Amending Republic Act 165 on Patent Licensing

Policy and legislative intent

The decree declares that certain provisions of Republic Act No. 165 have become obsolete and inadequate to meet the demands of industrial and overall national economic development.
The decree states that this goal can be promoted, to a significant extent, through licensing of patents.
The decree directs the reformation of patent licensing rules to better achieve economic and industrial development.

Core licensing framework amended

Chapter VIII is restructured to cover Voluntary Licensing and Compulsory Licensing.
Voluntary license contracts involving royalty and patent-related technology/services must be subjected to prior approval and registration when involving residents and non-residents.
Compulsory licensing is established as a remedy after defined conditions and time periods, and it is governed by a petition-hearing-grant framework.
The decree also establishes limits on certain restrictive licensing clauses and provides protections for licensees working under a license.

Definitions and computed royalty base

Section 33-A defines “net wholesale price” as the gross amount billed for the patented product subject to royalty less:
- Trade, quantity, or cash discounts, and broker’s or agent’s commission, if any;
- Credits or allowances for rejection or return of previously delivered patented product; and
- Any tax, excise or other government charge included in, on, or measured by the production, sale, use, or delivery of the patented product.
Section 34 defines “worked” or “working” to mean manufacture and sale of the patented article, manufacture of the patented machine, or application of the patented process in or by means of a definite and substantial establishment or organization in the Philippines on a scale reasonable and adequate under the circumstances.
Under Section 34, importation does not constitute “working.”

Voluntary patent licensing rules

Section 33-A(1) requires that all voluntary license contracts and renewals involving payment of royalty for the use of patents, transfer of technology, or furnishing of services respecting patents must be submitted to the Technology Resource Center for prior approval and registration whenever entered into between residents and non-residents.
Section 33-A(2) limits royalty in voluntary manufacturing-related license contracts: when entered into between an alien licensor and a Filipino licensee, the royalty may not exceed five per cent (5%) of the net wholesale price of the articles manufactured under the royalty agreement.
Section 33-A(2) also requires equal distribution of royalty to all patentees where more than one similar patent is involved under the royalty agreement contemplated by Section 34-C.
Section 33-A(3) applies the definition of net wholesale price and permits the computation deductions listed therein.
Section 33-A(4) provides that unless and until approved and registered under Section 33-A(1):
- The license contract may not be the subject of an application filed with either the Board of Investment or the Central Bank of the Philippines; and
- The license contract has no effect against third persons until registration.

Licensor and licensee rights in voluntary licenses

Section 33-B(1) provides that absent a contrary contract provision, the grant of a license does not prevent the licensor from granting further licenses to third persons or exploiting the invention himself.
Section 33-B(2) provides that, without prejudice to compulsory licensing under Section 34, an exclusive license:
- Prevents the licensor from granting licenses to third persons; and
- Prevents the licensor from exploiting the invention himself unless the license contract expressly allows exploitation.
Section 33-C(1) gives the licensee the right to exploit the invention:
- During the whole duration of the patent; and
- Throughout the entire territory of the Philippines;
- For all acts referred to in Sections 37 and 42.
Section 33-C(2) declares null and void specified clauses in license contracts, including clauses that:
- Require the licensee to acquire specified capital goods/intermediate products/raw materials/technologies from a specific source, or permanently employ specified personnel indicated by the licensor (Section 33-C(2)(a));
- Allow the licensor to fix the sale or resale prices of products manufactured using the license (Section 33-C(2)(b));
- Restrict volume and structure of production (Section 33-C(2)(c));
- Prohibit use of competitive technologies (Section 33-C(2)(d));
- Establish a full or partial purchase option in favor of the licensor (Section 33-C(2)(e));
- Require transfer to the licensor of inventions or improvements obtained through the licensed technology (Section 33-C(2)(f));
- Require royalties for patents that are not used (Section 33-C(2)(g));
- Prohibit export of the licensed product (Section 33-C(2)(h));
- Impose other clauses with equivalent effects (Section 33-C(2)(i)).

Compulsory licensing grounds and timing

Section 34(1) allows any person to apply to the Director for a compulsory license under a particular patent any time after the expiration of two years from the date of the grant of the patent, under any of the following circumstances:
- The patented invention is not being worked within the Philippines on a commercial scale, although capable of being so worked, without satisfactory reason;
- The demand for the patented article in the Philippines is not being met to an adequate extent and on reasonable terms;
- Refusal to grant a license (or refusal to grant licenses on reasonable terms) or conditions attached to licensing or to the purchase/lease/use of the patented article or working of the patented process or machine prevent the establishment of a new trade or industry in the Philippines or unduly restrain an existing trade or industry;
- Working is prevented or hindered by importation of the patented article; or
- The patented invention or article relates to food or medicine, or is manufactured products or substances usable as food or medicine, or is necessary for public health or public safety.
Section 34(2) requires granting a compulsory license to the petitioner in the foregoing cases if the petitioner proves capability to work the patented product, make use of it in manufacture of a useful product, or employ the patented process.
Section 34(3) governs the meaning of “worked/working” and reiterates that importation does not constitute “working.”
Section 34-A empowers the National Economic Development Authority to order that for patented products or processes declared vital to defense or economy or public health, compulsory licenses may be granted before the two-year period expires under the conditions in Section 34.
Section 34-B(1) deems products/substances/processes in Board of Investments projects under the Investment Incentives Act as vital to national defense or economy or public health.
Section 34-B(1) allows a proponent who is neither a patentee nor a licensee to apply (or be endorsed by the Board of Investments) for a compulsory license from the Director without needing to comply with the provisions of Sections 34 and 34-A.
Section 34-B(2) requires compliance with Sections 34-D and 34-E, but requires no hearing except to determine the identity of the patent owner; if multiple patents exist for the same product/substance/process, the license is granted under all subsisting patents involved.
Section 34-C allows compulsory licensing based on patent interdependence:
- If a patent cannot be worked without infringing rights derived from an earlier-priority/patent, a compulsory license may be granted (upon application) without complying with Section 34 requirements;
- It is granted to the registered owner of the latter patent, to the extent necessary for working his invention, where the invention serves industrial purposes different from those of the earlier patent or constitutes noteworthy technical progress.

Compulsory licensing petition, notice, and grant

Section 34-D requires the compulsory licensing petition to be in writing, verified, and accompanied by the required filing fee.
Section 34-D requires the petition to state:
- The petitioner's name and address;
- The necessary respondent parties;
- The patent number and date of issue;
- The name of the patentee;
- The title of the invention;
- The statutory ground(s) under which compulsory licensing is sought;
- Ultimate facts constituting the petitioner’s cause of action; and
- The relief prayed for.
Section 34-E(1) requires notice in the manner and form provided in Section 31, Chapter VII, and binds the resident agent or representative appointed under rules of practice before the Patent Office to accept service of notice of the filing.
Section 34-E(2) requires the notice to be published in a newspaper of general circulation three times for three consecutive weeks.
Section 35(1) provides that if the Director finds a case for a compulsory license has been made out, the Director must order the grant of an appropriate license within one hundred eighty days from the date the petition was filed.
Section 35(1) requires the Director’s order to state the terms and conditions of the license fixed by the Director if the parties do not agree during the hearing.
Section 35(2) provides that a compulsory license sought under Section 34-B must be issued within one hundred twenty days from the filing of the proponent’s application or receipt of the Board of Investments endorsement.

Rights, structure, royalties, and transfer restrictions

Section 35-A provides that a compulsory license gives the licensee the rights of patentees referred to in Sections 37 and 42.
Section 35-B(1) provides that compulsory licenses are non-exclusive, without prejudice to the licensee’s right to oppose an application for a new such license.
Section 35-B(2) provides that terms and conditions fixed under Section 35 may impose obligations and restrictions on both the licensee and the registered owner of the patent.
Section 35-B(3) requires payment of adequate royalties commensurate with the extent the invention is worked, but caps royalties at:
- Not exceeding five per cent (5%) of net wholesale price of products manufactured under the license; and
- Not exceeding three per cent (3%) of net wholesale price when the licensed product/substance/process is involved in an industrial project approved by the Board of Investments.
Section 35-B(3) requires that when two or more patents are involved under the compulsory license:
- The same three per cent (3%) rate is paid; and
- Royalties are distributed to patentees in rates proportional to the extent of commercial use by the licensee, giving preferential values to the holder of the oldest subsisting product patent.
Section 35-C provides that a compulsory license can be transferred only with the undertaking of the licensee or with the portion of the undertaking that uses the patented invention.
Section 35-C provides that any transfer requires authorization of the Director of Patents and registration under Section 33-A, and unauthorized noncompliant transfers are invalid due to the express pain of invalidity.

Amendment, cancellation, and licensee protection

Section 35-D(1) provides that, upon request of the registered owner of the patent or the licensee, the Director may amend the terms of a compulsory license when new facts justify it, particularly when the registered owner grants contractual licenses on more favorable terms to contractual licensees.
Section 35-D(2) provides that, upon request of the registered owner of the patent, the compulsory license may be cancelled if the licensee does not comply with the prescribed terms of the license.
Section 35-D(3) makes Sections 33-A and 35 applicable to amendments and cancellations of compulsory licenses.
Section 35-E(1) provides that any person who works a patented product/substance/process under a license granted under the Chapter is free from liability for infringement, with a condition for voluntary licensees: no collusion with the licensor must be proven.
Section 35-E(1) preserves the right of the rightful patent owner to recover from the licensor whatever royalties the rightful owner received under the license.
Section 35-E(2) protects licensees from conflicts between two or more patents:
- The existence of a conflict does not affect the licensee’s right under the Chapter to work the invention; and
- No injunction or other court process may validly interfere with that right.
Section 35-E(2) imposes a penalty for violation by a fine not less than Five Thousand Pesos but not exceeding Thirty Thousand Pesos or imprisonment of not less than one year but not exceeding five years.

Patent Office fees and authorizations

Section 75 requires payment of fees for filing a patent application including publication costs in the Official Gazette:
- Four Hundred Pesos for an invention patent;
- Two Hundred Pesos for a utility model or a design patent.
Section 75 imposes a filing additional charge on invention patent applications of Twenty-Five Pesos for each claim in excess of five claims presented on filing or at any other time.
Section 75 requires One Hundred Pesos for issuing each original invention patent.
Section 75 imposes annual fees due at the beginning of the fifth and each succeeding year of Two Hundred Pesos each; a surcharge for delayed payment of Fifty Pesos; and Two Hundred Pesos to reinstate a lapse patent.
Section 75 requires One Hundred Pesos for filing a petition for cancellation, except when filed by the Solicitor General.
Section 75 requires Two Hundred Pesos for filing a petition for compulsory license.
Section 75 sets fees for copies and certifications of records and other services, including Two Pesos per photostat or xerox copy sheet and Two Pesos per hundred words of typewritten copy; Twenty Pesos for each certification of copy of any record; and Twenty Pesos for recording assignment and other documents relating to title and license.
Section 75 sets appeal notice fees at Fifty Pesos for notice of appeal to the Court of Appeals from the Director’s order/decision or to the Director from the Chief Patent Examiner’s order/decision.
Section 75 sets renewing fees for design or utility model patents at One Hundred Fifty Pesos, and surcharge for delayed renewal at Forty Pesos.
Section 75 authorizes the Director, by regulation, to provide fees for services not otherwise specified, and authorizes the Director by rule to fix higher fees for nationals from developed countries.
Section 75 exempts the Philippine Inventors Commission from paying the listed fees, but only with respect to applications filed by it on behalf of indigent inventors.
Section 82-A authorizes the Director to use and spend a portion not to exceed fifty per cent (50%) of the Office’s total income for improvement of facilities and services, equipment outlay, implementation expenses, and expenses for participation in the World Intellectual Property Organization and similar organizations concerned with international cooperation in the expeditious processing of patent applications.