Tan Hassani and Counsel recently contributed to ICLG, International Comparative Legal Guides on Technology Sourcing Laws and Regulations 2026, this covers procurement processes, dispute resolution procedures, IP rights, and more – in 19 jurisdictions.
The International Comparative Legal Guides (ICLG) series of reference publications are co-created by publishers Global Legal Group (GLG) and a multinational panel of expert legal contributors who together gather, research and publish the primary cross-border legal guidance necessary for law firms, companies, governments and high-net-worth individuals to operate globally.
1. Procurement Processes
1.1 Is the private sector procurement of technology products and services regulated? If so, what are the basic features of the applicable regulatory regime?
No. Procurement of technology products and services of the private sector are generally not regulated. Any members of the private sector that intends to procure technology products and services are governed by general laws and principles, including but not limited to: the Civil Code of the Philippines, which provides laws on obligations and contracts; the Data Privacy Act of 2012 (“DPA”), if it involves personal information; the Intellectual Property Code (“IP Code”), which provides for the laws on trademarks, patents, and copyright; the Energy Efficiency and Conservation Act for manufacturers, distributors and dealers of electrical appliances and other energy-consuming products, which should comply with the Philippine Energy Labeling Program; the regulations of the National Telecommunications Commission for devices that emit radio frequencies or any devices that are wireless; and if it involves goods, the Philippine National Strategic Goods List.
1.2 Is the procurement of technology products and services by government or public sector bodies regulated? If so, what are the basic features of the applicable regulatory regime?
Procurement for the government or public sector is governed by the New Government Procurement Act or the Republic Act No. 12009 (the “Government Procurement Act”). The Government Procurement Act provides for a standardised procurement process and outlines the different modes of procurement that each procuring entity can adopt depending on which process fits their purpose the most. Among the modes of procurement under the Government Procurement Act are competitive bidding, limited source bidding, direct contracting, direct sales, repeat order, and negotiated procurement.
2. General Contracting Issues Applicable to the Procurement of Technology-Related Solutions and Services
2.1 Does national law impose any minimum or maximum term for a contract for the supply of technology-related solutions and services?
There is no law that imposes any minimum or maximum term for a contract for the supply of technology-related solutions and services. Parties are free to set the term of their contract provided that such term is not contrary to law, morals, good customs, public order, or public policy.
2.2 Does national law regulate the length of the notice period that is required to terminate a contract for the supply of technology-related services?
There is no law that regulates the length of notice period to be given for the termination of any contract for the supply of technology-related services. Under the Civil Code of the Philippines, parties are free to include any provision in their contract as long as such provisions are not contrary to law, morals, good customs, public order, or public policy.
2.3 Is there any overriding legal requirement under national law for a customer and/or supplier of technology-related solutions or services to act fairly according to some general test of fairness or good faith?
Under the Civil Code of the Philippines, obligations arising from contracts must be complied with by the parties in good faith.
2.4 What remedies are available to a customer under general law if the supplier breaches the contract?
In cases of breaches of contracts, the remedies that may be commonly availed of are as follows:
2.5 What additional remedies or protections for a customer are typically included in a contract for the provision of technology-related solutions or services?
Other than those mentioned in question 2.5, parties may resolve issues and conflict in their technology-related agreement by making use of the dispute resolution process available (see discussion under question 3.1). If no resolution was made, the aggrieved party may file an action with the appropriate courts or tribunals.
2.6 How can a party terminate a contract without giving rise to a claim for damages from the other party to the contract?
The parties may freely stipulate in their contract the ground(s) for termination of their contract and, provided that a party properly terminates the contract based on both the procedural and substantive requirements, such termination will be defensible. For instance, in cases of force majeure, which subsists for a long period of time, parties may mutually agree to terminate their contract without incurring any liabilities towards one another, provided that both are compliant with their obligations under the contract and have not committed any breach of contract.
2.7 Can the parties exclude or agree additional termination rights?
Parties are bound by the contracts they agreed upon. For so long as the exclusion or agreement for additional termination rights is not contrary to law, morals, good customs, public order, or public policy, then the parties are free to include provisions relating to such.
2.8 To what extent can a contracting party limit or exclude its liability under national law?
There are certain liabilities that, under Philippine laws, cannot be waived or excluded:
2.9 Are the parties free to agree a financial cap on their respective liabilities under the contract?
Parties are free to agree on a financial cap on their respective liabilities. However, as previously noted, parties cannot waive liabilities arising from fraud, bad faith, or gross negligence.
2.10 Do any of the general principles identified in your responses to questions 2.1–2.9 above vary or not apply to any of the following types of technology procurement contract: (a) software licensing contracts; (b) cloud computing contracts; (c) outsourcing contracts; (d) contracts for the procurement of AI-based or machine learning solutions; or (e) contracts for the procurement of blockchain-based solutions?
Laws or principles identified in questions 2.1–2.9 apply to any contracts in general. It is applicable in software licensing contracts, cloud computing contracts, outsourcing contracts, contracts for the procurement of artificial intelligence (“AI”)-based or machine learning solutions, or contracts for the procurement of blockchain-based technology.
3. Dispute Resolution Procedures
3.1 What are the main methods of dispute resolution used in contracts for the procurement of technology solutions and services?
There is no special dispute resolution regime within the Philippines in relation to contracts for the procurement of technology solutions and services. Any disputes between the parties will be resolved in accordance with the provisions that are agreed upon by the parties, as well as in accordance with the relevant provisions of Philippine law.
Disputes may also be resolved through mediation, either directly between the parties to the technology sourcing agreement, or in the context of court proceedings. In cases involving technology solutions and services, such as software, IT services, or other technical services, mediation may be appropriate if the parties wish to continue the existing business relationship with the technology sourcing company.
Arbitration is another method of resolving disputes between the parties to a technology sourcing contract. Arbitration is especially common in technology sourcing contracts that are of higher value, are crossing borders between different countries, or are particularly complex or technical in their requirements and provisions. In the Philippines, arbitration is provided for in Republic Act No. 9285, the Alternative Dispute Resolution Act of 2004. Foreign arbitral awards may be recognised and enforced in the Philippines if they are obtained under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, the New York Convention. Depending on the terms of the technology sourcing contract, arbitration may be held under institutions such as the Philippine Dispute Resolution Center, Inc. (PDRCI), the Singapore International Arbitration Centre (SIAC), the International Chamber of Commerce (ICC), and the Hong Kong International Arbitration Centre (HKIAC), or it may be conducted on an ad hoc basis.
If arbitration and mediation fail to resolve the disputes between the parties to the technology sourcing agreement, or if the contract provides for proceedings to go to court, the parties may initiate litigation in Philippine courts. Court litigation remains available, particularly for domestic contracts, collection actions, applications for injunctive relief, intellectual property disputes, employment-related claims, and cases where urgent judicial intervention is required. Philippine courts may also grant provisional or interim relief in appropriate cases.
Finally, some technology sourcing contracts may include certain mechanisms for resolving disputes between the parties before the initiation of arbitration, mediation, or court proceedings. Examples of such dispute resolution mechanisms may include clauses that provide for periods during which the parties may enter into a “curing period” of any contractual lapses that may be remedied by the parties in a specific period of time.
4. Intellectual Property Rights
4.1 How are the intellectual property rights of each party typically protected in a technology sourcing transaction?
Parties generally enter into a contract for technology sourcing transactions. The contract may outline the rights of each party in reference to the intellectual property involved. The contract may also provide for the limitations that one party has over the intellectual property of another.
4.2 Are there any formalities which must be complied with in order to assign the ownership of Intellectual Property Rights?
Assignment of ownership of Intellectual Property Rights must be in writing and acknowledged before a notary public. In case of assignment of patented works, it must be registered with the Intellectual Property Office (“IPOPHL”). In case the transaction involves copyrightable works, then the assignment must be filed with the National Library.
4.3 Are know-how, trade secrets and other business critical confidential information protected by national law?
The IP Code protects undisclosed information, which includes know-how, trade secrets, and other confidential information. However, considering the nature of such information, the IP Code is silent as to the regulation of such critical confidential information and generally leaves it up to the owner to take active steps in ensuring its confidentiality.
Parties may include confidentiality clauses in their contracts or execute a separate non-disclosure agreement in order to protect any confidential or sensitive information that may be obtained by one party from the other party during the effectivity of the contract.
5. Data Protection and Information Security
5.1 Is the manner in which personal data can be processed in the context of a technology services contract regulated by national law?
Processing of personal information is governed by the DPA and regulations issued by the National Privacy Commission (“NPC”). If the technology service contract will involve processing of personal information, then such contract shall comply with the DPA and applicable regulations of the NPC.
5.2 Can personal data be transferred outside the jurisdiction? If so, what legal formalities need to be followed?
Personal data can be transferred outside of the jurisdiction. Transferring of personal data can either be through an outsourcing agreement or a data sharing agreement.
In an outsourcing agreement, the two entities involved are: (1) the PIC, which refers to the organisation that processes personal data; and (2) the Personal Information Processors (“PIP”), which refers to another entity to whom a PIC may outsource the processing of personal data. An outsourcing agreement shall be governed by a contract or other legal act that will bind the PIP to the PIC. In the opinion of the NPC, it clarified that the other legal acts that will bind the PIP to the PIC include the applicable terms and conditions agreed by the parties and such can be compliant for so long as proper safeguards in the protection of personal data are in place.
A data sharing agreement, on the other hand, refers to a transfer of personal data from the PIC to another PIC. The recipient PIC shall then process the personal data for purposes that are completely different from the purposes of the PIC that originally collected such data. While execution of a data sharing agreement is not required, execution of such is considered as best practice since it will outline the rights and obligations of each party, as well as provide for the security measures to be adopted by each party in safeguarding personal data.
5.3 Are there any legal and/or regulatory requirements concerning information security?
While there are no legal or regulatory requirements concerning information security, provisions of the DPA and the Cybercrime Prevention Act may be applicable.
Contracts involving personal data should always be compliant with the DPA and other regulations of the NPC.
Under the Cybercrime Prevention Act, offenses against the confidentiality, integrity, and availability of computer data and systems are considered as punishable offenses. These include illegal access to any computer system, interception to, from, or within a computer system, intentional or reckless alteration, damage, or deletion of computer data or electronic documents or messages, and intentional or reckless interference with the functions of a computer system.
6. Employment Law
6.1 Can employees be transferred by operation of law in connection with an outsourcing transaction or other contract for the provision of technology-related services and, if so, on what terms would the transfer take place?
Employees are not automatically transferred by operation of law in the Philippines as a result of the outsourcing of technology-related services. A transfer of an employee from one employer to another generally requires documentation between the parties of such a transfer, and the consent of the employee if the employee is to transfer to a different employer than that from which they were employed.
The transfer may be accomplished through a variety of methods, such as the employee resigning from their current employer and being re-employed by a new employer, transferring the employee’s employment rights through a novation and assignment with the consent of the former employer, the employee separating from their former employer and being employed by a new employer through a new employment contract, or some other structure that is agreed upon by the current and new employers. Each of these methods may be appropriate depending upon the identities of the current and new employers, and the structure of the outsourcing agreement between those two employers.
Any transfer must be handled consistently with Philippine labour law principles, including security of tenure, due process, payment of final pay and statutory benefits, and compliance with rules against labour-only contracting. Where the arrangement involves a contractor, service provider, or employer of record (“EOR”) model, the structure should be assessed under the Labor Code of the Philippines and Department of Labor and Employment (“DOLE”) Department Order No. 174, series of 2017. A legitimate contractor should generally be registered with the appropriate DOLE Regional Office, have substantial capital or investment, carry on an independent business, exercise control over its employees, and have the tools, equipment, premises, or resources necessary to perform the contracted service.
6.2 What employee information should the parties provide to each other?
There is no specific list of the information that the employee and the employer must exchange as part of a technology sourcing and outsourcing agreement. The information that will need to be exchanged between the parties will likely relate to the employment of the company’s employees, and their mandatory compliance with the government agencies.
For personal data of the employees, the disclosure and use of such information must comply with the DPA. The party that is to disclose such personal data is required to establish a legal basis for that disclosure, to limit the data that will be disclosed to what is necessary, and to ensure that any data sharing or data processing arrangements are appropriately established between the parties.
6.3 Is a customer or service provider allowed to dismiss an employee for a reason connected with the outsourcing or other services contract?
An employee may be dismissed for a reason connected with an outsourcing or technology services contract only if there is a valid ground under Philippine employment law and procedural due process is observed. The outsourcing or services contract, by itself, does not automatically justify dismissal.
An employee’s dismissal that is connected to an outsourcing agreement may fall under one of the reasons for which an employer is permitted to dismiss an employee under the Labor Code of the Philippines. For instance, an employer may be permitted to dismiss employees if they are installing labour-saving devices into the employer’s workplace, if the employer is undertaking a retrenchment in order to avoid incurring losses for the company, or if the employer intends to close and cease their business operations. In these instances, the employer is required to provide notice of their intention to dismiss those employees from their positions and are required to pay the employees any separation pay that is required by the Labor Code of the Philippines.
Finally, another possible risk of the establishment of an outsourcing technology services agreement is that the outsourcing service provider is only providing the company with labour contracting services. If such a labour-only contracting agreement is determined to be an existing labour-only contracting arrangement, then the company may be considered the “employer” of the employees who are working for the service provider. Additionally, the company may also be jointly and severally liable with the service provider for any labour law violations that are committed by those employees.
6.4 Is a service provider allowed to harmonise the employment terms of a transferring employee with those of its existing workforce?
Generally, a technology services provider is able to set the terms of employment for its own employees. However, such an arrangement may not be permitted if such an action will result in a diminution of the employees’ benefits that have been provided to those employees.
Where transferring employees are hired by the service provider, the terms of employment should be clearly documented, including compensation, benefits, position, work location, working hours, remote work arrangements, reporting lines, and applicable company policies. If the service provider agrees to recognise prior service or preserve specific benefits, those matters should be expressly stated in the employment contract or transition documents.
If harmonisation will adversely affect existing benefits, the employer should assess whether employee consent is required and whether the change may violate the principle against diminution of benefits. The safer approach is to preserve minimum statutory benefits, document any agreed changes, and avoid unilateral reductions in benefits that have already formed part of the employee’s employment terms.
6.5 Are there any pensions considerations?
There is no general mandatory private pension transfer regime in the Philippines. However, there are statutory requirements as to the contributions that must be made by employers to three Philippine funds: the Social Security System (SSS), the Philippine Health Insurance Corporation (PhilHealth), and the Home Development Mutual Fund (Pag IBIG Fund).
The provision of retirement benefits to employees is provided for in the Labor Code of the Philippines, a retirement plan established by the company, an employment contract, a company policy or a collective agreement between the employer and employees.
In the scenario in which a service provider assumes the employees of a client company, the agreement between the client and the service provider should state whether the service provider will assume any past service liability of the employees to the client company. Additionally, the agreement should provide for the assumption of any liabilities to the employees related to their separation from the company, retirement benefits, statutory contributions to the statutory funds, and other employment-related liabilities.
6.6 Are there any employee transfer considerations in connection with an offshore outsourcing?
In the scenario in which a company outsources its functions to the Philippines, there are various considerations to be made regarding the employment of employees of the outsourcing company in the Philippines. If the service provider in the outsourcing relationship has personnel based in the Philippines and those individuals are hired by the offshore service provider, then the offshore service provider is the employer of those individuals and is responsible for complying with the employment and statutory requirements of the Philippines.
If the structure uses an EOR or contractor model, the arrangement should be reviewed carefully under Philippine labour contracting rules. The service provider should be a legitimate independent contractor and should not merely supply labour. If individuals in the Philippines are engaged directly as independent contractors, the parties should assess misclassification risk. Under Philippine law, a contractor can be considered an employee for certain situations if there are badges of employment between the contractors and the offshore company.
Offshore outsourcing also requires attention to data privacy and information security. Employee and contractor information may involve personal data and, in some cases, sensitive personal information. Cross-border transfers and processing of such data must comply with the DPA and any applicable foreign data protection rules.
Finally, where the client operates in a regulated sector, the parties should also check whether the client’s home jurisdiction or Philippine sector-specific rules restrict the outsourcing of particular functions.
7. Outsourcing of Technology Services
7.1 Are there any national laws or regulations that specifically regulate outsourcing transactions, either generally or in relation to particular industry sectors (such as, for example, the financial services sector)?
While there are no specific national laws or regulations that regulate outsourcing transactions particularly for technology services, there are laws and regulations providing for the regulation of outsourcing in particular industries. Banks, insurance companies, and securities brokers/dealers are restricted or limited in certain activities that they can outsource, and consequently, the outsourcing of technology services may also be restricted.
For banks
The Manual of Regulations for Banks (MORB) of the Central Bank of the Philippines (called the Bangko Sentral ng Pilipinas or “BSP”) provides that banks are permitted to outsource specific services for the purpose of gaining access to specialised expertise or addressing operational constraints subject to compliance with the establishment of robust processes, procedures, and information systems capable of identifying, monitoring, and mitigating operational risks associated with outsourced functions.
However, the following core banking functions are prohibited from being outsourced:
Know-Your-Customer (“KYC”) processes of banks
In the opinion of the NPC, banks may conduct KYC processes for the following purposes and legal bases:
In case the bank outsources its KYC processes, the bank no longer needs to obtain a separate or independent consent from their customers in order to process their personal data, because its purpose for processing will be the same purpose as the bank. However, the bank must make sure that the company it has engaged to perform the KYC processes will limit its processing to what is necessary and proportionate to the conduct of the KYC process as requested by the bank.
Foreign currency deposit in Philippine Banks
Business Process Outsourcing (“BPO”) companies functioning as export enterprises may avail of zero-rated Value Added Tax (“VAT”) on their sales of service. In order to do so, they must maintain a foreign currency deposit account with banks licensed by the BSP, which will receive payments from any client they have outside the Philippines.
Such deposit account may also be used by the BPO company to prove and register their inward remittance of capital in order to later be allowed to purchase foreign exchange from authorised Philippine banks for purposes of repatriation of capital and remittance of earnings (dividends, profits, and interests on loans).
Functions of insurer/reinsurer
Through one of its circular letters, the Insurance Commission provided a list of specific functions that insurers and reinsurers are prohibited from outsourcing. Such functions are considered as integral to the conduct of doing or transacting insurance business and essential to the operations of insurers and reinsurers. By its nature, such functions must remain under the direct control and supervision of the insurer or reinsurer. The following functions cannot be outsourced by insurers/reinsurers:
Insurers/reinsurers may, however, engage BPO providers for advisory or consultancy services related to these activities, provided that these engagements are strictly limited to providing support and expertise. The power to make decisions and the operational control shall remain over the insurer/reinsurer.
For securities broker-dealers
The Securities and Exchange Commission (“SEC”) issued a memorandum circular governing the outsourcing activities of broker-dealers. Broker-dealers may outsource back-office functions, except:
It must also be noted that clearing and settlement activities may be outsourced to service providers that are expressly authorised by the SEC.
Service providers engaged by broker-dealers for outsourced functions are allowed to further subcontract these activities provided that:
Foreign companies outsourcing to the Philippines must also consider any legal or statutory restrictions in their home jurisdictions that may have an effect towards the legality of any outsourcing agreement.
7.2 What are the most common types of legal or contractual structure used for an outsourcing transaction?
Parties are free to choose any contractual structure for an outsourcing transaction. Parties often enter into a master service agreement that will provide for the general terms and conditions that will govern the agreement between the parties. A master service agreement is usually accompanied by a scope of work that would provide in detail all the services that are to be rendered by one party for another.
Particularly for outsourcing of technology services, common types of contractual structures usually involve a software-as-a-service or, increasingly, a platform-as-a-service type of agreement.
7.3 What is the usual approach with regard to service levels and service credits in a technology outsourcing agreement?
Parties are free to agree on the service levels and service credits that will be applicable in their technology outsourcing agreements. The types of contractual structures usually involve a software-as-a-service or, increasingly, a platform-as-a-service type of agreement.
Particularly for outsourcing of technology services, the usual approach for service levels involves stages of support depending on the severity of the outage such as call support, email support, and on-site support.
In case of service credits, the usual arrangement is that a service provider will be paid for any services rendered based on a subscription model. In case of downtime or failure to meet service levels, offsetting arrangements or discounts are provided by the service provider.
7.4 What are the most common charging methods used in a technology outsourcing transaction?
Payments are usually based on a subscription. Usually, a payor pays the payee a fixed amount depending on the agreed upon schedule (e.g. monthly, quarterly, or yearly). The amount to be paid is based on the service received and may be specifically curated to fit the demands of the payor.
7.5 What formalities are required to transfer third-party contracts to a service provider as part of an outsourcing transaction?
Transferring third-party contracts to a service provider will follow the formalities of a usual contract: (a) the consent of the contracting parties; (b) the object or subject matter of the contract or the service to be performed; and (c) the cause or the essential reason as to why the parties enter into the contract.
The third-party contracts to be transferred must also be reviewed. Contracts would sometimes include a provision prohibiting outsourcing, or requiring notice be made or consent be obtained prior to outsourcing.
In case a new service provider steps into the shoes of the previous service provider, novation shall take place. Novation will take place if there is a change in the object or principal obligation, if there is a change in the person of the debtor, or when a third person is subrogated the rights of the creditor. Novation essentially extinguishes the original obligation and creates a new one between the parties involved.
Additionally, companies looking to outsource should take into consideration its effect on the company’s employees. If a company chooses to outsource some of its office functions, then a redundancy situation may happen wherein the services of employees are in excess of what is reasonably needed or demanded in the company. In which case, a position becomes redundant and may be an authorised cause for the termination of the employee holding such position. In order for the redundancy to be valid, the following must be complied:
7.6 What are the key tax issues that can arise in the context of an outsourcing transaction?
Outsourcing of technology services that includes copyrightable materials should determine if payments under such outsourcing agreement are considered as royalties or as business income. Royalties and business income are taxed differently under the Philippine National Internal Revenue Code. When copyright is transferred, payments are considered as royalties. When copyright ownership is transferred, payments are considered as business income. Hence, in order to make sure that proper tax rates are paid, the parties must study their agreements and determine the nature of their transaction.
Additionally, there is now a VAT on digital services. Digital services refer to services supplied over the internet or other electronic network with the use of information technology and where the supply of the service is essentially automated. This is a recent development in the taxation laws of the Philippines, which would require non-resident service providers of digital services to be subject to 12% VAT of their gross sales derived from or consumed within the Philippines.
As a rule, an income is taxed where the service is performed. Recently, such taxability on an income is expanded to where the benefit is received or where the service is completed. If parties involved are: (a) a payor that is a Philippine resident individual or domestic corporation doing business; and (b) a payee that is a non-resident service provider, and that the service rendered (1) is integral to the completion or delivery of the non-resident service provider’s service, and (2) resulted in actual payment, constituting economic benefit to the non-resident service provider, then the income received by the non-resident service provider may be considered as a taxable income in the Philippines.
8. Software Licensing (On-Premise)
8.1 What are the key issues for a customer to consider when licensing software for installation and use on its own systems (on-premise solutions)?
When engaging a third-party service provider for the use of a software, the following must be considered:
8.2 What are the key issues to consider when procuring support and maintenance services for software installed on customer systems?
As mentioned in question 7.6, the VAT on digital services as well as the taxability of the income of a non-resident service provider should be taken into consideration.
The tax treatment of payments received is also relevant. In contracts for the use of a software with provision of other services (such as maintenance), payments made under such contracts can be treated as royalties and business income. The parties may opt to prepare separate contracts for the use of the software, payments of which are treated as royalties and will be taxed as such, and for other provision of services (such as maintenance), which will be treated as business income and will be taxed as such.
Additionally, if the service provider is a foreign entity, it is important to take into consideration the visa requirements that any of its representatives must obtain in order to enter the Philippines for purposes of conducting support and maintenance services. This is even more relevant in cases where the foreign entity is established in a country where the Philippines has a tax treaty with, and in which case, the concept of “Permanent Establishment” shall also be taken into consideration. Permanent Establishment refers to a fixed place of business through which a foreign country engages in trade or business. A fixed place of business could mean, among others, a branch, an office, a store, or the furnishing of services by a representative of such foreign state for an aggregate of more than 183 days. If a foreign entity is deemed to have Permanent Establishment in the Philippines, then such non-resident foreign entity will be taxed as a resident foreign corporation in the Philippines.
8.3 Are software escrow arrangements commonly used in your jurisdiction? Are they enforceable in the case of the insolvency of the licensor/vendor of the software?
Escrow arrangements are available in the Philippines but are not very common. The parties are free to stipulate the process that must be followed in case the licensor/vendor of the software becomes insolvent. However, in case the licensor or vendor files for insolvency, the rules under the Financial Rehabilitation and Insolvency Act must also be followed. In such a case, the enforceability of the escrow arrangement may be affected depending on the results of the insolvency proceedings.
9. Cloud Computing Services (including SaaS)
9.1 Are there any national laws or regulations that specifically regulate the procurement of cloud computing services (including Software-as-a-Service)?
For those in the private sector looking to procure cloud computing services, there is no law or regulation that regulates such procurement. When a member of the private sector enters into a contract with another member of the private sector, such contract should at least be compliant with the Civil Code of the Philippines provisions on obligations and contracts.
For those in the public sector looking to procure a cloud computing service, they should follow the Government Procurement Act for such procurement.
9.2 What are the key legal issues to consider and address in the contract when procuring a Software-as-a-Service solution (as opposed to or in addition to issues that apply to on-premise solutions)?
Matters taken into consideration for software licensing (on-premise) solutions shall also be taken into consideration when procuring a software-as-a-service.
It must also be noted that software-as-a-service falls under the definition of digital services, which would mean a VAT of 12% shall be imposed on the gross sales of the digital service provider.
Additionally, when procuring software-as-a-service solutions, the licensee should also take note of the security measures that the service provider will implement in order to safeguard any data, personal or otherwise, that is stored in their system. If personal data is involved, the applicable provisions of the DPA should be complied with as well.
10. Artificial Intelligence
10.1 Are there any national laws or regulations that specifically regulate the procurement or use of AI systems?
To date, there are no national laws or regulations that are specific to the procurement or use of AI systems. The DPA may be applicable if such procurement or use of an AI system includes processing personal data. In case it involves any intellectual property, the IP Code may also be applicable.
10.2 What rights subsist in the data used to train, test or operate an AI system?
In case personal data will be processed for the training, testing, and operating of an AI system, all rights of a data subject as outlined in the DPA should be respected. This includes: (a) the right to be informed that his/her data is being processed; (b) the right to object to the processing of his/her personal data; (c) the right to access information on the processing of his/her personal data; (d) the right to rectify any error or inaccuracy in his/her personal data; (e) the right to request that his/her personal data be deleted or destroyed; (f) the right to obtain a copy of his/her personal data or have the same be transmitted to another PIC; and (g) the right to be indemnified for any damages sustained due to any violation of his/her rights as a data subject.
10.3 What are the key legal issues to consider and address in the contract when procuring an AI system or AI enabled services (as opposed to or in addition to issues that apply to non-AI software)?
One key issue in AI systems or AI-enabled services is the ownership of the software and its output.
In the IPOPHL’s guidelines for inventions relating to AI, it provides that the person who inputted the prompts to the AI program is still considered as the inventor. The IPOPHL explains that there is no prohibition for the use of AI in the generation of an invention or design under the IP Code, but recognises that usage of such AI systems may be subject to disputes such as unfair competition and infringement. Therefore, the examiners of the invention must be prudent in examining the invention in order to make sure that such invention is not considered as prior art.
Other than the issue of ownership, most AI or non-AI services share the same legal issue that must be considered. In both instances, the parties may freely negotiate the terms of their agreement by entering into a licensing agreement to outline each party’s rights and obligations for such licensing agreement. The parties are also free to enter into confidentiality agreements or non-disclosure agreements to protect their rights and properties in both AI and non-AI software transactions.
10.4 Who owns the intellectual property rights to AI models that are improved or developed by machine learning techniques without the involvement of a human programmer?
To date, the IP Code is silent as to who owns the intellectual property rights to AI models that are improved or developed without any involvement of humans. However, it must be noted that the IP Code refers to an “inventor” as any person who has the right to the patent, and “author” as the natural person who has created the work.
The IPOPHL released an examination guideline for inventions relating to AI, which provides that an inventor, maker, or designer be a “person” as recognised in Philippine case law. The Implementing Rules and Regulations for Patents, Utility Models, and Industrial Designs expressly provides that only natural or juridical persons may apply for patents.
11. Blockchain
11.1 Are there any national laws or regulations that specifically regulate the procurement of blockchain-based solutions?
There are no national laws or regulations that specifically regulate procurement of blockchain-based solutions. Provisions of the Civil Code of the Philippines may apply for any contract entered into by a member of the private sector for procuring such solutions, while the procurement by a member of the public sector is governed by the Government Procurement Act.
11.2 In which industry sectors in your jurisdiction are blockchain-based technologies being most widely adopted?
There is no specific industry-wide sector that has widely adopted blockchain-based technologies; rather, it is entity-specific across a wide range of industries. For example, in the public sector, the SEC has adopted blockchain-based technologies for the registration of companies within its jurisdiction. Previously, when registering a corporation, incorporators would need to go through a notary public to sign the incorporation papers and, if signed outside the Philippines, would need to have the incorporation documents apostilled or legalised before such documents can be accepted by the SEC.
With the SEC’s adoption of blockchain-based technologies, incorporators are required to undergo a KYC process prior to the registration of their companies with the SEC. This KYC process includes submission of their identification cards and liveness check. Since their identities had been confirmed and validated, there is no need for them to have incorporation documents signed and apostilled/legalised.
11.3 What are the key legal issues to consider when procuring blockchain-based technology?
In procuring blockchain-based technology, the safety and protection of the personal data of the people involved must always be protected. This means that any contract procurement for blockchain-based technology must comply with the provisions of the DPA. Parties involved should also make sure that appropriate physical, technical, and organisational security measures are in place when it comes to safeguarding any personal data processed by such blockchain-based technology.
12. Looking Ahead
12.1 Looking ahead, what technological or legal development which is likely to occur in the next five years poses the biggest challenge for technology procurement, and how should businesses prepare for it?
AI is now often used by companies to communicate with their customers. As the usage of AI becomes more common, work that is typically done by humans is now being done by AI. This will ultimately affect the employment in the country.
However, employers should be mindful that they cannot rely on AI to deal with their customers. There are still concerns from customers that AI may not be able to properly respond to customer complaints. Hence, employers should continue to maintain a sufficient human workforce in their customer service team that can effectively address the concerns of their customers.
At the moment, there is a pending legislation that shall regulate the development and use of AI. One of its objectives is to ensure that Filipino workers from undue displacement due to AI can uphold their right to decent and sustainable work.
SOURCE: https://iclg.com/practice-areas/technology-sourcing-laws-and-regulations/philippines/ stay up to date with relevant legal guides from ICLG.
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