohibiting the restriction of the use of the technology

supplied after the expiration of the technology transfer arrangement, was

included in the Act to encourage the transfer and dissemination of technology

and prevent or control practices and conditions that may, in particular cases,

constitute an abuse of intellectual property rights which have adverse effects

on competition and trade. The prohibited clauses under Section 87 are

designed to adhere to the policy of regulating the transfer and promoting the

dissemination of technology sources. To regulate includes the power to

control, to govern and to restrain." The aim is to cut-off the suffocating

tentacles of monopolies and machinations in restraint of trade and

competition. The monopolistic claims of corporations, and other entities, must

yield to public policy and public interest against unfair competition and

restraint of trade." The restrictive provision of Section 10(A) contradicts such

public policy of encouraging the transfer and promotion of technological

advancement.

17 Kwong Sing vs. City of Manila, 41 Phil. 108 (1920).

18 Alger Electric, Inc. vs. Court of Appeals, 135 SCRA 37 (1985).

haagen daz
Page 10 of20
i
 On this occasion, it is interesting to note the deliberation on the House

of Representatives of the then proposed IP Code, particularly as regards

technology transfers, to wit:

"MR. JAVIER (E.). Well, your Honor, it is with deep regret that this
proposed bill does not contain rules on voluntary licensing which are
contained in the existing Patent Law that, we have, simply because we have
sacrificed everything in this country in the altar of liberalization.

Mr. Speaker, I do not think that this policy of liberalization should be

carried too far, such as to violate even the Constitution. The regulation of
voluntary licensing, your Honor, is stated in Section 12, Article XIV of the
Constitution which provides, and I quote:

'The State shall regulate the transfer and promote the

adaptation of technology from all sources for the national benefit.'

This is the constitutional basis for our rules in order to regulate

voluntary licensing. Otherwise, our local licensees will be at the mercy of
these foreign holders of franchises.

For example, voluntary licensing - McDonald's, for example. We

have here a Filipino licensee. Then McDonald's U.S franchisers give these
local McDonald's or licensee a franchise to operate a McDonald chain. If we
have no rules and regulations to govern this kind of licensing, then the local
licensee here will be at the mercy. They can impose onerous conditions such
as, all taxes should be paid by the local licensee. All materials for the making
of hamburgers should be sourced from the parent company or from the
franchisers. So [our local], the Filipino counterparts here will be at the mercy
of these foreign franchisers.

That is the danger of voluntary licensing when it is entirely freed from

a regime of regulation. And I think, your Honor, we should follow the mandate
of the Constitution rather adopt the policy of liberalization.

x x x
MR. JAVIER (E.). x x x Now, my reason for insisting or asking this
question on why voluntary licensing was omitted is because it is mandated by
the Constitution. Section 12, Article XIV x x x. So in other words, the framers
of the 1987 Constitution ...

MR. GONZALES. Madam Speaker ....

MR. JAVIER (E.)... .intended to regulate the transfer of technology

and this is clear from the debates in the Constitutional Commission which I
quote

'MR.MONSOD. Also let us put in the word "regulate"

because this is quite important when we are talking about technology
transfer.

haagen daz
Page 11 of20
 MS.QUESADA. Would regulation already include setting up
equitable terms?

MR.MONSOD. Yes, I think that was included in the

discussions. That is the reason we put that word. If I remember right
the Commissioner was even one of the proponents of that sentence
on technology transfer.

MS.ROSARIO BRAID. That was thoroughly discussed.

MR.MONSOD. Yes.

MS.ROSARIO BRAID. I gave the explanatory note in terms

of the need to strengthen regulatory agencies such as the
Technology Transfer Board.' " 19

While it is true that the prohibited clauses in Section 87 of the IP Code

state that a provision like that of Section 10 (A) of the Agreement is only

c deemed prima facie to have an adverse effect on competition and trade, the

Appellants failed to overcome this presumption." This Office issued an

Order dated 05 July 2001 requiring the Appellants to submit evidence

necessary to overcome the presumption. However, in spite of such

opportunity, the Appellants took the risk of not submitting the evidence

required to show that Section 10 (A) of the Agreement shall not have an

adverse effect on competition and trade. Failing to do so, the presumption,

stays.

" Transcript/Minutes ofthe Hou,",', deliberations 00 HB. 8098, December II, 1996, pp.91-93.
20 Rep. Act. No. 8293, Sec. 87, to wit: "Prohibited Clauses.-Except in cases under Section 91, the
;.f
following shall be deemed prima facie to have an adverse effect on competition and trade: x x x " - and l

Sec. 91, to wit: "Exceptional Cases. - In exceptional or meritorious cases where substantial
benefits will accrue to the economy, such as 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 in the case of Board of Investments, registered companies with pioneer status,
exemption from any of the above requirements may be allowed by the Documentation, Information and
Technology Transfer Bureau after evaluation thereof on a case to case basis.

haagen daz
Page 12 of20
 The Appellants would like to impress upon this Office a hypothesis that

the test is, supposedly, whether or not the restraint is reasonably necessary

for the protection of the contracting parties. They draw their arguments from

the cases of Villa Rey Transit vs. Ferre~1 and Ticzon vs. Guadiz [C.A.-G.R.

SP No. 44370], wherein the Supreme Court held that a contract in restraint of

trade is valid provided there is a limitation upon either time or place.

A scrutiny of the cases cited by the Appellants shows that they are not

in parallel with this case. Firstly, unlike in the instant case, there is no

c technology transfer involved in the cases cited by the Appellants. The

subjects of those cases were not even about intellectual property. The Villa

Rey Transit case is about public utility while the Ticzon case involves

employer-employee relationship. It must be stressed that the meat of the

controversy at hand is about intellectual property, particularly, technology

transfer and its conformity, or not, with the State's policies and requirements

set forth under the Constitution and of the IP Code. The crucial role of

intellectual property and technology transfers in national development carries

with the immediate exploitation of the technology acquired. Precisely, it is

dangerous to apply a restraint limited by time and space in technology

transfer arrangements. Aside from the application of the law being vulnerable

to various interpretations, the exponential advancement in technology also

sets rapid obsolescence on the state of science and technology. While a ten

(1D)-year restriction may be reasonable as it was in the case of Villa Rey

21
25 scax 845 (1968).
If
haagen daz
Page 13 of20
Transit, for example, it is not the same as regards intellectual property and

technology transfers. By the time the restriction expires, the technology

acquired or transferred could already be obsolete or rendered inutile. This is

precisely the situation where such restriction constitutes a restraint of trade

and becomes anti-competitive.

Secondly, unlike in the cases cited by the Appellants, there is an

explicit provision of law, Section 87.9 of the IP Code, creating a presumption

of restraint of trade and anti-competition. The IP Code put the burden of

overcoming such presumption on the parties to the technology transfer

arrangement. Under Section 91 of the IP Code, the concerned party or parties

has or have to show that substantial benefits will accrue to the economy, such

as 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 in the case of Board of Investments,

registered companies with pioneer status, exemption from any of the above

requirements may be allowed by the DITTB after evaluation thereof on a case

to case basis.

Thirdly, the conditions upon which the contracts were made in the

cited cases are different from that of in this instance. In the instant case, the

restriction is imposed upon the Franchisee, who, in effect, already bought the

technology from the Franchisor, sufficiently compensating the latter. This is on

top of the expenses the Franchisee has to incur in the construction, tl r;.
jPJ/
I
haagen daz
Page 14 of20
renovation and maintenance of the business operations. It would appear thus,

that the contract is onerous for the Franchisee for the Franchisee would be

precluded from making use of the technology transferred. Although the

prohibition is not perpetual, the fact that the Franchisee would not be able to

make use of, and infuse to the local economy and conditions the technology it

has already bought from the Franchisor is precisely the situation the

prohibition wants to avoid. In the Villa Rey Transit case, such precarious

situation did not matter. The ten (10)-year restrictive clause in the contract

was against the seller and intended for the protection of the buyer. The ten

(10)-year prohibition clause referred to the operation of lines covered by the

certificate of public convenience sold to the buyer and does not refer to a

transfer of technology.

The Appellants' reliance on the Ticzon case is off tangent. The

Supreme Court did not rule on the question as to whether or not the

prohibition in the employment contracts in issue was valid, the determination

of which involves factual issues that are to be resolved in the trial court. The

Supreme Court, in fact, ruled that the trial court must conduct further trial on

the merits in the main case as the ruling covers only the issuance of the Writ

of Preliminary Injunction which was rendered moot by the expiration of the

prohibition contained in the clause of the employment contract."

JO?

I
22 Ticzon vs, Video Post Manila, Inc. G.R. No. 136342 (2000).

haagen daz
Page 15 of20
OCT 2 0 ?OUJ
 To establish whether the contract is a reasonable or unreasonable one,

the nature of the business must also be considered." In the present case, the

other provisions of the Agreement even without the subject restrictive

provision amply protect the business of the Franchisor. The Franchisor is

entitled to the payment of royalties and assistance fees on top of the

Franchise Fee during the term of the Agreement. One is not unduly deprived

of his property rights where the law not only grants him a protective period of

two years to enjoy his exclusive rights thereto but subsequently recognizes

just compensation in the form of royalties."

Moreover, the Agreement is for an initial term of five (5) years from and

after the effective date. The parties may, upon the expiration of the five-year

initial term, renew the Agreement for an additional five (5) years. The

Franchisee also agrees to obtain all operation permits, develop a complete

set of construction or remodeling documents and fulfill all construction or

remodeling and operation requirements under the Agreement. The Appellants

are therefore adequately protected and compensated in the Agreement even

in the absence of Section 10 (A). The assertion presented by the Appellants is

not sufficient to overcome the presumption that Section 10 (A) shall have an

adverse effect on competition and trade.

The Appellants belatedly argues on its reply dated 17 August 2001 that

Section 10 (A) does not have an adverse effect on competition and trade

23 Castillo vs, Richmond, 45 Phil. 679 (1924).

24 Smith Kline & French Laboratories, Ltd. vs. Court of Appeals, 276 SCRA 224 (1997).

haagen daz
neT 2 C2003 Page 16 of20
 1
Ii
i

because it does not fall within any of the prohibited clauses under Section 87

of the IP Code. This Office disagrees.

Although under the Technology Transfer RUles,25 which governed the

technology transfer arrangements prior to the effectivity of the IP Code, non

compete clauses and provisions which restricts the use of technology

supplied after expiration of the technology transfer agreement are expressly

prohibited, the IP Code maintains the policy of disallowing provisions and

clauses on agreements that shall have an adverse effect on competition and

trade. This is evident in Section 87.15 26, which considers prima facie having

an adverse effect on competition and trade, clauses that have similar effects

as the enumerated prohibited clauses in Section 87 of the IP Code.

Succinctly, Section 10 (A) of the Agreement is both a non-compete

clause and a restrictive clause, which violate the IP Code. Under this

provision, the Franchisee is barred and shall not, for two (2) years after its

expiration, engage directly or indirectly to any food service business, which is

in competition with the activities and services performed by the Franchisor as

well as to [and] use the technology supplied by the Franchisor to the

Franchisee. To allow Section 10 (A) would certainly defeat the rationale of the

provisions of the IP Code, which provide a presumption that provisions similar

to Section 10 (A) shall have an adverse effect on competition and trade. As

mentioned by the Appellants themselves in the letter reply dated 17 August

25
26
DTI Department Order No.5 (1988), as amended.
Rep. Act No. 8293, Sec. 87.15., to wit: "Other clauses with equivalent effects."
Iff
haagen daz
Page 17 of20
r
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2001, every statute must be interpreted in such a way as to give force and

effect to every provision because the legislature is not presumed to have done

a useless act. Furthermore, no part of the statute should, if possible, be

treated as redundant or superfluous.

Notwithstanding the foregoing, Section 10(A) may be retained provided

that the period is limited to one (1) year from the termination of the

Agreement. i
I

With respect to the claim of the Appellants that the subject Franchise
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Agreement is unique, this Office agrees with the DITTB that a franchise is no

different from the other types of technology transfer arrangement. This Office

may read repetitious but then, again, it must be stressed that a franchise or

licensing agreement, or any part thereof, must yield to the higher claim of

public interest.

Finally, this Office does not believe that the prohibition on restrictive

provisions of technology transfer arrangement such as Section 10 (A) of the

Agreement will thwart the liberalization policy on foreign investments. No

doubt the state recognizes the value of foreign investment to our country.

What is prohibited is not the entry of foreign investment but instances that will

constitute an abuse of intellectual property rights. It must be emphasized also

that such restrictive provisions or stipulations creates only a prima facie

presumption that the same have adverse effect on competition and trade. The J .

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same may be overcome in accordance with Section 91 of the IP Code. The

Appellants had been extended by this Office ample opportunity to overcome

the presumption. Regretfully, they did not.

To conclude, it is worth noting the following paragraph cited in a

publication prepared by the World Intellectual Property Organization (WIPO)

to guide developing countries in the field of licensing and technology transfer

agreements, to wit:

"The technology transfer transaction must thus be regarded in

the light of not simply, whether, as a commercial transaction, it strikes a !
fair balance between the interests of the transferor and the transferee,
but also whether its technical, financial, commercial and legal aspects I
II
are consistent with the objectives sought to be achieved by the
government and whether they will result in an inflow of technology that
will appropriately promote the scientific, technological and economic
development of that country.?"
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WHEREFORE, in view of all the foregoing, the instant appeal is hereby

denied and the Decision of the Documentation, Information and Technology

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Transfer Bureau (DITTB) is affirmed. Section 10(A) may however be retained

If provided the period is limited to one (1) year from the termination of the

Agreement. Accordingly, the Director of the DITTB is hereby directed to take

such appropriate action in accordance with this Decision.

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27World Intellectual Property Organization (WIPO) Licensing Guide for developing countries p.22,
par. 45.

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SO ORDERED. I
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, Makati City.

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es:
~r~c~7Genera'
Copy Furnished:

QUISUMBING TORRES
ATTORNEYS AT LAW
n" Floor, Pacific Star Bldg.

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Makati Avenue cor. Sen. Gil Puyat Ave.
Makati City
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CARMEN G. PERALTA I
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Director

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Documentation, Information and Technology Transfer Bureau
Intellectual Property Office I,
Makati City ~
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