Although the Philippines has slipped behind other ASEAN nations in automotive market size and though lacking in major domestic brands, the country’s massive exports of electronics and metal goods still make it a significant part of the international automotive supply chain. Currently, over 250 automotive companies operate in the Philippines, with foreign businesses largely represented by Japanese firms. Automotive exports created a net trade surplus of US$ 2.7 billion in 2010 and reached a total market size of US$ 3.5 billion in 2012. For automotive firms, these exports include many humble but critical components such as ignition wiring sets, intake air filters, clutch pedals, and radio receivers. Other exports are more immediately recognizable, including pneumatic tires, lead-acid storage batteries, and transmissions. Alongside these automotive staples are integrated circuits, the electronic brains which will form a critical part of the worldwide automotive industry’s adoption of self-driving cars. Many of these more sophisticated parts are produced not by automakers themselves but rather by smaller specialized contractors.
While the Philippine intellectual property regime stands head and shoulders above some of its other ASEAN counterparts, automakers or automobile component companies which source their products from the Philippines will still encounter challenges. Enforcement in the Philippines lags behind that of more developed markets, and there are always difficulties inherent in negotiating IP contracts with local partners. Nonetheless, with careful IP protection and a smart IP management strategy SMEs can reap the benefits of the Philippines’ comparative advantage in relative safety. To do so, a company must focus on three key elements: patents for key technology, especially in propulsion systems which will play a central role in international fuel efficiency design competition; semiconductor topography designs (integrated circuit layout-designs) for electronics which will give smart cars eyes and ears to manoeuvre safely and control their components; and copyrights for computer codes which will run on those electronics.
Patents: rising competition
PricewaterhouseCoopers’ 2013 Patent Litigation Study shows that the automobile industry consistently ranks among the industries with the most patent cases filed and has only seen these numbers grow in recent history. These disputes are fuelled by patent trolls, by the growing need for fuel-efficient powertrains brought on by recent environmental laws in major markets, and by environmentally-conscious consumers’ taste for vehicles boasting such technology.
Advanced propulsion systems and powertrains are primarily impacted by patents in the Philippine lead-acid battery industry which can hybrid power cars. As batteries become more advanced under technological innovation and greater government support, battery layouts will become increasingly important.
Applications for patents or utility models are handled by the Bureau of Patents at the Intellectual Property Office. Patent applications in the Philippines are handled on a first-to-file basis as with all other intellectual property applications. Priority is allowed provided that a local application is filed within 12 months of the earliest foreign filing date, allowing SMEs to gain the edge in applying for patents on tech which they have patented elsewhere.
The patent will take effect on the date of the publication of the granting of the patent in the Gazette and is good for 20 years after the filing date of the application. After four years, to maintain a patent, the patent holder must pay a yearly fee at least three months before the anniversary of the filing of the application.
Smart car technology
Semiconductors and integrated circuits are important parts of today’s smart cars. These computer chips, which provide the brainpower needed to coordinate a car’s many complex elements to account for everything from which gear to use to smaller matters such as adjusting fuel injection based on altitude, will play a key role in making cars efficient and green in the future. Semiconductors are also used in the radio transmitters and wireless receivers used by self-driving cars to relay information to self-driving car infrastructure or communicate with and sense other smart cars. The Philippines’ strong electronics sector makes it an ideal place for producing these components for export to Europe.
In Philippine law, semiconductor topographies (referred to as integrated circuit layout-designs in Philippine law) are the designs used on integrated circuits which control the way the circuits appear and function and are handled by the Bureau of Patents. Again, the Philippines has a first to file system with priority granted if a local application is made within a certain time period—in this case, 6 months, rather than the 12 months allowed for patents.
Layout-designs are protected for ten years with no chance of renewal. Protected periods for layout-designs begin from the date of the first commercial exploitation of the design anywhere in the world with the consent of the right holder. For protection to be extended in this way, an application for registration of the layout-design must have been filed with the Philippines within two years of the first commercial exploitation.
Self-driving car programs
Semiconductors for self-driving cars and sensors would be useless without computer programs to convert their data into real-world instructions. These programs map out routes, account for traffic, and analyse surrounding objects to avoid obstacles. Increasingly, automotive companies are placing an emphasis on acquiring mapping and detection programs to give their self-driving cars the ability to drive safely and efficiently; in August 2015, BMW, Audi, and Daimler acquired HERE Global, Nokia’s map business, for $2.8 billion. In doing so, they outbid tech companies from Uber to Baidu for control of a competitor to Google Maps. Underpinning HERE’s value are its codes which allow it to sensibly navigate in real time. Even for cars without self-navigation technology, codes are key parts of keeping cars running efficiently and protecting cars against an emerging field of car hackers. In April 2015 Tesla became the first company to release a wireless software update for its Model S sedans, proving that computers are becoming increasingly integral parts of cars.
In the Philippines, computer programs are not protected by patents. While the causes of this likely stem from poor institutional resources (copyrights are easier for IPOs to monitor as they are automatically conferred and have much longer protection periods), this fact still poses a potential pitfall for creators of smart car programs. Copyrights protect expression of codes, but not their functions. Thus, it is difficult to use Philippine IP laws to protect the actual function of computer codes, meaning that clever competitors can more easily learn from programs to create similar programs.
As soon as a work is created, copyright is immediately conferred upon the author. However, to strengthen a copyright claim, copyright can be registered with the Philippines’ Intellectual Property Office Bureau of Copyright and other Related Rights (BCRR). The office can issue a notarized affidavit on behalf of the owner of the copyright stating that a copyright exists and that the copyright owner is, in fact, the owner. Registering copyrights with international organizations can also serve as proof of ownership and can extend protection to a work even if it was not published in the Philippines . In any case, no damages can be recovered for acts more than four years old.
Enforcing your Intellectual Property Rights
Patent trolls: register first
Patent trolling is when entities register patents for the express purpose of denying use of those goods to others or for claiming rights over something already used by another company. The troll can then sue for damages or request compensation in exchange for allowing a company to use its own technology. Patent trolls are common in the automotive industry and highlight the need to apply for patents for inventions in the Philippines as soon as possible after an invention is created. By applying for a patent and claiming priority based on a patent filed internationally, a company can save itself many headaches in the long run.
Sometimes, trade secrets are the best option for maintaining intellectual property rights as patents in the Philippines expire 20 years after they are first issued—not a long time in the automotive industry. Additionally, a product’s external appearance often gives no clue as to its manufacturing process, making IPR infringement hard to spot. To maintain trade secrets, companies should take care to consult with legal professionals to draw up effective, legally-binding non-disclosure agreements or confidentiality clauses for partners and employees. Ideally, these rules would extend for the useful life of the trade secret and would not expire a few years after the partnership or employment ended as is so often the case. Because production processes for automotive parts are often complex, trade secret protection plans should include bans on recording devices or camera phones in any areas containing the production processes so as to make divulgement of the secrets more difficult.
Grounds for action and enforcing IPR
In case of infringement, the individual can bring charges regardless of whether he is licensed to conduct business in the Philippines. Should a patent be for a process for obtaining or producing a particular product, the burden of proof is on the suspected infringer to show that they obtained their product through alternative methods without using the IPR contained within the patent in question. In any case, no damages can be recovered for acts of infringement more than four years old or for acts of infringement committed before the infringer knew or could reasonably be expected to know of the patent. Additionally, any prior user of an invention who did so in good faith and had undertaken “serious preparations” to use the invention before the filing date or priority date of the application will have the right to continue use of the invention. The Legal Affairs Bureau of the Intellectual Property Office is the organ responsible for resolving many disputes, including through:
- Cancellation or suspension of any permits or licenses issued by the IPO
- Administrative complaints for violations of IPR laws where total damages do not exceed 200,000 Filipino pesos
- Issuance of cease and desist orders
- Seizure of products and properties which are subject of IPR offenses
- Issuance of administrative fines of up to 150,000 pesos
In highly technical cases, any party involved can ask for a committee composed of the Director of Legal Affairs and two members with relevant expertise to reach a decision, although this decision can be appealed to the Director General. If the court finds that the “true and actual inventor” has been deprived of a patent without his consent, then the court can cancel or transfer the patent and assign damages according to circumstances.
Intellectual Property Office of the Philippines
28 Upper McKinley Road, McKinley Hill Town Center
Fort Bonifacio, Taguig City 1634, Philippines
 The Philippines is party to the Berne Convention, the Universal Copyright Convention (Geneva), TRIPS, and the WIPO Copyright Treaty.
This article was first published July 2017.
Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, we are your reliable partner for business expansion in this region and beyond.