In today’s blog post we are discussing how to protect your IP in the Philippines while conducting R&D activities. You’ll learn more about Non-Disclosure contracts and patents and how to protect your new IP that is being created in the Philippines.
Many European SMEs may not consider that they conduct any research and development (R&D) in the Philippines because they do not have a laboratory or research facility there, but in reality, a high proportion of these companies engage in activities which fall under at least one of the terms: research or development.
Some examples of R&D might include an SME that enters into a contract with a local company to use their engineers to develop a prototype into a commercial product or application; or an SME that works with local researchers in a Philippine university to design a digital database that is to be accessible via the Internet to users in Europe.
Even though the Philippines has its problems with R&D, as according to the Global Competitiveness Report 2016-2017, published by the World Economic Forum, it ranked 83rd out of 138 countries in terms of technological readiness, the Philippines’ government is committed to making the country an ‘active player’ in the global knowledge economy. This means that European SMEs can have promising business opportunities in the Philippines’ R&D sector as their know-how will be highly sought after.
IP is a critical consideration for European SMEs that come to the Philippines wishing to tap into this increasingly high-tech production network, or the talent pool for technology development. When engaging in R&D in the Philippines, new intellectual property is being created, the rights to which need to be clearly defined from the outset to avoid disagreements later.
Protecting new innovations through contracts
Contracts and agreements can be one of the most effective ways to keep hold of innovations that result from research and development. Examples include using non-compete clauses in employment contracts or requiring all employees to sign non-disclosure agreements (NDAs) to ensure new ideas are not leaked to competitors – NDAs are quick and inexpensive, and a basic template will require little modification for use with different products and clients.
If the primary inventors are non-Filipino citizens, European SMEs will have much more leverage in deciding how to control the IPR. If, however, the Filipino team is expected to make key contributions, IPR ownership will be a more sensitive issue when negotiating the terms of your agreement. Innovations that are created during the course of the employee’s work can be specified as the property of the company in employee contract clauses. However, to retain the innovators you will need to include a sufficient amount of rewards and incentives for them as individuals if the ownership of the innovation will not be granted to them.
SMEs will also need to consider the legal status of the individual inventors. If the inventor is an employee of another party, for example a researcher at a local university, he or she may be under contractual duty to assign their IP rights to that employer. Ignoring the inventor’s existing legal duties can cause serious problems down the line.
Protection of new IP developed in the Philippines
Business ventures involving complex, innovative technology often involve licensing the technology to local companies for production. As research and development may be on-going or incidental to the process of operating with the technology, it is very important to address ownership issues in license agreements (i.e. who owns rights to the derivative works and improvements of licensed technologies), so that there will be no later disputes.
SMEs should keep in mind that Licensing of all forms of IP in the Philippines including patent, fall under the definition of ‘technology transfer arrangements’ (TTAs) under the IP Code. TTAs must contain certain mandatory provisions and exclude certain prohibited clauses in order to be enforceable.
In the absence of a clear contract on ownership rights, the law generally recognises the creator of a work/inventor as the owner, even if the underlying licensed rights belong to another party. For example, the translator of an original licensed literary work would be the owner of the copyright of the translated work, even though the copyright of the underlying licensed work belongs to the original owner. The party who makes improvements to a technology based on the licensed technology automatically owns the IP rights on such improvements, unless stated otherwise in contracts.
The licensee can afterwards enter into a separate agreement to assign or license its improvements back to the licensor. However, many licensors in IP licensing contracts include so called “grant-back” clauses providing that any improvements/modifications made to the licensed technology/work by the licensee shall belong to the licensor. Drafting of an effectual licensing agreement is a complicated and challenging process – it is advisable to seek the advice of a local legal practitioner to avoid legal pitfalls.
Apply for patents to protect your inventions
To protect inventions in the Philippines, SMEs also need to think about obtaining patents in the in the country, as patent rights are territorial and European patents would not be valid in the Philippines. Furthermore, the Philippines adopts a ‘first-to-file’ patent system, meaning that the first person to file a patent in the jurisdiction of the Philippines will own that right within the country once the application is granted. The Philippines also allows utility model registrations for an invention with lesser degree of inventiveness. The process for obtaining a utility model is shorter, however, there is a reduced term of protection – as patents are protected for 20 years after filing whilst utility models are only protected for 10 years after filing. Utility models should be considered by companies engaged in making improvements to the technology already in use.
Domestic patent applications in the Philippines should be registered with the Intellectual Property Office of the Philippines. The cost of the application fee is based on whether the applicant is considered a small-medium or large entity. Entities with assets worth PHP 20 Million (approximately EUR 385,000) or less are considered small entities while entities with assets exceeding the said amount are considered large entities. In practice, foreign companies are presumed as large entities unless they can prove the quantitate requirement regarding their assets. To qualify as a small entity, the foreign company must submit an affidavit stating that it is in reality a small entity. Application price starts from EUR 70.
Furthermore, SMEs wishing to make their patent protection more far-reaching may opt to file for a patent through the Patent Cooperation Treaty (PCT) route which allows for patent protection in PCT multiple member states by filling out just one patent application. The PCT application route also gives applicants an extra 18 months to assess the commercial viability of the invention and the likely market.
Stay safe, think ahead
When deciding to conduct research and development in the Philippines, European SMEs’ first step should be to review their business strategy. They should ask themselves the following questions: who is the company working with, what is the potential of company’s technologies under the R&D, and what are the worst-case scenarios? Precautions should also be taken even when there is no dedicated R&D programme in place. It is not only under commission that technical innovations are made – advances are often discovered during normal working operations, especially improvements to production line processes. The important point to remember is that for all potential problems SMEs foresee there are always preventative measures that can be taken.
South-East Asia IPR SME Helpdesk
The South-East Asia IPR SME Helpdesk supports small and medium sized enterprises (SMEs) from European Union (EU) member states to protect and enforce their Intellectual Property Rights (IPR) in or relating to South-East Asian countries, through the provision of free information and services. The Helpdesk provides jargon-free, first-line, confidential advice on intellectual property and related issues, along with training events, materials and online resources. Individual SMEs and SME intermediaries can submit their IPR queries via email (email@example.com) and gain access to a panel of experts, in order to receive free and confidential first-line advice within 3 working days.
The South-East Asia IPR SME Helpdesk is co-funded by the European Union.
To learn more about the South-East Asia IPR SME Helpdesk and any aspect of intellectual property rights in South-East Asia, please visit our online portal at http://www.ipr-hub.eu/.
 “More investments in R&D needed”, Business Mirror 2017, available at: https://businessmirror.com.ph/more-investments-in-rd-needed/