least two directors of all corporations must be residents of the Philippines.

Foreign corporations.-Corporations formed, organized, or existing under laws other than laws of the Philippines may not transact business in the Philippines unless they have obtained a license for that purpose from the Securities and Exchange Commission, according to section 68 of the Corporation Law.

Licenses for foreign banks and banking institutions are issued on order of the Monetary Board of the Central Bank; for foreign insurance companies (to transact new business), on order of the Insurance Commissioner; and for all other foreign corporations, on order of the Secretary of Commerce and Industry. No license may be issued to foreign building and loan associations, as the only such associations permitted to do business in the Philippines are those organized under Philippine law.

No order for a license is issued before the managing agent of the corporation presents in duplicate to the appropriate office a notarized statement in the form of an application for license and setting forth the following: Name of the corporation; purpose for which organized; location of principal or home office; capital stock of the corporation and amount thereof actually subscribed and paid into the treasury; net assets of the corporation over and above all debts, liabilities, obligations, and claims outstanding against it; and the name of the agent residing in the Philippines authorized by the corporation to accept service of summons and process in all legal proceedings against the corporation and of all notices affecting the corporation, and generally to administer the business affairs of the organization.

Accompanying the above-described statement must be the following documents, in duplicate, duly acknowledged and authenticated: Resolution of the board of directors of the corporation authorizing establishment of a branch in the Philippines and authorizing the president or vice president to execute a power of attorney in favor of the corporation's agent in the Philippines; power of attorney in favor of the agent; articles of incorporation; and the latest annual report of the corporation pertaining to its actual business and made within 1 year before the date the Philippine license is applied for. If executed in the United States, the documents should be authenticated by a Philippine consular officer, or by the clerk of the proper court of record if no Philippine consular officer is available within a reasonable distance from the corporation's main office. When the statement in the form of a license application and the necessary accompanying documents, plus a certified copy of the corporation's charter and the order for issuance of a license, have been filed with the Securities and Exchange Commission, a license to do business in the Philippines is formally issued. The license

fees are based on the capital stock and range from pesos to 300 pesos.

25 Section 69 of the Corporation Law reiterates the rule that no foreign corporation may transact business in the Philippines without a license and adds a prohibition that no unlicensed foreign corporation may "maintain by itself or assignee any suit for the recovery of any debt, claim, or demand whatsoever The prohibition it not limited

to foreign corporations which have been transacting business in the country without a license, and thus if interpreted literally would bar all unlicensed foreign corporations from maintaining any action in Philippine courts even to protect their reputations, corporate names, and goodwill.

In connection with these restrictions questions have arisen from time to time as to what activities do or do not constitute "transacting business" in the Philippines as the term is used in the Corporation Law, and what are the general rights of foreign corporations to sue in Philippine courts. The Supreme Court of the Philippines in considering these problems has stated that no general rule or governing principle can be laid down as to what constitutes "doing" or "engaging in" or "transacting" business. The terms, however, imply a "continuity of commercial dealings and arrangements, and contemplate, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to and in progressive prosecution of the purpose and object" for which the corporation was organized, according to the Court.

Further, the Court has stated that the taking of an isolated order is not "to transact" business as the term is understood in the Corporation Law; and the object of the law is not to prevent foreign corporations from performing single acts but to prevent them from acquiring a domicile for business purposes without taking steps necessary to render them amenable to suit in local courts. Since there is no definite rule relating the frequency of transactions of foreign corporations to the license requirement, legal advice should be obtained in doubtful cases. It should be noted that anyone transacting business in the Philippines, within the meaning of the term as used in the law, for any foreign corporation not having a license is subject to fine or imprisonment or both.

In regard to the right of foreign corporations to sue in Philippine courts, the Supreme Court has stated that such corporations actually "transacting business" in the Philippines as the term is understood in the Corporation Law may not maintain any action in Philippine courts until they have complied with the license requirement. On the other hand, according to the Court, foreign corporations not "transacting business" within. the meaning of the term as used in the law may maintain a suit in Philippine courts "upon any cause of action whatsoever, provided the subject matter and the defendant are within the jurisdic

tion of the courts." It is not the lack of a license but "doing" business without a license which debars foreign corporations from access to Philippine courts, the Court says.

BOOKS OF ACCOUNT

All merchants are required to keep a book of inventories and balances, a day book, a ledger, a copying book for letters and telegrams, and other books as may be required by law, according to the Code of Commerce. The loose-leaf system is in general use. All required records must be kept for the life of the business plus 5 years.

The Corporation Law, as amended, provides that all corporations keep a record of all business transactions, minutes of all meetings, and a stock and transfer book. Books, papers, letters, and documents belonging to a corporation or pertaining to its business administration or condition are subject to inspection by designated representatives of the Government at any time.

For tax purposes, all corporations, companies, partnerships, or persons required by law to pay internal revenue taxes must keep a journal_or ledger or their equivalents, according to the Internal Revenue Code, as amended. Those whose gross quarterly sales, earnings, receipts, or output do not exceed 5,000 pesos may keep a simplified set of bookkeeping records as authorized by the Secretary of Finance. Corporations, companies, partnerships, or persons whose gross quarterly sales, receipts, earnings, or output exceed 25,000 pesos are required to have their books of accounts audited and examined annually by a certified public accountant.

The above-mentioned books, and subsidiary books if any, must be preserved for at least 5 years from the date of the last entry and are subject to examination and inspection at any time by internal revenue officers. Corporations, partnerships, companies, or persons retiring from business are required to submit books of account, subsidiary books, and all accounting records to the Bureau of Internal Revenue within 10 days of the date of retirement, or such period as the collector may designate.

Journals, ledgers, invoices, receipts, and the like are to be submitted to the Bureau of Internal Revenue for approval and registration before they may be used, under terms of a ruling by the Department of Finance.

SECURITIES

In general, securities may not be offered for sale to the public unless they have been registered and/or licensed as provided in the Securities Act (Commonwealth Act No. 83, as amended). The restrictions do not apply to a selected list of secu

rities and certain types of transaction, information concerning which appears in sections 5 and 6 of the act.

Registration of securities is accomplished by filing with the Securities and Exchange Commission a sworn registration statement containing or having attached thereto detailed information on the securities and the operations of the issuing entity. The filing fees range from a minimum of 50 pesos to a maximum of 1,000 pesos.

Speculative securities are subject to special scrutiny, but if they are registered, the issuer or dealer will be given a sales permit indicating that the issuance of the permit is permissive only and does not constitute an endorsement of the securities permitted to be issued.

INDUSTRIAL PROPERTY PROTECTION

Property Rights

In keeping with the prevalent respect for the rights of private property, the following property rights are enumerated in the Bill of Rights of the Philippine Constitution:

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1. "No person shall be deprived of . . . erty without due process of law. . 2. "Private property shall not be taken for public use without just compensation.

3. "The right of the people to be secure in their persons, houses, papers, and effects against unreasonable searches and seizures shall not be violated, and no warrants shall issue but upon probable cause, to be determined by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched, and the persons or things to be seized.

4. "No law impairing the obligation of contracts shall be passed."

In spite of the foregoing provisions of the Constitution, however, non-Philippine citizens seeking to acquire property rights are greatly handicapped by article XIII of the Philippine Constitution which reserves to Philippine citizens, or to corporations and associations at least 60 percent of the capital of which is owned by such citizens, the right to acquire land and to exploit natural reources in the Philippines. Specifically, this article provides:

"Section 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, and other natural resources of the Philippines belong to the State, and their disposition, exploitation, development, or utilization shall be limited to citizens of the Philippines, or to corporations or association at least sixty per centum of the capital of which is owned by such citizens, subject to any existing right, grant, lease, or concession at the time of the inauguration of

In addition, article XIV of the Constitution provides:

"Section 8. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or other entities organized under the laws of the Philippines, sixty per centum of the capital of which is owned by citizens of the Philippines.

For United States citizens and corporations, however, the restrictive provisions of articles XIII and XIV of the Constitution were partially nullified by an amendment which grants them equal rights with citizens and corporations of the Republic of the Philippines in the acquisition of land of the public domain and of grazing, forestry, fishing, and mineral rights and in the ownership and operation of public utilities. It must be emphasized, however, that this amendment is temporary in nature and will continue in force only "during the effectivity of the Executive Agreement entered into by the President of the Philippines and the President of the United States, on July 4, 1946. . . but in no case to extend beyond July 3, 1974."

With the exception of public agricultural land, the Constitution of the Philippines holds that all natural resources are inalienable and "no license, concession, or lease for the exploitation, development, or utilization of any of the natural resources shall be granted for a period exceeding 25 years, renewable for another 25 years, except as to water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, in which cases beneficial use may be the measure and the limit of the grant." With regard to franchise, the Constitution requires that franchises, certificates, or authorizations for the operation of public utilities shall not be "exclusive in character or for a longer period than fifty years. No franchise or right shall be granted to any individual, firm, or corporation, except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the public interest so requires.

Private corporations are restricted to the holding of not more than 1,024 hectares in the acquisition or lease of public agricultural lands. Individuals may be allowed to purchase not more than 144 hectares or to lease not more than 1,024 hectares, but, for homestead purposes, may be granted not more than 24 hectares of public agricultural land. Lands adapted to grazing may be leased up to a maximum of 2,000 hectares to either an individual or a private corporation.

Although no implementing legislation has as yet been enacted, the Constitution of the Philippines also authorizes the limitation of the amount of private agricultural land which individuals or corporations may acquire. The Philippine Con

gress may also, upon payment of just compensation, authorize the expropriation of lands to be subdivided into small lots and sold at cost to individuals. Transfers of private agricultural land to individuals or corporations not qualified to acquire or hold lands of the public domain are also prohibited, except in cases of hereditary succession.

In the event it is desired to study property rights under Philippine law more closely, it is suggested that books II, III, and IV of Republic Act No. 386, entitled "An Act to Ordain the Civil Code of the Philippines," be used as reference material.

Patents

The rights of citizens and corporations of the United States to obtain patents and to sue for infringements of patents in the Philippines was established by an exchange of notes early in 1948 between the Secretary of State of the United States and the Ambassador of the Republic of the Philippines to the United States. In these notes it was recognized by both Governments that there is substantial reciprocity of treatment of the citizens of both countries with respect to privileges under their respective patent laws.

Philippine law provides that patents may be issued for the following:

1. "Any invention of a new and useful machine, manufactured product or substance, process, or an improvement of any of the foregoing.

2. "Any new and original creation relating to the features of shape, pattern, configuration, ornamentation, or artistic appearance of an article or industrial product.

3. "Any new, original, and ornamental design for an article of manufacture.

4. "Any new model of implements or tools or of any industrial product or part of the same which does not possess the quality of invention but which is of practical utility by reason of its form, configuration, construction or composition."

Applications for patents may be filed by the first true and actual inventor, his heirs, legal representatives, or assigns. With respect to applications by nonresidents, a local agent or representative is required to be appointed so that he may receive any notice or process relating to the application. Applications filed in a foreign country which by treaty, convention, or law affords similar privileges to Philippine citizens are given the same force and effect as an application filed in the Philippines as of the date filed in the foreign country if an application is also filed in the Philippines within 12 months from the date of filing in the foreign country.

Patents for inventions are issued in the name of the Republic of the Philippines for a term of 17 years provided the patentee pays the required annual fee for maintenance of the patent registra

tion. Patents for industrial designs are granted for a term of 5 years from the date of granting and are renewable for a second and third term of 5 years. After issuance, patents are published in the Official Gazette as soon as practicable.

Under Philippine law, a patentee has the exclusive right to make, use, and sell the patented machine, article, or product and to use the patented process for industrial or commercial purposes throughout the Philippines for the term of the patent and such making, using, or selling by any person without authorization by the patentee constitutes infringement of the patent. Infringement of patents for industrial designs consists in unauthorized identical or substantially identical copying of the patented design for the purpose of trade or industry and in the making, using, or selling of the article or product copying the patented design.

Despite the exclusive rights granted patent owners under Philippine law, the following instances are considered as noninfringement of patents:

1. Making or using of a patented invention when not conducted for profit and solely for the purpose of research, experiment, or instruction.

2. Use in the Philippines by any ship, vessel, aircraft, or land vehicle of any other country entering Philippine territory temporarily or accidentally of any invention exclusively for the needs of the ship, vessel, aircraft, or land vehicle and not for the manufacture of anything to be sold in the Philippines or exported from the Philippines.

3. Use or sale of any newly invented device or other patentable article which was purchased or acquired from the inventor or constructed with his knowledge and consent prior to the filing of the application for the patent.

4. Use by the Government of the Philippines of the patented invention for governmental purposes upon reasonable compensation to the patentee for the use of the invention.

Patent rights are also restricted by a provision of Philippine law which permits any person to apply for a compulsory license under a particular patent after a period of 3 years from the date of the grant of the patent upon showing: (a) That the patented invention is not being utilized in the Philippines, (b) that the demand for the patented article in the Philippines is not being met adequately and on reasonable terms, (c) that the establishment of a new trade or industry in the Philippines is prevented or unduly restrained by the refusal of the patentee to grant a license on reasonable terms, or (d) that the patented invention relates to food or medicine or is necessary for public health or public safety.

Cancellation of patents may be obtained on the following grounds: (a) That the invention is not new or patentable, (b) that the specification does not comply with the requirements of the patent law, or (c) that the patentee is not the true and actual inventor nor did he derive his rights from

the true and actual inventor. Unless petition for cancellation is filed by the Solicitor General, however, the time for filing the petition for cancellation of patents is limited to 3 years from the date of the publication in the Official Gazette of the issuance of the patent.

Damages for infringement of a patent may be recovered by civil suit filed in the proper Court of First Instance. The amount of the damages awarded by the court may not exceed three times the amount of actual damages in accordance with the circumstances of the case. If the amount of damages cannot be readily ascertained with reasonable certainty, damages may be awarded in the form of a "reasonable royalty." A foreign corporation or juristic person to which a patent has been granted or assigned in the Philippines is authorized to sue for infringement of patent even if it is not licensed to engage in business in the Philippines, provided the country of which such corporation or person is a citizen or in which it is domiciled grants similar privileges to Philippine corporations or citizens by treaty, convention, or law.

It must be emphasized, however, that no damages may be recovered for acts of infringement committed more than 4 years before the institution of the action for infringement nor for acts of infringement committed before the infringer had actual notice of the patent unless public notice had been given by placing on the patented machine, device, article, process, design, or utility model the words "Philippine Patent," "Philippine Design Patent," or "Philippine Utility Model Patent" and the number of the patent. Where such marking cannot reasonably be accomplished, such notice is permitted to be placed on the package or container in which the device or article is supplied to the public or in descriptive advertising matter used in connection with the patented machine, device, article, process, design, or utility model.

Repetition of infringement after court judgment against the infringer is a criminal offense and subject to punishment by fine not exceeding 10,000 pesos and imprisonment not exceeding 5 years or both. Criminal action must, however, be instituted within 2 years from the commission of the offense.

False marking of any device, article, or product to represent or imply that it is patented may be penalized by a fine of not less than 100 pesos nor more than 1,000 pesos or by imprisonment for not less than 1 month nor more than 1 year, or both.

The Director of the Patent Office, with the approval of the Secretary of Justice, is empowered to promulgate rules and regulations for the enforcement of the patent law. Only persons duly recognized to practice before the Patent Office are permitted to represent themselves as patent solicitors, agents, or attorneys or to represent applicants for patent before the Patent Office. Decisions of the Director of the Patent Office are

appealable to the Supreme Court of the Philippines.

The basic Philippine legislation on patent rights is Republic Act No. 165, as amended by Republic Acts Nos. 637 and 864.1

Trade-Marks

On June 16, 1953, the President of the Philippines signed into law a bill designed to permit the registration of trade-marks, trade names, and service marks owned by "persons, corporations, partnerships, or associations domiciled in any foreign country" provided that such marks or names are actually in use in commerce and services in the Philippines not less than 2 months before the filing of application for registration and provided further that "the country of which the applicant for registration is a citizen grants by law substantially similar privileges to citizens of the Philippines and such fact is officially certified with a certified true copy of the foreign law translated into the English language by the government of the foreign country to the Government of the Republic of the Philippines."

In February 1954 the Philippine Government informed the United States Government as follows:

"... applications for registration of trademarks by American citizens or firms will now be accepted in the Philippines.

attention..., however, is invited to the fact that the acceptance of said certificate and accompanying documents, constitutes only prima facie evidence of reciprocity. The accuracy of the certification may be contested in cancellation proceedings in the Philippine Patent Office, or in infringement proceedings in courts, both of which are inter parties."

In order to receive the benefits of this newly enacted legislation, however, American citizens and corporations will be required (1) to register their trade-marks, service marks, and trade names in the United States, and (2) to appoint an agent or representative in the Philippines to receive any notice or process emanating from the Philippine Government. After these conditions have been met, the Philippine Patent Office may accept an application for registration.

In the Philippines, registration proceeds in the following manner. Upon receipt of an application for registration, the Patent Office is required to make its own examination as to the eligibility of the trade name or mark for registration. After the application passes this test, it is then published in the Official Gazette for subsequent hearings as to any opposition. If no opposition is encountered, or if any attempts on the part of the opponents to prevent registration are defeated, the Director of the Patent Office may then issue a certificate of registration in the name of

the Republic of the Philippines and under the seal of the Patent Office.

Some of the details of the eligibility requirements for such certificates follow. Under Philippine law, a trade-mark or name is defined as "a word or words, name, title, symbol, emblem, sign or device or any combination thereof used as an advertisement, sign, label, poster or otherwise for the purpose of enabling the public to distinguish the business of the person who owns and uses the said trade name or trade-mark."

A service mark is considered by Philippine law to mean "a mark used in the sale or advertising of services to identify the services of one person and distinguish them from the services of others, and includes without limitation the marks, names, symbols, titles, designations, slogans, character names, and distinctive features of radio or other advertising."

As in the United States, registration is not allowed of trade-marks, trade names, or service marks which consist or comprise of:

1. Matter which may be immoral, deceptive, or scandalous or may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs, or national symbols or bring them into contempt or disrepute.

2. The flag or coat of arms or other insignia of the Philippines or any of its political subdivisions or of any foreign nation or any simulation thereof.

3. A name, portrait, or signature of a living individual except by his written consent or the name, signature, or portrait of a deceased president of the Philippines during the lifetime of the widow except by such widow's written consent.

4. A mark or trade name so resembling a mark or trade name registered in the Philippines, or previously used in the Philippines by another and not abandoned, as to be likely to cause confusion or mistake, or to deceive purchasers.

5. A mark or trade name which is merely descriptive or deceptively misdescriptive of the goods, business, or services of the applicant or is primarily geographically descriptive or deceptively misdescriptive of them, or is primarily merely a surname. The Director of the Patent Office is permitted, however, to accept for registration a mark or trade name of an applicant which has become distinctive as applied to or used in connection with his goods, business, or services through continued use for 5 years preceding the date of the filing of the application for registration.

The exclusive rights granted under certificates of registration of trade-marks, trade names, or service marks remain valid for 20 years, provided that within 1 year following the fifth, tenth, and fifteenth anniversaries of the date of issuance the registrant files an affidavit showing that the mark or name is still in use or that its nonuse is due to special circumstances and not due to an intention