Policy, governing law, and intent
- EO 169 anchors its policy direction on Section 1, Chapter 1, Title X, Book IV of Executive Order No. 292 (Administrative Code of 1987), which provides protection of Filipino enterprises against unfair trade practices and supports trade policy for the general welfare (WHEREAS clauses).
- EO 169 aligns with Section 2, Chapter 1, Title X, Book IV of EO No. 292, which mandates the Department of Trade and Industry (DTI) to formulate and implement policies and programs for trade, industry, and investments (WHEREAS clauses).
- EO 169 implements the State policy under Republic Act No. 6977, as amended by Republic Act No. 9501 (Magna Carta for MSMEs), promoting and strengthening MSMEs (WHEREAS clauses).
- EO 169 recognizes the significant role of franchising in job creation, consumption, and tourism, and directs government efforts toward transparency and fair, equitable practices (WHEREAS clauses).
Definitions and coverage scope
- “Franchise” is defined as a contract or agreement between a franchisor and a franchisee where the franchisor grants: (i) the right to operate a business according to the franchise system during a term set by the franchisor; (ii) the right to use a mark, trade secret, or confidential information or intellectual property owned by or relating to the franchisor; (iii) the franchisor’s right to control administration of the franchisee’s business during the franchise in accordance with the franchise system; and (iv) in return, the franchisee pays a fee or other consideration (Section 1(a)).
- “Franchise agreement” means a written contract where the franchisor grants the franchisee the right to offer, sell, or distribute goods or services under a marketing system, including technology transfer arrangements, for consideration; that right includes trademark, service mark, trade name/business name, know-how, logo-type advertising, or other commercial symbols associated with the business, unless otherwise provided (Section 1(b)).
- “Franchisee” means a sole proprietorship, partnership, cooperative, or corporation duly registered with the DTI, SEC, or CDA, as applicable (Section 1(c)).
- “Franchisor” means a sole proprietorship, partnership, cooperative, or corporation duly registered with the DTI, SEC, or CDA, as applicable (Section 1(d)).
- “MSME” follows Republic Act No. 6977, as amended: it refers to micro, small, and medium enterprises engaged in industry, agri-business, and/or services whose total assets include those arising from loans but exclude the land where the business entity’s office, plant and equipment are situated, with the following asset categories: micro: less than PHP 50,000.00; cottage: PHP 50,001.00 – PHP 500,000.00; small: PHP 500,001.00 – PHP 5,000,000.00; and medium: PHP 5,000,001.00 – PHP 20,000,000.00 (Section 1(e)).
- “Person” means a natural person or a juridical entity such as a corporation, joint stock company, partnership, cooperative, association, firm, joint venture, or trust registered with the proper government agency (Section 1(f)).
- Mandatory minimum-term and registration requirements apply to all franchise agreements entered into by and between a franchisor and an MSME franchisee within the Philippines (Section 2, Section 3).
Minimum terms in MSME franchise agreements
- All franchise agreements entered into by a franchisor and an MSME franchisee within the Philippines must be in writing and duly notarized (Section 2).
- MSME franchise agreements must include these minimum terms and conditions (Section 2):
- the name and description of the products or services under the franchise;
- the specific rights granted to the MSME franchisee, including the right to use a mark or other intellectual property rights duly registered with IPOPHIL;
- full disclosure of any pre-signing, initial, or recurring fees, including franchise fee, promotion fee, royalty fee, or any related type of fee imposed on the MSME;
- detailed responsibilities of the franchisor, including enumeration of assistance types and particulars and submission of the franchise agreement to the DTI;
- detailed responsibilities of the MSME franchisee;
- non-discrimination provisions;
- the duration of the franchise and renewal terms and conditions;
- effects of and grounds for pre-termination, termination, or expiration of the franchise agreement;
- a “cooling off” period allowing the MSME to terminate the agreement;
- a dispute resolution mechanism including a stipulation that the parties may seek voluntary mediation under Republic Act No. 9285 (Alternative Dispute Resolution Act of 2004); and
- remedies of the parties for violations of the franchise agreement’s terms and conditions.
- For non-MSME franchisees, franchisors may consider these minimum terms and conditions as best practice and incorporate them into their franchise agreements (Section 2).
- Inclusion of the minimum terms and conditions may entitle qualified franchisors to National Government incentives or benefits, and the DTI is directed to formulate and enact measures for such entitlement subject to existing laws, policies, and regulations (Section 2).
Registration and the Franchise Registry
- Franchisors must register their franchise agreements with the DTI (Section 3).
- Franchisors who are members of duly registered associations must register with the DTI their Standard Franchise Agreement and must execute an undertaking that all future franchise agreements with MSME franchisees will incorporate the minimum terms and conditions under Section 2 (Section 3).
- Franchisors who are not members of any duly registered franchise associations must register all franchise agreements entered into with MSME franchisees within thirty (30) days from execution thereof (Section 3).
- The DTI must create an MSME Registry of Franchise Agreements covering agreements entered into between a franchisor and an MSME franchisee (Section 3).
- Only franchise agreements that incorporate the minimum terms and conditions prescribed under Section 2 may be registered in the MSME Registry (Section 3).
Encouragement and compliance on renewals
- Franchisors are encouraged to join duly registered franchise associations (Section 4).
- MSMEs intending to undertake franchising business are encouraged to transact with franchisors belonging to a franchise association (Section 4).
- Franchisors with existing franchise agreements with MSMEs must comply with the requirements in Sections 2 and 3 upon renewal of their respective franchise agreements with MSME franchisees (Section 5).
Implementing guidelines and funding
- The DTI must formulate and issue implementing guidelines within ninety (90) days from the effectivity of EO 169 (Section 6).
- Funding for implementation must come from the regular appropriations of the DTI (Section 7).
- Funding support for succeeding years must be incorporated in the annual General Appropriations Act, subject to the usual budget process (Section 7).
Separability, repeal, and effectivity
- If any part or provision of EO 169 is held unconstitutional or invalid, other parts not affected continue in full force and effect (Section 8).
- All orders, rules, regulations, and issuances (or parts) inconsistent with EO 169 are repealed or modified accordingly (Section 9).
- EO 169 takes effect immediately after publication in the Official Gazette or a newspaper of general circulation (Section 10).