QuestionsQuestions (PRESIDENTIAL DECREE NO. 1263)
All voluntary license contracts (and renewals) involving payment of royalty for use of patents, transfer of technology, or furnishing of services respecting patents must be submitted for prior approval and registration when entered into between residents and non-residents.
Unless and until approved and registered under the text, the contract may not be the subject of an application filed with either the Board of Investments or the Central Bank, and it has no effect against third persons.
The royalty for manufacturing (including actual transfer of technology services) between an alien licensor and a Filipino licensee shall not exceed 5% of the net wholesale price of the articles manufactured under the agreement.
Net wholesale price means the gross amount billed for the patented product subject to royalty less: (a) trade/quantity/cash discounts and broker’s/agent’s commission; (b) credits or allowances for rejection or return of previously delivered products; and (c) any tax, excise, or other government charge included in such amount, on, or measured by the production, sale, use, or delivery of the patented product.
An exclusive license prevents the licensor from granting licenses to third persons; and unless otherwise expressly provided in the contract, it also prevents the licensor from exploiting the invention himself.
The licensee is entitled to exploit the invention during the whole duration of the patent in the entire territory of the Philippines through any application of the invention and in respect of the acts referred to in Sections 37 and 42.
Examples include clauses requiring the licensee to acquire specified sources of capital goods/intermediate products/raw materials or permanently employ personnel indicated by the licensor; clauses where the licensor reserves the right to fix sale/resale prices; restrictions on volume/structure of production; prohibition on use of competitive technologies; full/partial purchase options in favor of the licensor; clauses requiring transfer of inventions/improvements to the licensor; royalty on patents not used; prohibitions on export; and other clauses with equivalent effects.
Any person may apply at any time after the expiration of two years from the date of the grant of the patent.
Among the grounds: (a) patented invention not worked within the Philippines on a commercial scale without satisfactory reason; (b) demand not met to an adequate extent and on reasonable terms; (c) refusal to license on reasonable terms or restrictive license conditions that prevent a new trade/industry or unduly restrain trade/industry; (d) working hindered by importation of the patented article; and (e) patent relates to food/medicine/public health or public safety.
“Working” means manufacture and sale of the patented article, manufacture/use of the patented machine, or application of the patented process for production in or by means of a definite and substantial establishment or organization in the Philippines on a reasonable and adequate scale. Importation alone does not constitute working.
The National Economic Development Authority may, by order, declare certain patented products/processes (or categories) vital to defense/economy/public health, allowing compulsory licenses under the next preceding section even before the two-year period expires.
Products/substances/processes involved in an industrial project approved under the Investment Incentives Act are deemed vital to defense/economy/public health. If the project proponent is neither a patentee nor a licensee, a compulsory license may be issued upon application or Board endorsement without the usual need to comply with Section 34, though Sections 34-D and 34-E still apply (and no hearing is necessary except to determine the patent owner). If multiple patents exist, the license must cover all subsisting patents involved.
If a patent-protected invention cannot be worked without infringing rights derived from a prior patent or benefiting from an earlier priority patent, the Director may grant a compulsory license to the owner of the later invention to the extent necessary for working, provided the later invention serves different industrial purposes from the earlier invention or constitutes noteworthy technical progress.
It must be written and verified with filing fee; state petitioner and necessary respondents’ names/addresses; patent number and date; name of patentee; title of the invention; statutory ground(s); ultimate facts constituting cause of action; and the relief prayed for.
Upon filing, notice must be given like in Section 31 (Chapter VII) and the resident agent/representative must accept service. In addition, the notice must be published in a newspaper of general circulation three times for three consecutive weeks.
For petitions under Section 34, the Director must order the grant within 180 days from filing. For compulsory licenses under Section 34-B, it must be issued within 120 days from the proponent’s application filing or receipt of the Board of Investments endorsement.
Royalty must be adequate and commensurate with the extent of working, but may not exceed 5% of the net wholesale price for products manufactured under the license. If involved in a Board-approved industrial project, the royalty payable shall not exceed 3% of the net wholesale price of the patented commodity/process. When multiple patents exist, the royalty rate is the same (3% for BOI projects) and distributed proportionally to extent of commercial use, giving preferential values to the oldest subsisting product patent holder.
A compulsory license can only be transferred with the undertaking of the licensee or with the portion of the undertaking that uses the patented invention. Any transfer requires authorization of the Director of Patents and must be registered; otherwise, it is invalid.
Any person who works a patented product/substance/process under a license granted under the Chapter is free from liability for infringement, provided that for a voluntary licensee, no collusion with the licensor is proven. This does not prejudice the patent owner’s right to recover from the licensor what the licensor received as royalties.