G.R. No.

190706 July 21, 2014

SHANG PROPERTIES REALTY CORPORATION (formerly THE SHANG GRAND TOWER

CORPORATION) and SHANG PROPERTIES, INC. (formerly EDSA PROPERTIES
HOLDINGS, INC.), Petitioners,
vs.
ST. FRANCIS DEVELOPMENT CORPORATION, Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 is the Decision2 dated December 18, 2009 of the
Court of Appeals (CA) in CA-G.R. SP No. 105425 which affirmed with modification the
Decision3 dated September 3, 2008 of the Intellectual Property Office (IPO) Director-General.
The CA: (a) affirmed the denial of the application for registration of the mark "ST. FRANCIS
TOWERS" filed by petitioners Shang Properties Realty Corporation and Shang Properties, Inc.
(petitioners); ( b) found petitioners to have committed unfair competition for using the marks
"THE ST. FRANCIS TOWERS" and "THE ST. FRANCIS SHANGRI-LA PLACE"; (c) ordered
petitioners to cease and desist from using "ST. FRANCIS" singly or as part of a composite mark;
and (d) ordered petitioners to jointly and severally pay respondent St. Francis Square
Development Corporation (respondent) a fine in the amount of ₱200,000.00.

The Facts

Respondent – a domestic corporation engaged in the real estate business and the developer of
the St. Francis Square Commercial Center, built sometime in 1992, located at Ortigas Center,
Mandaluyong City, Metro Manila (Ortigas Center)4 – filed separate complaints against petitioners
before the IPO - Bureau of Legal Affairs (BLA), namely: (a) an intellectual property violation case
for unfair competition, false or fraudulent declaration, and damages arising from petitioners’ use
and filing of applications for the registration of the marks "THE ST. FRANCIS TOWERS" and "THE
ST. FRANCIS SHANGRI-LA PLACE," docketed as IPV Case No. 10-2005-00030 (IPV Case); and
(b) an inter partes case opposing the petitioners’ application for registration of the mark "THE
ST. FRANCIS TOWERS" for use relative to the latter’s business, particularly the construction of
permanent buildings or structures for residential and office purposes, docketed as Inter
PartesCase No. 14-2006-00098 (St. Francis Towers IP Case); and (c) an inter partes case
opposing the petitioners’ application for registration of the mark "THE ST. FRANCIS SHANGRI-LA
PLACE," docketed as IPC No. 14-2007-00218 (St. Francis Shangri-La IP Case).5

In its complaints, respondent alleged that it has used the mark "ST. FRANCIS" to identify its
numerous property development projects located at Ortigas Center, such as the aforementioned
St. Francis Square Commercial Center, a shopping mall called the "St. Francis Square," and a
mixed-use realty project plan thatincludes the St. Francis Towers. Respondent added that as a
result of its continuous use of the mark "ST. FRANCIS" in its real estate business,it has gained
substantial goodwill with the public that consumers and traders closely identify the said mark
with its property development projects. Accordingly, respondent claimed that petitioners could
not have the mark "THE ST. FRANCIS TOWERS" registered in their names, and that petitioners’
use of the marks "THE ST. FRANCIS TOWERS" and "THE ST. FRANCIS SHANGRI-LA PLACE" in
their own real estate development projects constitutes unfair competition as well as false or
fraudulent declaration.6

Petitioners denied committing unfair competition and false or fraudulent declaration, maintaining
that they could register the mark "THE ST. FRANCIS TOWERS" and "THE ST. FRANCIS SHANGRI-
LA PLACE" under their names. They contended that respondent is barred from claiming
ownership and exclusive use ofthe mark "ST. FRANCIS" because the same is geographically
descriptive ofthe goods or services for which it is intended to be used.7 This is because
respondent’s as well as petitioners’ real estate development projects are locatedalong the streets
bearing the name "St. Francis," particularly, St. FrancisAvenue and St. Francis Street (now
known as Bank Drive),8 both within the vicinity of the Ortigas Center.

The BLA Rulings

On December 19, 2006, the BLA rendered a Decision9 in the IPV Case, and found that petitioners
committed acts of unfair competition against respondent by its use of the mark "THE ST.
FRANCIS TOWERS" but not with its use of the mark "THE ST. FRANCIS SHANGRI-LA PLACE." It,
however, refused to award damages in the latter’s favor, considering that there was no evidence
presented to substantiate the amount of damages it suffered due to the former’s acts. The BLA
found that "ST. FRANCIS," being a name of a Catholic saint, may be considered as an arbitrary
mark capable of registration when used in real estate development projects as the name has no
direct connection or significance when used in association with real estate. The BLA neither
deemed "ST. FRANCIS" as a geographically descriptive mark, opiningthat there is no specific
lifestyle, aura, quality or characteristic that the real estate projects possess except for the fact
that they are located along St. Francis Avenueand St. Francis Street (now known as Bank Drive),
Ortigas Center. In this light, the BLA found that while respondent’s use of the mark "ST.
FRANCIS" has not attained exclusivity considering that there are other real estate development
projects bearing the name "St. Francis" in other areas,10 it must nevertheless be pointed out that
respondent has been known to be the only real estate firm to transact business using such name
within the Ortigas Center vicinity. Accordingly, the BLA considered respondent to have gained
goodwill and reputation for its mark, which therefore entitles it to protection against the use by
other persons, at least, to those doing business within the Ortigas Center.11

Meanwhile, on March 28, 2007, the BLA rendered a Decision12 in the St. Francis Towers IP Case,
denying petitioners’ application for registration of the mark "THE ST. FRANCIS TOWERS."
Excluding the word "TOWERS" in view of petitioners’ disclaimer thereof, the BLA ruled that
petitioners cannot register the mark "THE ST. FRANCIS" since it is confusingly similar to
respondent’s"ST. FRANCIS" marks which are registered with the Department of Trade and
Industry(DTI). It held that respondent had a better right over the use of the mark "ST.
FRANCIS" because of the latter’s appropriation and continuous usage thereof for a long period of
time.13 A little over a year after, or on March 31, 2008, the BLA then rendered a Decision14 in the
St. Francis Shangri-La IP Case, allowing petitioners’ application for registration of the mark "THE
ST. FRANCIS SHANGRI-LA PLACE." It found that respondent cannot preclude petitioners from
using the mark "ST. FRANCIS" as the records show that the former’s use thereof had not been
attended with exclusivity. More importantly, it found that petitioners had adequately appended
the word "Shangri-La" to its composite mark to distinguish it from that of respondent, in which
case, the former had removed any likelihood of confusion that may arise from the
contemporaneous use by both parties of the mark "ST. FRANCIS."
Both parties appealed the decision in the IPV Case, while petitioners appealed the decision in the
St. Francis Towers IP Case. Due to the identity of the parties and issues involved, the IPO
Director-General ordered the consolidation of the separate appeals.15 Records are, however,
bereft of any showing that the decision in the St. Francis Shangri-La IP Casewas appealed by
either party and, thus, is deemed to have lapsed into finality.

The IPO Director-General Ruling

In a Decision16 dated September 3, 2008, then IPO Director-General Adrian S. Cristobal, Jr.
affirmedthe rulings of the BLA that: (a) petitioners cannot register the mark "THEST. FRANCIS
TOWERS"; and (b) petitioners are not guilty of unfair competition in its use of the mark "THE ST.
FRANCIS SHANGRI-LA PLACE." However, the IPO DirectorGeneral reversed the BLA’s findingthat
petitioners committed unfair competition through their use of the mark "THE ST. FRANCIS
TOWERS," thus dismissing such charge. He foundthat respondent could not be entitled to the
exclusive use of the mark "ST. FRANCIS," even at least to the locality where it conducts its
business, because it is a geographically descriptive mark, considering that it was petitioners’ as
well as respondent’s intention to use the mark "ST. FRANCIS"in order to identify, or at least
associate, their real estate development projects/businesses with the place or location where
they are situated/conducted, particularly, St. Francis Avenue and St. Francis Street (now known
as Bank Drive), Ortigas Center. He further opined that respondent’s registration of the name
"ST. FRANCIS" with the DTI is irrelevant since what should be controlling are the trademark
registrations with the IPO itself.17 Also, the IPO Director-General held that since the parties are
both engaged in the real estate business, it would be "hard to imagine that a prospective buyer
will be enticed to buy, rent or purchase [petitioners’] goods or servicesbelieving that this is
owned by [respondent] simply because of the name ‘ST. FRANCIS.’ The prospective buyer would
necessarily discuss things with the representatives of [petitioners] and would readily know that
this does not belong to [respondent]."18

Disagreeing solely with the IPO Director-General’s ruling on the issue of unfair competition (the
bone of contention in the IPV Case), respondent elevated the sameto the CA.

In contrast, records do not show that either party appealed the IPO Director-General’s ruling on
the issue ofthe registrability of the mark "THE ST. FRANCIS TOWERS" (the bone of contention in
the St. Francis Towers IP Case). As such, said pronouncement isalso deemed to have lapsed into
finality.

The CA Ruling

In a Decision19 dated December 18, 2009, the CA found petitioners guilty of unfair competition
not only withrespect to their use of the mark "THE ST. FRANCIS TOWERS" but alsoof the mark
"THE ST. FRANCIS SHANGRI-LA PLACE." Accordingly, itordered petitioners to cease and desist
from using "ST. FRANCIS" singly or as part of a composite mark, as well as to jointly and
severally pay respondent a fine in the amount of ₱200,000.00.

The CA did not adhere to the IPO Director-General’s finding that the mark "ST. FRANCIS" is
geographically descriptive, and ruled that respondent – which has exclusively and continuously
used the mark "ST. FRANCIS" for more than a decade, and,hence, gained substantial goodwill
and reputation thereby – is very muchentitled to be protected against the indiscriminate usage
by other companies of the trademark/name it has so painstakingly tried to establish and
maintain. Further, the CA stated that even on the assumption that "ST. FRANCIS" was indeed a
geographically descriptive mark, adequateprotection must still begiven to respondent pursuant
to the Doctrine of Secondary Meaning.20

Dissatisfied, petitioners filed the present petition.

The Issue Before the Court

With the decisions in both Inter PartesCases having lapsed into finality, the sole issue thus left
for the Court’s resolution is whether or not petitioners are guilty of unfair competition in using
the marks "THE ST. FRANCIS TOWERS" and "THE ST. FRANCIS SHANGRI-LA PLACE."

The Court’s Ruling

The petition is meritorious.

Section 168 of Republic Act No. 8293,21 otherwise known as the "Intellectual Property Code of
the Philippines" (IP Code), provides for the rules and regulations on unfair competition.

To begin, Section 168.1 qualifies who is entitled to protection against unfair competition. It
states that "[a]person who has identified in the mind of the public the goods he manufacturesor
deals in, his business or services from those of others, whether or not a registered mark is
employed, has a property right in the goodwill of the said goods, business or services so
identified, which will be protected inthe same manner as other property rights."

Section 168.2proceeds to the core of the provision, describing forthwith who may be found guilty
of and subject to an action of unfair competition – that is, "[a]ny person who shall employ
deception or any other means contrary to good faith by which he shall pass off the goods
manufactured by him or in which he deals, or his business, or services for those of the one
having established such goodwill, or who shall commit any acts calculated to produce said result
x x x."

Without limiting its generality, Section 168.3goes on to specify examples of acts which are
considered as constitutive of unfair competition, viz.:

168.3. In particular, and without in any way limiting the scope of protection against unfair
competition, the following shall be deemed guilty of unfair competition:

(a) Any person who is selling his goods and gives them the general appearance of goods of
another manufacturer or dealer, either as to the goods themselves or in the wrapping of the
packages in which they are contained, or the devices or words thereon, or in any other feature
of their appearance, which would be likely to influence purchasers to believe that the goods
offered are those of a manufacturer or dealer, other than the actual manufacturer or dealer, or
who otherwise clothes the goods with such appearance as shall deceive the public and defraud
another of his legitimate trade, or any subsequent vendor ofsuch goods or any agent of any
vendor engaged in selling such goods with a like purpose;

(b) Any person who by any artifice, or device, or who employs any other means calculated to
induce the false belief that such person is offering the service of another who has identified such
services in the mind of the public; or
(c) Any person who shall make any false statement in the course of trade or who shall commit
any other act contrary to good faith of a nature calculated to discredit the goods, business or
services of another.

Finally, Section 168.4 dwells on a matter of procedure by stating that the "[t]he remedies
provided by Sections 156,22157,23 and 16124 shall apply mutatis mutandis."

The statutory attribution of the unfair competition concept is wellsupplemented by

jurisprudential pronouncements. In the recent case of Republic Gas Corporation v. Petron
Corporation,25 the Court has echoed the classic definition of the term which is "‘the passing off
(or palming off) or attempting to pass off upon the public of the goods or business of one person
as the goods or business of another with the end and probable effect of deceiving the public.’
Passing off (or palming off) takes place where the defendant, by imitative devices on the general
appearance of the goods, misleads prospective purchasers into buying his merchandise under
the impression that they are buying that of his competitors. [In other words], the defendant
gives his goods the general appearance of the goods of his competitor with the intention of
deceiving the publicthat the goods are those of his competitor."26The "true test" of unfair
competition has thus been "whether the acts of the defendant have the intent of deceiving or are
calculated to deceive the ordinary buyer making his purchases under the ordinary conditions of
theparticular trade to which the controversy relates." Based on the foregoing, it is therefore
essential to prove the existence of fraud, or the intent to deceive, actual or
probable,27 determined through a judicious scrutiny of the factual circumstances attendant to a
particular case.28

Here, the Court finds the element of fraud to be wanting; hence, there can be no unfair
competition. The CA’scontrary conclusion was faultily premised on its impression that
respondenthad the right to the exclusive use of the mark "ST. FRANCIS," for which the latter
had purportedly established considerable goodwill. What the CA appears to have disregarded or
been mistaken in its disquisition, however, is the geographicallydescriptive nature of the mark
"ST. FRANCIS" which thus bars its exclusive appropriability, unless a secondary meaning is
acquired. As deftly explained in the U.S. case of Great Southern Bank v. First Southern
Bank:29 "[d]escriptive geographical terms are inthe ‘public domain’ in the sense that every seller
should have the right to inform customers of the geographical origin of his goods. A
‘geographically descriptive term’ is any noun or adjective that designates geographical location
and would tend to be regarded by buyers as descriptive of the geographic location of origin of
the goods or services. A geographically descriptive term can indicate any geographic location on
earth, such as continents, nations, regions, states, cities, streets and addresses, areas of cities,
rivers, and any other location referred to by a recognized name. In order to determine whether
or not the geographic term in question is descriptively used, the following question is relevant:
(1) Is the mark the name of the place or region from which the goods actually come? If the
answer is yes, then the geographic term is probably used in a descriptive sense, and secondary
meaning is required for protection."30

In Burke-Parsons-Bowlby Corporation v. Appalachian Log Homes, Inc.,31 it was held that

secondary meaningis established when a descriptive mark no longer causes the public to
associate the goods with a particular place, but to associate the goods with a particular
source.In other words, it is not enough that a geographically-descriptive mark partakes of the
name of a place known generally to the public to be denied registration as it is also necessary to
show that the public would make a goods/place association – that is, to believe that the goods
for which the mark is sought to be registered originatein that place.1âwphi1 To hold sucha
belief, it is necessary, of course, that the purchasers perceive the mark as a place name, from
which the question of obscurity or remoteness then comes to the fore.32The more a geographical
area is obscure and remote, it becomes less likely that the public shall have a goods/place
association with such area and thus, the mark may not be deemed as geographically descriptive.
However, where there is no genuine issue that the geographical significance of a term is its
primary significanceand where the geographical place is neither obscure nor remote, a public
association of the goods with the place may ordinarily be presumed from the fact that the
applicant’s own goods come from the geographical place named in the mark.33

Under Section 123.234 of the IP Code, specific requirements have to be met in order to conclude
that a geographically-descriptive mark has acquired secondary meaning, to wit: (a) the
secondary meaning must have arisen as a result of substantial commercial use of a mark in the
Philippines; (b) such use must result in the distinctiveness of the mark insofar as the goods or
theproducts are concerned; and (c) proof of substantially exclusive and continuous commercial
use in the Philippines for five (5) years beforethe date on which the claim of distinctiveness is
made. Unless secondary meaning has been established, a geographically-descriptive mark,
dueto its general public domain classification, is perceptibly disqualified from trademark
registration. Section 123.1(j) of the IP Code states this rule as follows:

SEC. 123. Registrability. –

123.1 A mark cannot be registered if it:

xxxx

(j) Consists exclusively of signs orof indications that may serve in trade to designate the kind,
quality, quantity, intended purpose, value, geographical origin, time or production of the goods
or rendering of the services, or other characteristics of the goods or services; (Emphasis
supplied) x x x x

Cognizant of the foregoing, the Court disagrees with the CA that petitioners committed unfair
competition due to the mistaken notion that petitioner had established goodwill for the mark
"ST. FRANCIS" precisely because said circumstance, by and of itself, does not equateto fraud
under the parameters of Section 168 of the IP Code as above-cited. In fact, the records are
bereft of any showing thatpetitioners gave their goods/services the general appearance that it
was respondent which was offering the same to the public. Neither did petitioners employ any
means to induce the public towards a false belief that it was offering respondent’s
goods/services. Nor did petitioners make any false statement or commit acts tending to discredit
the goods/services offered by respondent. Accordingly, the element of fraud which is the core of
unfair competition had not been established.

Besides, respondent was not able toprove its compliance with the requirements stated in Section
123.2 of the IP Code to be able to conclude that it acquired a secondary meaning – and,
thereby, an exclusive right – to the "ST. FRANCIS" mark, which is, as the IPO Director-General
correctly pointed out, geographically-descriptive of the location in which its realty developments
have been built, i.e., St. Francis Avenue and St. Francis Street (now known as "Bank Drive").
Verily, records would reveal that while it is true that respondent had been using the mark "ST.
FRANCIS" since 1992, its use thereof has been merely confined to its realty projects within the
Ortigas Center, as specifically mentioned.As its use of the mark is clearly limited to a certain
locality, it cannot be said thatthere was substantial commercial use of the same recognizedall
throughout the country. Neither is there any showing of a mental recognition in buyers’ and
potential buyers’ minds that products connected with the mark "ST. FRANCIS" are associated
with the same source35 – that is, the enterprise of respondent. Thus, absent any showing that
there exists a clear goods/service-association between the realty projects located in the
aforesaid area and herein respondent as the developer thereof, the latter cannot besaid to have
acquired a secondary meaning as to its use of the "ST. FRANCIS" mark.

In fact, even on the assumption that secondary meaning had been acquired, said finding only
accords respondents protectional qualification under Section 168.1 of the IP Code as above
quoted. Again, this does not automatically trigger the concurrence of the fraud element required
under Section 168.2 of the IP Code, as exemplified by the acts mentioned in Section 168.3 of
the same. Ultimately, as earlier stated, there can be no unfair competition without this element.
In this respect, considering too the notoriety of the Shangri-La brand in the real estate industry
which dilutes petitioners' propensity to merely ride on respondent's goodwill, the more
reasonable conclusion is that the former's use of the marks "THE ST. FRANCIS TOWERS" and
"THE ST. FRANCIS SHANGRI-LA PLACE" was meant only to identify, or at least associate, their
real estate project/s with its geographical location. As aptly observed by the IPO
DirectorGeneral:36

In the case at hand, the parties are business competitors engaged in real estate or property
development, providing goods and services directly connected thereto. The "goods" or
"products" or "services" are real estate and the goods and the services attached to it or directly
related to it, like sale or lease of condominium units, offices, and commercial spaces, such as
restaurants, and other businesses. For these kinds of goods or services there can be no
description of its geographical origin as precise and accurate as that of the name of the place
where they are situated. (Emphasis and underscoring supplied)

Hence, for all the reasons above-discussed, the Court hereby grants the instant petition, and,
thus, exonerates petitioners from the charge of unfair competition in the IPV Case. As the
decisions in the Inter Partes Cases were not appealed, the registrability issues resolved therein
are hereby deemed to have attained finality and, therefore, are now executory.

WHEREFORE, the petition is GRANTED. The Decision dated December 18, 2009 of the Court of
Appeals in CA-G.R. SP No. 105425 is hereby REVERSED and SET ASIDE. Accordingly, the
Decision dated September 3, 2008 of the Intellectual Property Office-Director General is
REINSTATED.

SO ORDERED.

[G.R. No. 114508. November 19, 1999]

PRIBHDAS J. MIRPURI, petitioner, vs. COURT OF APPEALS, DIRECTOR OF PATENTS and

the BARBIZON CORPORATION, respondents.

DECISION

PUNO, J.:
The Convention of Paris for the Protection of Industrial Property is a multi-lateral treaty which
the Philippines bound itself to honor and enforce in this country. As to whether or not the treaty
affords protection to a foreign corporation against a Philippine applicant for the registration of a
similar trademark is the principal issue in this case.

On June 15, 1970, one Lolita Escobar, the predecessor-in-interest of petitioner Pribhdas J.
Mirpuri, filed an application with the Bureau of Patents for the registration of the trademark
"Barbizon" for use in brassieres and ladies undergarments. Escobar alleged that she had been
manufacturing and selling these products under the firm name "L & BM Commercial" since March
3, 1970.

Private respondent Barbizon Corporation, a corporation organized and doing business under the
laws of New York, U.S.A., opposed the application. It claimed that:

"The mark BARBIZON of respondent-applicant is confusingly similar to the trademark BARBIZON

which opposer owns and has not abandoned.

That opposer will be damaged by the registration of the mark BARBIZON and its business
reputation and goodwill will suffer great and irreparable injury.

That the respondent-applicant's use of the said mark BARBIZON which resembles the trademark
used and owned by opposer, constitutes an unlawful appropriation of a mark previously used in
the Philippines and not abandoned and therefore a statutory violation of Section 4 (d) of
Republic Act No. 166, as amended."[1]

This was docketed as Inter Partes Case No. 686 (IPC No. 686). After filing of the pleadings,
the parties submitted the case for decision.

On June 18, 1974, the Director of Patents rendered judgment dismissing the opposition and
giving due course to Escobar's application, thus:

"WHEREFORE, the opposition should be, as it is hereby, DISMISSED. Accordingly, Application

Serial No. 19010 for the registration of the trademark BARBIZON, of respondent Lolita R.
Escobar, is given due course.

IT IS SO ORDERED."[2]

This decision became final and on September 11, 1974, Lolita Escobar was issued a certificate of
registration for the trademark "Barbizon." The trademark was "for use in "brassieres and lady's
underwear garments like panties."[3]

Escobar later assigned all her rights and interest over the trademark to petitioner Pribhdas J.
Mirpuri who, under his firm name then, the "Bonito Enterprises," was the sole and exclusive
distributor of Escobar's "Barbizon" products.

In 1979, however, Escobar failed to file with the Bureau of Patents the Affidavit of Use of the
trademark required under Section 12 of Republic Act (R.A.) No. 166, the Philippine Trademark
Law. Due to this failure, the Bureau of Patents cancelled Escobar's certificate of registration.

On May 27, 1981, Escobar reapplied for registration of the cancelled trademark. Mirpuri filed his
own application for registration of Escobar's trademark. Escobar later assigned her application to
herein petitioner and this application was opposed by private respondent. The case was
docketed as Inter Partes Case No. 2049 (IPC No. 2049).

In its opposition, private respondent alleged that:

"(a) The Opposer has adopted the trademark BARBIZON (word), sometime in June 1933 and has
then used it on various kinds of wearing apparel. On August 14, 1934, Opposer obtained from
the United States Patent Office a more recent registration of the said mark under Certificate of
Registration No. 316,161. On March 1, 1949, Opposer obtained from the United States Patent
Office a more recent registration for the said trademark under Certificate of Registration No.
507,214, a copy of which is herewith attached as Annex `A.' Said Certificate of Registration
covers the following goods-- wearing apparel: robes, pajamas, lingerie, nightgowns and slips;

(b) Sometime in March 1976, Opposer further adopted the trademark BARBIZON and Bee design
and used the said mark in various kinds of wearing apparel. On March 15, 1977, Opposer
secured from the United States Patent Office a registration of the said mark under Certificate of
Registration No. 1,061,277, a copy of which is herein enclosed as Annex `B.' The said Certificate
of Registration covers the following goods: robes, pajamas, lingerie, nightgowns and slips;

(c) Still further, sometime in 1961, Opposer adopted the trademark BARBIZON and a
Representation of a Woman and thereafter used the said trademark on various kinds of wearing
apparel. Opposer obtained from the United States Patent Office registration of the said mark on
April 5, 1983 under Certificate of Registration No. 1,233,666 for the following goods: wearing
apparel: robes, pajamas, nightgowns and lingerie. A copy of the said certificate of registration is
herewith enclosed as Annex `C.'

(d) All the above registrations are subsisting and in force and Opposer has not abandoned the
use of the said trademarks. In fact, Opposer, through a wholly-owned Philippine subsidiary, the
Philippine Lingerie Corporation, has been manufacturing the goods covered by said registrations
and selling them to various countries, thereby earning valuable foreign exchange for the
country. As a result of respondent-applicant's misappropriation of Opposer's BARBIZON
trademark, Philippine Lingerie Corporation is prevented from selling its goods in the local
market, to the damage and prejudice of Opposer and its wholly-owned subsidiary.

(e) The Opposer's goods bearing the trademark BARBIZON have been used in many countries,
including the Philippines, for at least 40 years and has enjoyed international reputation and good
will for their quality. To protect its registrations in countries where the goods covered by the
registrations are being sold, Opposer has procured the registration of the trademark BARBIZON
in the following countries:Australia, Austria, Abu Dhabi, Argentina, Belgium, Bolivia, Bahrain,
Canada, Chile, Colombia, Denmark, Ecuador, France, West Germany, Greece, Guatemala,
Hongkong, Honduras, Italy, Japan, Jordan, Lebanon, Mexico, Morocco, Panama, New Zealand,
Norway, Sweden, Switzerland, Syria, El Salvador, South Africa, Zambia, Egypt, and Iran, among
others;

(f) To enhance its international reputation for quality goods and to further promote goodwill over
its name, marks and products, Opposer has extensively advertised its products, trademarks and
name in various publications which are circulated in the United States and many countries
around the world, including the Philippines;
(g) The trademark BARBIZON was fraudulently registered in the Philippines by one Lolita R.
Escobar under Registration No. 21920, issued on September 11, 1974, in violation of Article 189
(3) of the Revised Penal Code and Section 4 (d) of the Trademark Law. Herein respondent
applicant acquired by assignment the `rights' to the said mark previously registered by Lolita
Escobar, hence respondent-applicant's title is vitiated by the same fraud and criminal
act. Besides, Certificate of Registration No. 21920 has been cancelled for failure of either Lolita
Escobar or herein respondent-applicant, to seasonably file the statutory affidavit of use. By
applying for a re-registration of the mark BARBIZON subject of this opposition, respondent-
applicant seeks to perpetuate the fraud and criminal act committed by Lolita Escobar.

(h) Opposer's BARBIZON as well as its BARBIZON and Bee Design and BARBIZON and
Representation of a Woman trademarks qualify as well-known trademarks entitled to protection
under Article 6bisof the Convention of Paris for the Protection of Industrial Property and further
amplified by the Memorandum of the Minister of Trade to the Honorable Director of Patents
dated October 25, 1983 [sic],[4]Executive Order No. 913 dated October 7, 1963 and the
Memorandum of the Minister of Trade and Industry to the Honorable Director of Patents dated
October 25, 1983.

(i) The trademark applied for by respondent applicant is identical to Opposer's BARBIZON
trademark and constitutes the dominant part of Opposer's two other marks namely, BARBIZON
and Bee design and BARBIZON and a Representation of a Woman. The continued use by
respondent-applicant of Opposer's trademark BARBIZON on goods belonging to Class 25
constitutes a clear case of commercial and criminal piracy and if allowed registration will violate
not only the Trademark Law but also Article 189 of the Revised Penal Code and the commitment
of the Philippines to an international treaty."[5]

Replying to private respondent's opposition, petitioner raised the defense of res judicata.

On March 2, 1982, Escobar assigned to petitioner the use of the business name "Barbizon
International." Petitioner registered the name with the Department of Trade and Industry (DTI)
for which a certificate of registration was issued in 1987.

Forthwith, private respondent filed before the Office of Legal Affairs of the DTI a petition for
cancellation of petitioner's business name.

On November 26, 1991, the DTI, Office of Legal Affairs, cancelled petitioner's certificate of
registration, and declared private respondent the owner and prior user of the business name
"Barbizon International." Thus:

"WHEREFORE, the petition is hereby GRANTED and petitioner is declared the owner and prior
user of the business name "BARBIZON INTERNATIONAL" under Certificate of Registration No.
87-09000 dated March 10, 1987 and issued in the name of respondent, is [sic] hereby ordered
revoked and cancelled. x x x."[6]

Meanwhile, in IPC No. 2049, the evidence of both parties were received by the Director of
Patents. On June 18, 1992, the Director rendered a decision declaring private respondent's
opposition barred by res judicata and giving due course to petitioner's application for
registration, to wit:
"WHEREFORE, the present Opposition in Inter Partes Case No. 2049 is hereby DECLARED
BARRED by res judicata and is hereby DISMISSED. Accordingly, Application Serial No. 45011 for
trademark BARBIZON filed by Pribhdas J. Mirpuri is GIVEN DUE COURSE.

SO ORDERED."[7]

Private respondent questioned this decision before the Court of Appeals in CA-G.R. SP No.
28415. On April 30, 1993, the Court of Appeals reversed the Director of Patents finding that IPC
No. 686 was not barred by judgment in IPC No. 2049 and ordered that the case be remanded to
the Bureau of Patents for further proceedings, viz:

"WHEREFORE, the appealed Decision No. 92-13 dated June 18, 1992 of the Director of Patents
in Inter Partes Case No. 2049 is hereby SET ASIDE; and the case is hereby remanded to the
Bureau of Patents for further proceedings, in accordance with this pronouncement. No costs."[8]

In a Resolution dated March 16, 1994, the Court of Appeals denied reconsideration of its
decision.[9] Hence, this recourse.

Before us, petitioner raises the following issues:

"1. WHETHER OR NOT THE DECISION OF THE DIRECTOR OF PATENTS IN INTER PARTES CASE
NO. 686 RENDERED ON JUNE 18, 1974, ANNEX C HEREOF, CONSTITUTED RES JUDICATA IN SO
FAR AS THE CASE BEFORE THE DIRECTOR OF PATENTS IS CONCERNED;

2. WHETHER OR NOT THE DIRECTOR OF PATENTS CORRECTLY APPLIED THE PRINCIPLE OF RES
JUDICATA IN DISMISSING PRIVATE RESPONDENT BARBIZON'S OPPOSITION TO PETITIONER'S
APPLICATION FOR REGISTRATION FOR THE TRADEMARK BARBIZON, WHICH HAS SINCE
RIPENED TO CERTIFICATE OF REGISTRATION NO. 53920 ON NOVEMBER 16, 1992;

3. WHETHER OR NOT THE REQUISITE THAT A 'JUDGMENT ON THE MERITS' REQUIRED A

'HEARING WHERE BOTH PARTIES ARE SUPPOSED TO ADDUCE EVIDENCE' AND WHETHER THE
JOINT SUBMISSION OF THE PARTIES TO A CASE ON THE BASIS OF THEIR RESPECTIVE
PLEADINGS WITHOUT PRESENTING TESTIMONIAL OR DOCUMENTARY EVIDENCE FALLS WITHIN
THE MEANING OF 'JUDGMENT ON THE MERITS' AS ONE OF THE REQUISITES TO CONSTITUTE
RES JUDICATA;

4. WHETHER A DECISION OF THE DEPARTMENT OF TRADE AND INDUSTRY CANCELLING

PETITIONER'S FIRM NAME 'BARBIZON INTERNATIONAL' AND WHICH DECISION IS STILL
PENDING RECONSIDERATION NEVER OFFERED IN EVIDENCE BEFORE THE DIRECTOR OF
PATENTS IN INTER PARTES CASE NO. 2049 HAS THE RIGHT TO DECIDE SUCH CANCELLATION
NOT ON THE BASIS OF THE BUSINESS NAME LAW (AS IMPLEMENTED BY THE BUREAU OF
DOMESTIC TRADE) BUT ON THE BASIS OF THE PARIS CONVENTION AND THE TRADEMARK LAW
(R.A. 166) WHICH IS WITHIN THE ORIGINAL AND EXCLUSIVE JURISDICTION OF THE DIRECTOR
OF PATENTS."[10]

Before ruling on the issues of the case, there is need for a brief background on the function and
historical development of trademarks and trademark law.

A "trademark" is defined under R.A. 166, the Trademark Law, as including "any word, name,
symbol, emblem, sign or device or any combination thereof adopted and used by a manufacturer
or merchant to identify his goods and distinguish them from those manufactured, sold or dealt in
by others."[11] This definition has been simplified in R.A. No. 8293, the Intellectual Property Code
of the Philippines, which defines a "trademark" as "any visible sign capable of distinguishing
goods."[12] In Philippine jurisprudence, the function of a trademark is to point out distinctly the
origin or ownership of the goods to which it is affixed; to secure to him, who has been
instrumental in bringing into the market a superior article of merchandise, the fruit of his
industry and skill; to assure the public that they are procuring the genuine article; to prevent
fraud and imposition; and to protect the manufacturer against substitution and sale of an inferior
and different article as his product.[13]

Modern authorities on trademark law view trademarks as performing three distinct functions: (1)
they indicate origin or ownership of the articles to which they are attached; (2) they guarantee
that those articles come up to a certain standard of quality; and (3) they advertise the articles
they symbolize.[14]

Symbols have been used to identify the ownership or origin of articles for several
centuries.[15] As early as 5,000 B.C., markings on pottery have been found by
archaeologists. Cave drawings in southwestern Europe show bison with symbols on their
flanks.[16] Archaeological discoveries of ancient Greek and Roman inscriptions on sculptural
works, paintings, vases, precious stones, glassworks, bricks, etc. reveal some features which are
thought to be marks or symbols. These marks were affixed by the creator or maker of the
article, or by public authorities as indicators for the payment of tax, for disclosing state
monopoly, or devices for the settlement of accounts between an entrepreneur and his
workmen.[17]

In the Middle Ages, the use of many kinds of marks on a variety of goods was
commonplace. Fifteenth century England saw the compulsory use of identifying marks in certain
trades. There were the baker's mark on bread, bottlemaker's marks, smith's marks, tanner's
marks, watermarks on paper, etc.[18] Every guild had its own mark and every master belonging
to it had a special mark of his own. The marks were not trademarks but police marks
compulsorily imposed by the sovereign to let the public know that the goods were not "foreign"
goods smuggled into an area where the guild had a monopoly, as well as to aid in tracing
defective work or poor craftsmanship to the artisan.[19] For a similar reason, merchants also used
merchants' marks. Merchants dealt in goods acquired from many sources and the marks enabled
them to identify and reclaim their goods upon recovery after shipwreck or piracy.[20]

With constant use, the mark acquired popularity and became voluntarily adopted. It was not
intended to create or continue monopoly but to give the customer an index or guarantee of
quality.[21] It was in the late 18th century when the industrial revolution gave rise to mass
production and distribution of consumer goods that the mark became an important
instrumentality of trade and commerce.[22] By this time, trademarks did not merely identify the
goods; they also indicated the goods to be of satisfactory quality, and thereby stimulated further
purchases by the consuming public.[23] Eventually, they came to symbolize the goodwill and
business reputation of the owner of the product and became a property right protected by
law.[24] The common law developed the doctrine of trademarks and tradenames "to prevent a
person from palming off his goods as another's, from getting another's business or injuring his
reputation by unfair means, and, from defrauding the public."[25] Subsequently, England and the
United States enacted national legislation on trademarks as part of the law regulating unfair
trade.[26] It became the right of the trademark owner to exclude others from the use of his mark,
or of a confusingly similar mark where confusion resulted in diversion of trade or financial
injury. At the same time, the trademark served as a warning against the imitation or faking of
products to prevent the imposition of fraud upon the public.[27]

Today, the trademark is not merely a symbol of origin and goodwill; it is often the most effective
agent for the actual creation and protection of goodwill. It imprints upon the public mind an
anonymous and impersonal guaranty of satisfaction, creating a desire for further satisfaction. In
other words, the mark actually sells the goods.[28] The mark has become the "silent salesman,"
the conduit through which direct contact between the trademark owner and the consumer is
assured. It has invaded popular culture in ways never anticipated that it has become a more
convincing selling point than even the quality of the article to which it refers.[29] In the last half
century, the unparalleled growth of industry and the rapid development of communications
technology have enabled trademarks, tradenames and other distinctive signs of a product to
penetrate regions where the owner does not actually manufacture or sell the product
itself. Goodwill is no longer confined to the territory of actual market penetration; it extends to
zones where the marked article has been fixed in the public mind through
advertising.[30] Whether in the print, broadcast or electronic communications medium,
particularly on the Internet,[31]advertising has paved the way for growth and expansion of the
product by creating and earning a reputation that crosses over borders, virtually turning the
whole world into one vast marketplace.

This is the mise-en-scene of the present controversy. Petitioner brings this action claiming that
"Barbizon" products have been sold in the Philippines since 1970. Petitioner developed this
market by working long hours and spending considerable sums of money on advertisements and
promotion of the trademark and its products. Now, almost thirty years later, private respondent,
a foreign corporation, "swaggers into the country like a conquering hero," usurps the trademark
and invades petitioner's market.[32] Justice and fairness dictate that private respondent be
prevented from appropriating what is not its own. Legally, at the same time, private respondent
is barred from questioning petitioner's ownership of the trademark because of res judicata.[33]

Literally, res judicata means a matter adjudged, a thing judicially acted upon or decided; a thing
or matter settled by judgment.[34] In res judicata, the judgment in the first action is considered
conclusive as to every matter offered and received therein, as to any other admissible matter
which might have been offered for that purpose, and all other matters that could have been
adjudged therein.[35] Res judicatais an absolute bar to a subsequent action for the same cause;
and its requisites are: (a) the former judgment or order must be final; (b) the judgment or order
must be one on the merits; (c) it must have been rendered by a court having jurisdiction over
the subject matter and parties; (d) there must be between the first and second actions, identity
of parties, of subject matter and of causes of action.[36]

The Solicitor General, on behalf of respondent Director of Patents, has joined cause with
petitioner. Both claim that all the four elements of res judicata have been complied with: that
the judgment in IPC No. 686 was final and was rendered by the Director of Patents who had
jurisdiction over the subject matter and parties; that the judgment in IPC No. 686 was on the
merits; and that the lack of a hearing was immaterial because substantial issues were raised by
the parties and passed upon by the Director of Patents.[37]
The decision in IPC No. 686 reads as follows:

"x x x.

Neither party took testimony nor adduced documentary evidence. They submitted the case for
decision based on the pleadings which, together with the pertinent records, have all been
carefully considered.

Accordingly, the only issue for my disposition is whether or not the herein opposer would
probably be damaged by the registration of the trademark BARBIZON sought by the respondent-
applicant on the ground that it so resembles the trademark BARBIZON allegedly used and owned
by the former to be `likely to cause confusion, mistake or to deceive purchasers.'

On record, there can be no doubt that respondent-applicant's sought-to-be-registered trademark

BARBIZON is similar, in fact obviously identical, to opposer's alleged trademark BARBIZON, in
spelling and pronunciation. The only appreciable but very negligible difference lies in their
respective appearances or manner of presentation. Respondent-applicant's trademark is in bold
letters (set against a black background), while that of the opposer is offered in stylish script
letters.

It is opposer's assertion that its trademark BARBIZON has been used in trade or commerce in
the Philippines prior to the date of application for the registration of the identical mark
BARBIZON by the respondent-applicant. However, the allegation of facts in opposer's verified
notice of opposition is devoid of such material information. In fact, a reading of the text of said
verified opposition reveals an apparent, if not deliberate, omission of the date (or year) when
opposer's alleged trademark BARBIZON was first used in trade in the Philippines (see par. No. 1,
p. 2, Verified Notice of Opposition, Rec.).Thus, it cannot here and now be ascertained whether
opposer's alleged use of the trademark BARBIZON could be prior to the use of the identical mark
by the herein respondent-applicant, since the opposer attempted neither to substantiate its
claim of use in local commerce with any proof or evidence. Instead, the opposer submitted the
case for decision based merely on the pleadings.

On the other hand, respondent-applicant asserted in her amended application for registration
that she first used the trademark BARBIZON for brassiere (or 'brasseire') and ladies underwear
garments and panties as early as March 3, 1970. Be that as it may, there being no testimony
taken as to said date of first use, respondent-applicant will be limited to the filing date, June 15,
1970, of her application as the date of first use (Rule 173, Rules of Practice in Trademark
Cases).

From the foregoing, I conclude that the opposer has not made out a case of probable damage by
the registration of the respondent-applicant's mark BARBIZON.

WHEREFORE, the opposition should be, as it is hereby, DISMISSED. Accordingly, Application

Serial No. 19010, for the registration of the trademark BARBIZON of respondent Lolita R.
Escobar, is given due course."[38]

The decision in IPC No. 686 was a judgment on the merits and it was error for the Court of
Appeals to rule that it was not. A judgment is on the merits when it determines the rights and
liabilities of the parties based on the disclosed facts, irrespective of formal, technical or dilatory
objections.[39] It is not necessary that a trial should have been conducted. If the court's
judgment is general, and not based on any technical defect or objection, and the parties had a
full legal opportunity to be heard on their respective claims and contentions, it is on the merits
although there was no actual hearing or arguments on the facts of the case.[40] In the case at
bar, the Director of Patents did not dismiss private respondent's opposition on a sheer
technicality. Although no hearing was conducted, both parties filed their respective pleadings
and were given opportunity to present evidence. They, however, waived their right to do so and
submitted the case for decision based on their pleadings. The lack of evidence did not deter the
Director of Patents from ruling on the case, particularly on the issue of prior use, which goes into
the very substance of the relief sought by the parties. Since private respondent failed to prove
prior use of its trademark, Escobar's claim of first use was upheld.

The judgment in IPC No. 686 being on the merits, petitioner and the Solicitor General allege that
IPC No. 686 and IPC No. 2049 also comply with the fourth requisite of res judicata, i.e., they
involve the same parties and the same subject matter, and have identical causes of action.

Undisputedly, IPC No. 686 and IPC No. 2049 involve the same parties and the same subject
matter. Petitioner herein is the assignee of Escobar while private respondent is the same
American corporation in the first case. The subject matter of both cases is the trademark
"Barbizon." Private respondent counter-argues, however, that the two cases do not have
identical causes of action. New causes of action were allegedly introduced in IPC No. 2049, such
as the prior use and registration of the trademark in the United States and other countries
worldwide, prior use in the Philippines, and the fraudulent registration of the mark in violation of
Article 189 of the Revised Penal Code. Private respondent also cited protection of the trademark
under the Convention of Paris for the Protection of Industrial Property, specifically Article
6bis thereof, and the implementation of Article 6bis by two Memoranda dated November 20,
1980 and October 25, 1983 of the Minister of Trade and Industry to the Director of Patents, as
well as Executive Order (E.O.) No. 913.

The Convention of Paris for the Protection of Industrial Property, otherwise known as the Paris
Convention, is a multilateral treaty that seeks to protect industrial property consisting of
patents, utility models, industrial designs, trademarks, service marks, trade names and
indications of source or appellations of origin, and at the same time aims to repress unfair
competition.[41] The Convention is essentially a compact among various countries which, as
members of the Union, have pledged to accord to citizens of the other member countries
trademark and other rights comparable to those accorded their own citizens by their domestic
laws for an effective protection against unfair competition.[42] In short, foreign nationals are to
be given the same treatment in each of the member countries as that country makes available
to its own citizens.[43] Nationals of the various member nations are thus assured of a certain
minimum of international protection of their industrial property.[44]

The Convention was first signed by eleven countries in Paris on March 20, 1883.[45] It underwent
several revisions-- at Brussels in 1900, at Washington in 1911, at The Hague in 1925, at London
in 1934, at Lisbon in 1958,[46] and at Stockholm in 1967. Both the Philippines and the United
States of America, herein private respondent's country, are signatories to the Convention. The
United States acceded on May 30, 1887 while the Philippines, through its Senate, concurred on
May 10, 1965.[47] The Philippines' adhesion became effective on September 27, 1965,[48] and
from this date, the country obligated itself to honor and enforce the provisions of the
Convention.[49]
In the case at bar, private respondent anchors its cause of action on the first paragraph of
Article 6bis of the Paris Convention which reads as follows:

"Article 6bis

(1) The countries of the Union undertake, either administratively if their legislation so
permits, or at the request of an interested party, to refuse or to cancel the registration
and to prohibit the use, of a trademark which constitutes a reproduction, an imitation,
or a translation, liable to create confusion, of a mark considered by the competent
authority of the country of registration or use to be well-known in that country as
being already the mark of a person entitled to the benefits of this Convention and used
for identical or similar goods. These provisions shall also apply when the essential part
of the mark constitutes a reproduction of any such well-known mark or an imitation
liable to create confusion therewith.

(2) A period of at least five years from the date of registration shall be allowed for seeking the
cancellation of such a mark. The countries of the Union may provide for a period within which
the prohibition of use must be sought.

(3) No time limit shall be fixed for seeking the cancellation or the prohibition of the use of marks
registered or used in bad faith."[50]

This Article governs protection of well-known trademarks. Under the first paragraph, each
country of the Union bound itself to undertake to refuse or cancel the registration, and prohibit
the use of a trademark which is a reproduction, imitation or translation, or any essential part of
which trademark constitutes a reproduction, liable to create confusion, of a mark considered by
the competent authority of the country where protection is sought, to be well-known in the
country as being already the mark of a person entitled to the benefits of the Convention, and
used for identical or similar goods.

Article 6bis was first introduced at The Hague in 1925 and amended in Lisbon in 1952.[51] It is a
self-executing provision and does not require legislative enactment to give it effect in the
member country.[52] It may be applied directly by the tribunals and officials of each member
country by the mere publication or proclamation of the Convention, after its ratification
according to the public law of each state and the order for its execution.[53]

The essential requirement under Article 6bis is that the trademark to be protected must be
"well-known" in the country where protection is sought. The power to determine whether a
trademark is well-known lies in the "competent authority of the country of registration or use."
This competent authority would be either the registering authority if it has the power to decide
this, or the courts of the country in question if the issue comes before a court.[54]

Pursuant to Article 6bis, on November 20, 1980, then Minister Luis Villafuerte of the Ministry of
Trade issued a Memorandum to the Director of Patents. The Minister ordered the Director that:

"Pursuant to the Paris Convention for the Protection of Industrial Property to which the
Philippines is a signatory, you are hereby directed to reject all pending applications for Philippine
registration of signature and other world-famous trademarks by applicants other than its original
owners or users.
The conflicting claims over internationally known trademarks involve such name brands as
Lacoste, Jordache, Vanderbilt, Sasson, Fila, Pierre Cardin, Gucci, Christian Dior, Oscar de la
Renta, Calvin Klein, Givenchy, Ralph Lauren, Geoffrey Beene, Lanvin and Ted Lapidus.

It is further directed that, in cases where warranted, Philippine registrants of such trademarks
should be asked to surrender their certificates of registration, if any, to avoid suits for damages
and other legal action by the trademarks' foreign or local owners or original users.

You are also required to submit to the undersigned a progress report on the matter.

For immediate compliance."[55]

Three years later, on October 25, 1983, then Minister Roberto Ongpin issued another
Memorandum to the Director of Patents, viz:

"Pursuant to Executive Order No. 913 dated 7 October 1983 which strengthens the rule-making
and adjudicatory powers of the Minister of Trade and Industry and provides inter alia, that `such
rule-making and adjudicatory powers should be revitalized in order that the Minister of Trade
and Industry can x x x apply more swift and effective solutions and remedies to old and new
problems x x x such as infringement of internationally-known tradenames and trademarks x x x'
and in view of the decision of the Intermediate Appellate Court in the case of LA CHEMISE
LACOSTE, S.A., versus RAM SADWHANI [AC-G.R. SP NO. 13359 (17) June 1983][56] which
affirms the validity of the MEMORANDUM of then Minister Luis R. Villafuerte dated 20 November
1980 confirming our obligations under the PARIS CONVENTION FOR THE PROTECTION OF
INDUSTRIAL PROPERTY to which the Republic of the Philippines is a signatory, you are hereby
directed to implement measures necessary to effect compliance with our obligations under said
Convention in general, and, more specifically, to honor our commitment under Section
6bis[57] thereof, as follows:

1. Whether the trademark under consideration is well-known in the Philippines or is a mark

already belonging to a person entitled to the benefits of the CONVENTION, this should be
established, pursuant to Philippine Patent Office procedures in inter partes and ex parte cases,
according to any of the following criteria or any combination thereof:

(a) a declaration by the Minister of Trade and Industry that the trademark being considered is
already well-known in the Philippines such that permission for its use by other than its original
owner will constitute a reproduction, imitation, translation or other infringement;

(b) that the trademark is used in commerce internationally, supported by proof that goods
bearing the trademark are sold on an international scale, advertisements, the establishment of
factories, sales offices, distributorships, and the like, in different countries, including volume or
other measure of international trade and commerce;

(c) that the trademark is duly registered in the industrial property office(s) of another country or
countries, taking into consideration the date of such registration;

(d) that the trademark has long been established and obtained goodwill and international
consumer recognition as belonging to one owner or source;
(e) that the trademark actually belongs to a party claiming ownership and has the right to
registration under the provisions of the aforestated PARIS CONVENTION.

2. The word trademark, as used in this MEMORANDUM, shall include tradenames, service marks,
logos, signs, emblems, insignia or other similar devices used for identification and recognition by
consumers.

3. The Philippine Patent Office shall refuse all applications for, or cancel the registration of,
trademarks which constitute a reproduction, translation or imitation of a trademark owned by a
person, natural or corporate, who is a citizen of a country signatory to the PARIS CONVENTION
FOR THE PROTECTION OF INDUSTRIAL PROPERTY.

4. The Philippine Patent Office shall give due course to the Opposition in cases already or
hereafter filed against the registration of trademarks entitled to protection of Section 6 bis of
said PARIS CONVENTION as outlined above, by remanding applications filed by one not entitled
to such protection for final disallowance by the Examination Division.

5. All pending applications for Philippine registration of signature and other world-famous
trademarks filed by applicants other than their original owners or users shall be rejected
forthwith. Where such applicants have already obtained registration contrary to the
abovementioned PARIS CONVENTION and/or Philippine Law, they shall be directed to surrender
their Certificates of Registration to the Philippine Patent Office for immediate cancellation
proceedings.

x x x."[58]

In the Villafuerte Memorandum, the Minister of Trade instructed the Director of Patents to reject
all pending applications for Philippine registration of signature and other world-famous
trademarks by applicants other than their original owners or users. The Minister enumerated
several internationally-known trademarks and ordered the Director of Patents to require
Philippine registrants of such marks to surrender their certificates of registration.

In the Ongpin Memorandum, the Minister of Trade and Industry did not enumerate well-known
trademarks but laid down guidelines for the Director of Patents to observe in determining
whether a trademark is entitled to protection as a well-known mark in the Philippines under
Article 6bis of the Paris Convention. This was to be established through Philippine Patent Office
procedures in inter partesand ex parte cases pursuant to the criteria enumerated therein. The
Philippine Patent Office was ordered to refuse applications for, or cancel the registration of,
trademarks which constitute a reproduction, translation or imitation of a trademark owned by a
person who is a citizen of a member of the Union. All pending applications for registration of
world-famous trademarks by persons other than their original owners were to be rejected
forthwith. The Ongpin Memorandum was issued pursuant to Executive Order No. 913 dated
October 7, 1983 of then President Marcos which strengthened the rule-making and adjudicatory
powers of the Minister of Trade and Industry for the effective protection of consumers and the
application of swift solutions to problems in trade and industry.[59]

Both the Villafuerte and Ongpin Memoranda were sustained by the Supreme Court in the 1984
landmark case of La Chemise Lacoste, S.A. v. Fernandez.[60] This court ruled therein that under
the provisions of Article 6bis of the Paris Convention, the Minister of Trade and Industry was the
"competent authority" to determine whether a trademark is well-known in this country.[61]

The Villafuerte Memorandum was issued in 1980, i.e., fifteen (15) years after the adoption of the
Paris Convention in 1965. In the case at bar, the first inter partes case, IPC No. 686, was filed in
1970, before the Villafuerte Memorandum but five (5) years after the effectivity of the Paris
Convention. Article 6bis was already in effect five years before the first case was
instituted. Private respondent, however, did not cite the protection of Article 6bis, neither did it
mention the Paris Convention at all. It was only in 1981 when IPC No. 2049 was instituted that
the Paris Convention and the Villafuerte Memorandum, and, during the pendency of the case,
the 1983 Ongpin Memorandum were invoked by private respondent.

The Solicitor General argues that the issue of whether the protection of Article 6bis of the
Convention and the two Memoranda is barred by res judicata has already been answered
in Wolverine Worldwide, Inc. v. Court of Appeals.[62] In this case, petitioner Wolverine, a foreign
corporation, filed with the Philippine Patent Office a petition for cancellation of the registration
certificate of private respondent, a Filipino citizen, for the trademark "Hush Puppies" and "Dog
Device." Petitioner alleged that it was the registrant of the internationally-known trademark in
the United States and other countries, and cited protection under the Paris Convention and the
Ongpin Memorandum. The petition was dismissed by the Patent Office on the ground of res
judicata. It was found that in 1973 petitioner's predecessor-in-interest filed two petitions for
cancellation of the same trademark against respondent's predecessor-in-interest. The Patent
Office dismissed the petitions, ordered the cancellation of registration of petitioner's trademark,
and gave due course to respondent's application for registration. This decision was sustained by
the Court of Appeals, which decision was not elevated to us and became final and executory.[63]

Wolverine claimed that while its previous petitions were filed under R.A. No. 166, the Trademark
Law, its subsequent petition was based on a new cause of action, i.e., the Ongpin Memorandum
and E.O. No. 913 issued in 1983, after finality of the previous decision. We held that the said
Memorandum and E.O. did not grant a new cause of action because it did "not amend the
Trademark Law," x x x "nor did it indicate a new policy with respect to the registration in the
Philippines of world-famous trademarks."[64] This conclusion was based on the finding that
Wolverine's two previous petitions and subsequent petition dealt with the same issue of
ownership of the trademark.[65] In other words, since the first and second cases involved the
same issue of ownership, then the first case was a bar to the second case.

In the instant case, the issue of ownership of the trademark "Barbizon" was not raised in IPC No.
686. Private respondent's opposition therein was merely anchored on:

(a) "confusing similarity" of its trademark with that of Escobar's;

(b) that the registration of Escobar's similar trademark will cause damage to private
respondent's business reputation and goodwill; and

(c) that Escobar's use of the trademark amounts to an unlawful appropriation of a mark
previously used in the Philippines which act is penalized under Section 4 (d) of the Trademark
Law.

In IPC No. 2049, private respondent's opposition set forth several issues summarized as follows:
(a) as early as 1933, it adopted the word "BARBIZON" as trademark on its products such as
robes, pajamas, lingerie, nightgowns and slips;

(b) that the trademark "BARBIZON" was registered with the United States Patent Office in 1934
and 1949; and that variations of the same trademark, i.e., "BARBIZON" with Bee design and
"BARBIZON" with the representation of a woman were also registered with the U.S. Patent Office
in 1961 and 1976;

(c) that these marks have been in use in the Philippines and in many countries all over the world
for over forty years. "Barbizon" products have been advertised in international publications and
the marks registered in 36 countries worldwide;

(d) Escobar's registration of the similar trademark "BARBIZON" in 1974 was based on fraud; and
this fraudulent registration was cancelled in 1979, stripping Escobar of whatsoever right she had
to the said mark;

(e) Private respondent's trademark is entitled to protection as a well-known mark under Article
6bis of the Paris Convention, Executive Order No. 913, and the two Memoranda dated November
20, 1980 and October 25, 1983 of the Minister of Trade and Industry to the Director of Patents;

(f) Escobar's trademark is identical to private respondent's and its use on the same class of
goods as the latter's amounts to a violation of the Trademark Law and Article 189 of the Revised
Penal Code.

IPC No. 2049 raised the issue of ownership of the trademark, the first registration and use of the
trademark in the United States and other countries, and the international recognition and
reputation of the trademark established by extensive use and advertisement of private
respondent's products for over forty years here and abroad. These are different from the issues
of confusing similarity and damage in IPC No. 686. The issue of prior use may have been raised
in IPC No. 686 but this claim was limited to prior use in the Philippines only. Prior use in IPC No.
2049 stems from private respondent's claim as originator of the word and symbol
"Barbizon,"[66] as the first and registered user of the mark attached to its products which have
been sold and advertised worldwide for a considerable number of years prior to petitioner's first
application for registration of her trademark in the Philippines. Indeed, these are substantial
allegations that raised new issues and necessarily gave private respondent a new cause of
action.Res judicata does not apply to rights, claims or demands, although growing out of the
same subject matter, which constitute separate or distinct causes of action and were not put in
issue in the former action.[67]

Respondent corporation also introduced in the second case a fact that did not exist at the time
the first case was filed and terminated. The cancellation of petitioner's certificate of registration
for failure to file the affidavit of use arose only after IPC No. 686. It did not and could not have
occurred in the first case, and this gave respondent another cause to oppose the second
application. Res judicata extends only to facts and conditions as they existed at the time
judgment was rendered and to the legal rights and relations of the parties fixed by the facts so
determined.[68] When new facts or conditions intervene before the second suit, furnishing a new
basis for the claims and defenses of the parties, the issues are no longer the same, and the
former judgment cannot be pleaded as a bar to the subsequent action.[69]
It is also noted that the oppositions in the first and second cases are based on different
laws. The opposition in IPC No. 686 was based on specific provisions of the Trademark Law, i.e.,
Section 4 (d)[70]on confusing similarity of trademarks and Section 8[71] on the requisite damage
to file an opposition to a petition for registration. The opposition in IPC No. 2049 invoked the
Paris Convention, particularly Article 6bis thereof, E.O. No. 913 and the two Memoranda of the
Minister of Trade and Industry. This opposition also invoked Article 189 of the Revised Penal
Code which is a statute totally different from the Trademark Law.[72] Causes of action which are
distinct and independent from each other, although arising out of the same contract,
transaction, or state of facts, may be sued on separately, recovery on one being no bar to
subsequent actions on others.[73] The mere fact that the same relief is sought in the subsequent
action will not render the judgment in the prior action operative as res judicata, such as where
the two actions are based on different statutes.[74] Res judicata therefore does not apply to the
instant case and respondent Court of Appeals did not err in so ruling.

Intellectual and industrial property rights cases are not simple property cases. Trademarks deal
with the psychological function of symbols and the effect of these symbols on the public at
large.[75]Trademarks play a significant role in communication, commerce and trade, and serve
valuable and interrelated business functions, both nationally and internationally. For this reason,
all agreements concerning industrial property, like those on trademarks and tradenames, are
intimately connected with economic development.[76] Industrial property encourages investments
in new ideas and inventions and stimulates creative efforts for the satisfaction of human
needs. They speed up transfer of technology and industrialization, and thereby bring about social
and economic progress.[77] These advantages have been acknowledged by the Philippine
government itself. The Intellectual Property Code of the Philippines declares that "an effective
intellectual and industrial property system is vital to the development of domestic and creative
activity, facilitates transfer of technology, it attracts foreign investments, and ensures market
access for our products."[78] The Intellectual Property Code took effect on January 1, 1998 and
by its express provision,[79] repealed the Trademark Law,[80] the Patent Law,[81] Articles 188 and
189 of the Revised Penal Code, the Decree on Intellectual Property,[82] and the Decree on
Compulsory Reprinting of Foreign Textbooks.[83] The Code was enacted to strengthen the
intellectual and industrial property system in the Philippines as mandated by the country's
accession to the Agreement Establishing the World Trade Organization (WTO).[84]

The WTO is a common institutional framework for the conduct of trade relations among its
members in matters related to the multilateral and plurilateral trade agreements annexed to the
WTO Agreement.[85] The WTO framework ensures a "single undertaking approach" to the
administration and operation of all agreements and arrangements attached to the WTO
Agreement. Among those annexed is the Agreement on Trade-Related Aspects of Intellectual
Property Rights or TRIPs.[86] Members to this Agreement "desire to reduce distortions and
impediments to international trade, taking into account the need to promote effective and
adequate protection of intellectual property rights, and to ensure that measures and procedures
to enforce intellectual property rights do not themselves become barriers to legitimate trade." To
fulfill these objectives, the members have agreed to adhere to minimum standards of protection
set by several Conventions.[87] These Conventions are: the Berne Convention for the Protection
of Literary and Artistic Works (1971), the Rome Convention or the International Convention for
the Protection of Performers, Producers of Phonograms and Broadcasting Organisations, the
Treaty on Intellectual Property in Respect of Integrated Circuits, and the Paris Convention
(1967), as revised in Stockholm on July 14, 1967.[88]

A major proportion of international trade depends on the protection of intellectual property

rights.[89] Since the late 1970's, the unauthorized counterfeiting of industrial property and
trademarked products has had a considerable adverse impact on domestic and international
trade revenues.[90] The TRIPs Agreement seeks to grant adequate protection of intellectual
property rights by creating a favorable economic environment to encourage the inflow of foreign
investments, and strengthening the multi-lateral trading system to bring about economic,
cultural and technological independence.[91] The Philippines and the United States of America
have acceded to the WTO Agreement. This Agreement has revolutionized international business
and economic relations among states, and has propelled the world towards trade liberalization
and economic globalization.[92] Protectionism and isolationism belong to the past. Trade is no
longer confined to a bilateral system. There is now "a new era of global economic cooperation,
reflecting the widespread desire to operate in a fairer and more open multilateral trading
system."[93] Conformably, the State must reaffirm its commitment to the global community and
take part in evolving a new international economic order at the dawn of the new millenium.

IN VIEW WHEREOF, the petition is denied and the Decision and Resolution of the Court of
Appeals in CA-G.R. SP No. 28415 are affirmed.

SO ORDERED.

G.R. No. 192294 November 21, 2012

GREAT WHITE SHARK ENTERPRISES, INC., Petitioner,

vs.
DANILO M. CARALDE, JR., Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this Petition for Review on Certiorari under Rule 45 of the Rules of Court is the
December 14, 2009 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 105787, which
reversed and set aside the October 6, 2008 Decision2 of the Director General of the Intellectual
Property Office (IPO), and directed him to grant the application for the mark "SHARK & LOGO"
filed by respondent Danilo M. Caralde, Jr. (Caralde).

The Factual Antecedents

On July 31, 2002, Caralde filed before the Bureau of Legal Affairs (BLA), IPO a trademark
application seeking to register the mark "SHARK & LOGO" for his manufactured goods under
Class 25, such as slippers, shoes and sandals. Petitioner Great White Shark Enterprises, Inc.
(Great White Shark), a foreign corporation domiciled in Florida, USA, opposed3 the application
claiming to be the owner of the mark consisting of a representation of a shark in color, known as
"GREG NORMAN LOGO" (associated with apparel worn and promoted by Australian golfer Greg
Norman). It alleged that, being a world famous mark which is pending registration before the
BLA since February 19, 2002,4 the confusing similarity between the two (2) marks is likely to
deceive or confuse the purchasing public into believing that Caralde's goods are produced by or
originated from it, or are under its sponsorship, to its damage and prejudice.

In his Answer,5 Caralde explained that the subject marks are distinctively different from one
another and easily distinguishable. When compared, the only similarity in the marks is in the
word "shark" alone, differing in other factors such as appearance, style, shape, size, format,
color, ideas counted by marks, and even in the goods carried by the parties.

Pending the inter partes proceedings, Great White Shark’s trademark application was granted
and it was issued Certificate of Registration No. 4-2002-001478 on October 23, 2006 for
clothing, headgear and footwear, including socks, shoes and its components.6

The Ruling of the BLA Director

On June 14, 2007, the BLA Director rendered a Decision7 rejecting Caralde's application,
ratiocinating, as follows:

Prominent in both competing marks is the illustration of a shark.1âwphi1 The dominant feature
in opposer's mark is the illustration of a shark drawn plainly. On the other hand, the dominant
feature in respondent's mark is a depiction of shark shaded darkly, with its body designed in a
way to contain the letters "A" and "R" with the tail suggestive of the letter "K." Admittedly, there
are some differences between the competing marks. Respondent's mark contains additional
features which are absent in opposer's mark. Their dominant features, i.e., that of an illustration
of a shark, however, are of such degree that the overall impression it create [sic] is that the two
competing marks are at least strikingly similar to each another [sic], hence, the likelihood of
confusion of goods is likely to occur. x x x x

Moreover, the goods of the competing marks falls [sic] under the same Class 25. Opposer's
mark GREG NORMAN LOGO, which was applied for registration on February 19, 2002, pertains to
clothing apparel particularly hats, shirts and pants. Respondent, on the other hand, later applied
for the registration of the mark SHARK & LOGO on July 3, 2002 (should be July 31, 2002) for
footwear products particularly slippers, shoes, sandals. Clearly, the goods to which the parties
use their marks belong to the same class and are related to each other."8 (Italics ours)

The BLA Director, however, found no merit in Great White Shark's claim that its mark was
famous and well-known for insufficiency of evidence.

The Ruling of the IPO Director General

On appeal, the IPO Director General affirmed9 the final rejection of Caralde's application, ruling
that the competing marks are indeed confusingly similar. Great White Shark's mark is used in
clothing and footwear, among others, while Caralde's mark is used on similar goods like shoes
and slippers. Moreover, Great White Shark was first in applying for registration of the mark on
February 19, 2002, followed by Caralde on July 31, 2002. Furthermore, Great White Shark’s
mark consisted of an illustration of a shark while Caralde's mark had a composite figure forming
a silhouette of a shark. Thus, as to content, word, sound and meaning, both marks are similar,
barring the registration of Caralde's mark under Section 123.1(d) of Republic Act No. 8293,
otherwise known as the Intellectual Property Code (IP Code). Nonetheless, while Great White
Shark submitted evidence of the registration of its mark in several other countries, the IPO
Director General considered its mark as not well-known for failing to meet the other criteria laid
down under Rule 10210 of the Rules and Regulations on Trademarks, Service Marks, Trade
Names and Marked or Stamped Containers.

The Ruling of the Court of Appeals

However, on petition for review, the CA reversed and set aside the foregoing Decision and
directed the IPO to grant Caralde's application for registration of the mark "SHARK & LOGO." The
CA found no confusing similarity between the subject marks notwithstanding that both contained
the shape of a shark as their dominant feature. It observed that Caralde's mark is more fanciful
and colorful, and contains several elements which are easily distinguishable from that of the
Great White Shark. It further opined that considering their price disparity, there is no likelihood
of confusion as they travel in different channels of trade.11

Issues Before The Court

THE COURT OF APPEALS ERRED IN RULING THAT THE RESPONDENT'S MARK SUBJECT OF THE
APPLICATION BEING OPPOSED BY THE PETITIONER IS NOT CONFUSINGLY SIMILAR TO
PETITIONER'S REGISTERED MARK THE COURT OF APPEALS ERRED IN RULING THAT THE COST
OF GOODS COULD NEGATE LIKELIHOOD OF CONFUSION THE COURT OF APPEALS ERRED IN
REVERSING THE PREVIOUS RESOLUTIONS OF THE DIRECTOR GENERAL AND THE BLA12

The Court's Ruling

In the instant petition for review on certiorari, Great White Shark maintains that the two (2)
competing marks are confusingly similar in appearance, shape and color scheme because of the
dominant feature of a shark which is likely to deceive or cause confusion to the purchasing
public, suggesting an intention on Caralde's part to pass-off his goods as that of Great White
Shark and to ride on its goodwill. This, notwithstanding the price difference, targets market and
channels of trade between the competing products. Hence, the CA erred in reversing the rulings
of the IPO Director General and the BLA Director who are the experts in the implementation of
the IP Code.

The petition lacks merit.

A trademark device is susceptible to registration if it is crafted fancifully or arbitrarily and is

capable of identifying and distinguishing the goods of one manufacturer or seller from those of
another. Apart from its commercial utility, the benchmark of trademark registrability is
distinctiveness.13 Thus, a generic figure, as that of a shark in this case, if employed and designed
in a distinctive manner, can be a registrable trademark device, subject to the provisions of the
IP Code.

Corollarily, Section 123.1(d) of the IP Code provides that a mark cannot be registered if it is
identical with a registered mark belonging to a different proprietor with an earlier filing or
priority date, with respect to the same or closely related goods or services, or has a near
resemblance to such mark as to likely deceive or cause confusion.

In determining similarity and likelihood of confusion, case law has developed the Dominancy
Test and the Holistic or Totality Test. The Dominancy Test focuses on the similarity of the
dominant features of the competing trademarks that might cause confusion, mistake, and
deception in the mind of the ordinary purchaser, and gives more consideration to the aural and
visual impressions created by the marks on the buyers of goods, giving little weight to factors
like prices, quality, sales outlets, and market segments. In contrast, the Holistic or Totality Test
considers the entirety of the marks as applied to the products, including the labels and
packaging, and focuses not only on the predominant words but also on the other features
appearing on both labels to determine whether one is confusingly similar to the other14 as to
mislead the ordinary purchaser. The "ordinary purchaser" refers to one "accustomed to buy, and
therefore to some extent familiar with, the goods in question."15

Irrespective of both tests, the Court finds no confusing similarity between the subject marks.
While both marks use the shape of a shark, the Court noted distinct visual and aural differences
between them. In Great White Shark's "GREG NORMAN LOGO," there is an outline of a shark
formed with the use of green, yellow, blue and red16lines/strokes, to wit:

In contrast, the shark in Caralde's "SHARK & LOGO" mark17 is illustrated in l et t er s outlined in
the form of a shark with the letter "S" forming the head, the letter "H" forming the fins, the
letters "A" and "R" forming the body, and the letter "K" forming the tail. In addition, the latter
mark includes several more elements such as the word "SHARK" in a different font underneath
the shark outline, layers of waves, and a tree on the right side, and liberally used the color blue
with some parts in red, yellow, green and white.18 The whole design is enclosed in an elliptical
shape with two linings, thus:

As may be gleaned from the foregoing, the visual dissimilarities between the two (2) marks are
evident and significant, negating the possibility of confusion in the minds of the ordinary
purchaser, especially considering the distinct aural difference between the marks.

Finally, there being no confusing similarity between the subject marks, the matter of whether
Great White Shark’s mark has gained recognition and acquired becomes unnecessary.19 Besides,
both the BLA Director and the IPO Director General have ruled that Great White Shark failed to
meet the criteria under Rule 102 of the Rules and Regulations on Trademarks, Service Marks,
Trade Names and Marked or Stamped Containers to establish that its mark is well-known, and
the latter failed to show otherwise.

WHEREFORE, the Court resolves to DENY the instant petition and AFFIRM the assailed December
14, 2009 Decision of the Court of Appeals (CA) for failure to show that the CA committed
reversible error in setting aside the Decision of the IPO Director General and allowing the
registration of the mark "SHARK & LOGO" by respondent Danilo M. Caralde, Jr.

SO ORDERED.

G.R. No. 103543 July 5, 1993

ASIA BREWERY, INC., petitioner,

vs.
THE HON. COURT OF APPEALS and SAN MIGUEL CORPORATION, respondents.

Abad Santos & Associates and Sycip, Salazar, Hernandez & Gatmaitan for petitioner.

Roco, Bunag, Kapunan Law Office for private respondent.

GRIÑO-AQUINO, J.:

On September 15, 1988, San Miguel Corporation (SMC) filed a complaint against Asia Brewery
Inc. (ABI) for infringement of trademark and unfair competition on account of the latter's BEER
PALE PILSEN or BEER NA BEER product which has been competing with SMC's SAN MIGUEL PALE
PILSEN for a share of the local beer market. (San Miguel Corporation vs. Asia Brewery Inc., Civ.
Case. No. 56390, RTC Branch 166, Pasig, Metro Manila.).

On August 27, 1990, a decision was rendered by the trial Court, presided over by Judge Jesus O.
Bersamira, dismissing SMC's complaint because ABI "has not committed trademark infringement
or unfair competition against" SMC (p. 189, Rollo).

SMC appealed to the Court of Appeals (C.A.-G.R. CV No. 28104). On September 30, 1991, the
Court of Appeals (Sixth Division composed of Justice Jose C. Campos, Jr., chairman
and ponente, and Justices Venancio D. Aldecoa Jr. and Filemon H. Mendoza, as members)
reversed the trial court. The dispositive part of the decision reads as follows:

In the light of the foregoing analysis and under the plain language of the applicable rule and
principle on the matter, We find the defendant Asia Brewery Incorporated GUILTY of
infringement of trademark and unfair competition. The decision of the trial court is hereby
REVERSED, and a new judgment entered in favor of the plaintiff and against the defendant as
follows:

(1) The defendant Asia Brewery Inc. its officers, agents, servants and employees are hereby
permanently enjoined and restrained from manufacturing, putting up, selling, advertising,
offering or announcing for sale, or supplying Beer Pale Pilsen, or any similar preparation,
manufacture or beer in bottles and under labels substantially identical with or like the said
bottles and labels of plaintiff San Miguel Corporation employed for that purpose, or substantially
identical with or like the bottles and labels now employed by the defendant for that purpose, or
in bottles or under labels which are calculated to deceive purchasers and consumers into the
belief that the beer is the product of the plaintiff or which will enable others to substitute, sell or
palm off the said beer of the defendant as and for the beer of the plaintiff-complainant.

(2) The defendant Asia Brewery Inc. is hereby ordered to render an accounting and pay the San
Miguel Corporation double any and all the payments derived by defendant from operations of its
business and the sale of goods bearing the mark "Beer Pale Pilsen" estimated at approximately
Five Million Pesos (P5,000,000.00); to recall all its products bearing the mark "Beer Pale Pilsen"
from its retailers and deliver these as well as all labels, signs, prints, packages, wrappers,
receptacles and advertisements bearing the infringing mark and all plates, molds, materials and
other means of making the same to the Court authorized to execute this judgment for
destruction.

(3) The defendant is hereby ordered to pay plaintiff the sum of Two Million Pesos
(P2,000,000.00) as moral damages and Half a Million Pesos (P5,000,000.00) by way of
exemplary damages.

(4) The defendant is further ordered to pay the plaintiff attorney's fees in the amount of
P250,000.00 plus costs to this suit. (p. 90, Rollo.)

Upon a motion for reconsideration filed by ABI, the above dispositive part of the decision, was
modified by the separate opinions of the Special Sixth Division 1 so that it should read thus:

In the light of the foregoing analysis and under the plain language of the applicable rule and
principle on the matter, We find the defendant Asia Brewery Incorporated GUILTY of
infringement of trademark and unfair competition. The decision of the trial court is hereby
REVERSED, and a new judgment entered in favor of the plaintiff and against the defendant as
follows:

(1) The defendant Asia Brewery Inc., its officers, agents, servants and employees are hereby
permanently enjoined and restrained from manufacturing, putting up, selling, advertising,
offering or announcing for sale, or supplying Beer Pale Pilsen, or any similar preparation,
manufacture or beer in bottles and under labels substantially identical with or like the said
bottles and labels of plaintiff San Miguel Corporation employed for that purpose, or substantially
identical with or like the bottles and labels now employed by the defendant for that purpose, or
in bottles or under labels which are calculated to deceive purchasers and consumers into the
belief that the beer if the product of the plaintiff or which will enable others to substitute, sell or
palm off the said beer of the defendant as and for the beer of the plaintiff-complainant.

(2) The defendant Asia Brewery Inc. is hereby ordered 2 to recall all its products bearing the
mark Beer Pale Pilsen from its retailers and deliver these as well as all labels, signs, prints,
packages, wrappers, receptacles and advertisements bearing the infringing mark and all plates,
molds, materials and other means of making the same to the Court authorized to execute this
judgment for destruction.

(3) The defendant is hereby ordered to pay plaintiff the sum of Two Million Pesos
(P2,000,000.00) as moral damages and Half a Million Pesos (P500,000.00) by way of exemplary
damages.

(4) The defendant is further ordered to pay the plaintiff attorney's fees in the amount of
P250,000.00 plus costs of this suit.
In due time, ABI appealed to this Court by a petition for certiorari under Rule 45 of the Rules of
Court. The lone issue in this appeal is whether ABI infringes SMC's trademark: San Miguel Pale
Pilsen with Rectangular Hops and Malt Design, and thereby commits unfair competition against
the latter. It is a factual issue (Phil. Nut Industry Inc. v. Standard Brands Inc., 65 SCRA 575)
and as a general rule, the findings of the Court of Appeals upon factual questions are conclusive
and ought not to be disturbed by us. However, there are exceptions to this general rule, and
they are:

(1) When the conclusion is grounded entirely on speculation, surmises and conjectures;

(2) When the inference of the Court of Appeals from its findings of fact is manifestly mistaken,
absurd and impossible;

(3) Where there is grave abuse of discretion;

(4) When the judgment is based on a misapprehension of facts;

(5) When the appellate court, in making its findings, went beyond the issues of the case, and the
same are contrary to the admissions of both the appellant and the appellee;

(6) When the findings of said court are contrary to those of the trial court;

(7) When the findings are without citation of specific evidence on which they are based;

(8) When the facts set forth in the petition as well as in the petitioner's main and reply briefs are
not disputed by the respondents; and

(9) When the findings of facts of the Court of Appeals are premised on the absence of evidence
and are contradicted on record. (Reynolds Philippine Corporation vs. Court of Appeals, 169 SCRA
220, 223 citing, Mendoza vs. Court of Appeals, 156 SCRA 597; Manlapaz vs. Court of Appeals,
147 SCRA 238; Sacay vs. Sandiganbayan, 142 SCRA 593, 609; Guita vs. CA, 139 SCRA 576;
Casanayan vs. Court of Appeals, 198 SCRA 333, 336; also Apex Investment and Financing Corp.
vs. IAC, 166 SCRA 458 [citing Tolentino vs. De Jesus, 56 SCRA 167; Carolina Industries, Inc. vs.
CMS Stock Brokerage, Inc., 97 SCRA 734; Manero vs. CA, 102 SCRA 817; and Moran, Jr. vs. CA,
133 SCRA 88].)

Under any of these exceptions, the Court has to review the evidence in order to arrive at the
correct findings based on the record (Roman Catholic Bishop of Malolos, Inc. vs. IAC, 191 SCRA
411, 420.) Where findings of the Court of Appeals and trial court are contrary to each other, the
Supreme Court may scrutinize the evidence on record. (Cruz vs. CA, 129 SCRA 222, 227.)

The present case is one of the exceptions because there is no concurrence between the trial
court and the Court of Appeals on the lone factual issue of whether ABI, by manufacturing and
selling its BEER PALE PILSEN in amber colored steinie bottles of 320 ml. capacity with a white
painted rectangular label has committed trademark infringement and unfair competition against
SMC.

Infringement of trademark is a form of unfair competition (Clarke vs. Manila Candy Co., 36 Phil.
100, 106). Sec. 22 of Republic Act No. 166, otherwise known as the Trademark Law, defines
what constitutes infringement:
Sec. 22. Infringement, what constitutes. — Any person who shall use, without the consent of the
registrant, any reproduction, counterfeit, copy or colorable imitation of any registered mark or
trade-name in connection with the sale, offering for sale, or advertising of any goods, business
or services on or in connection with which such use is likely to cause confusion or mistake or to
deceive purchasers or others as to the source or origin of such goods or services, or identity of
such business; or reproduce, counterfeit, copy or colorably imitate any such mark or trade-name
and apply such reproduction, counterfeit, copy, or colorable imitation to labels, signs, prints,
packages, wrappers, receptacles or advertisements intended to be used upon or in connection
with such goods, business or services, shall be liable to a civil action by the registrant for any or
all of the remedies herein provided. (Emphasis supplied.)

This definition implies that only registered trade marks, trade names and service marks are
protected against infringement or unauthorized use by another or others. The use of someone
else's registered trademark, trade name or service mark is unauthorized, hence, actionable, if it
is done "without the consent of the registrant." (Ibid.)

The registered trademark of SMC for its pale pilsen beer is:

San Miguel Pale Pilsen With Rectangular Hops and Malt Design. (Philippine Bureau of Patents,
Trademarks and Technology Transfer Trademark Certificate of Registration No. 36103, dated 23
Oct. 1986,
(p. 174, Rollo.)

As described by the trial court in its decision (Page 177, Rollo):

. . . . a rectangular design [is] bordered by what appears to be minute grains arranged in rows
of three in which there appear in each corner hop designs. At the top is a phrase written in small
print "Reg. Phil. Pat. Off." and at the bottom "Net Contents: 320 Ml." The dominant feature is
the phrase "San Miguel" written horizontally at the upper portion. Below are the words "Pale
Pilsen" written diagonally across the middle of the rectangular design. In between is a coat of
arms and the phrase "Expertly Brewed." The "S" in "San" and the "M" of "Miguel," "P" of "Pale"
and "Pilsen" are written in Gothic letters with fine strokes of serifs, the kind that first appeared
in the 1780s in England and used for printing German as distinguished from Roman and Italic.
Below "Pale Pilsen" is the statement "And Bottled by" (first line, "San Miguel Brewery" (second
line), and "Philippines" (third line). (p. 177, Rollo; Emphasis supplied.)

On the other hand, ABI's trademark, as described by the trial court, consists of:

. . . a rectangular design bordered by what appear to be buds of flowers with leaves. The
dominant feature is "Beer" written across the upper portion of the rectangular design. The
phrase "Pale Pilsen" appears immediately below in smaller block letters. To the left is a hop
design and to the right, written in small prints, is the phrase "Net Contents 320 ml."
Immediately below "Pale Pilsen" is the statement written in three lines "Especially brewed and
bottled by" (first line), "Asia Brewery Incorporated" (second line), and "Philippines" (third line),
(p. 177, Rollo; Emphasis supplied.)

Does ABI's BEER PALE PILSEN label or "design" infringe upon SMC's SAN MIGUEL PALE PILSEN
WITH RECTANGULAR MALT AND HOPS DESIGN? The answer is "No."
Infringement is determined by the "test of dominancy" rather than by differences or variations in
the details of one trademark and of another. The rule was formulated in Co Tiong Sa vs. Director
of Patents, 95 Phil. 1, 4 (1954); reiterated in Lim Hoa vs. Director of Patents, 100 Phil. 214,
216-217 (1956), thus:

It has been consistently held that the question of infringement of a trademark is to be

determined by the test of dominancy. Similarity in size, form and color, while relevant, is not
conclusive. If the competing trademark contains the main or essential or dominant features of
another, and confusion and deception is likely to result, infringement takes place. Duplication or
imitation is not necessary; nor it is necessary that the infringing label should suggest an effort to
imitate. [C. Neilman Brewing Co. vs. Independent Brewing Co., 191 F., 489, 495, citing Eagle
White Lead Co., vs. Pflugh (CC) 180 Fed. 579]. The question at issue in cases of infringement of
trademarks is whether the use of the marks involved would be likely to cause confusion or
mistakes in the mind of the public or deceive purchasers. (Auburn Rubber Corporation vs.
Honover Rubber Co., 107 F. 2d 588; . . . .) (Emphasis supplied.)

In Forbes, Munn & Co. (Ltd.) vs. Ang San To, 40 Phil. 272, 275, the test was similarity or
"resemblance between the two (trademarks) such as would be likely to cause the one mark to
be mistaken for the other. . . . [But] this is not such similitude as amounts to identity."

In Phil. Nut Industry Inc. vs. Standard Brands Inc., 65 SCRA 575, the court was more specific:
the test is "similarity in the dominant features of the trademarks."

What are the dominant features of the competing trademarks before us?

There is hardly any dispute that the dominant feature of SMC's trademark is the name of the
product: SAN MIGUEL PALE PILSEN, written in white Gothic letters with elaborate serifs at the
beginning and end of the letters "S" and "M" on an amber background across the upper portion
of the rectangular design.

On the other hand, the dominant feature of ABI's trademark is the name: BEER PALE PILSEN,
with the word "Beer" written in large amber letters, larger than any of the letters found in the
SMC label.

The trial court perceptively observed that the word "BEER" does not appear in SMC's trademark,
just as the words "SAN MIGUEL" do not appear in ABI's trademark. Hence, there is absolutely no
similarity in the dominant features of both trademarks.

Neither in sound, spelling or appearance can BEER PALE PILSEN be said to be confusingly similar
to SAN MIGUEL PALE PILSEN. No one who purchases BEER PALE PILSEN can possibly be
deceived that it is SAN MIGUEL PALE PILSEN. No evidence whatsoever was presented by SMC
proving otherwise.

Besides the dissimilarity in their names, the following other dissimilarities in the trade dress or
appearance of the competing products abound:

(1) The SAN MIGUEL PALE PILSEN bottle has a slender tapered neck.

The BEER PALE PILSEN bottle has a fat, bulging neck.

(2) The words "pale pilsen" on SMC's label are printed in bold and laced letters along
a diagonal band, whereas the words "pale pilsen" on ABI's bottle are half the size and printed in
slender block letters on a straight horizontal band. (See Exhibit "8-a".).

(3) The names of the manufacturers are prominently printed on their respective bottles.

SAN MIGUEL PALE PILSEN is "Bottled by the San Miguel Brewery, Philippines," whereas BEER
PALE PILSEN is "Especially brewed and bottled by Asia Brewery Incorporated, Philippines."

(4) On the back of ABI's bottle is printed in big, bold letters, under a row of flower buds and
leaves, its copyrighted slogan:

"BEER NA BEER!"

Whereas SMC's bottle carries no slogan.

(5) The back of the SAN MIGUEL PALE PILSEN bottle carries the SMC logo, whereas the BEER
PALE PILSEN bottle has no logo.

(6) The SAN MIGUEL PALE PILSEN bottle cap is stamped with a coat of arms and the words "San
Miguel Brewery Philippines" encircling the same.

The BEER PALE PILSEN bottle cap is stamped with the name "BEER" in the center, surrounded
by the words "Asia Brewery Incorporated Philippines."

(7) Finally, there is a substantial price difference between BEER PALE PILSEN (currently at P4.25
per bottle) and SAN MIGUEL PALE PILSEN (currently at P7.00 per bottle). One who pays only
P4.25 for a bottle of beer cannot expect to receive San Miguel Pale Pilsen from the storekeeper
or bartender.

The fact that the words pale pilsen are part of ABI's trademark does not constitute an
infringement of SMC's trademark: SAN MIGUEL PALE PILSEN, for "pale pilsen" are generic words
descriptive of the color ("pale"), of a type of beer ("pilsen"), which is a light bohemian beer with
a strong hops flavor that originated in the City of Pilsen in Czechoslovakia and became famous in
the Middle Ages. (Webster's Third New International Dictionary of the English Language,
Unabridged. Edited by Philip Babcock Gove. Springfield, Mass.: G & C Merriam Co., [c] 1976,
page 1716.) "Pilsen" is a "primarily geographically descriptive word," (Sec. 4, subpar. [e]
Republic Act No. 166, as inserted by Sec. 2 of R.A. No. 638) hence, non-registerable and not
appropriable by any beer manufacturer. The Trademark Law provides:

Sec. 4. . . .. The owner of trade-mark, trade-name or service-mark used to distinguish his

goods, business or services from the goods, business or services of others shall have the right to
register the same [on the principal register], unless it:

xxx xxx xxx

(e) Consists of a mark or trade-name which, when applied to or used in connection with the
goods, business or services of the applicant is merely descriptive or deceptively misdescriptive of
them, or when applied to or used in connection with the goods, business or services of the
applicant is primarily geographically descriptive or deceptively misdescriptive of them, or is
primarily merely a surname." (Emphasis supplied.)
The words "pale pilsen" may not be appropriated by SMC for its exclusive use even if they are
part of its registered trademark: SAN MIGUEL PALE PILSEN, any more than such descriptive
words as "evaporated milk," "tomato ketchup," "cheddar cheese," "corn flakes" and "cooking oil"
may be appropriated by any single manufacturer of these food products, for no other reason
than that he was the first to use them in his registered trademark. In Masso Hermanos, S.A. vs.
Director of Patents, 94 Phil. 136, 139 (1953), it was held that a dealer in shoes cannot register
"Leather Shoes" as his trademark because that would be merely descriptive and it would be
unjust to deprive other dealers in leather shoes of the right to use the same words with
reference to their merchandise. No one may appropriate generic or descriptive words. They
belong to the public domain (Ong Ai Gui vs. Director of Patents, 96 Phil. 673, 676 [1955]):

A word or a combination of words which is merely descriptive of an article of trade, or of its

composition, characteristics, or qualities, cannot be appropriated and protected as a trademark
to the exclusion of its use by others. . . . inasmuch as all persons have an equal right to produce
and vend similar articles, they also have the right to describe them properly and to use any
appropriate language or words for that purpose, and no person can appropriate to himself
exclusively any word or expression, properly descriptive of the article, its qualities, ingredients
or characteristics, and thus limit other persons in the use of language appropriate to the
description of their manufactures, the right to the use of such language being common to all.
This rule excluding descriptive terms has also been held to apply to trade-names. As to whether
words employed fall within this prohibition, it is said that the true test is not whether they are
exhaustively descriptive of the article designated, but whether in themselves, and as they are
commonly used by those who understand their meaning, they are reasonably indicative and
descriptive of the thing intended. If they are thus descriptive, and not arbitrary, they cannot be
appropriated from general use and become the exclusive property of anyone. (52 Am. Jur. 542-
543.)

. . . . Others may use the same or similar descriptive word in connection with their own wares,
provided they take proper steps to prevent the public being deceived. (Richmond Remedies Co.
vs. Dr. Miles Medical Co., 16 E. [2d] 598.)

. . . . A descriptive word may be admittedly distinctive, especially if the user is the first creator
of the article. It will, however, be denied protection, not because it lacks distinctiveness, but
rather because others are equally entitled to its use. (2 Callman. Unfair Competition and
Trademarks, pp. 869-870.)" (Emphasis supplied.)

The circumstance that the manufacturer of BEER PALE PILSEN, Asia Brewery Incorporated, has
printed its name all over the bottle of its beer product: on the label, on the back of the bottle, as
well as on the bottle cap, disproves SMC's charge that ABI dishonestly and fraudulently intends
to palm off its BEER PALE PILSEN as SMC's product. In view of the visible differences between
the two products, the Court believes it is quite unlikely that a customer of average intelligence
would mistake a bottle of BEER PALE PILSEN for SAN MIGUEL PALE PILSEN.

The fact that BEER PALE PILSEN like SAN MIGUEL PALE PILSEN is bottled in amber-colored
steinie bottles of 320 ml. capacity and is also advertised in print, broadcast, and television
media, does not necessarily constitute unfair competition.

Unfair competition is the employment of deception or any other means contrary to good faith by
which a person shall pass off the goods manufactured by him or in which he deals, or his
business, or services, for those of another who has already established goodwill for his similar
goods, business or services, or any acts calculated to produce the same result. (Sec. 29,
Republic Act No. 166, as amended.) The law further enumerates the more common ways of
committing unfair competition, thus:

Sec. 29. . . .

In particular, and without in any way limiting the scope of unfair competition, the following shall
be deemed guilty of unfair competition:

(a) Any person, who in selling his goods shall give them the general appearance of goods of
another manufacturer or dealer, either as to the goods themselves or in the wrapping of the
packages in which they are contained, or the devices or words thereon, or in any other feature
of their appearance, which would be likely to influence purchasers to believe that the goods
offered are those of a manufacturer or dealer other than the actual manufacturer or dealer, or
who otherwise clothes the goods with such appearance as shall deceive the public and defraud
another of his legitimate trade, or any subsequent vendor of such goods or any agent of any
vendor engaged in selling such goods with a like purpose.

(b) Any person who by any artifice, or device, or who employs any other means calculated to
induce the false belief that such person is offering the services of another who has identified
such services in the mind of the public; or

(c) Any person who shall make any false statement in the course of trade or who shall commit
any other act contrary to good faith of a nature calculated to discredit the goods, business or
services of another.

In this case, the question to be determined is whether ABI is using a name or mark for its beer
that has previously come to designate SMC's beer, or whether ABI is passing off its BEER PALE
PILSEN as SMC's SAN MIGUEL PALE PILSEN.

. . ..The universal test question is whether the public is likely to be deceived. Nothing less than
conduct tending to pass off one man's goods or business as that of another will constitute unfair
competition. Actual or probable deception and confusion on the part of the customers by reason
of defendant's practices must always appear. (Shell Co., of the Philippines, Ltd. vs. Insular
Petroleum Refining Co. Ltd. et al., 120 Phil. 434, 439.)

The use of ABI of the steinie bottle, similar but not identical to the SAN MIGUEL PALE PILSEN
bottle, is not unlawful. As pointed out by ABI's counsel, SMC did not invent but merely borrowed
the steinie bottle from abroad and it claims neither patent nor trademark protection for that
bottle shape and design. (See rollo, page 55.) The Cerveza Especial and the Efes Pale Pilsen use
the "steinie" bottle. (See Exhibits 57-D, 57-E.) The trial court found no infringement of SMC's
bottle —

The court agrees with defendant that there is no infringement of plaintiff's bottle, firstly, because
according to plaintiff's witness Deogracias Villadolid, it is a standard type of bottle called steinie,
and to witness Jose Antonio Garcia, it is not a San Miguel Corporation design but a design
originally developed in the United States by the Glass Container Manufacturer's Institute and
therefore lacks exclusivity. Secondly, the shape was never registered as a trademark. Exhibit "C"
is not a registration of a beer bottle design required under Rep. Act 165 but the registration of
the name and other marks of ownership stamped on containers as required by Rep. Act 623.
Thirdly, the neck of defendant's bottle is much larger and has a distinct bulge in its uppermost
part. (p. 186, Rollo.)

The petitioner's contention that bottle size, shape and color may not be the exclusive property of
any one beer manufacturer is well taken. SMC's being the first to use the steinie bottle does not
give SMC a vested right to use it to the exclusion of everyone else. Being of functional or
common use, and not the exclusive invention of any one, it is available to all who might need to
use it within the industry. Nobody can acquire any exclusive right to market articles supplying
simple human needs in containers or wrappers of the general form, size and character
commonly and immediately used in marketing such articles (Dy Buncio vs. Tan Tiao Bok, 42 Phil.
190, 194-195.)

. . . protection against imitation should be properly confined to nonfunctional features. Even if

purely functional elements are slavishly copied, the resemblance will not support an action for
unfair competition, and the first user cannot claim secondary meaning protection. Nor can the
first user predicate his claim to protection on the argument that his business was established in
reliance on any such unpatented nonfunctional feature, even "at large expenditure of money."
(Callman Unfair Competition, Trademarks and Monopolies, Sec. 19.33 [4th Ed.].) (Petition for
Review, p. 28.)

ABI does not use SMC's steinie bottle. Neither did ABI copy it. ABI makes its own steinie bottle
which has a fat bulging neck to differentiate it from SMC's bottle. The amber color is a functional
feature of the beer bottle. As pointed out by ABI, all bottled beer produced in the Philippines is
contained and sold in amber-colored bottles because amber is the most effective color in
preventing transmission of light and provides the maximum protection to beer. As was ruled
in California Crushed Fruit Corporation vs. Taylor B. and Candy Co., 38 F2d 885, a merchant
cannot be enjoined from using a type or color of bottle where the same has the useful purpose
of protecting the contents from the deleterious effects of light rays. Moreover, no one may have
a monopoly of any color. Not only beer, but most medicines, whether in liquid or tablet form, are
sold in amber-colored bottles.

That the ABI bottle has a 320 ml. capacity is not due to a desire to imitate SMC's bottle because
that bottle capacity is the standard prescribed under Metrication Circular No. 778, dated 4
December 1979, of the Department of Trade, Metric System Board.

With regard to the white label of both beer bottles, ABI explained that it used the color white for
its label because white presents the strongest contrast to the amber color of ABI's bottle; it is
also the most economical to use on labels, and the easiest to "bake" in the furnace (p. 16, TSN
of September 20, 1988). No one can have a monopoly of the color amber for bottles, nor of
white for labels, nor of the rectangular shape which is the usual configuration of labels. Needless
to say, the shape of the bottle and of the label is unimportant. What is all important is the name
of the product written on the label of the bottle for that is how one beer may be distinguished
form the others.

In Dy Buncio v. Tan Tiao Bok, 42 Phil. 190, 196-197, where two competing tea products were
both labelled as Formosan tea, both sold in 5-ounce packages made of ordinary wrapping paper
of conventional color, both with labels containing designs drawn in green ink and Chinese
characters written in red ink, one label showing a double-decked jar in the center, the other, a
flower pot, this court found that the resemblances between the designs were not sufficient to
mislead the ordinary intelligent buyer, hence, there was no unfair competition. The Court held:

. . . . In order that there may be deception of the buying public in the sense necessary to
constitute unfair competition, it is necessary to suppose a public accustomed to buy, and
therefore to some extent familiar with, the goods in question. The test of fraudulent simulation is
to be found in the likelihood of the deception of persons in some measure acquainted with an
established design and desirous of purchasing the commodity with which that design has been
associated. The test is not found in the deception, or possibility of the deception, of the person
who knows nothing about the design which has been counterfeited, and who must be indifferent
as between that and the other. The simulation, in order to be objectionable, must be such as
appears likely to mislead the ordinarily intelligent buyer who has a need to supply and is familiar
with the article that he seeks to purchase.

The main thrust of SMC's complaint if not infringement of its trademark, but unfair competition
arising form the allegedly "confusing similarity" in the general appearance or trade dress of ABI's
BEER PALE PILSEN beside SMC's SAN MIGUEL PALE PILSEN (p. 209, Rollo)

SMC claims that the "trade dress" of BEER PALE PILSEN is "confusingly similar" to its SAN
MIGUEL PALE PILSEN because both are bottled in 320 ml. steinie type, amber-colored bottles
with white rectangular labels.

However, when as in this case, the names of the competing products are clearly different and
their respective sources are prominently printed on the label and on other parts of the bottle,
mere similarity in the shape and size of the container and label, does not constitute unfair
competition. The steinie bottle is a standard bottle for beer and is universally used. SMC did not
invent it nor patent it. The fact that SMC's bottle is registered under R.A. No. 623 (as amended
by RA 5700, An Act to Regulate the Use of Duly Stamped or Marked Bottles, Boxes, Casks, Kegs,
Barrels and Other Similar Containers) simply prohibits manufacturers of other foodstuffs from
the unauthorized use of SMC's bottles by refilling these with their products. It was not
uncommon then for products such as patis (fish sauce) and toyo (soy sauce) to be sold in
recycled SAN MIGUEL PALE PILSEN bottles. Registration of SMC's beer bottles did not give SMC
a patent on the steinie or on bottles of similar size, shape or color.

Most containers are standardized because they are usually made by the same manufacturer.
Milk, whether in powdered or liquid form, is sold in uniform tin cans. The same can be said of the
standard ketchup or vinegar bottle with its familiar elongated neck. Many other grocery items
such as coffee, mayonnaise, pickles and peanut butter are sold in standard glass jars. The
manufacturers of these foodstuffs have equal right to use these standards tins, bottles and jars
for their products. Only their respective labels distinguish them from each other. Just as no milk
producer may sue the others for unfair competition because they sell their milk in the same size
and shape of milk can which he uses, neither may SMC claim unfair competition arising from the
fact that ABI's BEER PALE PILSEN is sold, like SMC's SAN MIGUEL PALE PILSEN in amber steinie
bottles.

The record does not bear out SMC's apprehension that BEER PALE PILSEN is being passed off as
SAN MIGUEL PALE PILSEN. This is unlikely to happen for consumers or buyers of beer generally
order their beer by brand. As pointed out by ABI's counsel, in supermarkets and tiendas, beer is
ordered by brand, and the customer surrenders his empty replacement bottles or pays a deposit
to guarantee the return of the empties. If his empties are SAN MIGUEL PALE PILSEN, he will get
SAN MIGUEL PALE PILSEN as replacement. In sari-sari stores, beer is also ordered from
the tindera by brand. The same is true in restaurants, pubs and beer gardens — beer is ordered
from the waiters by brand. (Op. cit. page 50.)

Considering further that SAN MIGUEL PALE PILSEN has virtually monopolized the domestic beer
market for the past hundred years, those who have been drinking no other beer but SAN
MIGUEL PALE PILSEN these many years certainly know their beer too well to be deceived by a
newcomer in the market. If they gravitate to ABI's cheaper beer, it will not be because they are
confused or deceived, but because they find the competing product to their taste.

Our decision in this case will not diminish our ruling in "Del Monte Corporation vs. Court of
Appeals and Sunshine Sauce Manufacturing Industries," 181 SCRA 410, 419, 3 that:

. . . to determine whether a trademark has been infringed, we must consider the mark as a
whole and not as dissected. If the buyer is deceived, it is attributable to the marks as a totality,
not usually to any part of it.

That ruling may not apply to all kinds of products. The Court itself cautioned that in resolving
cases of infringement and unfair competition, the courts should "take into consideration several
factors which would affect its conclusion, to wit: the age, training and education of the usual
purchaser, the nature and cost of the article, whether the article is bought for immediate
consumption and also the conditions under which it is usually purchased" (181 SCRA 410, 418-
419).

The Del Monte case involved catsup, a common household item which is bought off the store
shelves by housewives and house help who, if they are illiterate and cannot identify the product
by name or brand, would very likely identify it by mere recollection of its appearance. Since the
competitor, Sunshine Sauce Mfg. Industries, not only used recycled Del Monte bottles for its
catsup (despite the warning embossed on the bottles: "Del Monte Corporation. Not to be
refilled.") but also used labels which were "a colorable imitation" of Del Monte's label, we held
that there was infringement of Del Monte's trademark and unfair competition by Sunshine.

Our ruling in Del Monte would not apply to beer which is not usually picked from a store shelf
but ordered by brand by the beer drinker himself from the storekeeper or waiter in a pub or
restaurant.

Moreover, SMC's brand or trademark: "SAN MIGUEL PALE PILSEN" is not infringed by ABI's
mark: "BEER NA BEER" or "BEER PALE PILSEN." ABI makes its own bottle with a bulging neck to
differentiate it from SMC's bottle, and prints ABI's name in three (3) places on said bottle (front,
back and bottle cap) to prove that it has no intention to pass of its "BEER" as "SAN MIGUEL."

There is no confusing similarity between the competing beers for the name of one is "SAN
MIGUEL" while the competitor is plain "BEER" and the points of dissimilarity between the two
outnumber their points of similarity.

Petitioner ABI has neither infringed SMC's trademark nor committed unfair competition with the
latter's SAN MIGUEL PALE PILSEN product. While its BEER PALE PILSEN admittedly competes
with the latter in the open market, that competition is neither unfair nor fraudulent. Hence, we
must deny SMC's prayer to suppress it.
WHEREFORE, finding the petition for review meritorious, the same is hereby granted. The
decision and resolution of the Court of Appeals in CA-G.R. CV No. 28104 are hereby set aside
and that of the trial court is REINSTATED and AFFIRMED. Costs against the private respondent.

SO ORDERED.

July 19, 2016

G.R. No. 204605

INTELLECTUAL PROPERTY ASSOCIATION OF THE PHILIPPINES, Petitioner,

vs.
HON. PAQUITO OCHOA, IN HIS CAPACITY AS EXECUTIVE SECRETARY, HON. ALBERT
DEL ROSARIO, IN HIS CAPACITY AS SECRETARY OF THE DEPARTMENT OF FOREIGN
AFFAIRS, AND HON. RICARDO BLANCAFLOR, IN HIS CAPACITY AS THE DIRECTOR
GENERAL OF THE INTELLECTUAL PROPERTY OFFICE OF THE PHILIPPINES, Respondents.

DECISION

BERSAMIN, J.:

In this special civil action for certiorari and prohibition, the Intellectual Property Association of
the Philippines (IPAP) seeks to declare the accession of the Philippines to the Protocol Relating to
the Madrid Agreement Concerning the International Registration of Marks (Madrid
Protocol) unconstitutional on the ground of the lack of concurrence by the Senate, and in the
alternative, to declare the implementation thereof as unconstitutional because it conflicts with
Republic Act No. 8293, otherwise known as the Intellectual Property Code of the Philippines (IP
Code).1

We find and declare that the President's ratification is valid and constitutional because
the Madrid Protocol, being an executive agreement as determined by the Department of Foreign
Affairs, does not require the concurrence of the Senate.

Antecedents

The Madrid System for the International Registration of Marks (Madrid System), which is the
centralized system providing a one-stop solution for registering and managing marks worldwide,
allows the trademark owner to file one application in one language, and to pay one set of fees to
protect his mark in the territories of up to 97 member-states.2 The Madrid System is governed
by the Madrid Agreement, concluded in 1891, and the Madrid Protocol, concluded in 1989.3

The Madrid Protocol, which was adopted in order to remove the challenges deterring some
countries from acceding to the Madrid Agreement, has two objectives, namely: (1) to facilitate
securing protection for marks; and (2) to make the management of the registered marks easier
in different countries.4

In 2004; the Intellectual Property Office of the Philippines (IPOPHL), the government agency
mandated to administer the intellectual property system of the country and to implement the
state policies on intellectual property; began considering the country's accession to the Madrid
Protocol. However, based on its assessment in 2005, the IPOPHL needed to first improve its own
operations before making the recommendation in favor of accession. The IPOPHL thus
implemented reforms to eliminate trademark backlogs and to reduce the turnaround time for the
registration of marks.5

In the meanwhile, the IPOPHL mounted a campaign for information dissemination to raise
awareness of the Madrid Protocol. It launched a series of consultations with stakeholders and
various business groups regarding the Philippines' accession to the Madrid Protocol. It ultimately
arrived at the conclusion that accession would benefit the country and help raise the level of
competitiveness for Filipino brands. Hence, it recommended in September 2011 to the
Department of Foreign Affairs (DFA) that the Philippines should accede to the Madrid Protocol.6

After its own review, the DFA endorsed to the President the country's accession to the Madrid
Protocol. Conformably with its express authority under Section 9 of Executive Order No.
459 (Providing for the Guidelines in the Negotiation of International Agreements and its
Ratification) dated November 25, 1997, the DFA determined that the Madrid Protocol was an
executive agreement.1âwphi1 The IPOPHL, the Department of Science and Technology, and the
Department of Trade and Industry concurred in the recommendation of the DFA.7

On March 27, 2012, President Benigno C. Aquino III ratified the Madrid Protocol through an
instrument of accession, The instrument of accession was deposited with the Director General of
the World Intellectual Property Organization (WIPO) on April 25, 2012.8 The Madrid
Protocol entered into force in the Philippines on July 25, 2012.9

Petitioner IP AP, an association of more than 100 law firms and individual practitioners in
Intellectual Property Law whose main objective is to promote and protect intellectual property
rights in the Philippines through constant assistance and involvement in the legislation of
intellectual property law,10 has commenced this special civil action for certiorari and
prohibition11 to challenge the validity of the President's accession to the Madrid Protocol without
the concurrence of the Senate. Citing Pimentel, Jr. v. Office of the Executive Secretary, the IPAP
has averred:

Nonetheless, while the President has the sole authority to negotiate and enter into treaties, the
Constitution provides a limitation to his power by requiring the concurrence of 2/3 of all the
members of the Senate for the validity of the treaty entered into by him. Section 21, Article VII
of the 1987 Constitution provides that "no treaty or international agreement shall be valid and
effective unless concurred in by at least two-thirds of all the Members of the Senate." The 1935
and the 1973 Constitution also required the concurrence by the legislature to the treaties
entered into by the executive.12

According to the IPAP, the Madrid Protocol is a treaty, not an executive agreement; hence,
respondent DFA Secretary Albert Del Rosario acted with grave abuse of discretion in determining
the Madrid Protocol as an executive agreement.13

The IPAP has argued that the implementation of the Madrid Protocol in the Philippines;
specifically the processing of foreign trademark applications, conflicts with the IP Code,14 whose
Section 125 states:

Sec. 125. Representation; Address for Service. - If the applicant is not domiciled or has no
real and effective commercial establishment in the Philippines; he shall designate by a written
document filed in the office, the name and address of a Philippine resident who may be served
notices or process in proceedings affecting the mark. Such notices or services may be served
upon the person so designated by leaving a copy thereof at the address specified in the last
designation filed. If the person so designated cannot be found at the address given in the last
designation, such notice or process may be served upon the Director. (Sec. 3; R.A. No. 166 a)

It has posited that Article 2 of the Madrid Protocol provides in contrast:

Article 2

Securing Protection through International Registration

(1) Where an application for the registration of a mark has been filed with the Office of a
Contracting Party, or where a mark has been registered in the register of the Office of a
Contracting Party, the person in whose name that application (hereinafter referred to as "the
basic application;') or that registration (hereinafter referred to as "the basic registration") stands
may, subject to the provisions of this Protocol secure protection for his mark in the territory of
the Contracting Parties, by obtaining the registration of that mark in the register of the
International Bureau of the World Intellectual Property Organization (hereinafter referred to as
"the international registration," "the International Register," "the International Bureau" and "the
Organization'', respectively), provided that,

(i) where the basic application has been filed with the Office of a Contracting State or where the
basic registration has been made by such an Office, the person in whose name that application
or registration stands is a national of that Contracting State, or is domiciled, or has a real and
effective industrial or commercial establishment, in the said Contracting State,

(ii) where the basic application has been filed with the Office of a Contracting Organization or
where the basic registration has been made by such an Office, the person in whose name that
application or registration stands is a national of a State member of that Contracting
Organization, or is domiciled, or has a real and effective industrial or commercial establishment,
in the territory of the said Contracting Organization.

(2) The application for international registration (hereinafter referred to as "the international
application") shall be filed with the International Bureau through the intermediary of the Office
with which the basic application was filed or by which the basic registration was made
(hereinafter referred to as "the Office of origin"), as the case may be.

(3) Any reference in this Protocol to an "Office" or an "Office of a Contracting Party" shall be
construed as a reference to the office that is in charge, on behalf of a Contracting Party, of the
registration of marks, and any reference in this Protocol to "marks" shall be construed as a
reference to trademarks and service marks.

(4) For the purposes of this Protocol, "territory of a Contracting Party" means, where the
Contracting Party is a State, the territory of that State and, where the Contracting Party is an
intergovernmental organization, the territory in which the constituting treaty of that
intergovernmental organization applied.

The IPAP has insisted that Article 2 of the Madrid Protocol means that foreign trademark
applicants may file their applications through the International Bureau or the WIPO, and their
applications will be automatically granted trademark protection without the need for designating
their resident agents in the country.15

Moreover, the IPAP has submitted that the procedure outlined in the Guide to the International
Registration of Marks relating to representation before the International Bureau is the following,
to wit:

Rule 3(1)(a) 09.02 References in the Regulations, Administrative Instructions or in this Guide to
representation relate only to representation before the International Bureau. The questions of
the need for a representative before the Office of origin or the Office of a designated Contracting
Party (for example, in the event of a refusal of protection issued by such an Office), who may
act as a representative in such cases and the method of appointment, are outside the scope of
the Agreement, Protocol and Regulations and are governed by the law and practice of the
Contracting Party concerned.

which procedure is in conflict with that under Section 125 of the IP Code, and constitutes in
effect an amendment of the local law by the Executive Department.16

The IPAP has prayed that the implementation of the Madrid Protocol in the Philippines be
restrained in order to prevent future wrongs considering that the IP AP and its constituency have
a clear and unmistakable right not to be deprived of the rights granted them by the IP Code and
existing local laws.17

In its comment in behalf of the respondents, the Office of the Solicitor General (OSG) has stated
that the IPAP does not have the locus standi to challenge the accession to the Madrid
Protocol; that the IPAP cannot invoke the Court's original jurisdiction absent a showing of any
grave abuse of discretion on the part of the respondents; that the President's ratification of
the Madrid Protocol as an executive agreement is valid because the Madrid Protocol is only
procedural, does not create substantive rights, and does not require the amendment of the IP
Code; that the IPAP is not entitled to the restraining order or injunction because it suffers no
damage from the ratification by the President, and there is also no urgency for such relief; and
the IPAP has no clear unmistakable right to the relief sought.18

Issues

The following issues are to be resolved, namely:

I. Whether or not the IP AP has locus standi to challenge the President's ratification of
the Madrid Protocol;

II. Whether or not the President's ratification of the Madrid Protocol is valid and constitutional;
and

III. Whether or not the Madrid Protocol is in conflict with the IP Code.

Ruling of the Court

The petition for certiorari and prohibition is without merit.

A.
The issue of legal standing to sue, or locus standi

The IPAP argues in its reply19 that it has the locus standi to file the present case by virtue of its
being an association whose members stand to be injured as a result of the enforcement of
the Madrid Protocol in the Philippines; that the injury pertains to the acceptance and approval of
applications submitted through the Madrid Protocol without local representation as required by
Section 125 of the IP Code;20 and that such will diminish the rights granted by the IP Code to
Intellectual Property Law practitioners like the members of the IPAP.21

The argument of the IPAP is untenable.

Legal standing refers to "a right of appearance in a court of justice on a given

question."22 According to Agan, Jr. v. Philippine International Air Terminals Co., Inc.,23standing is
"a peculiar concept in constitutional law because in some cases, suits are not brought by parties
who have been personally injured by the operation of a law or any other government act but by
concerned citizens, taxpayers or voters who actually sue in the public interest."

The Court has frequently felt the need to dwell on the issue of standing in public or constitutional
litigations to sift the worthy from the unworthy public law litigants seeking redress or relief. The
following elucidation in De Castro v. Judicial and Bar Council24offers the general understanding of
the context of legal standing, or locus standi for that purpose, viz. :

In public or constitutional litigations, the Court is often burdened with the determination of
the locus standi of the petitioners due to the ever-present need to regulate the invocation of the
intervention of the Court to correct any official action or policy in order to avoid obstructing the
efficient functioning of public officials and offices involved in public service. It is required,
therefore, that the petitioner must have a personal stake in the outcome of the controversy, for,
as indicated in Agan, Jr. v. Philippine International Air Terminals Co., Inc.:

The question on legal standing is whether such parties have "'alleged such a personal
stake in the outcome of the controversy as to assure that concrete adverseness which
sharpens the presentation of issues upon which the court so largely depends for
illumination of difficult constitutional questions," Accordingly, it has been held that the
interest of a person assailing the constitutionality of a statute must be direct and
personal. He must be able to show, not only that the law or any government act is
invalid, but also that he sustained or is in imminent danger of sustaining some direct
injury as a result of its enforcement, and not merely that he suffers thereby in some
indefinite way. It must appear that the person complaining has been or is about to be
denied some right or privilege to which he is lawfully entitled or that he is about to be
subjected to some burdens or penalties by reason of the statute or act complained of.

It is true that as early as in 1937, in People v. Vera, the Court adopted the direct injury test for
determining whether a petitioner in a public action had locus standi. There, the Court held that
the person who would assail the validity of a statute must have "a personal and substantial
interest in the case such that he has sustained, or will sustain direct injury as a result." Vera was
followed in Custodio v. President of the Senate, Manila Race Horse Trainers' Association v. De la
Fuente, Anti-Chinese League of the Philippines v. Felix, and Pascual v. Secretary of Public Works.
Yet, the Court has also held that the requirement of locus standi, being a mere procedural
technicality, can be waived by the Court in the exercise of its discretion. For instance, in 1949,
in Araneta v. Dinglasan, the Court liberalized the approach when the cases had "transcendental
importance." Some notable controversies whose petitioners did not pass the direct injury
test were allowed to be treated in the same way as in Araneta v. Dinglasan.

In the 1975 decision in Aquino v. Commission on Elections, this Court decided to resolve the
issues raised by the petition due to their "farreaching implications,'; even if the petitioner had no
personality to file the suit. The liberal approach of Aquino v. Commission on Elections has been
adopted in several notable cases, permitting ordinary citizens, legislators, and civic organizations
to bring their suits involving the constitutionality or validity of laws, regulations, and rulings.

However, the assertion of a public right as a predicate for challenging a supposedly illegal or
unconstitutional executive or legislative action rests on the theory that the petitioner represents
the public in general. Although such petitioner may not be as adversely affected by the action
complained against as are others, it is enough that he sufficiently demonstrates in his petition
that he is entitled to protection or relief from the Court in the vindication ofa public right.25

The injury that the IPAP will allegedly suffer from the implementation of the Madrid Protocol is
imaginary, incidental and speculative as opposed to a direct and material injury required by the
foregoing tenets on locus standi. Additionally, as the OSG points out in the comment,26 the IPAP
has misinterpreted Section 125 of the IP Code on the issue of representation. The provision only
states that a foreign trademark applicant "shall designate by a written document filed in the
office, the name and address of a Philippine resident who may be served notices or process in
proceedings affecting the mark;" it does not grant anyone in particular the right to represent the
foreign trademark applicant. Hence, the IPAP cannot justly claim that it will suffer irreparable
injury or diminution of rights granted to it by Section 125 of the IP Code from the
implementation of the Madrid Protocol.

Nonetheless, the IPAP also emphasizes that the paramount public interest involved has
transcendental importance because its petition asserts that the Executive Department has
overstepped the bounds of its authority by thereby cutting into another branch's functions and
responsibilities.27 The assertion of the IPAP may be valid on this score. There is little question
that the issues raised herein against the implementation of the Madrid Protocol are of
transcendental importance. Accordingly, we recognize IPAP's locus standi to bring the present
challenge. Indeed, the Court has adopted a liberal attitude towards locus standi whenever the
issue presented for consideration has transcendental significance to the people, or whenever the
issues raised are of paramount importance to the public.28

B.

Accession to the

Madrid Protocol was constitutional

The IP AP submits that respondents Executive Secretary and DFA Secretary Del Rosario gravely
abused their discretion in determining that there was no need for the Philippine Senate's
concurrence with the Madrid Protocol; that the Madrid Protocol involves changes of national
policy, and its being of a permanent character requires the Senate's concurrence,29 pursuant to
Section 21, Article VII of the Constitution, which states that "no treaty or international
agreement shall be valid and effective unless concurred in by at least two-thirds of all the
Members of the Senate."

Before going further, we have to distinguish between treaties and international agreements,
which require the Senate's concurrence, on one hand, and executive agreements, which may be
validly entered into without the Senate's concurrence. Executive Order No. 459, Series of
1997,30 notes the following definitions, to wit:

Sec. 2. Definition of Terms.

a. International agreement - shall refer to a contract or understanding, regardless of

nomenclature, entered into between the Philippines and another government in written form and
governed by international law, whether embodied in a single instrument or in two or more
related instruments.

b. Treaties - international agreements entered into by the Philippines which require legislative
concurrence after executive ratification. This term may include compacts like conventions,
declarations, covenants and acts.

c. Executive Agreements - similar to treaties except that they do not require legislative
concurrence.

The Court has highlighted the difference between treaties and executive agreements
in Commissioner of Customs v. Eastern Sea Trading,31 thusly:

International agreements involving political issues or changes of national policy and those
involving international arrangements of a permanent character usually take the form of treaties.
But international agreements embodying adjustments of detail carrying out well-established
national policies and traditions and those involving arrangements of a more or
less temporary nature usually take the form of executive agreements.

In the Philippines, the DFA, by virtue of Section 9, Executive Order No. 459,32 is initially given
the power to determine whether an agreement is to be treated as a treaty or as an executive
agreement. To determine the issue of whether DFA Secretary Del Rosario gravely abused his
discretion in making his determination relative to the Madrid Protocol, we review the
jurisprudence on the nature of executive agreements, as well as the subject matters to be
covered by executive agreements.

The pronouncement in Commissioner of Customs v. Eastern Sea Trading33is instructive, to wit:

x x x The concurrence of said House of Congress is required by our fundamental law in the
making of "treaties" (Constitution of the Philippines; Article VII, Section 10[7]), which are,
however, distinct and different from "executive agreements," which may be validly entered into
without such concurrence.

"Treaties are formal documents which require ratification with the approval of two thirds of the
Senate. Executive agreements become binding through executive action without the need of a
vote by the Senate or by Congress.

xxxx
"x x x the right of the Executive to enter into binding agreements without the necessity of
subsequent Congressional approval has been confirmed by long usage. From the earliest days of
our history we have entered into executive agreements covering such subjects as commercial
and consular relations, most-favored-nation rights, patent rights, trademark and copyright
protection, postal and navigation arrangements and the settlement of claims. The validity of
these has never been seriously questioned by our courts.

xxxx

Agreements with respect to the registration of trademarks have been concluded by the
Executive with various countries under the Act of Congress of March 3, 1881 (21 Stat. 502), x x
x

xxxx

In this connection, Francis B. Sayre, former U.S. High Commissioner to the Philippines, said in
his work on "The Constitutionality of Trade Agreement Acts":

Agreements concluded by the President which fall short of treaties are commonly referred to as
executive agreements and are no less common in our scheme of government than are the more
formal instruments - treaties and conventions. They sometimes take the form of exchanges of
notes and at other times that or more formal documents denominated 'agreements' or
'protocols'. The point where ordinary correspondence between this and other governments ends
and agreements - whether denominated executive agreements or exchanges of notes or
otherwise - begin, may sometimes be difficult of ready ascertainment. It would be useless to
undertake to discuss here the large variety of executive agreements as such, concluded from
time to time. Hundreds of executive agreements, other than those entered into under the trade-
agreements act, have been negotiated with foreign governments. x x x It would seem to be
sufficient, in order to show that the trade agreements under the act of 1934 are not anomalous
in character, that they are not treaties, and that they have abundant precedent in our history, to
refer to certain classes of agreements heretofore entered into by the Executive without the
approval of the Senate. They cover such subjects as the inspection of vessels, navigation
dues, income tax on shipping profits, the admission of civil aircraft, customs matters,
and commercial relations generally, international claims, postal matters, the
registration of trademarks and copyrights, etcetera. Some of them were concluded not
by specific congressional authorization but in conformity with policies declared in acts
of Congress with respect to the general subject matter, such as tariff acts; while still
others, particularly those with respect of the settlement of claims against foreign governments,
were concluded independently of any legislation. (Emphasis ours)

As the foregoing pronouncement indicates, the registration of trademarks and copyrights have
been the subject of executive agreements entered into without the concurrence of the Senate.
Some executive agreements have been concluded in conformity with the policies declared in the
acts of Congress with respect to the general subject matter.

It then becomes relevant to examine our state policy on intellectual property in general, as
reflected in Section 2 of our IP Code, to wit:
Section 2. Declaration of State Policy. - The State recognizes that an effective intellectual
and industrial property system is vital to the development of domestic and creative
activity, facilitates transfer of technology, attracts foreign investments, and ensures
market access for our products. It shall protect and secure the exclusive rights of
scientists, inventors, artists and other gifted citizens to their intellectual property and
creations, particularly when beneficial to the people, for such periods as provided in
this Act.

The use of intellectual property bears a social function. To this end, the State shall promote the
diffusion of knowledge and information for the promotion of national development and progress
and the common good.

It is also the policy of the State to streamline administrative procedures of registering

patents, trademarks and copyright, to liberalize the registration on the transfer of
technology; and to enhance the enforcement of intellectual property rights in the Philippines.

In view of the expression of state policy having been made by the Congress itself, the IPAP is
plainly mistaken in asserting that "there was no Congressional act that authorized the accession
of the Philippines to the Madrid Protocol."34

Accordingly, DFA Secretary Del Rosario’s determination and treatment of the Madrid Protocol as
an executive agreement; being in apparent contemplation of the express state policies on
intellectual property as well as within his power under Executive Order No. 459, are upheld. We
observe at this point that there are no hard and fast rules on the propriety of entering into a
treaty or an executive agreement on a given subject as an instrument of international relations.
The primary consideration in the choice of the form of agreement is the parties' intent and desire
to craft their international agreement in the form they so wish to further their respective
interests. The matter of form takes a back seat when it comes to effectiveness and binding
effect of the enforcement of a treaty or an executive agreement; inasmuch as all the parties;
regardless of the form, become obliged to comply conformably with the time-honored principle
of pacta sunt servanda.35The principle binds the parties to perform in good faith their parts in
the agreements.36

c.

There is no conflict between the

Madrid Protocol and the IP Code.

The IPAP also rests its challenge on the supposed conflict between the Madrid Protocol and the
IP Code, contending that the Madrid Protocol does away with the requirement of a resident
agent under Section 125 of the IP Code; and that the Madrid Protocol is unconstitutional for
being in conflict with the local law, which it cannot modify.

The IPAP's contentions stand on a faulty premise. The method of registration through the
IPOPHL, as laid down by the IP Code, is distinct and separate from the method of registration
through the WIPO, as set in the Madrid Protocol. Comparing the two methods of registration
despite their being governed by two separate systems of registration is thus misplaced.
In arguing that the Madrid Protocol conflicts with Section 125 of the IP Code, the IP AP highlights
the importance of the requirement for the designation of a resident agent. It underscores that
the requirement is intended to ensure that non-resident entities seeking protection or privileges
under Philippine Intellectual Property Laws will be subjected to the country's jurisdiction. It
submits that without such resident agent, there will be a need to resort to costly, time
consuming and cumbersome extraterritorial service of writs and processes.37

The IPAP misapprehends the procedure for examination under the Madrid Protocol, The difficulty,
which the IPAP illustrates, is minimal, if not altogether inexistent. The IPOPHL actually requires
the designation of the resident agent when it refuses the registration of a mark. Local
representation is further required in the submission of the Declaration of Actual Use, as well as
in the submission of the license contract.38 The Madrid Protocol accords with the intent and spirit
of the IP Code, particularly on the subject of the registration of trademarks. The Madrid
Protocol does not amend or modify the IP Code on the acquisition of trademark rights
considering that the applications under the Madrid Protocol are still examined according to the
relevant national law, In that regard, the IPOPHL will only grant protection to a mark that meets
the local registration requirements.

WHEREFORE, this Court DISMISSES the petition for certiorari and prohibition for lack of merit;
and ORDERS the petitioner to pay the costs of suit.

SO ORDERED.

SEPARATE CONCURRING OPINION

BRION, J,:

I write this Separate Opinion to emphasize my reasons for concurring with the ponencia's
conclusion that the Philippines' accession to the Madrid Protocol through an Executive Agreement
is not unconstitutional,

I believe that the time has come for this Court to definitively set concrete parameters regarding
the treatment of an international agreement as a treaty or as an executive agreement. To date,
we have been using the discussion on what constitutes an "executive agreement" as discussed in
the caseCommissioner of Customs v, Eastern Trading,1 a 1961 case decided long before the
1987 Constitution took effect and changed the language of the provision on the effectivity and
validity of international agreements in the Philippines,

This change in constitutional language calls for a clarification of what may be the subject of
executive agreements that no longer need Senate concurrence to be valid and effective in the
Philippines, The need is now acute, particularly in the light of the recent cases questioning the
treatment of international agreements as executive agreements, such as the Enhanced Defense
Cooperation Agreement (EDCA) and now the present Madrid Protocol case.

To avoid further confusion, the need for litigation, and the consequent international
embarrassment all these can cause, we should now exercise as well our power and duty to
educate the bar and the public in the course of setting standards in determining when an
international agreement may be entered into as an executive agreement.

These parameters, to my mind, should reflect the shared function of the Executive and the
Legislature in treaties, which in turn fits into the larger context of the separation of powers and
the checks and balances that underlie the operations of our government under the Constitution.

As I will discuss below, Section 21, Article VII of the 1987 Constitution is a reflection of this
setup. It is a carefully worded provision in the Constitution made to ensure that the President's
prerogative in the conduct of international affairs is subject to the check and balance by the
Senate, requiring that the Senate first concur in international agreements that the President
enters into before they take effect in the Philippines.

Under this regime, the Madrid Protocol is valid and effective in the Philippines as an executive
agreement that the President can enter into without need of Senate concurrence, The reason,
stated at its simplest, is that the President was merely implementing a policy previously
approved through a law by Congress, when he signed the Madrid Protocol as an executive
agreement. The obligations under the Madrid Protocol are thus valid and effective in the
Philippines for having been made pursuant to the exercise of the President's executive powers.

Article VII, Section 21 of the

1987 Constitution in the
context of separation of
powers

The Philippine government operates under the complementary principles of separation of powers
and checks and balances. The three functions of government are concentrated in its three great
branches, with each branch supreme in its own sphere: the Legislature possesses the power to
create laws that are binding in the Philippines, which the Executive has the duty to implement
and enforce. The Judiciary, on the other hand, resolves conflicts that may arise from the
implementation of these laws and, on occasion, nullifies acts of government (whether legislative
or executive) that have been made with grave abuse of discretion under the Court's expanded
jurisdiction in Article VIII, Section 1 of the 1987 Constitution.2chanrobleslaw

That each branch of government is supreme in its own sphere does not, however, mean that
they no longer interact with or are isolated from one another in the exercise of their respective
duties.3chanrobleslaw

To be sure, one branch cannot usurp the power of another without violating the principle of
separation of powers, but this is not an absolute rule; rather, it is a rule that operates hand in
hand with arrangements that allow the participation of one branch in another branch's action
under the system of checks and balances that the Constitution itself provides. The Constitution
in fact imposes such joint action so that one branch can check and balance the actions of the
other, to ensure public accountability and guard against the tyrannical concentration of power.

Thus, Congress, while supreme in its authority to enact laws,4 is checked and balanced in this
authority through the President's veto power. Congress possesses, save for the limitations found
in the Constitution, the full discretion to decide the subject matter and content of the laws it
passes, but this bill, once passed by both houses of Congress, would have to be signed by the
President. If the President does not approve of the bill, he can veto it and send the bill back to
Congress with reasons for his disapproval. Congress, in turn, can either override the veto or
simply accept the President's disapproval.5chanrobleslaw

The same dynamics apply to the enactment of the General Appropriations Act, which is
inarguably the most important law passed by Congress every year. The GAA is subject to the
President's item veto, a check-and-balance mechanism specific to appropriation
bills.6chanrobleslaw

Note, too, that the declaration of martial law, while still a power of the President, is subject to
check-and-balance mechanisms from Congress; The President is duty-bound, within forty-eight
hours from declaring martial law or suspending the privilege of the writ of habeas corpus, to
submit a report to Congress. Congress, voting jointly, may revoke the declaration or suspension.
The President cannot set this revocation aside.7chanrobleslaw

The Court exercises a passive role in these scenarios, but it is duty-bound to determine (and
nullify) acts of grave abuse of discretion amounting to lack or excess of jurisdiction on the part
of the other branches and other government agencies.8chanrobleslaw

The act of entering into international agreements operate under this wider context of separation
of powers and checks and balances among the three branches of government.

Without doubt, the President has the sole authority over, and is the country's chief
representative in the conduct of foreign affairs, This authority includes the negotiation and
ratification of international agreements: the President has full discretion (subject to the limits
found in the Constitution) to negotiate and enter into international agreements in behalf of the
Philippine government. But this discretion is subject to a check and balance from the legislative
branch of government, that is, the Senate has to give its concurrence with an international
agreement before it may be considered valid and effective in the Philippines.9chanrobleslaw

Notably, the veto power of the President over bills passed by Congress works in a manner
similar to the need for prior Senate concurrence over international agreements. First, both are
triggered through the exercise by the other body of its governmental function - the President
may only veto a bill after it has been passed by Congress, while the Senate may only exercise its
prerogative to concur with an international agreement after it has been ratified by the President
and sent to the Senate for concurrence. Second, the governmental act would not take effect
without the other branch's assent to it. The President would have to sign the bill, or let it lapse
into law (in other words, he would have to choose not to exercise his veto prerogative) before
the law could take effect. In the same light, the Senate would have to concur in the international
agreement before it may be considered valid and effective in the Philippines. The similarities in
these mechanisms indicate that they function as check and balance measures - to the
prerogative of Congress in lawmaking, and to the President's exercise of its foreign affairs
powers.
We should not forget, in considering the concurrence requirement, that the need for prior
concurrence from the legislative branch before international agreements become effective in the
Philippines has historically been the constitutional approach starting from the 1935 Constitution.

Under the 1935 Constitution, the President has the "power, with the concurrence of a
majority of all the members of the National Assembly, to make treaties xxx." The
provision, Article VII, Section 11, paragraph 7 is part of the enumeration of the President's
powers under Section 11, Article VII of the 1935 Constitution. This recognition clearly marked
treaty making to be an executive function, but its exercise was nevertheless subject to the
concurrence of the National Assembly. A subsequent amendment to the 1935 Constitution,
which divided the country's legislative branch into two houses,10transferred the function of treaty
concurrence to the Senate, and required that two-thirds of its members assent to the treaty.

By 1973, the Philippines adopted a presidential parliamentary system of government, which

merged some of the functions of the Executive and Legislative branches of government in one
branch.11 Despite this change, concurrence was still seen as necessary in the treaty-making
process, as Article VIII, Section 14 required that a treaty should be first concurred in by a
majority of all Members of the Batasang Pambansa before they could be considered valid and
effective in the Philippines, thus:

SEC. 14. (1) Except as otherwise provided in this Constitution, no treaty shall be valid and
effective unless concurred in by a majority of all the Members of the Batasang Pambansa.

This change in the provision on treaty ratification and concurrence is significant for the following
reasons:

First, the change clarified the effect of the lack of concurrence to a treaty, that is, a
treaty without legislative concurrence shall not be valid and effective in the Philippines.

Second, the change of wording also reflected the dual nature of the Philippines'
approach in international relations,12 Under this approach, the Philippines sees international
law and its international obligations from two perspectives: first, from the international plane,
where international law reigns supreme over national laws; and second, from the domestic
plane, where the international obligations and international customary laws are considered in
the same footing as national laws, and do not necessarily prevail over the latter,13 The
Philippines' treatment of international obligations as statutes in its domestic plane also means
that they cannot contravene the Constitution, including the mandated process by which they
become effective in Philippine jurisdiction,

Thus, while a treaty ratified by the President is binding upon the Philippines in the international
plane, it would need the concurrence of the legislature before it can be considered as valid and
effective in the Philippine domestic jurisdiction. Prior to and even without concurrence, the
treaty, once ratified, is valid and binding upon the Philippines in the international plane, But in
order to take effect in the Philippine domestic plane, it would have to first undergo legislative
concurrence as required under the Constitution,
Third, that the provision had been couched in the negative emphasizes the mandatory nature of
legislative concurrence before a treaty may be considered valid and effective in the Philippines.

The phrasing of Article VIII, Section 14 of the 1973 Constitution has been retained in the 1987
Constitution, except for three changes: First, the Batasang Pambansa has been changed to the
Senate to reflect the current setup of our legislature and our tripartite system of
government. Second, the vote required has been increased to two-thirds, reflective of the
practice under the amended 1935 Constitution. Third, the term "international agreement"
has been added, aside from the term treaty. Thus, aside from treaties, "international
agreements" now need concurrence before being considered as valid and effective in the
Philippines. Thus, Article VII, Section 21 of the present Constitution reads:

SECTION 21. No treaty or international agreement shall be valid and effective unless concurred
in by at least two-thirds of all the Members of the Senate.

The impact of the addition of

the term uinternational
agreement" in Section 21,
Article VII of the
1987 Constitution

In the international sphere, the term international agreement covers both a treaty, an executive
agreement, or by whatever name or title an agreement may be called, as long as it is concluded
between States, is in written form, and is governed by international law. Thus, the Vienna
Convention on the Law on treaties provide:

Article 2. Section 1 (a) "Treaty" means an international agreement concluded between States in
written form and governed by International Law, whether embodied in a single instrument or in
two or more related instruments and whatever its particular designation;

The Philippines was a signatory of the Vienna Convention at the time the 1986 Constitutional
Commission deliberated on and crafted the 1987 Constitution.14 Deliberations of the
Constitutional Commission even referred to the Vienna Convention on treaties while discussing
what is now Article VII, Section 21.

Commissioner Sarmiento, in proposing that the term "international agreements" be deleted from
Article VII, Section 21, noted that the Vienna Convention provides that treaties are international
agreements, hence, including the term international agreement is unnecessary and
duplicative.15chanrobleslaw

However, this proposal was withdrawn, as several commissioners insisted on including the term
"international agreement" as a catch-all phrase for agreements that are international and more
permanent in nature. It became apparent from the deliberations that the commissioners
consider a treaty to be a kind of international agreement that serves as a contract
between its parties and is part of municipal law, Thus, it would appear that the inclusion of the
term "international agreement" in Section 21, Article VII of the 1987 Constitution was meant to
ensure that an international agreement, regardless of its designation, should first be concurred
in by the Senate before it can be considered valid and effective in the Philippines.16chanrobleslaw

Executive Agreements as an
exception to the need for
legislative concurrence in
international agreements

Hand in hand with the above considerations of Section 21, Article VII, executive agreements
have been recognized through jurisprudence and by the provisions of the 1973 and the 1987
Constitutions themselves.

Although the 1935 Constitution did not expressly recognize the existence and validity of
executive agreements, jurisprudence and practice under it did. Thus, the Commissioner of
Customs v. Eastern Sea Trading, a 1961 case, recognized the capacity of the President to enter
into executive agreements and its validity under Philippine law,17viz:

Treaties are formal documents which require ratification with the approval of two-thirds of the
Senate. Executive agreements become binding through executive action without the need of a
vote by the Senate or by Congress.

xxxx

xxx the right of the Executive to enter into binding agreements without the necessity of
subsequent Congressional approval has been confirmed by long usage. From the earliest days of
our history we have entered into executive agreements covering such subjects as commercial
and consular relations, most-favored-nation rights, patent rights, trademark and copyright
protection, postal and navigation arrangements and the settlement of claims. The validity of
these has never been seriously questioned by our courts.

x x xx

The use of executive agreements could presumably be the reason for its subsequent express
recognition in subsequent constitutions. Article X, Section 2 of the 1973 Constitution18 included
executive agreements as a subject matter of judicial review, and this is repeated in Article VIII,
Section 5 (2)19 of the 1987 Constitution.

Article X Section 2, (1) of the 1973 Constitution provided that:

SEC. 2. xxx

(1) All cases involving the constitutionality of a treaty, executive agreement, or law shall be
heard and decided by the Supreme Court en bane, and no treaty, executive agreement, or law
may be declared unconstitutional without the concurrence of at least ten Members. All other
cases, which under its rules are required to be heard en bane, shall be decided with the
concurrence of at least eight Members.
Article VIII, Section 5 (2) of the 1987 Constitution, on the other hand, states:

xxxx

(2) Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the Rules of
Court may provide, final judgments and orders of lower courts in:ChanRoblesVirtualawlibrary

(a) All cases in which the constitutionality or validity of any treaty, international or executive
agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation
is in question.

xxxx

The deliberations of the 1986 Constitutional Commission also show that the framers recognize
that the President may enter into executive agreements, which are valid in the Philippines even
without Senate concurrence:

MS. AQUINO: Madam President, first I would like a clarification from the Committee. We have
retained the words "international agreement" which I think is the correct judgment on the
matter because an international agreement is different from a treaty, A treaty is a contract
between parties which is in the nature of international agreement and also a municipal law in the
sense that the people are bound. So there is a conceptual difference. However, I would like to be
clarified if the international agreements include executive agreements.

MR. CONCEPCION: That depends upon the parties. All parties to these international negotiations
stipulate the conditions which are necessary for the agreement or whatever it may be to become
valid or effective as regards the parties.

MS, AQUINO: Would that depend on the parties or would that depend on the nature of the
executive agreement? According to common usage, there are two types of executive agreement;
one is purely proceeding from an executive act which affects external relations independent of
the legislative and the other is an executive act in pursuance of legislative authorization. The
first kind might take the form of just conventions or exchanges of notes or protocol while the
other, which would be pursuant to the legislative authorization, may be in the nature of
commercial agreements,

MR. CONCEPCION: Executive agreements are generally made to implement a treaty already
enforced or to determine the details for the implementation of the treaty. We are speaking of
executive agreements, not international agreements.

MS. AQUINO: I am in full agreement with that, except that it does not cover the first kind of
executive agreement which is just protocol or an exchange of notes and this would be in the
nature of reinforcement of claims of a citizen against a country, for example.

MR. CONCEPCION: The Commissioner is free to require ratification for validity insofar as the
Philippines is concerned.
MS. AQUINO: It is my humble submission that we should provide, unless the Committee
explains to us otherwise, an explicit proviso which would except executive agreements from the
requirement of concurrence of two-thirds of the Members of the Senate, Unless I am enlightened
by the Committee I propose that tentatively, the sentence should read. "No treaty or
international agreement EXCEPT EXECUTIVE AGREEMENTS shall be valid and effective,"

FR, BERNAS: I wonder if a quotation from the Supreme Court decision might help clarify this:

The right of the executive to enter into binding agreements without the necessity of subsequent
Congressional approval has been confirmed by long usage. From the earliest days of our history,
we have entered into executive agreements covering such subjects as commercial and consular
relations, most favored nation rights, patent rights, trademark and copyright protection, postal
and navigation arrangements and the settlement of claims. The validity of this has never been
seriously questioned by our Courts.

Agreements with respect to the registration of trademarks have been concluded by the executive
of various countries under the Act of Congress of March 3, 1881 (21 Stat. 502). xxx
International agreements involving political issues or changes of national policy and those
involving international agreements of a permanent character usually take the form of treaties.
But international agreements embodying adjustments of detail, carrying out well-established
national policies and traditions and those involving arrangements of a more or less temporary
nature usually take the form of executive agreements.

MR; ROMULO: Is the Commissioner, therefore, excluding the executive agreements?

FR. BERNAS: What we are referring to, therefore, when we say international
agreements which need concurrence by at least two-thirds are those which are
permanent in nature.

MS. AQUINO: And it may include commercial agreements which are executive agreements
essentially but which are proceeding from the authorization of Congress. If that is our
understanding, then I am willing to withdraw that amendment;

FR. BERNAS: If it is with prior authorization of Congress, then it does not need subsequent
concurrence by Congress.

MS. AQUINO: In that case, I am withdrawing my amendment

xxxx

MR. GUINGONA: I am not clear as to the meaning of "executive agreements" because I heard
that these executive agreements must rely on treaties. In other words, there must first be
treaties.

MR. CONCEPCION: No, I was speaking about the common use, as executive agreements being
the implementation of treaties, details of which do not affect the sovereignty of the State.

MR. GUINGONA: But what about the matter of permanence, Madam President? Would
99 years be considered permanent? What would be the measure of permanency? I do
not conceive of a treaty that is going to be forever, so there must be some kind of a
time limit.

MR. CONCEPCION: I suppose the Commissioner's question is whether this type of

agreement should be included in a provision of the Constitution requiring the
concurrence of Congress.

MR. GUINGONA: It depends on the concept of the executive agreement of which I am not clear.
If the executive agreement partakes of the nature of a treaty, then it should also be included.

MR, CONCEPCION: Whether it partakes or not of the nature of a treaty, it is within the power of
the Constitutional Commission to require that.

MR. GUINGONA: Yes. That is why I am trying to clarify whether the words "international
agreements" would include executive agreements.

MR. CONCEPCION: No, not necessarily; generally no.

MR. TINGSON: Madam President.

THE PRESIDENT: Commissioner Tingson is recognized.

MR. TINGSON: If the Floor Leader would allow me, I have only one short question.

MR. ROMULO: I wish to be recognized first. I have only one question. Do we take it,
therefore, that as far as the Committee is concerned, the term "international
agreements" does not include the term "executive agreements" as read by the
Commissioner in that text?

FR, BERNAS: Yes20

Thus, despite the attempt in the 1987 Constitution to ensure that all international agreements,
regardless of designation, be the subject of Senate concurrence, the Constitution likewise
acknowledged that the President can enter into executive agreements that the Senate no longer
needs to concur in.

An executive agreement, when examined under the definition of what constitutes

a treaty under the Vienna Convention on Treaties, falls within the Convention's definition. An
executive agreement as used in Philippine law is definitely "an international agreement
concluded between States in written form and governed by International Law, whether
embodied in a single instrument or in two or more related instruments and whatever its
particular designation[.]"
The confusion that the seemingly differing treatment of executive agreement brings, however, is
more apparent than real when it is considered that both instruments - a treaty and an executive
agreement - both have constitutional recognition that can be reconciled: an executive
agreement is an exception to the Senate concurrence requirement of Article VII, Section 21 of
the 1987 Constitution; it is an international agreement that does not need Senate concurrence
to be valid and effective in the Philippines.

Its exceptional character arises from the reality that the Executive possesses the power and duty
to execute and implement laws which, when considered together with the President's foreign
affairs powers, authorizes the President to agree to international obligations that he can already
implement as Chief Executive of the Philippine government. In other words, the President can
ratify as executive agreements those obligations that he can already execute and
implement because they already carry prior legislative authorization, or have already gone
through the treaty-making process under Article VII, Section 21 of the 1987
Constitution.21chanrobleslaw

In these lights, executive agreements are a function of the President's duty to execute the laws
faithfully. They trace their validity from existing laws or treaties that have been authorized by
the legislative branch of government. They implement laws and treaties.22chanrobleslaw

In contrast, treaties are international agreements that need concurrence from the Senate. They
do not originate solely from the President's duty as the executor of the country's laws, but from
the shared function that the Constitution mandated between the President and the Senate under
Article VII, Section 21 of the 1987 Constitution.23chanrobleslaw

Between the two, a treaty exists on a higher plane as it carries the authority of the President
and the Senate, Treaties, which have the impact of statutory law in the Philippines, can amend
or prevail over prior statutory enactments.24 Executive agreements - which are at the level of
implementing rules and regulations or administrative orders in the domestic sphere - have no
such effect. These cannot contravene or amend statutory enactments and
treaties.25cralawredchanrobleslaw

This difference in impact is based on their origins: since a treaty has the approval of both the
President and the Senate, it has the same impact as a statute. In contrast, since an executive
agreement springs from the President's power to execute laws, it cannot amend or violate
existing treaties, and must be in accord with and in pursuant to laws and
treaties.26chanrobleslaw

Accordingly, the intended effect of an international agreement determines its form.

When an international agreement merely implements an existing agreement, it is properly in the

form of an executive agreement. In contrast, when an international agreement involves the
introduction of a new subject matter or an amendment of existing agreements or laws, then it
should properly be in the form of a treaty. Otherwise, the enforceability of this international
agreement in the domestic sphere should be carefully examined, as it carries no support from
the legislature. To emphasize, should an executive agreement amend or contravene statutory
enactments and treaties, then it is void and cannot be enforced in the Philippines; the Executive
who issued it had no authority to issue an instrument that is contrary to or outside of a
legislative act or a treaty.27chanrobleslaw

In this sense, an executive agreement that creates new obligations or amends existing ones, has
been issued with grave abuse of discretion amounting to a lack of or excess of jurisdiction, and
can be judicially nullified through judicial review.

The obligations found in the

Madrid Protocol are within
the Executive's power to implement,
and may be the subject of an
executive agreement.

Applying these standards to the contents of the Madrid Protocol, I find that the obligations in this
international agreement may be the subject of an executive agreement. The Madrid
Protocolfacilitates the Philippines' entry to the Madrid System.28 Under the Madrid
System, a person can register his trademark internationally by filing for an
international registration of his trademark in one of the contracting parties (CP) under
the Madrid System. Once a person has filed for or acquired a trademark with the IPO
in his country of origin (that is also a CP), he can file for the international recognition
of his trademark with the same office.29chanrobleslaw

The CP is then obligated to forward the request to the World Intellectual Property Organization's
(WIPO) International Bureau, which will then forward it to the other CPs where the person has
applied for trademark recognition.30 The IPO in these countries would then determine whether
the trademark may be registered under the laws of their country.31chanrobleslaw

Thus, a foreign national may, in applying for an international registration of his trademark,
include the Philippines as among the jurisdictions with which he seeks to register his trademark.
Upon receipt of his application from the IPO of his country of origin, the WIPO would forward the
application to the Philippine Intellectual Property Office (IPOPHIL). The IPOPHIL would then
conduct a substantive examination of the application, and determine whether the trademark
may be registered under Philippine law.32chanrobleslaw

Note, at this point, that the Madrid Protocol does not replace the procedure for the registration
of trademarks under the IP Code; neither does it impose or change the substantive requirements
for the grant of a trademark. Whether through the mechanism under the Madrid Protocol or the
IP Code, the requirements for a successful trademark registration remain the same.

In particular, the form for "Application for International Registration Governed Exclusively by
the Madrid Protocol"33 requires most (except for the name of the domestic representative) of the
information necessary for an application for trademark registration under Section 124 of the IP
Code.34� Upon receipt and examination of this application, the IPOPHIL Stillpossesses the
discretion to grant or deny the same.35chanrobleslaw
The applicant or registrant (whether through the Madrid Protocol or the traditional means under
the IP Code) would also still have to file a declaration of actual use of mark with evidence to that
affect within three years from the filing date of the application, otherwise, its registration shall
be cancelled.36 The trademark registration filed through the Madrid Protocol is valid for ten years
from the date of registration, the same period of protection granted to registrants under the IP
Code.37chanrobleslaw

The net effect of implementing the Madrid Protocol is allowing the WIPO's
International Bureau to forward an application before the IPOPHIL on behalf of the
foreign national that filed for an international registration before the WIPO and chose
to include the Philippines among the countries with which it intends to register its mark. This
obligation of recognizing trademark registration applications filed through the WIPO's
International Bureau may be entered into and implemented by the Executive without subsequent
Senate concurrence,

As the ponencia has pointed out, Congress has made it the policy of the State to streamline
administrative procedures of registering patents, trademarks, and copyrights. This declaration of
the State's policy, when considered with the inherent and necessary power of the executive to
draft its implementing rules and regulations in the implementation of laws, sufficiently allows the
drafting of rules that would streamline the administrative procedure for the registration of
trademarks by foreign nationals. These rules, of course, must not contradict or add to the law
that it seeks to implement, that is, the procedure provided in the IP Code.

Since the Executive is already authorized to create implementing rules and regulations that
streamline the trademark registration process provided under the IP Code, then the Philippines'
obligation under the Madrid Protocol may be implemented without subsequent Senate
concurrence. This obligation to recognize applications filed through the WIPO already has prior
legislative authorization, given that the Executive can, in the course of implementing Section
124 of the IP Code, draft implementing rules that streamline the procedure without changing its
substantive aspects.

As I have already pointed out, the Madrid Protocol merely allows the WIPO's International
Bureau to file an application before the IPOPHIL on behalf of the foreign national that filed for an
international registration before the WIPO. This practice is not prohibited under the IP Code, and
may even be arguably encouraged under the declaration of state policy38 in the IP Code.
Notably, the IP Code does not require personal filing of the application for trademark
registration; neither does it prohibit the submission of the application on behalf of an
applicant.39chanrobleslaw

Indeed, the registration process under the Madrid Protocol would, in effect, dispense with the
requirement of naming a domestic representative for foreign nationals not domiciled in the
Philippines upon filing his application for trademark registration, as mandated in Section 124 of
the IP Code. The domestic representative requirement is further explained in Section 125, viz:

chanRoblesvirtualLawlibrary
Sec, 125. Representation; Address for Service. - If the applicant is not domiciled or has no real
and effective commercial establishment in the Philippines, he shall designate by a written
document filed in the office, the name and address of a Philippine resident who may be served
notices or process in proceedings affecting the mark. Such notices or services may be served
upon the person so designated by leaving a copy thereof at the address specified in the last
designation filed. If the person so designated cannot be found at the address given in the last
designation, such notice or process may be served upon the Director. (Sec. 3, R. A. No. 166a)

The domestic representative requirement, however, is not entirely dispensed with by the
operation of the Madrid Protocol. A domestic representative is still required to file a certificate of
actual use of the trademark within three years from registration, so that the trademark applied
for would not be cancelled.40chanrobleslaw

In the same light, applicants seeking to register their trademark license would also need a
domestic representative in submitting a copy of the license agreement showing compliance with
national requirements, within two months from the date of registration with the International
Bureau.41chanrobleslaw

A domestic representative is also necessary should there be any opposition to the trademark
registration or a provisional refusal thereof.42chanrobleslaw

Thus, a domestic representative is still integral to the process of registering a trademark in the
Philippines, All foreign nationals not domiciled in the Philippines would still have to name a
domestic representative in the course of his application for registration, otherwise, his trademark
would, at the very least, be cancelled after three years of non-use. The Madrid Protocol, in
streamlining the procedure for registering trademarks of foreign nationals, in effect directed the
domestic representative's participation where necessary and merely postponed the naming of a
domestic representative requirement under Section 124 of the IP Code. The Protocol did not all
together forego with it.

Lastly, it does not escape us in reviewing the Executive's act of treating the Madrid Protocol as
an executive agreement that the petition reached us through the Court's expanded jurisdiction.
The petition for certiorari and prohibition challenging the constitutionality of the Madrid
Protocol must thus be examined under the lens of grave abuse of discretion; that is, the
executive must have acted so whimsically and capriciously that it amounted to an evasion of a
positive duty or a refusal to perform a duty required by law.43chanrobleslaw

As I have earlier pointed out, the Executive's inherent capacity to enact implementing rules for
the administrative procedure of registering trademarks, when construed together with the
Congress' declared policy of streamlining administrative procedures for trademark registration,
sufficiently allows the Executive to obligate the Philippine government to recognize trademark
applications filed with the WIPO International Bureau. This obligation no longer needs Senate
approval to be effective in the Philippines, as it already has prior legislative authorization that
the Executive has the power to implement.

Thus, the Executive did not have a positive duty (though merely an option) to treat the Madrid
Protocolas a treaty that should be submitted to the Senate for concurrence, and did not gravely
abuse its discretion in treating the Protocol as an executive agreement.

WHEREFORE, premises considered, I join the ponencia in dismissing the present

petition.

G.R. Nos. L-27425 & L-30505 April 28, 1980

CONVERSE RUBBER CORPORATION and EDWARDSON MANUFACTURING

CORPORATION, plaintiffs-appellants,
vs.
JACINTO RUBBER & PLASTICS CO., INC., and ACE RUBBER & PLASTICS
CORPORATION, defendants-appellants.

Sycip, Salazar, Luna & Associates plaintiff-appellants.

Juan R. David for defendants-appellants.

BARREDO, J.:

Direct appeal in G.R. No. L-27425 by both plaintiffs and defendants from the decision of the
Court of First Instance of Rizal in its Civil Case No. 9380, a case alleged unfair competition, the
dispositive part of which reads:

Upon the foregoing, judgment is hereby rendered:

1. Permanently restraining the defendants, their agents, employees and other persons acting in
their behalf from manufacturing and selling in the Philippines rubber shoes having the same or
confusingly similar appearance as plaintiff Converse Rubber's Converse Chuck Taylor All Star'
rubber shoes, particularly from manufacturing and selling in the Philippines rubber Shoes with
(a) ankle patch with a five-pointed blue star against a white background, (b) red and blue
bands, (c) white toe patch with raised diamond shaped areas, and (d) brown sole of the same or
similar design as the sole of "Converse Chuck Taylor All Star" rubber-soled canvas footwear;

2. Ordering defendant Jacinto Rubber & Plastics Company, Inc. to change the design and
appearance of "Custombuilt" shoes in accordance with the sketch submitted by defendant
Jacinto Rubber to plaintiff Converse Rubber on October 3, 1964 and to desist from using a star
both as a symbol and as a word;

3. Ordering defendant Jacinto Rubber & Plastics Company, Inc. to pay plaintiffs the sum of
P160,000.00 as compensatory damages for the years 1962 to 1965 plus 5% of the gross sales
of "Custombuilt" shoes from 1966 until defendant Jacinto Rubber & Plastics Company, Inc. stop
selling "Custombuilt" shoes of the present design and appearance;

4. Ordering defendants jointly and severally to pay plaintiffs P10,000.00 as attorney's fees.

SO ORDERED. (Pages 228-229, Record on Appeal.)

plaintiffs praying for a bigger amount of damages and defendants asking that the decision be
declared null and void for lack of jurisdiction, or, alternatively, that the same be reversed
completely by dismissing the complaint; and another direct appeal, in G. R. No. L-30505 by
above defendant Jacinto Rubber & Plastics Co., Inc. and, a new party, Philippine Marketing and
Management Corporation from the same trial court's order in the same main civil case finding
them in contempt of court "in disregarding the permanent injunction" contained in the appealed
decision.

RE G. R. NO L-27425

Being comprehensive and well prepared, We consider it sufficient to quote the following portions
of the impugned decision as basis for the resolution of the conflicting appeals aforementioned:

This is an action for unfair competition. Plaintiff Converse Rubber Corporation, (is) an American
Corporation, manufacturer (of) canvas rubber shoes under the trade name "Converse Chuck
Taylor All Star"; in the Philippines, it has an exclusive licensee, plaintiff Edwardson
Manufacturing Corporation, for the manufacture and sale in the Philippines of its product.
Plaintiff Converse is the owner of trademarks and patent, registered with United States Patent
Office, covering the words. "All Star", the representation and design of a five-pointed star, and
the design of the sole. The trademark "Chuck Taylor" was registered by plaintiff Converse with
the Philippines Patent Office on March 3, 1966. Since 1946, "Chuck Taylor" is being sold in the
Philippines. It has been used exclusively by Philippine basketball teams competing in
international competitions. It is also popular among players in various basketball leagues, like
the MICAA and the NCAA, because of its high quality and attractive style. "Chuck Taylor"
currently retails at P46.00 per pair.

Defendant Jacinto Rubber & Plastics Company, Inc., a local corporation, likewise, manufactures
and sells canvas rubber shoes. It sells its product under the trade names "Custombuilt Viscount",
"Custombuilt Challenger", and "Custombuilt Jayson's". Its trademark "Custombuilt Jayson's" was
registered by the Philippines Patent Office on November 29, 1957. The gross sales from 1962 to
1965 of "Custombuilt" shoes total P16,474,103.76."Custombuilt" is retailed at P11.00.

In 1963, plaintiff Converse and defendant Jacinto entered into protracted negotiations for a
licensing agreement whereby defendant Jacinto would be the exclusive license of plaintiff
Converse in the Philippines for the manufacture and sale of "Chuck Taylor" shoes but with the
right to continue manufacturing and selling its own products. One of the points taken up by
parties was the design and general appearance of "Custombuilt" shoes. Plaintiff Converse
insisted on the condition that defendant Jacinto change the design of "Custombuilt" shoes so as
to give "Custombuilt" a general appearance different from "Chuck Taylor." After an extensive
discussion, defendant Jacinto gave into to the demand of plaintiff Converse; it submitted to
plaintiff Converse for the latter's approval a sketch of a new design for "Custombuilt". This
design was accepted by plaintiff Converse. Defendant Jacinto Rubber then proposed that the
licensing agreement be made in favor of its affiliates, defendant Ace Rubber. On January 22,
1965, defendant Ace Rubber signed the licensing agreement while defendant Jacinto Rubber and
Arturo Jacinto signed the guarantee agreement to secure the performance by defendant Ace
Rubber of its obligations under the licensing agreement. Both documents, it should be noted,
contained the following covenants:
9. (a) Ace acknowledges that Converse is the exclusive owner of the said Converse - names and
design, as used in connection with the manufacture, advertising and sale of footwear: that
Converse has the exclusive right to use said Converse names in such connection throughout the
world. subject to the terms of this Agreement; and that neither Ace nor any person acting by,
through or under Ace will, at anytime, question or dispute said ownership or the exclusive rights
of Converse with respect thereto

(b) Nothing herein shall be deemed to constitute a warranty by Converse as to the non-
existence of infringements of Converse-names in the Republic of the Philippines. The term
"infringement"as used in this Agreement shall include practices which give rise to a cause of
action for damages or to injunctive relief under Sections 23 and 29 of R. A. No. 166 of the
Republic of the Philippines or any other applicable law of said Republic. During the term thereof,
Ace at its expense shall diligently investigate all infringements of the use of said Converse-
names, whether or not such infringements violate laws pertaining to the registration of
trademarks or trade names, and shall notify Converse promptly as to any infringements of said
Converse names within said territory, and shall at its expense use its best efforts to prevent
such infringements by an reasonable means, including the prosecution of litigation where
necessary or advisable. Any award for damages which Ace may recover in such litigation shall
accrue to the benefit of, and shall be owned and retained by Ace.

14. Ace shall not,during the term hereof, manufacture or sell footwear which would, by reason of
its appearance and/or design, be likely, or tend, to be confused by the public with any of the
Converse-named products to be manufactured and sold hereunder, or shall in any manner,
infringe Converse designs. If at any time and from time to time the manufacture of footwear
under Converse-names for sale hereunder does not fully utilize Ace's production capacity, Ace
shalt on Converse's order, within the limits of such surplus capacity, manufacture footwear of
kinds and in amounts specified by Converse, at a price no higher than the lowest price at which
similar footwear has been sold to customer of Ace during the period of one (1) year immediately
preceding the date of such order, and upon no less favorable discounts and terms of sale than
similar footwear is customarily offered by Ace to its most favored customer, payable in United
States funds, if the earned royalty hereunder is then so payable, otherwise in Republic of the
Philippines funds.

20. It being the mutual intention of the parties that Converse's exclusive property interests in
the Converse-names shall at all times be protected to the full extent of the law, Ace agrees that
it will execute all amendments to this Agreement which may be proposed from time to time by
Converse for the purpose of fully protecting said interests.

However, the licensing agreement did not materialize, because Hermogenes Jacinto refused to
sign the guarantee.

Plaintiff Converse and plaintiff Edwardson then executed licensing agreement, making plaintiff
Edwardson the exclusive Philippine licensee for the manufacture and sale of "Chuck Taylor." On
June 18, 1966, plaintiffs sent a written demand to defendants to stop manufacturing and selling
"Custombuilt" shoes of Identical appearance as "Chuck Taylor". Defendants did not reply to
plaintiffs' letter. Hence, this suit.

Plaintiffs contend that "Custombuilt" shoes are Identical in design and General appearance to
"Chuck Taylor" and, claiming prior Identification of "Chuck Taylor" in the mind of the buying
public in the Philippines, they contend that defendants are guilty of unfair competition by selling
"Custombuilt" of the design and with the general appearance of "Chuck Taylor". The design and
appearance of both products, as shown by the samples and photographs of both products, are
not disputed. Defendants insist that (a) there is no similarity in design and general appearance
between "Custombuilt" and "Chuck Taylor", pointing out that "Custombuilt" is readily Identifiable
by the tradename "Custombuilt" appearing on the ankle patch, the heel patch, and on the sole.
It is also vigorously contended by defendants that the registration of defendant Jacinto Rubber's
trademark "Custombuilt" being prior to the registration in the Philippines of plaintiff Converse
Rubber's trademark "Chuck Taylor", plaintiffs have no cause of action. It appears that defendant
started to manufacture and sell "Custombuilt" of its present design and with its present
appearance in 1962. On the other hand, as earlier mentioned, "Chuck Taylor" started to be sold
in the Philippines in 1946 and has been enjoying a reputation for quality among basketball
players in the Philippines.

The Court sees no difficulty in finding that the competing products are Identical in appearance
except for the trade names. The respective designs, the shapes and the color of the ankle patch,
the bands, the toe patch and the sole of the two products are exactly the same. At a distance of
a few meters, it is impossible to distinguish Custombuilt' from "Chuck Taylor". The casual buyer
is thus liable to mistake one for the other. Only by a close-examination and by paying attention
to the trade names will the ordinary buyer be able to tell that the product is either "Custombuilt"
or "Chuck Taylor", as the case may be. Even so, he will most likely think that the competing
products, because they are strikingly Identical in design and appearance are manufactured by
one and the same manufacturer. Clearly, this case satisfied the test of unfair competition.
Priority in registration in the Philippines of a trademark is not material in an action for unfair
competition as distinguished from an action for infringement of trademark. The basis of an
action for unfair competition is confusing and misleading similarity in general appearance, not
similarity of trademarks.

The Court is not impressed by defendants' good faith in claiming that they have the right to
continue manufacturing "Custombuilt" of Identical design and appearance as "Chuck Taylor".
While it is true that the licensing agreement between plaintiff Converse and defendant did not
materialize, the execution of the documents by the defendants constitute an admission on the
part of plaintiff Converse Rubber's property right in design and appearance of "Chuck Taylor".
The covenants, quoted above, show that defendants acknowledged that plaintiff Converse
Rubber "is the exclusive owner of the said Converse-names and design." Defendants further
covenanted not to "manufacture or sell footwear which would by reason of its appearance and/or
design, be likely, or tend, to be confused by the public with any of the Converse-named products
... or shall, in any manner, infringe Converse designs". That defendants are fully aware that
"Custombuilt" is Identical in design and appearance to "Chuck Taylor" has conclusively been
admitted by them in their correspondence with plaintiff Converse leading to the submission by
defendants to plaintiff Converse of a sketch of a new design that should give "Custombuilt" an
appearance different from that of "Chuck Taylor".

Aside from the written admission of defendants, the facts clearly indicate that defendants copied
the design of "Chuck Taylor" with intent to gain "Chuck Taylor", as has been noted earlier, was
ahead ot Custombuilt' in the Philippines market and has been enjoining a high reputation for
quality and style. Even defendants' own exhibits leave no room for doubt that defendants copied
the design and appearance of "Chuck Taylor" for the purpose of cashing in on the reputation of
"Chuck Taylor". The samples of defendants' product show, indeed, as announced by defendants'
counsel the "metamorphosis" of defendants' product. In the beginning, the design of defendants'
product was entirely different from its present design and the design of "Chuck Taylor". It was
only in 1962, or 16 years after "Chuck Taylor" has been in the market, that defendants adopted
the present design of "Custombuilt". It is also noteworthy that "Custombuilt" sells at P35 less
than "Chuck Taylor"; thus the casual buyer is led to believe that he is buying the same product
at a lower price. Not surprisingly, the volume of sales of "Custombuilt" increased from 35% to
75% of defendants' total sales after they incorporated in their product the design and
appearance of "Chuck Taylor".

It is thus clear that defendants are guilty of unfair competition by giving "Custombuilt" the same
general appearance as "Chuck Taylor". It is equally clear that defendants in so doing are guilty
of bad faith. There remains for the Court to consider the damages that defendants should be
liable for to plaintiffs. Plaintiffs claim compensatory damages equivalent to 30% of the gross
sales of "Custombuilt" and attorney's fees in the amount of P25,000.00. By defendants' own
evidence, the gross sales of "Custombuilt" from 1962, the year defendants adopted the present
design of their product, to 1965 total P16,474,103.76. If the Court should grant plaintiffs' prayer
for compensatory damages equivalent to 30% of defendants' gross sales, the compensatory
damages would amount to P4,942,231.13. Considering the amount of gross sales of
"Custombuilt", an award to plaintiffs for 30% of defendants' annual gross sales would seriously
ripple, if not bankrupt, defendant companies. The Court is aware that defendants' investment is
substantial and that defendants support a substantial number of employees and laborers. This
being so, the Court is of the opinion that plaintiffs are entitled to only one (1) per cent of annual
gross sales of "Custombuilt" shoes of current design. As for attorney s fees, the Court is of the
opinion that, P10,000.00 is reasonable. (Pages 217-228, Record on Appeal.)

Defendants-appellants have assigned the following alleged errors:

THE COURT A QUO ERRED IN ASSUMING JURISDICTION OVER THE COMPLAINT OF PLAINTIFFS-
APPELLEES.

II

THE COURT A QUO ERRED IN ARRIVING AT THE CONCLUSION THAT THE DEFENDANTS ARE
GUILTY OF UNFAIR COMPETITION WHEN DEFENDANT JACINTO RUBBER & PLASTICS CO., INC.,
MANUFACTURED AND SOLD RUBBER-SOLED CANVASS SHOES UNDER ITS REGISTERED TRADE
MARK "CUSTOMBUILT".

III

THE COURT A QUO ERRED IN ADJUDICATING IN FAVOR OF THE PLAINTIFF THE SUM OF
P160,000.00 AS COMPENSATORY DAMAGES AND P10,000.00 AS ATTORNEY'S FEES. (Pp. A & B,
Brief for Defendants-Appellants.)

We have carefully gone over the records and reviewed the evidence to satisfy Ourselves of the
similarity of the shoes manufactured and sold by plaintiffs with those sold by defendants, and
We find the conclusions of the trial court to be correct in all respects. In fact, in their brief,
defendants do not contest at all the findings of the trial court insofar as material Identity
between the two kinds of shoes in question is concerned. We have Ourselves examined the
exhibits in detail, particularly, the comparative pictures and other representations if the shoes in
question, and We do not hesitate in holding that he plaintiffs complaint of unfair competition is
amply justified.

From said examination, We find the shoes manufactured by defendants to contain, as found by
the trial court, practically all the features of those of the plaintiff Converse Rubber Corporation
and manufactured, sold or marketed by plaintiff Edwardson Manufacturing Corporation, except
for heir respective brands, of course. We fully agree with the trial court that "the respective
designs, shapes, the colors of the ankle patches, the bands, the toe patch and the soles of the
two products are exactly the same ... (such that) at a distance of a few meters, it is impossible
to distinguish "Custombuilt" from "Chuck Taylor". These elements are more than sufficient to
serve as basis for a charge of unfair competition. Even if not all the details just mentioned were
Identical, with the general appearances alone of the two products, any ordinary, or even
perhaps even a not too perceptive and discriminating customer could be deceived, and,
therefore, Custombuilt could easily be passed off for Chuck Taylor. Jurisprudence supports the
view that under such circumstances, the imitator must be held liable. In R. F. & J. Alexander &
Co. Ltd. et al. vs. Ang et al., 97 Phil. 157, at p. 160, this Court held:

By "purchasers" and "public" likely to be deceived by the appearance of the goods, the statute
means the "ordinary purchaser". And although this Court apparently shifted its position a bit
in Dy Buncio vs. Tan Tiao Bok, 42 Phil. 190, by referring to simulations likely to mislead "the
ordinarily intelligent buyer", it turned to the general accepted doctrine in E. Spinner & Co. vs.
Neuss Hesslein, 54 Phil. 224, where it spoke of "the casual purchasers" "who knows the goods
only by name."

It stands to reason that when the law speaks of purchasers' it generally refers to ordinary or
average purchasers.

... in cases of unfair competition, while the requisite degree of resemblance or similarity between
the names, brands, or other indicia is not capable of exact definition, it may be stated generally
that the similarity must be such, but need only be such, as is likely to mislead purchasers of
ordinary caution and prudence; or in other words, the ordinary buyer, into the belief that the
goods or wares are those, or that the name or business is that, of another producer or
tradesman. It is not necessary in either case that the resemblance be sufficient to deceive
experts, dealers, or other persons specially familiar with the trademark or goods involved. Nor is
it material that a critical inspection and comparison would disclose differences, or that persons
seeing the trademarks or articles side by side would not be deceived (52 Am. Jur. pp. 600-601).
(Brief for Plaintiffs as Appellees, pp. 28-29, p. 71, Record.)

Indeed, the very text of the law on unfair competition in this country is clear enough. It is found
in Chapter VI of Republic Act 166 reading thus:

SEC. 29. Unfair competition, rights and remedies. - A person who has Identified in the mind of
the public the goods he manufactures or deals in, his business or services from those of others,
whether or not a mark or trade name is employed, has a property right in the goodwill of the
said goods, business or services so Identified, which will be protected in the same manner as
other property rights. Such a person shall have the remedies provided in section twenty-three,
Chapter V hereof.
Any person who shall employ deception or any other means contrary to good faith by which he
shall pass off the goods manufactured by him or in which he deals, or his business, or services
of those of the one having established such goodwill, or who shall commit any acts calculated to
produce said result, shall be guilty of unfair competition, and shall be subject to an action
therefor.

In particular, and without in any way limiting the scope of unfair competition, the following shall
be deemed guilty of unfair competition:

(a) Any person, who in selling his goods shall give them the general appearance of goods of
another manufacturer or dealer, either as to the goods themselves or in the wrapping of the
packages in which they are contained, or the devices or words thereon, or in any other feature
of their appearance, which would be likely to influence purchasers to believe that the goods
offered are those of a manufacturer or dealer other than the actual manufacturer or dealer, or
who otherwise clothes the goods with such appearance as shall deceive the public and defraud
another of his legitimate trade, or any subsequent vendor of such goods or any agent of any
vendor engaged in selling such goods with a like purpose;

(b) Any person who by any artifice, or device, or who employs any other means calculated to
induce the false belief that such person is offering the services of another who has Identified
such services in the mind of the public; or

(c) Any person who shall make any false statement in the course of trade or who shall commit
any other act contrary to good faith of a nature calculated to discredit the goods, business or
services of another.

It is the theory of defendants-appellants, however, that plaintiffs-appellees have failed to

establish a case of unfair competition because "inasmuch as the former (Converse Chuck Taylor)
was not sold in the local markets from 1949 to 1967, no competition, fair or unfair, could have
been offered to it by the latter product (Custombuilt Challenger) during the said period." While
the argument, it may be conceded, makes sense as a proposition in practical logic, as indeed, it
served as a legal defense in jurisprudence in the past, the modern view, as contended by
plaintiffs "represents a tendency to mold, and even to expand; legal remedies in this field to
conform to ethical practices." (Brief of Plaintiffs as Appellees, pp. 16-17.) As a matter of fact,
in Ang vs. Toribio, 74 Phil. 129, this Court aptly pointed out:

... As trade has developed and commercial changes have come about, the law of unfair
competition has expanded to keep pace with the times and the elements of strict competition in
itself has ceased to be the determining factor. The owner of a trademark or trade-name has
property right in which he is entitled to protection, since there is damage to him from confusion
of reputation or goodwill in the mind of the public as well as from confusion of goods. The
modern trend is to give emphasis to the unfairness of the acts and to classify and treat the issue
as fraud.

Additionally, We quote with approval counsel's contention thus:

In no uncertain terms, the statute on unfair competition extends protection to the goodwill of a
manufacturer or dealer. It attaches no fetish to the word "competition". In plain language it
declares that a "person who has Identified in the public the goods he manufactures or deals in,
his business or services from those of others, whether or not a right in the goodwill of the said
goods, business or services so Identified, which will be protected in the same manner as other
property rights." It denominates as "unfair competition" "any acts" calculated to result in the
passing off of other goods "for those of the one having established such goodwill." Singularly
absent is a requirement that the goodwill sought to be protected in an action for unfair
competition must have been established in an actual competitive situation. Nor does the law
require that the deception or other means contrary to good faith or any acts calculated to pass
off other goods for those of one who has established a goodwill must have been committed in an
actual competitive situation.

To read such conditions, as defendants-appellants seek to do, in the plain prescription of the law
is to re-construct it. Indeed, good-will established in other than a competitive milieu is no less a
property right that deserves protection from unjust appropriation or injury. This, to us, is
precisely the clear sense of the law when it declares without equivocation that a "person who
has Identified in the mind of the public the goods he manufactures or deals in, his business or
services from those of others, has a property right in the goodwill of the said goods, business or
services so Identified, which will be protected in the same manner as other property rights."

Plaintiffs-appellees have a established goodwill. This goodwill, the trial court found, defendants-
appellants have pirated in clear bad faith to their unjust enrichment. It is strange that
defendants-appellants now say that they should be spared from the penalty of the law, because
they were not really in competition with plaintiffs-appellees. (Pp. 21-22, Id.)

In a desperate attempt to escape liability, in their first assigned error, defendants-appellants

assail the jurisdiction of the trial court, contending that inasmuch as Converse Rubber
Corporation is a non-resident corporation, it has no legal right to sue in the courts of the
Philippines, citing Marshall-Wells Co. vs. Elser & C•., 46 Phil. 70 and Commissioner of Internal
Revenue vs. United States Lines Co., G. R. No. L-16850, May 30, 1962 (5 SCRA 175) and,
furthermore, that plaintiff Edwardson Manufacturing Corporation, although "a domestic
corporation, is nothing but a licensee of Converse Rubber Corporation in the local
manufacturing, advertisement, sale and distribution of the rubber-soled footwear", hence, it is
equally without such personality. (p. 18, Brief of Defendants-Appellants).

We are not impressed. The easy and, We hold to be correct, refutation of defendants' position is
stated adequately and understandably in plaintiffs' brief as appellees as follows:

The disability under Section 69 of the Corporation Law of an unlicensed foreign corporation
refers to transacting business in the Philippines and maintaining a "suit for the recovery of any
debt, claim, or demand whatever" arising from its transacting business in the Philippines. In
Marshall-Wells, this Court precisely rejected a reading of Section 69 of the Corporation Law as
"would give it a literal meaning", i.e., "No foreign corporation shall be permitted by itself or
assignee any suit for the recovery of any deed, claim, or demand unless it shall have the license
prescribed by Section 68 of the Law." "The effect of the statute," declared this Court,
"preventing foreign corporations from doing business and from bringing actions in the local
courts, except on compliance with elaborate requirements, must not be unduly extended or
improperly applied (at page 75). In Commissioner of Internal Revenue v. United States Lines
Company, this Court did not hold that an unlicensed foreign corporation may not sue in the
Philippines. The Court simply held that a foreign shipping company, represented by a local
agent, is doing business in the Philippines so as to subject it to the "operation of our revenue
and tax."

Western Equipment and Supply Co. v. Reyes, 51 Phil. 115, made clear that the disability of a
foreign corporation from suing in the Philippines is limited to suits "to enforce any legal or
contract rights arising from, or growing out, of any business which it has transacted in
thePhilippine Islands." ... On the other hand, where the purpose of a suit is "to protect its
reputation, its corporate name, its goodwill, whenever that reputation, corporate name or
goodwill have, through the natural development of its trade, established themselves," an
unlicensed foreign corporation may sue in the Philippines (at page 128). So interpreted by the
Supreme Court, it is clear that Section 69 of the Corporation Law does not disqualify plaintiff-
appellee Converse Rubber, which does not have a branch office in any part of the Philippines and
is not "doing business" in the Philippines (Record on Appeal, pp. 190-191), from filing and
prosecuting this action for unfair competition.

The futility of the error assigned by defendants-appellants becomes more evident in light of the
explicit provision of Section 21 (a) of Republic Act No. 166, as amended, that a foreign
corporation, whether or not licensed to transact business in the Philippines may bring an action
for unfair competition provided the country of which it "is a citizen, or in which it is domiciled, by
treaty, convention or law, grants a similar privilege to juristic persons in the Philippines." The
Convention of Paris for the Protection of Industrial Property, to which the Philippines adheres,
provides, on a reciprocal basis that citizens of a union member may file an action for unfair
competition and infringement of trademarks, patents, etc. (610. G. 8010) in and of the union
members. The United States of America, of which Converse Rubber is a citizen, is also a
signatory to this Convention. Section 1126 (b) and (h) of Public Law 489 of the United States of
America allows corporations organized under the laws of the Philippines to file an action for
unfair competition in the United States of America, whether or not it is licensed to do business in
the United States. (Annex "H" of Partial Stipulation of Facts, Record on Appeal, p. 192).

As regards the other plaintiff-appellee, Edwardson Manufacturing Corporation, it is indisputable

that it has a direct interest in the success of this action: as exclusive licensee of Converse
Rubber in the manufacture and sale of "Chuck Taylor" shoes in the Philippines, naturally it would
be directly affected by the continued manufacture and sale by defendants-appellants of shoes
that are confusingly Identical in appearance and design with "Chuck Taylor." (Brief of Plaintiffs
as Appellees, pp. 11-14.)

As can be seen, what is actually the only controversial matter in this case is that which refers to
the assessment ot damages by the trial court, which both plaintiffs and defendants consider
erroneous, defendants maintaining, of course, that it is excessive, even baseless, while, on the
other hand, plaintiffs posit that it is far short from what the law and the relevant circumstances
require.

Under Section 29 of the Republic Act 166, aforequoted, it will be observed that the first
paragraph thereof refers to the property rights in goodwill of a "person who has Identified in the
mind of the public goods he manufactures or deals in, his business or offices from those of
others, whether or not a mark or trade name is employed", while the second paragraph speaks
of "any person who shall employ deception or any other means contrary to good faith by which
he shall pass off the goods manufactured by him ... for those of the one having established such
goodwill." This second paragraph, which may be read together with the first paragraph, makes
the deceiver or imitator "guilty of unfair competition and shall be subjected to an action
therefore", meaning what the first paragraph refers to as the "remedies provided in Section
twenty-three, Chapter V" of the Act. It is implicit in the decision of the trial court and the briefs
of the parties that everyone here concerned has acted on the basis of the assumptions just
stated.

Now, Section 23 reads:

Actions, and damages and injunction for infringement. - Any person entitled to the exclusive use
of a registered mark or trade name may recover damages in a civil action from any person who
infringes his rights, and the measure of the damages suffered shall be either the reasonable
profit which the complaining party would have made, had the defendant not infringed his said
rights, or the profit which the defendant actually made out of the infringement, or in the event
such measure of damages cannot be readily ascertained with reasonable certainty, then the
court may award as damages a reasonable percentage based upon the amount of gross sales of
the defendant of the value of the services in connection with which the mark or trade name was
used in the infringement of the rights of the complaining party. In cases where actual intent to
mislead the public or to defraud the complaining party shall be shown, in the discretion of the
court, the damages may be doubled.

The complaining party, upon proper showing, may also be granted injunction.

In the light of the foregoing provision, We find difficulty in seeing the basis of the trial court for
reducing the 30%, claimed by plaintiffs, of the gross earnings of defendants from the sale of
Custombuilt from 1962 to merely 1% as the measure of compensatory damages to which
plaintiffs are entitled for that period. Perhaps, as His Honor pessimistically argued, defendants
would suffer crippling of their business. But it is quite clear from the circumstances surrounding
their act of deliberately passing off the rubber shoes produced by them for those over which
plaintiffs had priorly established goodwill, that defendants had tremendously increased their
volume of business and profits in the imitated shoes and have precisely incurred, strictly
speaking, the liability of the damages to be paid by them be doubled, per the last sentence of
Section 23.

We are of the considered opinion that the trial court was overly liberal to the defendants-
appellants. The P160,000.00 awarded by His Honor as compensatory damages for the years
1962 to 1965 are utterly inadequate. Even the 5% of the gross sales of "Custombuilt" shoes
from 1966 until its injunction is fully obeyed are short of what the law contemplates in cases of
this nature. We hold that considering that the gross sales of defendants-appellants increased to
P16,474,103.76, (as admitted in defendants-appellants' own brief, p. 2), only 75% of which,
plaintiffs-appellants generously assert corresponded to Custombuilt sales, it would be but fair
and just to award plaintiffs-appellants 15% of such 75% as compensatory damages from 1962
up to the finality of this decision. In other words, 75% of P16,474,103.76 would be
P12,355,577.82 and 15% of this last amount would be P1,853,336.67, which should be awarded
to plaintiffs-appellants for the whole period already stated, without any interest, without
prejudice to plaintiffs-appellants seeking by motion in the trial court in this same case any
further damage should defendants-appellants continue to disobey the injunction herein affirmed
after the finality of this decision.
We feel that this award is reasonable. It is not farfetched to assume that the net profit of the
imitator which, after all is what the law contemplates as basis for damages if it were only
actually ascertainable, in the manufacture of rubber shoes should not be less than 20 to 25% of
the gross sales. Regrettably, neither of the parties presented positive evidence in this respect,
and the Court is left to use as basis its own projection in the light of usual business practices.
We could, to be sure, return this case to the lower court for further evidence on this point, but,
inasmuch as this litigation started way back about fourteen years ago and it would take more
years before any final disposition is made hereof should take the course, We are convinced that
the above straight computation, without any penalty of interest, is in accordance with the spirit
of the law governing this case.

In re G. R. No. L-30505

The subject matter of this appeal is the order of the trial court, incident to its main decision We
have just reviewed above, dismissing "for lack 6f jurisdiction the contempt charge filed by
plaintiffs against defendant Jacinto Rubber & Plastics Co. Inc., Ace Rubber & Plastics
Corporation; Philippine & Management Corporation and their respective corporate officers.

Importantly, it is necessary to immediately clear up the minds of appellees in regard to some

aspects of the argument on double jeopardy discussed by their distinguished counsel in his
preliminary argument in his brief (pp. 9-13). It is contended therein that inasmuch as the denial
orders of August 23, 1967, December 29, 1967 and January 24, 1968 have the character of
acquittals, contempt proceedings being criminal in nature, this appeal subjects appellees to
double jeopardy. Such contention misses, however, the important consideration that the said
denial orders, were, as explained by His Honor himself in his last two orders, based on the
assumption that he had lost jurisdiction over the incident by virtue of the earlier perfection of
the appeals of both parties from the decision on the merits.

It is thus the effect of this assumption, revealed later by the trial judge, on the first order of
August 23, 1967 that needs clarificatory disquisition, considering that the said first order was
exclusively based on "the interests of justice" and "lack of merit" and made no reference at all to
jurisdiction. If indeed the trial court had lost jurisdiction, it would be clear that said order could
have no legal standing, and the argument of double jeopardy would have no basis.

But after mature deliberation, and in the light of Cia General de Tabacos de Filipinas vs.
Alhambra Cigar & Cigarette Manufacturing Co., 33 Phil. 503, cited by appellant's counsel in his
brief, We are convinced that the trial court in the case at bar had jurisdiction to entertain and
decide the motion for contempt in question. Indeed, the enforcement of either final or
preliminary-made-final injunctions in decisions of trial courts are immediately executory. The
reason for this rule lies in the nature itself of the remedy. If a preliminary injunction, especially
one issued after a hearing is enforceable immediately to protect the rights of the one asking for
it, independently of the pendency of the main action, there is no reason why when that
preliminary injunction is made final after further and fuller hearing the merits of the plaintiff's
cause of action, its enforceability should lesser, force. The same must be true with stronger
basis in the case of a permanent injunction issued as part ot the judgment. The aim is to stop
the act complained of immediately because the court has found it necessary to serve the
interests of justice involved in the litigation already resolve by it after hearing and reception of
the evidence of both parties.
As a matter ot fact, it is quite obvious that an action for unfair competition with prayer for an
injunction partakes of the nature of an action for injunction within the contemplation of Section 4
of Rule 39, and this cited provision states explicitly that "unless otherwise ordered by the court,
a judgment in an action for injunction - shall not be stayed after its rendition and before an
appeal is taken or during the pendency of an appeal." In the above-mentioned case of Cia.
General de Tabacos, the Court held:

The applicant contends here: First, that the injunction is indefinite and uncertain to such an
extent that a person of ordinary intelligence would be unable to comply with it and still protect
his acknowledged rights; second, that the injunction is void for the reason that the judgment of
the court on which it 's based is not responsive to the pleadings or to the evidence in the case
and has nothing in the record to support it; third, that the court erred in assuming jurisdiction
and fining defendant after an appeal had been taken from the judgment of the court and the
perpetual injunction issued thereon. There are other objections that need no particular
discussion.

Discussing these questions generally it may be admitted, as we stated in our decision in the
main case (G. R No. 10251, ante p. 485) that, while the complaint set forth an action on a
trade-name and for unfair competition, accepting the plaintiff's interpretation of it, the trial court
based its judgment on the violation of a trade-mark, although the complaint contained no
allegation with respect to a trade-mark and no issue was joined on that subject by the pleadings
and no evidence was introduced on the trial with respect thereto. There Aas however, some
evidence in the case with respect to the plaintiff's ownership of the trade-name "Isabela," for the
violation of which the plaintiff was suing, and there was some evidence which might support an
action of unfair competition, if such an action could be sustained under the statute. Therefore,
although the judgment of the trial court was based on the violation of a trade-mark, there was
some evidence to sustain the judgment if it had been founded on a violation of the trade-name
or on unfair competition. The judgment, as we have already found in the main case, was
erroneous and was reversed for that reason; but having some evidence to sustain it, it was not
void and the injunction issued in that action was one which the court had power to issue.
Although the judgment was clearly erroneous and without basis in law, it was, nevertheless a
judgment of a court of competent jurisdiction which had authority to render that particular
judgment and to issue a permanent injunction thereon.

xxx xxx xxx

... The question is not was the judgment correct on the law and the facts, but was it a valid
judgment? If so, and if the injunction issued thereon was definite and certain and was within the
subject matter of the judgment, the defendant was bound to obey it, however erroneous it may
have been. (Pp. 505-506, 506, 33 Phil.)

It is interesting to note that while the trial court was of the opinion that it had lost jurisdiction
over the motion for contempt, upon insistence of the plaintiffs, in its order of January 24, 1968,
it made the following findings of fact:

It is not controverted on December 14, 1966, the Philippine Marketing and Management sold to
Virginia Ventures 12 pairs of "Custombuilt" rubber shoes bearing an Identical design and general
appearance as that prohibited in the injunction. It is likewise not controverted that subsequent
to December 14, 1966 the sale of the said rubber shoes was advertised by Philippine Marketing
and Management Corporation in several metropolitan newspapers even during the pendency of
the contempt proceedings.

The only issue of fact is whether or not in selling and advertising the sale of the prescribed shoes
the Philippine Marketing and Management Corporation conspired with the defendants,
particularly defendant Jacinto Rubber, or acted as its agent, employee or in any other capacity
with knowledge of the issuance of the said permanent injunction. On this point, the evidence of
the plaintiffs shows that Hermogenes Jacinto, Arturo Jacinto, Fernando Jacinto and Milagros J.
Jose constitute the majority of the board of directors of the Philippine Marketing and
Management Corporation; that Hermogenes Jacinto is the president, Arturo Jacinto is the vice-
president, and Fernando Jacinto and Milagros J. Jose are directors, of defendant Jacinto Rubber;
that Milagros J. Jose is the treasurer of the Philippine Marketing and Management Corporation;
and that Ramon V. Tupas, corporate secretary of the Philippine Marketing and Management
Corporation, actively assisted by Atty. Juan T. David, counsel of record of the defendants, in
defending the defendants in this case. It also appears from the different advertisements
published in the metropolitan papers that Philippine Marketing and Management Corporation is
the exclusive distributor of the questioned "Custombuilt" rubber shoes. Moreover, during the
trial of this case on the merits the defendants admitted that the Philippine Marketing and
Management Corporation is a sister corporation of defendant Jacinto Rubber, both corporations
having Identical stockholders, and Hermogenes Jacinto and Fernando Jacinto are stockholders
and incorporators of the Philippine Marketing and Management Corporation.

On the other hand, the defendants, particularly defendant Jacinto Rubber, presented no
evidence to disprove its intra-corporate relationship with the Philippine Marketing and
Management Corporation. Instead it presented, over the objection of the plaintiffs, the affidavit
of its executive vice-president, Geronimo Jacinto, who affirmed that defendant Jacinto Rubber
had no knowledge of, or participation in, the acts complained of in the motion to declare them in
contempt of Court and that it has not in any way violated any order of this Court. On its part,
the Philippine Marketing and Management Corporation presented as a witness its general
manager, Aniceto Tan, who testified that the Philippine Marketing and Management Corporation
is not an agent or sister corporation of defendant Jacinto Rubber; that he came to know of the
pendency of this case and the issuance of the permanent injunction only on December 19, 1966
when served with a copy of plaintiffs' motion; and that the Philippine Marketing and
Management Corporation buys the "Custombuilt Rubber" shoes from defendant Jacinto Rubber
which it resells to the general public. It is noteworthy, however, that this particular witness
made several admissions in the course of his testimony which shed light on the question at
issue. Thus, he admitted that prior to the formal organization of the Philippine Marketing and
Management Corporation in January 1966 he was the sales manager of defendant Jacinto
Rubber; that after the organization of the said corporation, he was informed that defendant
Jacinto Rubber would discontinue its sales operations and instead give the exclusive distribution
of the shoes to the Philippine Marketing and Management Corporation; and that he was then
offered the position of sales manager of Philippine Marketing and Management because of his
extensive experience in the distribution of "Custombuilt" rubber shoes. Also, he testified that the
subscribed capital stock of the Philippine Marketing and Management Corporation is only
P100,000.00 out of which P25,000.00 has been paid whereas its average monthly purchases of
"Custombuilt" rubber shoes is between P300,000.00 to P400,000.00 or between P4,000,000.00
to P5,000,000.00 annually. Such huge purchases Philippine Marketing and Management
Corporation is able to make, in spite of its meager capital, because defendant Jacinto Rubber
allows it to buy on credit.

Considering the substantial Identity of the responsible corporate officers of the defendant Jacinto
Rubber and the Philippine Marketing and Management Corporation, the huge volume of alleged
purchases of "Custombuilt" shoes by the Philippine Marketing and Management Corporation
compared to its paid in capital, and the cessation of the sales operations of defendant Jacinto
Rubber after the organization of the former, the Court is convinced beyond reasonable doubt
that the Philippine Marketing and Management Corporation is the selling arm or branch of
defendant Jacinto Rubber and that both corporations are controlled by substantially the same
persons, the Jacinto family. The contention of the Philippine Marketing and Management
Corporation that it sold the 12 pairs of "Custombuilt" shoes on December 14, 1966 without
knowledge of the issuance of the injunction is belied by its conduct of continuing the sale and
the advertisement of said shoes even during the pendency of the contempt proceedings. This
conduct clearly reveals the wilfulness and contumacy with which it had disregarded the
injunction. Besides, it is inherently improbable that defendant Jacinto Rubber and Atty. Ramon
B. Tupas did not inform the Philippine Marketing and Management Corporation of the issuance of
the injunction, a fact which undoubtedly has a material adverse effect on its business.

Upon the foregoing, the Court is convinced that defendants and Philippine Marketing and
Management Corporation are guilty of contempt of court in disregarding the permanent
injunction issued by this Court in its decision on the merits of the main case. However, for the
reasons stated in the Order of December 29, 1967, the Court maintains that it has lost
jurisdiction over the case. (Pp. 115-120, Record on Appeal.)

Stated differently, since the trial court had jurisdiction to take cognizance of the motion, its
findings of facts should as a rule bind the parties, and, in this connection, appellees do not
seriously challenge said findings. And since We are holding that the trial court had jurisdiction,
the above findings may be determinative of the factual issues among the parties herein. We are
thus faced with the following situations:

The first order of dismissal of August 23, 1967, albeit issued with jurisdiction, was incomplete
because it contained no statements of facts and law on which it was based in violation of the
pertinent constitutional precept. It could not stand as it was.

The second of December 29, 1967 was still incomplete, with the added flaw that his Honor
declared himself therein as having lost jurisdiction.

On other hand, while the third order of January 24, 1968 filled the ommissions of the first two
orders, it, however, the reiterated the erroneous ruling of the second order regarding lost of
jurisdiction of the court over the incident.

Combining the three orders, it can be seen that the result is that the trial court found from the
evidence that its injunction had been violated, but it erroneously considered itself devoid of
authority to impose the appropriate penalty, for want of jurisdiction. Upon these premises, We
hold that the factual findings of the trial court in its third order may well stand as basis tor the
imposition of the proper penalty.
To be sure, appellees are almost in the right track in contending that the first denial order of the
trial court found them not guilty. What they have overlooked however is that such a finding
cannot be equated with an acquittal in a criminal case that bars a subsequent jeopardy. True it
is that generally, contempt proceedings are characterized as criminal in nature, but the more
accurate juridical concept is that contempt proceedings may actually be either civil or criminal,
even if the distinction between one and the other may be so thin as to be almost imperceptible.
But it does exist in law. It is criminal when the purpose is to vindicate the authority of the court
and protect its outraged dignity. It is civil when there is failure to do something ordered by a
court to be done for the benefit of a party. (3 Moran, Rules of Court, pp. 343-344, 1970 ed; see
also Perkins vs. Director of Prisons, 58 Phil. 272; Harden vs. Director of Prisons, 81 Phil. 741.)
And with this distinction in mind, the fact that the injunction in the instant case is manifestly for
the benefit of plaintiffs makes of the contempt herein involved civil, not criminal. Accordingly,
the conclusion is inevitable that appellees have been virtually found by the trial court guilty of
civil contempt, not criminal contempt, hence the rule on double jeopardy may not be invoked.

WHEREFORE, judgment is hereby rendered - in G. R. No. L-27425 - affirming the decision of the
trial court with the modification of the amount of the damages awarded to plaintiffs in the
manner hereinabove indicated; and in G.R. No. L-30505 - the three orders of dismissal of the
trial court of the contempt charges against appellees are all hereby reversed, and on the basis of
the factual findings made by said court in its last order of January 24, 1968, appellees are
hereby declared in contempt of court and the records of the contempt proceedings (G. R. No. L-
30505) are ordered returned to the trial court for further proceedings in line with the above
opinion, namely for the imposition of the proper penalty, its decision being incomplete in that
respect. Costs against appellees in G. R. No. L-27425, no costs in G. R. No. L-30505. These
decisions may be executed separately.

[G.R. No. 132993. June 29, 2005]

LEVI STRAUSS (PHILS.), INC., petitioner, vs. VOGUE TRADERS CLOTHING

COMPANY, respondent.

DECISION

AZCUNA, J.:

This is a petition for review on certiorari seeking to annul the decision[1] of the Court of Appeals,
dated August 13, 1997, which annulled and set aside the orders,[2] dated December 10, 1996
and April 11, 1997, issued by the Regional Trial Court of Manila, Branch 1 and which directed the
trial court to desist from proceeding with the said case until the Bureau of Patents, Trademarks
and Technology Transfer (BPTTT) has finally resolved Inter Partes Cases Nos. 4216 and 4217,
and the resolution of the Court of Appeals, dated March 5, 1998, denying petitioners motion for
reconsideration.

The factual antecedents are as follows:

In 1972, per Trademark, Technical Data, and Technical Assistance Agreement,[3] Levi Strauss &
Co., the principal based in Delaware, United States of America, granted petitioner Levi Strauss
(Phils.) a non-exclusive license to use LEVIS trademark, design, and name in the manufacturing,
marketing, distribution, and sale of its clothing and other goods.[4] The licensing agreement was
renewed several times, the recent one being under Certificate of Registration No. 1379-A.[5] Levi
Strauss & Co. obtained certificates of registration from the BPTTT for the following trademarks:
LEVIS[6]; 501[7]; Two Horse Design[8]; Two Horse Label[9]; Two Horse Patch[10]; Two Horse Label
with Patterned Arcuate Design[11]; Arcuate Design[12]; and the composite trademarks,[13] namely,
Arcuate, Tab, and Two Horse Patch.

Petitioner discovered the existence of some trademark registrations belonging to respondent

which, in its view, were confusingly similar to its trademarks. Thus, it instituted two cases before
the BPTTT for the cancellation of respondents trademark registrations, to wit: Inter Partes Case
No. 4216, a petition for cancellation of Certificate of Registration No. 53918 (for LIVES)
and Inter Partes Case No. 4217, a petition for cancellation of Certificate of Registration No. 8868
(for LIVES Label Mark).

Petitioner then applied for the issuance of a search warrant on the premises of respondent
Vogue Traders Clothing Company, owned by one Tony Lim, with the Regional Trial Court of
Manila, Branch 3. On December 12, 1995, said trial court issued Search Warrant No. 95-
757[14] and Search Warrant No. 95-758[15] based on its finding of probable cause that the
respondent had violated Article 189 of the Revised Penal Code[16] in manufacturing, selling, and
incorporating designs or marks in its jeans which were confusingly similar to petitioners LEVIs
jeans. These search warrants commanded the seizure of certain goods bearing copies or
imitations of the trademarks which belonged to petitioner.[17] On December 13, 1995, the search
warrants were enforced and several goods belonging to respondent were seized.[18] Meanwhile, it
appears that criminal charges were filed against Tony Lim of respondent company in the
Department of Justice,[19] but the same were eventually dismissed and the search warrants were
quashed.

Consequently, on February 1, 1996, respondent filed a complaint[20] for damages in the Regional
Trial Court of Manila, Branch 50, against petitioner. The complaint alleged that since January 1,
1988, respondent, through Antonio Sevilla, with business address at 1082 Carmen Planas Street,
Tondo, Manila, had been a lawful assignee and authorized user of: (a) the trademark LIVES
under Certificate of Registration No. 53918 issued by the BPTTT, (b) the trademark LIVES LABEL
MARK under Certificate of Registration No. SR 8868 issued by the BPTTT, and (c) the copyright
registrations of LIVES ORIGINAL JEANS, its pocket design, and hand tag; that the goods,
articles, and effects seized from respondents establishment were manufactured and used in its
legitimate business of manufacturing and selling of the duly registered trademark LIVES and
LIVES ORIGINAL JEANS; and that the trademarks of respondent did not have any deceptive
resemblance with the trademarks of petitioner. Respondent sought to recover the seized
assorted sewing materials, equipment, and finished products or the value thereof, in case the
same had been destroyed or impaired as a result of the seizure. Respondent also prayed that,
after due trial, judgment be rendered ordering the petitioner to pay compensatory damages
of P320,000 with an additional amount of damages of P11,000 per day until the seized
properties are restored; P2,000,000 as exemplary damages; P100,000 for attorneys fees with an
additional amount of P100,000 in the event of an appeal plus P1,500 per court appearance and
the costs of the suit.

In its amended answer with counterclaim,[21] petitioner countered that respondents LIVES brand
infringed upon its licensed brand name LEVIS. It sought to cancel respondents Copyright
Registration No. I-3838 and enjoin the respondent from further manufacturing, selling, offering
for sale, and advertising the denim jeans or slacks by using a design substantially, if not exactly
similar to, or a colorable imitation of the trademarks[22] of petitioner.

Upon manifestation/motion[23] by petitioner, the RTC of Manila, Branch 50 issued an order dated
May 9, 1996,[24] forwarding the case to the Executive Judge (RTC of Manila, Branch 23) for re-
raffle among the courts designated as Special Courts to try and decide cases involving violations
of Intellectual Property Rights pursuant to Administrative Order No. 113-95, dated October 2,
1995. On May 17, 1996, Branch 23 issued an order[25] directing that the case be forwarded to
Branch 1 (a designated Special Court per said administrative order) for further proceedings.

On the scheduled hearing on December 4, 1996 in the RTC of Manila, Branch 1, respondent (as
therein plaintiff) failed to appear. Upon motion of petitioner, the trial court declared respondent
to have waived its right to present evidence to controvert petitioners application for a writ of
preliminary injunction.[26]

In an order dated December 10, 1996, the trial court found that the respondent intended to
appropriate, copy, and slavishly imitate the genuine appearance of authentic LEVIs jeans and
pass off its LIVEs jeans as genuine LEVIs jeans. Thus,

In opposing defendants application for preliminary in injunction, plaintiff alleges that it has
obtained Certificates of Registration for the trademarks LIVE[]S, LIVE[]S LABEL MARK, []LIVE[]S
ORIGINAL JEANS[] as well as the patch pocket design and hand tag. It did not, however,
present any evidence to support the same.

In any event, plaintiffs backpocket design is not copyrightable, as it is neither an original work
nor a novel design. Rather it is a copy or slavish imitation of LS & Co./LSPIs Arcuate trademark
which was first used by LS & Co. worldwide in 1873 and the Philippines Registration of which is
based on LS & Co.s US Certificate of Registration No. 404243, issued on November 16, 1943.
Thus, no rights attendant to a copyright can ever attach to plaintiffs infringing backpocket
design.

Also, it could not have been pure chance or coincidence that plaintiffs LIVES jeans use a
trademark, symbol or design which is substantially, if not exactly similar to, or a colorable
imitation of LS & CO./LSPI trademarks, since there is a practically limitless array of other marks,
words, numbers, devices, symbols and designs which plaintiff could have used on its products to
identify and distinguish them from those of defendant and other manufacturers. All told, from
the mass of evidence adduced, plaintiffs intent to appropriate, copy, and slavishly imitate the
genuine appearance of authentic LEVIs jeans and pass off its LIVEs jeans as genuine LEVIS
jeans in much too stark.

As above-discussed, through more than a centurys use and continuous substantial promotions
and advertising of the LEVIs TRADEMARKS on its products on jeans and trousers in particular LS
& Co. has cultivated, gained and established an invaluable goodwill in its name LEVIs STRAUSS
& COMPANY and in the products which carry such name and the LEVIs TRADEMARKS. Hence,
unless plaintiff is immediately enjoined from further manufacturing, selling, offering for sale and
advertising denims, jeans or slacks using a design substantially, if not exactly similar to, or a
colorable imitation of the LS & Co./LSPI trademarks, it will continue to have a free ride on, and
erode such invaluable goodwill and reputation by the mere effortless expedient of imitating the
overall visual impression of genuine LEVIs JEANS on its own designs, employing minute points of
distinction sufficient to muddle the overall conclusion which is actually generated, but do not
dispel the similitude between the trademarks. Well has been said that the most successful form
of copying is to employ enough points of similarity to confuse the public with enough points of
difference to confuse the court. [(]Del Monte Corporation vs. Court of Appeals, 181 SCRA 418[)].

There is no question that the above-discussed circumstances call for the intervention of equity to
prevent further irreparable harm to defendants goodwill and reputation. In consonance with
Section 3 (a), (b) and (c), Rule 58 of the Rules, defendant is thus entitled to the ancillary relief
demanded either for a limited period or perpetually.

Corollarily, defendant is hereby directed to execute a bond to the party enjoined to the effect
that defendant will pay to plaintiff all damages it may sustain by reason of the injunction if the
court should finally decide that defendant is not entitled thereto.

WHEREFORE, upon the filing of a bond in the sum of FIVE HUNDRED THOUSAND PESOS
(P500,000.00), let a writ of preliminary injunction issue restraining plaintiff, its officers,
employees, agents, representatives, dealers, retailers or assigns from manufacturing,
distributing, selling, offering for sale, advertising or otherwise using denims or jeans with a
design which is substantially, if not exactly similar to defendants trademarks.

Meanwhile, the hearing on the main cause of action is hereby set on February 5 and 12, 1997,
both at 9:00 a.m.

SO ORDERED.[27]

On motion for reconsideration, respondent prayed that the petitioners counterclaim be dismissed
and that the order dated December 10, 1996, be set aside. In an order dated April 11, 1997, the
trial court denied the motion, stating that:

Considering:

(1) That the defendants application for injunctive relief was properly directed against the real
property in interest, the self-proclaimed lawful assignee and authorized user of the subject
trademarks, hence, the party who would be benefited or injured by this courts final decision on
the application;

(2) That the acts which plaintiff was enjoined from doing are within the scope of the reliefs
demanded by defendant;

(3) That the institution of defendants counterclaim for infringement and damages does not
amount to forum-shopping in that the elements of litis pendentia which form the basis for a
charge for forum-shopping are not all present in the instant case;

(4) That the injunctive order sought to be reconsidered, by its very nature, is merely provisional
and does not dispose of the case on the merits. Hence, it would not amount to a prejudgment
considering that the defendant still has the burden of proving during trial on the merits that it is
entitled to protection and that confusion does, in fact, or likely to exist, and, on the other hand,
plaintiff would have its opportunity to prove that confusion does not exist or is not likely to
happen; and
(5) That the evidence on record justifies the injunctive relief granted by this court in favor of
defendant.

WHEREFORE, in view of all the foregoing, plaintiffs motion for reconsideration and supplemental
motion for reconsideration are DENIED for lack of merit.

SO ORDERED.[28]

Respondent took the matter to the Court of Appeals. On August 13, 1997, the Court of Appeals
rendered a decision in favor of the respondent, enjoining the trial court from further proceeding
with the case. The dispositive portion thereof reads:

WHEREFORE, the petition is GRANTED. The assailed Orders dated December 10, 1996 and April
11, 1997 are annulled and set aside for having been issued with grave abuse of discretion and in
excess of jurisdiction. Respondent court is ordered to desist from proceeding with Civil Case No.
96-76944, entitled Vogue Traders Clothing Company, Plaintiff, versus Levi Strauss (Phil.), Inc.,
Defendant., until the Bureau of Patents, Trademarks and Technology Transfer has finally
resolved Inter Partes Cases Nos. 4216 and 4217.

No costs.

SO ORDERED.[29]

After its motion for reconsideration was denied, petitioner filed the present petition for review
on certiorari, raising the following assignment of errors:

THE COURT OF APPEALS COMMITTED CLEARLY REVERSIBLE ERROR IN HOLDING THAT THE
DOCTRINE OF PRIMARY JURISDICTION OPERATES TO SUSPEND ANY AND ALL PROCEEDINGS IN
CIVIL CASE NO. 96-76944, PARTICULARLY THE ABILITY OF THE TRIAL COURT TO ISSUE
PRELIMINARY INJUNCTIVE RELIEF, AND THAT THE TRIAL COURT JUDGE THEREFORE
COMMITTED ABUSE OF DISCRETION IN GRANTING SUCH RELIEF.

II

THE COURT OF APPEALS ERRED IN FAILING TO HOLD THAT THE CERTIFICATION AGAINST
FORUM-SHOPPING ATTACHED BY RESPONDENT TO ITS PETITION FOR CERTIORARIAND
PROHIBITION IS FATALLY DEFECTIVE.

III

THE COURT OF APPEALS ERRED IN HOLDING THAT THE TRIAL COURT JUDGE COMMITTED
GRAVE ABUSE OF DISCRETION IN DECLARING RESPONDENT TO HAVE WAIVED ITS RIGHT TO
ADDUCE EVIDENCE TO COUNTER PETITIONERS EVIDENCE IN SUPPORT OF ITS APPLICATION
FOR PRELIMINARY INJUNCTIVE RELIEF.

IV

THE COURT OF APPEALS ERRED IN HOLDING THAT THE PRELIMINARY INJUNCTIVE ORDER
ISSUED IN CIVIL CASE NO. 96-76944 PREJUDGES THE CASE.[30]
The petition has merit.

First. Petitioner points out that while the Court of Appeals categorically stated that it did not
commit forum-shopping when it filed its counterclaim for infringement (to the petitioners
complaint for damages in the Regional Trial Court of Manila, Branch 1 Civil Case No. 96-76944)
as the causes of action in the said civil case and the two inter partes cases (Inter PartesCases
Nos. 4216 and 4217 pending before the BPTTT) are different and do not involve the same
subject matter and issues, it erred in applying the doctrine of primary jurisdiction. The appeals
court declared that the trial court never had the authority to hear and grant petitioners prayer
for injunctive relief nor to proceed with the hearing of the case in view of the pendency of the
two inter partes cases.

Petitioner is a holder of Certificate of Registration No. 1379-A for its Levis trademarks. The
registration gives rise to a presumption of its validity and the right to the exclusive use of the
same. As set forth in Section 17 of Republic Act (R.A.) No. 166 or The Trademark Law, an entity
having a duly registered trademark can file a suit against another entity for the protection of its
right:

Sec. 17. Grounds for cancellation. Any person, who believes that he is or will be damaged by the
registration of a mark or trade-name, may, upon the payment of the prescribed fee, apply to
cancel said registration upon any of the following grounds:

(a) That the registered mark or trade-name becomes the common descriptive name of an article
or substance on which the patent has expired;

(b) That it has been abandoned;

(c) That the registration was obtained fraudulently or contrary to the provisions of section four,
Chapter II hereof;

(d) That the registered mark or trade-name has been assigned, and is being used by, or with the
permission of, the assignee, so as to misrepresent the source of the goods, business or services
in connection with which the mark or trade-name is used; or

(e) That cancellation is authorized by other provisions of this Act.

Section 27 thereof states that the proper Regional Trial Court shall have jurisdiction over the
damage suits.

In Conrad and Company, Inc. v. Court of Appeals,[31] as reiterated in the case of Shangri-La
International Hotel Management Ltd. v. Court of Appeals,[32] the Court clarified that while an
administrative cancellation of a registered trademark, on any of the grounds under Section 17 of
R.A. No. 166, is within the ambit of the BPTTT, an action for infringement or any other incidental
remedy sought is within the jurisdiction of the ordinary courts. Thus,

. . . It might be mentioned that while an application for the administrative cancellation of a

registered trademark on any of the grounds enumerated in Section 17 of Republic Act No. 166,
as amended, otherwise known as the Trade-Mark Law, falls under the exclusive cognizance of
BPTTT (Sec. 19, Trade-Mark Law), an action, however, for infringement or unfair competition, as
well as the remedy of injunction and relief for damages, is explicitly and unquestionably within
the competence and jurisdiction of ordinary courts.

...

Surely, an application with BPTTT for an administrative cancellation of a registered trade mark
cannot per se have the effect of restraining or preventing the courts from the exercise of their
lawfully conferred jurisdiction. A contrary rule would unduly expand the doctrine of primary
jurisdiction which, simply expressed, would merely behoove regular courts, in controversies
involving specialized disputes, to defer to the findings or resolutions of administrative tribunals
on certain technical matters. This rule, evidently, did not escape the appellate court for it
likewise decreed that for "good cause shown, the lower court, in its sound discretion, may
suspend the action pending outcome of the cancellation proceedings" before BPTTT.
(Underscoring supplied.)

The passage of Republic Act No. 8293, otherwise known as the Intellectual Property Code of the
Philippines,[33] expanded the rights accorded to an owner of a registered trademark. Sections
151 (2), 156, and 161 thereof state:

Section 151.2. Notwithstanding the foregoing provisions, the court or the administrative agency
vested with jurisdiction to hear and adjudicate any action to enforce the rights to a registered
mark shall likewise exercise jurisdiction to determine whether the registration of said mark may
be cancelled in accordance with this Act. The filing of a suit to enforce the registered mark with
the proper court or agency shall exclude any other court or agency from assuming jurisdiction
over a subsequently filed petition to cancel the same mark. On the other hand, the earlier filing
of petition to cancel the mark with the Bureau of Legal Affairs {formerly BPTTT] shall not
constitute a prejudicial question that must be resolved before an action to enforce the rights to
same registered mark may be decided. (Sec. 17, R.A. No. 166a)

Section 156. Actions, and Damages and Injunction for Infringement. 156.1 The owner of a
registered mark may recover damages from any person who infringes his rights, and the
measure of the damages suffered shall be either the reasonable profit which the complaining
party would have made, had the defendant not infringed his rights, or the profit which the
defendant actually made out of the infringement, or in the event such measure of damages
cannot be readily ascertained with reasonable certainty, then the court may award as damages a
reasonable percentage based upon the amount of gross sales of the defendant or the value of
the services in connection with which the mark or trade name was used in the infringement of
the rights of the complaining party (Sec. 23, first par., R.A. No. 166a).

156.2 On application of the complainant, the court may impound during the pendency of the
action, sales invoices and other documents evidencing sales. (n)

156.3. In cases where actual intent to mislead the public or to defraud the complainant is
shown, in the discretion of the court, the damages may be doubled. (Sec. 23, first par., R.A. No.
166)

156.4 The complainant, upon proper showing, may also be granted injunction. (Sec. 23, second
par., R.A. No. 166a)
Section 161. Authority to Determine Right to Registration. In any action involving a registered
mark, the court may determine the right to registration, order the cancellation of a registration,
in whole or in part, and otherwise rectify the register with respect to the registration of any
party to the action in the exercise of this. Judgment and orders shall be certified by the court to
the Director, who shall make appropriate entry upon the records of the Bureau, and shall be
controlled thereby (Sec. 25, R.A. No. 166a).

Sections 155 (2), 156, and 163 of the said law further provide for the remedy of an owner of a
registered mark to institute an action for infringement or damages against a person or entity
that may reproduce, counterfeit, copy or colorably imitate a registered mark or a dominant
feature thereof and apply such reproduction, counterfeit, copy or colorable imitation to labels,
signs, prints, packages, wrappers, receptacles or advertisements intended to be used in
commerce upon or in connection with the sale, offering for sale, distribution, or advertising of
goods or services on or in connection with which such use is likely to cause confusion, or to
cause mistake, or to deceive.

Finally, Rule 8, Section 7 of the Regulations on Inter Partes Proceedings, provides:

Section 7. Effect of filing of a suit before the Bureau or with the proper court. The filing of a suit
to enforce the registered mark with the proper court or Bureau shall exclude any other court or
agency from assuming jurisdiction over a subsequently filed petition to cancel the same
mark. On the other hand, the earlier filing of petition to cancel the mark with the Bureau shall
not constitute a prejudicial question that must be resolved before an action to enforce the rights
to same registered mark may be decided. (Emphasis supplied)

It bears stressing that an action for infringement or unfair competition, including the available
remedies of injunction and damages, in the regular courts can proceed independently or
simultaneously with an action for the administrative cancellation of a registered trademark in the
BPTTT. As applied to the present case, petitioners prior filing of two inter partes cases against
the respondent before the BPTTT for the cancellation of the latters trademark registrations,
namely, LIVES and LIVES Label Mark, does not preclude petitioners right (as a defendant) to
include in its answer (to respondents complaint for damages in Civil Case No. No. 96-76944) a
counterclaim for infringement with a prayer for the issuance of a writ of preliminary injunction.

Second. As to the procedural matter, petitioner argues that the Court of Appeals erred in giving
due course to the respondents petition for certiorari even if it was the latters counsel, Atty.
Danilo A. Soriano, not one of its duly authorized officers, who executed the certification of non-
forum shopping.

Section 5, Rule 7 of the Rules of Civil Procedure incorporating Administrative Circular Nos. 28-91
(effective January 1, 1992) and 04-94 (effective April 1, 1994) states the requirement of a
plaintiff or petitioner to include in his initiatory pleading or petition a certification of non-forum
shopping. Thus,

Sec. 5. Certification against forum shopping. The plaintiff or principal party shall certify under
oath in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn
certification annexed thereto and simultaneously filed therewith: (a) that he has not theretofore
commenced any action or filed any claim involving the same issues in any court, tribunal or
quasi-judicial agency and, to the best of his knowledge, no such other action or claim is pending
therein; (b) if there is such other pending action or claim, a complete statement of the present
status thereof; and (c) if he should thereafter learn that the same or similar action or claim has
been filed or is pending, he shall report that fact within five (5) days therefrom to the court
wherein his aforesaid complaint or initiatory pleading has been filed.

Failure to comply with the foregoing requirements shall not be curable by mere amendment of
the complaint or other initiatory pleading but shall be cause for the dismissal of the case without
prejudice, unless otherwise provided, upon motion and after hearing. The submission of a false
certification or non-compliance with any of the undertakings therein shall constitute indirect
contempt of court, without prejudice to the corresponding administrative and criminal actions. If
the acts of the party or his counsel clearly constitute willful and deliberate forum shopping, the
same shall be ground for summary dismissal with prejudice and shall constitute direct contempt,
as well as a cause for administrative sanctions.

In Digital Microwave Corp. v. CA,[34] this Court gave the rationale for this rule, namely, that the
certification against forum shopping is required to be accomplished by petitioner himself because
only the petitioner himself has actual knowledge of whether or not he has initiated similar
actions or proceedings in different courts or agencies. Even his counsel may be unaware of such
fact as he may only be aware of the action for which he has been retained. As to corporations,
the law requires that the certification could be made by its duly authorized director or officer.
The Court also stresses that the petitioners non-compliance and utter disregard of the rules
cannot be rationalized by invoking the policy of liberal construction.

The requirement of certification against forum shopping under the Rules is to be executed by the
petitioner, or in the case of a corporation, its duly authorized director or officer, but not
petitioners counsel whose professional services have been engaged to handle the subject case.
The reason is that it is the petitioner who has personal knowledge whether there are cases of
similar nature pending with the other courts, tribunals, or agencies. Thus, in the present case,
the Court of Appeals should have outrightly dismissed the petition for certiorari filed by the
respondent (as therein petitioner in the appeals court) due to the defective certification of non-
forum shopping. The certification made by Atty. Soriano, counsel for the respondent, who is not
one of its duly authorized directors or officers, is defective.Even if Atty. Soriano was the in-house
counsel, the fact remains that no board resolution, or even a Secretarys Certificate containing
the board resolution, was submitted to show that he was indeed authorized to file the said
petition in the Court of Appeals.

Third. Petitioner avers that the Court of Appeals erred in finding that the respondent was denied
due process. It contends that the trial court had correctly ruled that respondent was deemed to
have waived its right to present evidence due to its non-appearance at the scheduled hearing (to
oppose the petitioners application for the issuance of a writ of preliminary injunction) on
December 4, 1996.

The records show that respondent, through its former counsel, Atty. Alfonso R. Yatco, was
present during the hearing on November 6, 1996 as reflected in the minutes of the court
proceedings that day. The counsels for both parties had been duly notified in open court. The
Branch Clerk of Court of RTC of Manila, Branch 1, Atty. Joselito C. Frial, even made a notation in
the minutes that respondent (as oppositor) shall be given a period of 10 days to interpose its
opposition to the petitioners prayer for injunctive relief.[35] The Order dated November 6, 1996
states:

After witness Atty. Gilbert Raymond T. Reyes [witness for the petitioner] had finished his
testimony, the counsel for defendant [herein petitioner] moved for and was allowed ten (10)
days from today within which to file a written formal offer of exhibits, copy furnish[ed] the
counsel for plaintiff [herein respondent] who is allowed a similar period of time from receipt
thereof within which to file comment and/or objection.

In the meantime, let the hearing be continued on December 4 & 11, 1996, both at 9:00 a.m. as
previously scheduled.

The counsels are notified of this order in open court.

SO ORDERED.[36]

However, on December 4, 1996, Atty. Yatco failed to appear without proferring any valid reason
which prompted the trial court to issue an order that respondent was deemed to have waived its
right to present evidence:

On call for hearing, only the counsel for defendant [herein petitioner] appeared. There was no
appearance for plaintiff [herein respondent] although its counsel was duly notified. In view
thereof, upon motion of counsel for defendant, plaintiff is considered to have waived its right to
present evidence to controvert defendants application for a writ of preliminary injunction, which,
consequently, is hereby deemed submitted for resolution.

The counsel for defendant is notified in open court. Furnish the counsel for plaintiff with a copy
hereof.

SO ORDERED.[37]

Respondent explained to the trial court that its former counsel, Atty. Yatco, had honestly
thought that the December 4, 1996 hearing had been rescheduled to December 11, 1996 per
agreement with the petitioners counsel. This is not a sufficient ground. It was correct for the trial
court, upon motion of petitioner, to consider the matter submitted for resolution on the basis of
petitioners evidence. Respondent cannot find solace in its lame excuse of honest mistake which
was, in fact, negligence and lack of vigilance.

Fourth. Petitioner claims that the assailed orders of the trial court, dated December 10, 1996
and April 11, 1997, did not prejudge the case. On the other hand, respondent counters that the
trial courts order dated December 10, 1996 amounted to a prejudgment of the case, to wit: that
its LIVEs backpocket design was not copyrightable because it was neither an original work nor a
novel design; that it was a copy or slavish imitation of petitioners LEVIs Arcuate trademark; and
that no rights attendant to a copyright can ever attach to respondents backpocket design.

The trial court granted petitioners prayer for the issuance of a writ of preliminary injunction in its
answer with counterclaim (to respondents complaint for damages). The writ did not have the
effect of prejudging or disposing of the merits of the case, but merely enjoined the respondents
acts of manufacturing, distributing, selling, or offering for sale the jeans which had allegedly
incorporated exact or colorable imitations of the products belonging to petitioner. The Order
dated April 11, 1997 of the trial court denying the respondents motion for reconsideration
categorically stated that the said Order did not amount to a prejudgment of the case. Petitioner
has yet to establish during the trial that it is entitled to a permanent injunction by reason of
respondents confusingly similar LIVES products. Otherwise, the trial court could declare that the
LIVES trademark belonging to respondent was not confusingly similar with the LEVIs trademark
of petitioner.

Indeed, a writ of preliminary injunction is generally based solely on initial and incomplete
evidence adduced by the applicant (herein petitioner). The evidence submitted during the
hearing of the incident is not conclusive, for only a "sampling" is needed to give the trial court
an idea of the justification for its issuance pending the decision of the case on the merits. As
such, the findings of fact and opinion of a court when issuing the writ of preliminary injunction
are interlocutory in nature. Moreover, the sole object of a preliminary injunction is to preserve
the status quo until the merits of the case can be heard. Since Section 4 of Rule 58 of the Rules
of Civil Procedure gives the trial courts sufficient discretion to evaluate the conflicting claims in
an application for a provisional writ which often involves a factual determination, the appellate
courts generally will not interfere in the absence of manifest abuse of such discretion.[38] A writ
of preliminary injunction would become a prejudgment of a case only when it grants the main
prayer in the complaint or responsive pleading, so much so that there is nothing left for the trial
court to try except merely incidental matters.[39] Such fact does not obtain in the present case.

WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals dated August
13, 1997 and its Resolution dated March 5, 1998 are REVERSED and SET ASIDE. The Regional
Trial Court of Manila, Branch 1 is ORDERED to proceed with the hearing of Civil Case No. 96-
76944 with dispatch.

No costs.

SO ORDERED.

G.R. No. 180677 February 18, 2013

VICTORIO P. DIAZ, Petitioner,

vs.
PEOPLE OF THE PHILIPPINES AND LEVI STRAUSS [PHILS.], INC., Respondents.

DECISION

BERSAMIN, J.:

It is the tendency of the allegedly infringing mark to be confused with the registered trademark
that is the gravamen of the offense of infringement of a registered trademark. The acquittal of
the accused should follow if the allegedly infringing mark is not likely to cause confusion.
Thereby, the evidence of the State does not satisfy the quantum of proof beyond reasonable
doubt.

Accused Victorio P. Diaz (Diaz) appeals the resolutions promulgated on July 17, 20071 and
November 22, 2007,2whereby the Court of Appeals (CA), respectively, dismissed his appeal in
C.A.-G.R. CR No. 30133 for the belated filing of the appellant's brief, and denied his motion for
reconsideration. Thereby, the decision rendered on February 13, 2006 in Criminal Case No. 00-
0318 and Criminal Case No. 00-0319 by the Regional Trial Court, Branch 255, in Las Pifias City
(RTC) convicting him for two counts of infringement of trademark were affirmed.3

Antecedents

On February 10, 2000, the Department of Justice filed two informations in the RTC of Las Piñas
City, charging Diaz with violation of Section 155, in relation to Section 170, of Republic Act No.
8293, also known as the Intellectual Property Code of the Philippines (Intellectual Property
Code), to wit:

Criminal Case No. 00-0318

That on or about August 28, 1998, and on dates prior thereto, in Las Pinas City, and within the
jurisdiction of this Honorable Court, the abovenamed accused, with criminal intent to defraud
Levi’s Strauss (Phil.) Inc. (hereinafter referred to as LEVI’S), did then and there, willfully,
unlawfully, feloniously, knowingly and intentionally engaged in commerce by reproducing,
counterfeiting, copying and colorably imitating Levi’s registered trademarks or dominant features
thereof such as the ARCUATE DESIGN, TWO HORSE BRAND, TWO HORSE PATCH, TWO HORSE
LABEL WITH PATTERNED ARCUATE DESIGN, TAB AND COMPOSITE ARCUATE/TAB/TWO HORSE
PATCH, and in connection thereto, sold, offered for sale, manufactured, distributed counterfeit
patches and jeans, including other preparatory steps necessary to carry out the sale of said
patches and jeans, which likely caused confusion, mistake, and /or deceived the general
consuming public, without the consent, permit or authority of the registered owner, LEVI’S, thus
depriving and defrauding the latter of its right to the exclusive use of its trademarks and
legitimate trade, to the damage and prejudice of LEVI’S.

CONTRARY TO LAW.4

Criminal Case No. 00-0319

That on or about August 28, 1998, and on dates prior thereto, in Las Pinas City, and within the
jurisdiction of this Honorable Court, the abovenamed accused, with criminal intent to defraud
Levi’s Strauss (Phil.) Inc. (hereinafter referred to as LEVI’S), did then and there, willfully,
unlawfully, feloniously, knowingly and intentionally engaged in commerce by reproducing,
counterfeiting, copying and colorably imitating Levi’s registered trademarks or dominant features
thereof such as the ARCUATE DESIGN, TWO HORSE BRAND, TWO HORSE PATCH, TWO HORSE
LABEL WITH PATTERNED ARCUATE DESIGN, TAB AND COMPOSITE ARCUATE/TAB/TWO HORSE
PATCH, and in connection thereto, sold, offered for sale, manufactured, distributed counterfeit
patches and jeans, including other preparatory steps necessary to carry out the sale of said
patches and jeans, which likely caused confusion, mistake, and /or deceived the general
consuming public, without the consent, permit or authority of the registered owner, LEVI’S, thus
depriving and defrauding the latter of its right to the exclusive use of its trademarks and
legitimate trade, to the damage and prejudice of LEVI’S.

CONTRARY TO LAW.5

The cases were consolidated for a joint trial. Diaz entered his pleas of not guilty to each
information on June 21, 2000.6

1. Evidence of the Prosecution

Levi Strauss and Company (Levi’s), a foreign corporation based in the State of Delaware, United
States of America, had been engaged in the apparel business. It is the owner of trademarks and
designs of Levi’s jeans like LEVI’S 501, the arcuate design, the two-horse brand, the two-horse
patch, the two-horse patch with pattern arcuate, and the composite tab arcuate. LEVI’S 501 has
the following registered trademarks, to wit: (1) the leather patch showing two horses pulling a
pair of pants; (2) the arcuate pattern with the inscription "LEVI STRAUSS & CO;" (3) the arcuate
design that refers to "the two parallel stitching curving downward that are being sewn on both
back pockets of a Levi’s Jeans;" and (4) the tab or piece of cloth located on the structural seam
of the right back pocket, upper left side. All these trademarks were registered in the Philippine
Patent Office in the 1970’s, 1980’s and early part of 1990’s.7

Levi Strauss Philippines, Inc. (Levi’s Philippines) is a licensee of Levi’s. After receiving
information that Diaz was selling counterfeit LEVI’S 501 jeans in his tailoring shops in Almanza
and Talon, Las Piñas City, Levi’s Philippines hired a private investigation group to verify the
information. Surveillance and the purchase of jeans from the tailoring shops of Diaz established
that the jeans bought from the tailoring shops of Diaz were counterfeit or imitations of LEVI’S
501. Levi’s Philippines then sought the assistance of the National Bureau of Investigation (NBI)
for purposes of applying for a search warrant against Diaz to be served at his tailoring shops.
The search warrants were issued in due course. Armed with the search warrants, NBI agents
searched the tailoring shops of Diaz and seized several fake LEVI’S 501 jeans from them. Levi’s
Philippines claimed that it did not authorize the making and selling of the seized jeans; that each
of the jeans were mere imitations of genuine LEVI’S 501 jeans by each of them bearing the
registered trademarks, like the arcuate design, the tab, and the leather patch; and that the
seized jeans could be mistaken for original LEVI’S 501 jeans due to the placement of the
arcuate, tab, and two-horse leather patch.8

2. Evidence of the Defense

On his part, Diaz admitted being the owner of the shops searched, but he denied any criminal
liability.

Diaz stated that he did not manufacture Levi’s jeans, and that he used the label "LS Jeans
Tailoring" in the jeans that he made and sold; that the label "LS Jeans Tailoring" was registered
with the Intellectual Property Office; that his shops received clothes for sewing or repair; that his
shops offered made-to-order jeans, whose styles or designs were done in accordance with
instructions of the customers; that since the time his shops began operating in 1992, he had
received no notice or warning regarding his operations; that the jeans he produced were easily
recognizable because the label "LS Jeans Tailoring," and the names of the customers were
placed inside the pockets, and each of the jeans had an "LSJT" red tab; that "LS" stood for
"Latest Style;" and that the leather patch on his jeans had two buffaloes, not two horses.9

Ruling of the RTC

On February 13, 2006, the RTC rendered its decision finding Diaz guilty as charged, disposing
thus:

WHEREFORE, premises considered, the Court finds accused Victorio P. Diaz, a.k.a. Vic Diaz,
GUILTY beyond reasonable doubt of twice violating Sec. 155, in relation to Sec. 170, of RA No.
8293, as alleged in the Informations in Criminal Case Nos. 00-0318 & 00-0319, respectively, and
hereby sentences him to suffer in each of the cases the penalty of imprisonment of TWO (2)
YEARS of prision correcional, as minimum, up to FIVE (5) YEARS of prision correcional, as
maximum, as well as pay a fine of ₱50,000.00 for each of the herein cases, with subsidiary
imprisonment in case of insolvency, and to suffer the accessory penalties provided for by law.

Also, accused Diaz is hereby ordered to pay to the private complainant Levi’s Strauss (Phils.),
Inc. the following, thus:

1. ₱50,000.00 in exemplary damages; and

2. ₱222,000.00 as and by way of attorney’s fees.

Costs de officio.

SO ORDERED.10

Ruling of the CA

Diaz appealed, but the CA dismissed the appeal on July 17, 2007 on the ground that Diaz had
not filed his appellant’s brief on time despite being granted his requested several extension
periods.

Upon denial of his motion for reconsideration, Diaz is now before the Court to plead for his
acquittal.

Issue

Diaz submits that:

THE COURT OF APPEALS VIOLATED EXISTING LAW AND JURISPRUDENCE WHEN IT APPLIED
RIGIDLY THE RULE ON TECHNICALITIES AND OVERRIDE SUBSTANTIAL JUSTICE BY
DISMISSING THE APPEAL OF THE PETITIONER FOR LATE FILING OF APPELLANT’S BRIEF.11

Ruling

The Court first resolves whether the CA properly dismissed the appeal of Diaz due to the late
filing of his appellant’s brief.

Under Section 7, Rule 44 of the Rules of Court, the appellant is required to file the appellant’s
brief in the CA "within forty-five (45) days from receipt of the notice of the clerk that all the
evidence, oral and documentary, are attached to the record, seven (7) copies of his legibly
typewritten, mimeographed or printed brief, with proof of service of two (2) copies thereof upon
the appellee." Section 1(e) of Rule 50 of the Rules of Court grants to the CA the discretion to
dismiss an appeal either motu proprio or on motion of the appellee should the appellant fail to
serve and file the required number of copies of the appellant’s brief within the time provided by
the Rules of Court.12

The usage of the word may in Section 1(e) of Rule 50 indicates that the dismissal of the appeal
upon failure to file the appellant’s brief is not mandatory, but discretionary. Verily, the failure to
serve and file the required number of copies of the appellant’s brief within the time provided by
the Rules of Court does not have the immediate effect of causing the outright dismissal of the
appeal. This means that the discretion to dismiss the appeal on that basis is lodged in the CA, by
virtue of which the CA may still allow the appeal to proceed despite the late filing of the
appellant’s brief, when the circumstances so warrant its liberality. In deciding to dismiss the
appeal, then, the CA is bound to exercise its sound discretion upon taking all the pertinent
circumstances into due consideration.

The records reveal that Diaz’s counsel thrice sought an extension of the period to file the
appellant’s brief. The first time was on March 12, 2007, the request being for an extension of 30
days to commence on March 11, 2007. The CA granted his motion under its resolution of March
21, 2007. On April 10, 2007, the last day of the 30-day extension, the counsel filed another
motion, seeking an additional 15 days. The CA allowed the counsel until April 25, 2007 to serve
and file the appellant’s brief. On April 25, 2007, the counsel went a third time to the CA with
another request for 15 days. The CA still granted such third motion for extension, giving the
counsel until May 10, 2007. Notwithstanding the liberality of the CA, the counsel did not literally
comply, filing the appellant’s brief only on May 28, 2007, which was the 18th day beyond the
third extension period granted.

Under the circumstances, the failure to file the appellant’s brief on time rightly deserved the
outright rejection of the appeal. The acts of his counsel bound Diaz like any other client. It was,
of course, only the counsel who was well aware that the Rules of Court fixed the periods to file
pleadings and equally significant papers like the appellant’s brief with the lofty objective of
avoiding delays in the administration of justice.

Yet, we have before us an appeal in two criminal cases in which the appellant lost his chance to
be heard by the CA on appeal because of the failure of his counsel to serve and file the
appellant’s brief on time despite the grant of several extensions the counsel requested. Diaz was
convicted and sentenced to suffer two indeterminate sentences that would require him to spend
time in detention for each conviction lasting two years, as minimum, to five years, as maximum,
and to pay fines totaling ₱100,000.00 (with subsidiary imprisonment in case of his insolvency).
His personal liberty is now no less at stake. This reality impels us to look beyond the technicality
and delve into the merits of the case to see for ourselves if the appeal, had it not been
dismissed, would have been worth the time of the CA to pass upon. After all, his appellant’s brief
had been meanwhile submitted to the CA. While delving into the merits of the case, we have
uncovered a weakness in the evidence of guilt that cannot be simply ignored and glossed over if
we were to be true to our oaths to do justice to everyone.

We feel that despite the CA being probably right in dismissing the excuses of oversight and
excusable negligence tendered by Diaz’s counsel to justify the belated filing of the appellant’s
brief as unworthy of serious consideration, Diaz should not be made to suffer the dire
consequence. Any accused in his shoes, with his personal liberty as well as his personal fortune
at stake, expectedly but innocently put his fullest trust in his counsel’s abilities and
professionalism in the handling of his appeal. He thereby delivered his fate to the hands of his
counsel. Whether or not those hands were efficient or trained enough for the job of handling the
appeal was a learning that he would get only in the end. Likelier than not, he was probably even
unaware of the three times that his counsel had requested the CA for extensions. If he were now
to be left to his unwanted fate, he would surely suffer despite his innocence. How costly a
learning it would be for him! That is where the Court comes in. It is most important for us as
dispensers of justice not to allow the inadvertence or incompetence of any counsel to result in
the outright deprivation of an appellant’s right to life, liberty or property.13
We do not mind if this softening of judicial attitudes be mislabeled as excessive leniency. With so
much on the line, the people whose futures hang in a balance should not be left to suffer from
the incompetence, mindlessness or lack of professionalism of any member of the Law Profession.
They reasonably expect a just result in every litigation. The courts must give them that just
result. That assurance is the people’s birthright. Thus, we have to undo Diaz’s dire fate.

Even as we now set aside the CA’s rejection of the appeal of Diaz, we will not remand the
records to the CA for its review. In an appeal of criminal convictions, the records are laid open
for review. To avoid further delays, therefore, we take it upon ourselves to review the records
and resolve the issue of guilt, considering that the records are already before us.

Section 155 of R.A. No. 8293 defines the acts that constitute infringement of trademark, viz:

Remedies; Infringement. — Any person who shall, without the consent of the owner of the
registered mark:

155.1. Use in commerce any reproduction, counterfeit, copy, or colorable imitation of a

registered mark or the same container or a dominant feature thereof in connection with the sale,
offering for sale, distribution, advertising of any goods or services including other preparatory
steps necessary to carry out the sale of any goods or services on or in connection with which
such use is likely to cause confusion, or to cause mistake, or to deceive; or

155.2. Reproduce, counterfeit, copy or colorably imitate a registered mark or a dominant feature
thereof and apply such reproduction, counterfeit, copy or colorable imitation to labels, signs,
prints, packages, wrappers, receptacles or advertisements intended to be used in commerce
upon or in connection with the sale, offering for sale, distribution, or advertising of goods or
services on or in connection with which such use is likely to cause confusion, or to cause
mistake, or to deceive, shall be liable in a civil action for infringement by the registrant for the
remedies hereinafter set forth: Provided, That the infringement takes place at the moment any
of the acts stated in Subsection 155.1 or this subsection are committed regardless of whether
there is actual sale of goods or services using the infringing material.

The elements of the offense of trademark infringement under the Intellectual Property Code are,
therefore, the following:

1. The trademark being infringed is registered in the Intellectual Property Office;

2. The trademark is reproduced, counterfeited, copied, or colorably imitated by the infringer;

3. The infringing mark is used in connection with the sale, offering for sale, or advertising of any
goods, business or services; or the infringing mark is applied to labels, signs, prints, packages,
wrappers, receptacles or advertisements intended to be used upon or in connection with such
goods, business or services;

4. The use or application of the infringing mark is likely to cause confusion or mistake or to
deceive purchasers or others as to the goods or services themselves or as to the source or origin
of such goods or services or the identity of such business; and

5. The use or application of the infringing mark is without the consent of the trademark owner or
the assignee thereof.14
As can be seen, the likelihood of confusion is the gravamen of the offense of trademark
infringement.15 There are two tests to determine likelihood of confusion, namely: the dominancy
test, and the holistic test. The contrasting concept of these tests was explained in Societes Des
Produits Nestle, S.A. v. Dy, Jr., thus:

x x x. The dominancy test focuses on the similarity of the main, prevalent or essential features
of the competing trademarks that might cause confusion. Infringement takes place when the
competing trademark contains the essential features of another. Imitation or an effort to imitate
is unnecessary. The question is whether the use of the marks is likely to cause confusion or
deceive purchasers.

The holistic test considers the entirety of the marks, including labels and packaging, in
determining confusing similarity. The focus is not only on the predominant words but also on the
other features appearing on the labels.16

As to what test should be applied in a trademark infringement case, we said in McDonald’s

Corporation v. Macjoy Fastfood Corporation17 that:

In trademark cases, particularly in ascertaining whether one trademark is confusingly similar to

another, no set rules can be deduced because each case must be decided on its merits. In such
cases, even more than in any other litigation, precedent must be studied in the light of the facts
of the particular case. That is the reason why in trademark cases, jurisprudential precedents
should be applied only to a case if they are specifically in point.

The case of Emerald Garment Manufacturing Corporation v. Court of Appeals,18 which involved
an alleged trademark infringement of jeans products, is worth referring to. There, H.D. Lee Co.,
Inc. (H.D. Lee), a corporation based in the United States of America, claimed that Emerald
Garment’s trademark of "STYLISTIC MR. LEE" that it used on its jeans products was confusingly
similar to the "LEE" trademark that H.D. Lee used on its own jeans products. Applying the
holistic test, the Court ruled that there was no infringement.

The holistic test is applicable here considering that the herein criminal cases also involved
trademark infringement in relation to jeans products. Accordingly, the jeans trademarks of Levi’s
Philippines and Diaz must be considered as a whole in determining the likelihood of confusion
between them. The maong pants or jeans made and sold by Levi’s Philippines, which included
LEVI’S 501, were very popular in the Philippines. The consuming public knew that the original
LEVI’S 501 jeans were under a foreign brand and quite expensive. Such jeans could be
purchased only in malls or boutiques as ready-to-wear items, and were not available in tailoring
shops like those of Diaz’s as well as not acquired on a "made-to-order" basis. Under the
circumstances, the consuming public could easily discern if the jeans were original or fake LEVI’S
501, or were manufactured by other brands of jeans. Confusion and deception were remote, for,
as the Court has observed in Emerald Garments:

First, the products involved in the case at bar are, in the main, various kinds of jeans. These are
not your ordinary household items like catsup, soy sauce or soap which are of minimal cost.
Maong pants or jeans are not inexpensive. Accordingly, the casual buyer is predisposed to be
more cautious and discriminating in and would prefer to mull over his purchase. Confusion and
deception, then, is less likely. In Del Monte Corporation v. Court of Appeals, we noted that:
.... Among these, what essentially determines the attitudes of the purchaser, specifically his
inclination to be cautious, is the cost of the goods. To be sure, a person who buys a box of
candies will not exercise as much care as one who buys an expensive watch. As a general rule,
an ordinary buyer does not exercise as much prudence in buying an article for which he pays a
few centavos as he does in purchasing a more valuable thing. Expensive and valuable items are
normally bought only after deliberate, comparative and analytical investigation. But mass
products, low priced articles in wide use, and matters of everyday purchase requiring frequent
replacement are bought by the casual consumer without great care....

Second, like his beer, the average Filipino consumer generally buys his jeans by brand. He does
not ask the sales clerk for generic jeans but for, say, a Levis, Guess, Wrangler or even an
Armani. He is, therefore, more or less knowledgeable and familiar with his preference and will
not easily be distracted.

Finally, in line with the foregoing discussions, more credit should be given to the "ordinary
purchaser." Cast in this particular controversy, the ordinary purchaser is not the "completely
unwary consumer" but is the "ordinarily intelligent buyer" considering the type of product
involved.

The definition laid down in Dy Buncio v. Tan Tiao Bok is better suited to the present case. There,
the "ordinary purchaser" was defined as one "accustomed to buy, and therefore to some extent
familiar with, the goods in question. The test of fraudulent simulation is to be found in the
likelihood of the deception of some persons in some measure acquainted with an established
design and desirous of purchasing the commodity with which that design has been associated.
The test is not found in the deception, or the possibility of deception, of the person who knows
nothing about the design which has been counterfeited, and who must be indifferent between
that and the other. The simulation, in order to be objectionable, must be such as appears likely
to mislead the ordinary intelligent buyer who has a need to supply and is familiar with the article
that he seeks to purchase.19

Diaz used the trademark "LS JEANS TAILORING" for the jeans he produced and sold in his
tailoring shops. His trademark was visually and aurally different from the trademark "LEVI
STRAUSS & CO" appearing on the patch of original jeans under the trademark LEVI’S 501. The
word "LS" could not be confused as a derivative from "LEVI STRAUSS" by virtue of the "LS"
being connected to the word "TAILORING", thereby openly suggesting that the jeans bearing the
trademark "LS JEANS TAILORING" came or were bought from the tailoring shops of Diaz, not
from the malls or boutiques selling original LEVI’S 501 jeans to the consuming public.

There were other remarkable differences between the two trademarks that the consuming public
would easily perceive. Diaz aptly noted such differences, as follows:

The prosecution also alleged that the accused copied the "two horse design" of the petitioner-
private complainant but the evidence will show that there was no such design in the seized
jeans. Instead, what is shown is "buffalo design." Again, a horse and a buffalo are two
different animals which an ordinary customer can easily distinguish. x x x.

The prosecution further alleged that the red tab was copied by the accused. However, evidence
will show that the red tab used by the private complainant indicates the word "LEVI’S" while that
of the accused indicates the letters "LSJT" which means LS JEANS TAILORING. Again, even an
ordinary customer can distinguish the word LEVI’S from the letters LSJT.

xxxx

In terms of classes of customers and channels of trade, the jeans products of the private
complainant and the accused cater to different classes of customers and flow through the
different channels of trade. The customers of the private complainant are mall goers belonging
to class A and B market group – while that of the accused are those who belong to class D and E
market who can only afford Php 300 for a pair of made-toorder pants.20 x x x.

Moreover, based on the certificate issued by the Intellectual Property Office, "LS JEANS
TAILORING" was a registered trademark of Diaz. He had registered his trademark prior to the
filing of the present cases.21 The Intellectual Property Office would certainly not have allowed the
registration had Diaz’s trademark been confusingly similar with the registered trademark for
LEVI’S 501 jeans.

Given the foregoing, it should be plain that there was no likelihood of confusion between the
trademarks involved. Thereby, the evidence of guilt did not satisfy the quantum of proof
required for a criminal conviction, which is proof beyond reasonable doubt. According to Section
2, Rule 133 of the Rules of Court, proof beyond a reasonable doubt does not mean such a
degree of proof as, excluding possibility of error, produces absolute certainty. Moral certainty
only is required, or that degree of proof which produces conviction in an unprejudiced mind.
Consequently, Diaz should be acquitted of the charges.

WHEREFORE, the Court ACQUITS petitioner VICTORIO P. DIAZ of the crimes of infringement
of trademark charged in Criminal Case No. 00-0318 and Criminal Case No. 00-0319 for failure of
the State to establish his guilt by proof beyond reasonable doubt.

No pronouncement on costs of suit.

SO ORDERED.

[G.R. No. 144309. November 23, 2001]

SOLID TRIANGLE SALES CORPORATION and ROBERT SITCHON, petitioners, vs. THE
SHERIFF OF RTC QC, Branch 93; SANLY CORPORATION, ERA RADIO AND ELECTRICAL
SUPPLY, LWT CO., INCORPORATED; ROD CASTRO, VICTOR TUPAZ and the PEOPLE OF
THE PHILIPPINES, respondents.

DECISION

KAPUNAN, J.:

The petition at bar stems from two cases, Search Warrant Case No. Q-3324 (99) before Branch
93 of the Quezon City Regional Trial Court (RTC), and Civil Case No. Q-93-37206 for damages
and injunctions before Branch 91 of the same court.

The facts are set forth in the Decision of the Court of Appeals dated July 6, 1999:
x x x on January 28, 1999, Judge Apolinario D. Bruselas, Jr., Presiding Judge of RTC, Branch 93,
Quezon City, upon application of the Economic Intelligence and Investigation Bureau (EIIB),
issued Search Warrant No. 3324 (99) against Sanly Corporation (Sanly), respondent, for
violation of Section 168 of R.A. No. 8293 (unfair competition).

By virtue of Search Warrant No. 3324 (99), EIIB agents seized 451 boxes of Mitsubishi
photographic color paper from respondent Sanly. xxx

Forthwith, Solid Triangle, through Robert Sitchon, its Marketing and Communication Manager,
filed with the Office of the City Prosecutor, Quezon City, an affidavit complaint for unfair
competition against the members of the Board of Sanly and LWT Co., Inc. (LWT), docketed as
I.S. No. 1-99-2870.

Sitchon alleged that ERA Radio and Electrical Supply (ERA), owned and operated by LWT, is in
conspiracy with Sanly in selling and/or distributing Mitsubishi brand photo paper to the damage
and prejudice of Solid Triangle, [which claims to be the sole and exclusive distributor thereof,
pursuant to an agreement with the Mitsubishi Corporation].

On February 4, 1999, petitioner Solid Triangle filed with Judge Bruselas sala an
urgent ex parte motion for the transfer of custody of the seized Mitsubishi photo color paper
stored in the office of EIIB.

On February 8, 1999, respondents Sanly, LWT and ERA moved to quash the search warrant
which was denied by Judge Bruselas in an order dated March 5, 1999.

The said respondents filed a motion for reconsideration which was granted by Judge Bruselas in
the first assailed order of March 18, 1999. Respondent Judge held that there is doubt whether
the act complained of (unfair competition) is criminal in nature.

Petitioner Solid Triangle filed a motion for reconsideration contending that the quashal of the
search warrant is not proper considering the pendency of the preliminary investigation in I.S.
No. 1-99-2870 for unfair competition wherein the seized items will be used as evidence.

On March 26, 1999, Judge Bruselas issued the second assailed order denying Solid Triangles
motion for reconsideration.

On March 29, 1999, petitioner Solid Triangle filed with Branch 91 of the same Court, presided by
Judge Lita S. Tolentino-Genilo, Civil Case No. Q-99-37206 for damages and injunction with
prayer for writs of preliminary injunction and attachment. Impleaded as defendants were Sanly,
LWT and ERA.

On March 30, 1999, the defendants filed their opposition to the application for the issuance of
writs of injunction and attachment.

On March 31, 1999, Judge Genilo denied petitioners application for a preliminary attachment on
the ground that the application is not supported with an affidavit by the applicant, through its
authorized officer, who personally knows the facts.

Meanwhile, on April 20, 1999, Judge Bruselas issued the third assailed order, the dispositive
portion of which reads:
WHEREFORE, the foregoing premises considered, the court directs

1) EIIB, Mr. Robert Sitchon and Solid Triangle Sales Corporation to divulge and report to the
court the exact location of the warehouse where the goods subject of this proceeding are
presently kept within seventy-two hours from receipt hereof;

2) Mr. Rober Sitchon and Solid Triangle Sales Corporation to appear and show cause why they
should not be held in contempt of court for failure to obey a lawful order of the court at a
hearing for the purpose on 12 May 1999 at 8:30 oclock in the morning;

3) The Deputy Sheriff of this Court to take custody of the seized goods and cause their delivery
to the person from whom the goods were seized without further lost [sic] of time;

Let a copy of this order be served by personal service upon Mr. Robert Sitchon and Solid
Triangle Sales Corporation. Serve copies also to EIIB and the respondents Rod Castro and Sanly
Corporation.

SO ORDERED.[1]

Alleging grave abuse of discretion, petitioners questioned before the Court of Appeals the orders
of Branch 93 of the Quezon City RTC granting private respondents motion for reconsideration
and denying that of petitioners, as well as the order dated April 20, 1999 directing petitioners to,
among other things, show cause why they should not be held in contempt. Petitioners also
assailed the order of the Quezon City RTC, Branch 91 denying their application for a writ of
attachment. Upon the filing of the petition on April 26, 1999, the Court of Appeals issued a
temporary restraining order to prevent Judge Bruselas from implementing the Order dated April
20, 1999.

On July 6, 1999, the Court of Appeals rendered judgment initially granting certiorari. It held that
the quashing of the warrant deprived the prosecution of vital evidence to determine probable
cause.

Admittedly, the City Prosecutor of Quezon City has filed a complaint for unfair competition
against private respondents and that the undergoing preliminary investigation is in progress. In
the said proceedings, the prosecution inevitably will present the seized items to establish
a prima facie case of unfair competition against private respondents.

Considering that Judge Bruselas quashed the search warrant, he practically deprived the
prosecution of its evidence so vital in establishing the existence of probable cause.

Petitioners reliance on Vlasons Enterprises Corporation vs. Court of Appeals [155 SCRA 186
(1987).] is in order. Thus:

The proceeding for the seizure of property in virtue of a search warrant does not end with the
actual taking of the property by the proper officers and its delivery, usually constructive, to the
court. The order for the issuance of the warrant is not a final one and cannot constitute res
judicata (Cruz vs. Dinglasan, 83 Phil. 333). Such an order does not ascertain and adjudicate the
permanent status or character of the seized property. By its very nature, it is provisional,
interlocutory (Marcelo vs. de Guzman, 114 SCRA 657). It is merely the first step in the process
to determine the character and title of the property. That determination is done in the criminal
action involving the crime or crimes in connection with which the search warrant was
issued. Hence, such a criminal action should be prosecuted, or commenced if not yet instituted,
and prosecuted. The outcome of the criminal action will dictate the disposition of the seized
property.[2]

The appellate court further ruled that the affidavit of merits is not necessary for the order of
preliminary attachment to issue considering that the petition itself is under oath:

The denial was based on the ground that the application is not supported by an affidavit of the
applicant corporation, through its authorized officer, who personally knows the facts.

We cannot go along with respondent judges theory. In Consul vs. Consul [17 SCRA 667 (1996)],
the Supreme Court held:

Affidavit of merits has a known purpose: Courts and parties should not require the machinery of
justice to grind anew, if the prospects of a different conclusion cannot be reasonably reached
should relief from judgment be granted. We look back at the facts here. The petition for relief is
verified by petitioner himself. The merits of petitioners case are apparent in the recitals of the
petition. Said petition is under oath.That oath, we believe, elevates the petition to the same
category as a separate affidavit. To require defendant to append an affidavit of merits to his
verified petition, to the circumstances, is to compel him to do the unnecessary. Therefore, the
defect pointed by the court below is one of forms, not of substance. Result: Absence of a
separate affidavit is of de minimis importance.[3]

Upon motion by respondents, however, the Court of Appeals reversed itself. In its Amendatory
Decision, the appellate court held that there was no probable cause for the issuance of the
search warrant.Accordingly, the evidence obtained by virtue of said warrant was inadmissible in
the preliminary investigation.

x x x Under Sections 168 and 170 of R.A. 8293 (the Intellectual Property Code), there is unfair
competition if the alleged offender has given to his goods the general appearance of the goods
of another manufacturer or dealer and sells or passes them off as goods of that manufacturer or
dealer in order to deceive or defraud the general public or the legitimate trader. Also, if he
makes false statements in the course of trade to discredit the goods, business, or services of
another.

Undisputedly, the seized goods from Sanly are genuine and not mere imitations. This is admitted
by petitioners in their application for a search warrant and supporting affidavits, Annexes A to D,
inclusive, in their April 27, 1999 Submission of Annexes to this Court. It bears stressing that
there is no showing or allegation that Sanly has presented, sold, or passed off its photographic
paper as goods which come from Solid Triangle. There is no attempt on its part to deceive.

Both Sanly and Solid Triangle sell genuine Mitsubishi products. Solid Triangle acquires its goods
from Japan on the basis of its exclusive distributorship with Mitsubishi Corporation. While Sanly
buys its goods from Hongkong, claiming it is a parallel importer, not an unfair competitor. As
defined, a parallel importer is one which imports, distributes, and sells genuine products in the
market, independently of an exclusive distributorship or agency agreement with the
manufacturer. And, this is precisely what Sanly states as its commercial status.
Records show that Sanly sold its photographic paper purchased from Hongkong without altering
its appearance. It is distributed in the same Mitsubishi box with its logo and distinguishing marks
as marketed in Japan. The same brown paper with the Mitsubishi seal is wrapped around its
products. Copies of the importation documents and the certification on imports issued by the
Philippine government recognized Societe Generale d Surveillance (SGS) were appended to the
motion to quash search warrant.

Thus, on factual basis, the real dispute is actually between Solid Triangle and the manufacturer
Mitsubishi. If Solid Triangle feels aggrieved, it should sue Mitsubishi for damages, if at all for
breach of its distributorship. But that is between them.

Certainly, there is here no probable cause to justify the issuance of a search warrant based on a
criminal action for unfair competition.

Therefore, since there is no probable cause for unfair competition in this case, then the quashal
of the search warrant by respondent Judge Bruselas is valid. This being the case, there is merit
in the motion for reconsideration.

In ascertaining the legality of a search warrant and the validity of the search and seizure
conducted by the EIIB agents by virtue of the warrant, it is essential that a crime has been
committed or is being committed and that the things seized are fruits of the crime or the means
by which it is committed.

The validity of a search and seizure is of constitutional dimensions. The right to privacy and the
sanctity of a persons house, papers and effects against unreasonable searches and seizures are
not only ancient.They are also zealously protected.

xxx

Solid Triangle contends that the quashal of the search warrant deprived it of its right to prove
a prima facie case of unfair competition in the preliminary investigation. We initially agreed with
it.

While Solid Triangle has the right to present every single piece of evidence it can gather and
muster, however, it has no right to prove its case through the use of illegally seized evidence
secured in derogation of a constitutionally guaranteed right.

The constitutional provision that any evidence obtained in violation of the provision against
unreasonable searches and seizures shall be inadmissible for any purpose in any proceeding
finds application here.The goods seized without probable cause are fruits of the poisonous tree
and cannot be used for the purpose of proving unfair competition during preliminary
investigation proceedings.

The case of Vlasons Enterprises Corporation vs. Court of Appeals does not apply since it involved
a different set of facts and issues.

On the contrary, it is the case of People vs. Court of Appeals [216 SCRA 101 (1992)] that
governs, where the Supreme Court ruled that with the quashal of the search warrant, the seized
goods could not be used as evidence for any purpose, in any proceeding.[4]
As regards the preliminary attachment, the appellate court found that there was no ground for
the issuance of the writ because:

x x x Sanly does not deny that it sells Mitsubishi photographic color paper. But there is no
showing that it attempts to depart from country, defraud Solid Triangle or the buying public,
conceal or dispose of unjustly detained personal property, or commit any of the acts provided in
Rule 57 of the 1997 Rules of Civil Procedure as grounds for the issuance of a writ of preliminary
attachment.[5]

Petitioners moved for reconsideration but the same was denied by the Court of Appeals in its
Resolution dated August 4, 2000.

In assailing the Amendatory Decision of the Court of Appeals, petitioners argue that:

I.

THE JUDGE WHO ISSUED A SEARCH WARRANT THAT HAS ALREADY BEEN IMPLEMENTED
CANNOT QUASH THE WARRANT ANYMORE, AT LEAST WITHOUT WAITING FOR THE
FINDINGS OF THE CITY PROSECUTOR WHO HAS THE EXCLUSIVE JURISDICTION TO DETERMINE
PROBABLE CAUSE.

II.

IN THE PARALLEL IMPORTATION EFFECTED BY THE RESPONDENTS WITH DECEIT AND BAD
FAITH, THERE EXISTS PROBABLE CAUSE THAT THE CRIME OF UNFAIR COMPETITION UNDER
THE INTELLECTUAL PROPERTY CODE HAS BEEN COMMITTED BY THE RESPONDENTS.

III.

PETITIONERS APPLICATION FOR A WRIT OF ATTACHMENT CANNOT BE DENIED ON THE

GROUND THAT AN AFFIDAVIT OF MERITS IS NOT APPENDED TO THE COMPLAINT, AS THE
COURT OF APPEALS HAS ALREADY RULED, AND ON THE GROUND THAT THERE IS NO
JUSTIFICATION FOR IT BECAUSE THE QUESTIONS PERTINENT THERETO ARE NOT BEFORE THE
COURT OF APPEALS BUT BEFORE THE TRIAL COURT.

IV.

PETITIONERS CANNOT BE HELD LIABLE FOR CONTEMPT IN NOT RETURNING THE GOODS
SUBJECT OF THE SEARCH WARRANT NOTWITHSTANDING THE REFUSAL OF THE COURT OF
APPEALS TO RULE ON THIS POINT FURTHER WHICH IS A GRIEVOUS ERROR TO THE PREJUDICE
OF THE PETITIONERS.[6]

Petitioners contend that the Constitution does not authorize the judge to reverse himself and
quash the warrant, especially after goods had been seized pursuant to the search warrant, and
the prosecution is poised to push forward with the goods as evidence.[7] In finding that doubt
exists that a crime has been committed, it is argued that the judge trench[ed] upon the
prerogative and duty of the city prosecutor.[8]

The contention has no merit.

It is undisputed that only judges have the power to issue search warrants.[9] This function is
exclusively judicial. Article III of the Constitution unequivocally states:

Sec. 2. The right of the people to be secure in their persons, houses, papers, and effects against
unreasonable searches and seizures of whatever nature and for any purpose shall be inviolable,
and no search warrant or warrant of arrest shall issue except upon probable cause to be
determined personally 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. [Emphasis supplied.]

Inherent in the courts power to issue search warrants is the power to quash warrants already
issued. In this connection, this Court has ruled that the motion to quash should be filed in the
court that issued the warrant unless a criminal case has already been instituted in another court,
in which case, the motion should be filed with the latter.[10] The ruling has since been
incorporated in Rule 126 of the Revised Rules of Criminal Procedure:

Sec. 14. Motion to quash a search warrant or to suppress evidence; where to file. A motion to
quash a search warrant and/or to suppress evidence obtained thereby may be filed in and acted
upon only by the court where the action has been instituted. If no criminal action has been
instituted, the motion may be filed in and resolved by the court that issued the search
warrant. However, if such court failed to resolve the motion and a criminal case is subsequently
filed in another court, the motion shall be resolved by the latter court.

In the determination of probable cause, the court must necessarily resolve whether or not an
offense exists to justify the issuance or quashal of the search warrant. Prior to the revision of
December 1, 2000, Rule 126 of the Rules of Court provided:

Sec. 3. Requisites for issuing search warrant. A search warrant shall not issue but upon probable
cause in connection with one specific offense to be determined personally 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 things to be seized. [Emphasis
supplied.][11]

Note that probable cause is defined as:

xxx the existence of such facts and circumstances which could lead a reasonably discreet and
prudent man to believe that an offense has been committed and that the item(s), article(s)
or object(s) sought in connection with said offense or subject to seizure and destruction by law
is in the place to be searched.[12]

In Kenneth Roy Savage/K Angelin Export Trading vs. Taypin,[13] the Court was confronted with a
search warrant that was issued purportedly in connection with unfair competition involving
design patents. The Court held that the alleged crime is not punishable under Article 189 of the
Revised Penal Code, and accordingly, quashed the search warrant issued for the non-existent
crime.

In the issuance of search warrants, the Rules of Court requires a finding of probable cause in
connection with one specific offense to be determined personally by the judge after examination
of the complainant and the witnesses he may produce, and particularly describing the place to
be searched and the things to be seized. Hence, since there is no crime to speak of, the search
warrant does not even begin to fulfill these stringent requirements and is therefore defective on
its face. x x x.

A preliminary investigation, by definition, also requires a finding by the authorized officer of the
commission of a crime. Previous to the 2000 revision, Section 1 of Rule 112 of the Rules of Court
defined a preliminary investigation as an inquiry or proceeding to determine whether there is
sufficient ground to engender a well-founded belief that a crime cognizable by the Regional Trial
Court has been committed and the respondent is probably guilty thereof, and should be held
for trial.[14]

Section 2 of the same Rule enumerates who may conduct preliminary investigations:

Sec. 2. Officers authorized to conduct preliminary investigations. The following may conduct
preliminary investigations:

(a) Provincial or city fiscals and their assistants;

(b) Judges of the Municipal Trial Courts and Municipal Circuit Trial Courts;

(c) National and Regional state prosecutors; and

(d) Such other officers as may be authorized by law.

Their authority to conduct preliminary investigations shall include all crimes cognizable by the
proper court in their respective territorial jurisdictions.[15]

The determination of probable cause during a preliminary investigation has been described as an
executive function.[16]

The proceedings for the issuance/quashal of a search warrant before a court on the one hand,
and the preliminary investigation before an authorized officer on the other, are proceedings
entirely independent of each other. One is not bound by the others finding as regards the
existence of a crime. The purpose of each proceeding differs from the other. The first is to
determine whether a warrant should issue or be quashed, and the second, whether an
information should be filed in court.

When the court, in determining probable cause for issuing or quashing a search warrant, finds
that no offense has been committed, it does not interfere with or encroach upon the proceedings
in the preliminary investigation. The court does not oblige the investigating officer not to file an
information for the courts ruling that no crime exists is only for purposes of issuing or quashing
the warrant. This does not, as petitioners would like to believe, constitute a usurpation of the
executive function. Indeed, to shirk from this duty would amount to an abdication of a
constitutional obligation.

The effect of the quashal of the warrant on the ground that no offense has been committed is to
render the evidence obtained by virtue of the warrant inadmissible for any purpose in any
proceeding, including the preliminary investigation. Article III of the Constitution provides:

Sec. 3. (1) x x x.
(2) Any evidence obtained in violation of this or the preceding section [Section 2] shall be
inadmissible for any purpose in any proceeding.

It may be true that, as a result of the quashal of the warrant, the private complainant is
deprived of vital evidence to establish his case, but such is the inevitable consequence.

Nevertheless, the inadmissibility of the evidence obtained through an illegal warrant does not
necessarily render the preliminary investigation academic. The preliminary investigation and the
filing of the information may still proceed if, because of other (admissible) evidence, there exists
sufficient ground to engender a well-founded belief that a crime has been committed and the
respondent is probably guilty thereof, and should be held for trial. The finding by the court that
no crime exists does not preclude the authorized officer conducting the preliminary investigation
from making his own determination that a crime has been committed and that probable cause
exists for purposes of filing the information.

Petitioners also argue that Section 14, Rule 126 of the Revised Rules of Criminal
Procedure, supra, while intended to resolve conflicts of responsibility between courts, does not
expressly cover the situation where the criminal complaint is pending with the prosecutor. In
such a case, petitioners submit, the public prosecutor should be allowed to resolve the question
of whether or not probable cause exists.[17]

The Court finds this interpretation too contrived. Section 14, Rule 126 precisely covers situations
like the one at bar. Section 14 expressly provides that a motion to quash a search warrant
and/or to suppress evidence obtained thereby may be filed in and acted upon only by the court
where the action has been instituted. Under the same section, the court which issued the search
warrant may be prevented from resolving a motion to quash or suppress evidence only when a
criminal case is subsequently filed in another court, in which case, the motion is to be resolved
by the latter court. It is therefore puerile to argue that the court that issued the warrant cannot
entertain motions to suppress evidence while a preliminary investigation is ongoing. Such
erroneous interpretation would place a person whose property has been seized by virtue of an
invalid warrant without a remedy while the goods procured by virtue thereof are subject of a
preliminary investigation.

We now turn to the question of whether the facts, as presented before the trial court, constitute
an offense.

Private respondents are alleged to have committed unfair competition in violation of Section 168
of the Intellectual Property Code, which states:

SEC. 168. Unfair Competition, Rights, Regulation and Remedies. 168.1 A person who has
identified in the mind of the public goods he manufactures or deals in, his business or services
from those of others, whether or not a registered mark is employed, has a property right in the
goodwill of the said goods, business or services so identified, which will be protected in the same
manner as other property rights.

168.2 Any person who shall employ deception or any other means contrary to good faith by
which he shall pass off the goods manufactured by him or in which he deals, or his business, or
services for those of the one having established such goodwill, or who shall commit any acts
calculated to produce said result, shall be guilty of unfair competition, and shall be subject to an
action therefor.

168.3 In particular, and without in any way limiting the scope of protection against unfair
competition, the following shall be deemed guilty of unfair competition:

(a) Any person, who is selling his goods and gives them the general appearance of goods of
another manufacturer or dealer, either as to the goods themselves or in the wrapping of the
packages in which they are contained, or the devices or words thereon, or in any other feature
of their appearance, which would be likely to influence purchasers to believe that the goods
offered are those of a manufacturer or dealer, other than the actual manufacturer or dealer, or
who otherwise clothes the goods with such appearance as shall deceive the public and defraud
another of his legitimate trade, or any subsequent vendor of such goods or any agent of any
vendor engaged in selling such goods with a lie purpose;

(b) Any person who by any artifice, or device, or who employs any other means calculated to
induce the false belief that such person is offering the service of another who has identified such
services in the mind of the public; or

(c) Any person who shall make any false statement in the course of trade or who shall commit
any other act contrary to good faith of a nature calculated to discredit the goods, business or
services of another.

168.4 The remedies provided by Sections 156, 157 and 161 shall apply mutatis mutandis.

The same law, in Section 170, provides the penalty for violation of Section 168:

SEC. 170. Penalties. Independent of the civil and administrative sanctions imposed by law, a
criminal penalty of imprisonment from two (2) years to five (5) years and a fine ranging from
Fifty thousand pesos (50,000) to Two hundred thousand pesos (200,000), shall be imposed on
any person who is found guilty of committing any of the acts mentioned in Section 155, Section
168 and Subsection 169.1.

Petitioners submit that the importation of even genuine goods can constitute a crime under the
Intellectual Property Code so long as fraud or deceit is present. The intent to deceive in this
case, according to petitioners, is patent from the following undisputed facts:

(a) Before marketing its product, the respondents totally obliterated and erased the Emulsion
Number and Type that was printed on the box/carton of the product because of which the source
of the goods can no longer be traced.

(b) Respondents even covered the boxes with newspapers to conceal true identity.

(c) Being also engaged in the sale of photo equipments [sic] and having had the occasion of
participating in the same exhibit with petitioner Solid Triangle several times already,
respondents certainly knew that petitioner Solid Triangle is the sole and exclusive importer and
distributor of Mitsubishi Photo Paper.

(d) Two agents of the EIIB were also able to confirm from a salesgirl of respondents that
substantial quantity of stocks of Mitsubishi Photo Paper are available at respondents store and
that the products are genuine, as they are duly authorized to sell and distribute it to interested
customers.

(e) No better proof of unfair competition is the seizure of the goods, 451 boxes of Mitsubishi
photographic color paper.[18]

Petitioners further expound:

47. We may categorize the acts of the respondents as underground sales and marketing of
genuine goods, undermining the property rights of petitioner Solid Triangle. The Court of
Appeals itself recognized the rights of a dealer. The acts of the respondents were made to
appropriate unjustly the goodwill of petitioner Solid Triangle, and goodwill is protected by the
law on unfair competition.

48. Petitioner Solid Triangle has established a trade or business in which it had acquired goodwill
and reputation that will be protected, and so, to permit respondents to continue importing and
distributing Mitsubishi Photo Paper, would be to countenance the unlawful appropriation of the
benefit of a goodwill which petitioner Solid Triangle has acquired and permit the respondent to
grab the reputation or goodwill of the business of another.

49. x x x petitioners have a valid cause to complain against respondents for the criminal
violation of the Intellectual Property Law when the latter made it appear that they were duly
authorized to sell or distribute Mitsubishi Photo Paper in the Philippines, when in truth and in fact
they were not, and when they were hiding their importation from the petitioners by such acts as
removing the Emulsion Number and Type and covering the boxes with old newspapers.[19]

We disagree with petitioners and find that the evidence presented before the trial court does not
prove unfair competition under Section 168 of the Intellectual Property Code. Sanly Corporation
did not pass off the subject goods as that of another. Indeed, it admits that the goods are
genuine Mitsubishi photographic paper, which it purchased from a supplier in Hong
Kong.[20] Petitioners also allege that private respondents made it appear that they were duly
authorized to sell or distribute Mitsubishi Photo Paper in the Philippines. Assuming that this act
constitutes a crime, there is no proof to establish such an allegation.

We agree with petitioners, however, that the Court of Appeals went beyond the issues when it
ruled that there were no grounds for the issuance of an order of preliminary attachment. The
only issue raised with respect to the preliminary attachment was whether the application for the
writ should have been denied because the same was not supported by an affidavit of the
applicant corporation, through its authorized officer, who personally knows the facts. Whether
there are sufficient grounds to justify the order is a matter best left to the trial court, which
apparently has yet to hear the matter. Thus, we sustain the Court of Appeals original decision
holding that an affidavit of merit is not necessary since the petition is verified by an authorized
officer who personally knows the facts.

Similarly premature is whether petitioners failure to return the goods to respondents constituted
indirect contempt. The assailed order dated April 20, 1999 was a show cause order. Before any
hearing on the order could be held, petitioners promptly filed a petition for certiorari. Clearly, the
trial court had yet to rule on the matter, and for this Court now to hold petitioners act
contemptuous would preempt said court.
WHEREFORE, the petition is GRANTED IN PART. The Amendatory Decision of the Court of
Appeals dated March 31, 2000, as well as its Resolution dated August 4, 2000,
is AFFIRMED insofar as it holds that (1) the Quezon City Regional Trial Court, Branch 93, has the
power to determine the existence of a crime in quashing a search warrant and, (2) the evidence
does not support a finding that the crime of unfair competition has been committed by
respondents; and REVERSED insofar as it holds that (1) there are no grounds to warrant the
issuance of a writ of preliminary attachment and (2) petitioners are guilty of contempt. The case
is remanded for further proceedings to the courts of origin, namely, Branch 91 of RTC, Quezon
City for resolution of the application for a writ of attachment, and Branch 93 of the same court
for resolution of the application to cite petitioners for contempt.

Petitioners are ordered to return to respondent Sanly Corporation the 451 boxes of Mitsubishi
photographic color paper seized by virtue of Search Warrant No. 3324 (99) issued by the
Quezon City Regional Trial Court, Branch 93.

SO ORDERED.

[G.R. Nos. 160054-55. July 21, 2004]

MANOLO P. SAMSON, petitioner, vs. HON. REYNALDO B. DAWAY, in his capacity as

Presiding Judge, Regional Trial Court of Quezon City, Branch 90, PEOPLE OF THE
PHILIPPINES and CATERPILLAR, INC., respondents.

DECISION

YNARES-SANTIAGO, J.:

Assailed in this petition for certiorari is the March 26, 2003 Order[1] of the Regional Trial Court of
Quezon City, Branch 90, which denied petitioners (1) motion to quash the information; and (2)
motion for reconsideration of the August 9, 2002 Order denying his motion to suspend the
arraignment and other proceedings in Criminal Case Nos. Q-02-108043-44. Petitioner also
questioned its August 5, 2003 Order[2] which denied his motion for reconsideration.

The undisputed facts show that on March 7, 2002, two informations for unfair competition under
Section 168.3 (a), in relation to Section 170, of the Intellectual Property Code (Republic Act No.
8293), similarly worded save for the dates and places of commission, were filed against
petitioner Manolo P. Samson, the registered owner of ITTI Shoes. The accusatory portion of said
informations read:

That on or about the first week of November 1999 and sometime prior or subsequent thereto, in
Quezon City, Philippines, and within the jurisdiction of this Honorable Court, above-named
accused, owner/proprietor of ITTI Shoes/Mano Shoes Manufactuirng Corporation located at
Robinsons Galleria, EDSA corner Ortigas Avenue, Quezon City, did then and there willfully,
unlawfully and feloniously distribute, sell and/or offer for sale CATERPILLAR products such as
footwear, garments, clothing, bags, accessories and paraphernalia which are closely identical to
and/or colorable imitations of the authentic Caterpillar products and likewise using trademarks,
symbols and/or designs as would cause confusion, mistake or deception on the part of the
buying public to the damage and prejudice of CATERPILLAR, INC., the prior adopter, user and
owner of the following internationally: CATERPILLAR, CAT, CATERPILLAR & DESIGN, CAT AND
DESIGN, WALKING MACHINES and TRACK-TYPE TRACTOR & DESIGN.

CONTRARY TO LAW.[3]

On April 19, 2002, petitioner filed a motion to suspend arraignment and other proceedings in
view of the existence of an alleged prejudicial question involved in Civil Case No. Q-00-41446 for
unfair competition pending with the same branch; and also in view of the pendency of a petition
for review filed with the Secretary of Justice assailing the Chief State Prosecutors resolution
finding probable cause to charge petitioner with unfair competition. In an Order dated August 9,
2002, the trial court denied the motion to suspend arraignment and other proceedings.

On August 20, 2002, petitioner filed a twin motion to quash the informations and motion for
reconsideration of the order denying motion to suspend, this time challenging the jurisdiction of
the trial court over the offense charged. He contended that since under Section 170 of R.A. No.
8293, the penalty5 of imprisonment for unfair competition does not exceed six years, the offense
is cognizable by the Municipal Trial Courts and not by the Regional Trial Court, per R.A. No.
7691.

In its assailed March 26, 2003 Order, the trial court denied petitioners twin motions.6 A motion
for reconsideration thereof was likewise denied on August 5, 2003.

Hence, the instant petition alleging that respondent Judge gravely abused its discretion in
issuing the assailed orders.

The issues posed for resolution are (1) Which court has jurisdiction over criminal and civil cases
for violation of intellectual property rights? (2) Did the respondent Judge gravely abuse his
discretion in refusing to suspend the arraignment and other proceedings in Criminal Case Nos.
Q-02-108043-44 on the ground of (a) the existence of a prejudicial question; and (b) the
pendency of a petition for review with the Secretary of Justice on the finding of probable cause
for unfair competition?

Under Section 170 of R.A. No. 8293, which took effect on January 1, 1998, the criminal penalty
for infringement of registered marks, unfair competition, false designation of origin and false
description or representation, is imprisonment from 2 to 5 years and a fine ranging from Fifty
Thousand Pesos to Two Hundred Thousand Pesos, to wit:

SEC. 170. Penalties. Independent of the civil and administrative sanctions imposed by law, a
criminal penalty of imprisonment from two (2) years to five (5) years and a fine ranging from
Fifty thousand pesos (P50,000.00) to Two hundred thousand pesos (P200,000.00), shall be
imposed on any person who is found guilty of committing any of the acts mentioned in Section
155 [Infringement], Section 168 [Unfair Competition] and Section 169.1 [False Designation of
Origin and False Description or Representation].

Corollarily, Section 163 of the same Code states that actions (including criminal and civil) under
Sections 150, 155, 164, 166, 167, 168 and 169 shall be brought before the proper courts with
appropriate jurisdiction under existing laws, thus
SEC. 163. Jurisdiction of Court. All actions under Sections 150, 155, 164 and 166 to 169 shall be
brought before the proper courts with appropriate jurisdiction under existing laws.
(Emphasis supplied)

The existing law referred to in the foregoing provision is Section 27 of R.A. No. 166 (The
Trademark Law) which provides that jurisdiction over cases for infringement of registered marks,
unfair competition, false designation of origin and false description or representation, is lodged
with the Court of First Instance (now Regional Trial Court)

SEC. 27. Jurisdiction of Court of First Instance. All actions under this Chapter [V Infringement]
and Chapters VI [Unfair Competition] and VII [False Designation of Origin and False Description
or Representation], hereof shall be brought before the Court of First Instance.

We find no merit in the claim of petitioner that R.A. No. 166 was expressly repealed by R.A. No.
8293. The repealing clause of R.A. No. 8293, reads

SEC. 239. Repeals. 239.1. All Acts and parts of Acts inconsistent herewith, more particularly
Republic Act No. 165, as amended; Republic Act No. 166, as amended; and Articles 188 and
189 of the Revised Penal Code; Presidential Decree No. 49, including Presidential Decree No.
285, as amended, are hereby repealed. (Emphasis added)

Notably, the aforequoted clause did not expressly repeal R.A. No. 166 in its entirety, otherwise,
it would not have used the phrases parts of Acts and inconsistent herewith; and it would have
simply stated Republic Act No. 165, as amended; Republic Act No. 166, as amended; and
Articles 188 and 189 of the Revised Penal Code; Presidential Decree No. 49, including
Presidential Decree No. 285, as amended are hereby repealed. It would have removed all doubts
that said specific laws had been rendered without force and effect. The use of the phrases parts
of Acts and inconsistent herewith only means that the repeal pertains only to provisions which
are repugnant or not susceptible of harmonization with R.A. No. 8293.7 Section 27 of R.A. No.
166, however, is consistent and in harmony with Section 163 of R.A. No. 8293. Had R.A. No.
8293 intended to vest jurisdiction over violations of intellectual property rights with the
Metropolitan Trial Courts, it would have expressly stated so under Section 163 thereof.

Moreover, the settled rule in statutory construction is that in case of conflict between a general
law and a special law, the latter must prevail. Jurisdiction conferred by a special law to Regional
Trial Courts must prevail over that granted by a general law to Municipal Trial Courts.8

In the case at bar, R.A. No. 8293 and R.A. No. 166 are special laws9 conferring jurisdiction over
violations of intellectual property rights to the Regional Trial Court. They should therefore prevail
over R.A. No. 7691, which is a general law.10 Hence, jurisdiction over the instant criminal case
for unfair competition is properly lodged with the Regional Trial Court even if the penalty
therefor is imprisonment of less than 6 years, or from 2 to 5 years and a fine ranging from
P50,000.00 to P200,000.00.

In fact, to implement and ensure the speedy disposition of cases involving violations of
intellectual property rights under R.A. No. 8293, the Court issued A.M. No. 02-1-11-SC dated
February 19, 2002 designating certain Regional Trial Courts as Intellectual Property Courts. On
June 17, 2003, the Court further issued a Resolution consolidating jurisdiction to hear and decide
Intellectual Property Code and Securities and Exchange Commission cases in specific Regional
Trial Courts designated as Special Commercial Courts.

The case of Mirpuri v. Court of Appeals,11 invoked by petitioner finds no application in the
present case. Nowhere in Mirpuri did we state that Section 27 of R.A. No. 166 was repealed by
R.A. No. 8293. Neither did we make a categorical ruling therein that jurisdiction over cases for
violation of intellectual property rights is lodged with the Municipal Trial Courts. The passing
remark in Mirpuri on the repeal of R.A. No. 166 by R.A. No. 8293 was merely a backgrounder to
the enactment of the present Intellectual Property Code and cannot thus be construed as a
jurisdictional pronouncement in cases for violation of intellectual property rights.

Anent the second issue, petitioner failed to substantiate his claim that there was a prejudicial
question. In his petition, he prayed for the reversal of the March 26, 2003 order which sustained
the denial of his motion to suspend arraignment and other proceedings in Criminal Case Nos. Q-
02-108043-44. For unknown reasons, however, he made no discussion in support of said prayer
in his petition and reply to comment. Neither did he attach a copy of the complaint in Civil Case
No. Q-00-41446 nor quote the pertinent portion thereof to prove the existence of a prejudicial
question.

At any rate, there is no prejudicial question if the civil and the criminal action can, according to
law, proceed independently of each other.12 Under Rule 111, Section 3 of the Revised Rules on
Criminal Procedure, in the cases provided in Articles 32, 33, 34 and 2176 of the Civil Code, the
independent civil action may be brought by the offended party. It shall proceed independently of
the criminal action and shall require only a preponderance of evidence.

In the case at bar, the common element in the acts constituting unfair competition under
Section 168 of R.A. No. 8293 is fraud.13 Pursuant to Article 33 of the Civil Code, in cases of
defamation, fraud, and physical injuries, a civil action for damages, entirely separate and
distinct from the criminal action, may be brought by the injured party. Hence, Civil Case No. Q-
00-41446, which as admitted14 by private respondent also relate to unfair competition, is an
independent civil action under Article 33 of the Civil Code. As such, it will not operate as a
prejudicial question that will justify the suspension of the criminal cases at bar.

Section 11 (c), Rule 116 of the Revised Rules on Criminal Procedure provides

SEC. 11. Suspension of arraignment. Upon motion by the proper party, the arraignment shall be
suspended in the following cases

xxxxxxxxx

(c) A petition for review of the resolution of the prosecutor is pending at either the Department
of Justice, or the Office of the President; Provided, that the period of suspension shall not exceed
sixty (60) days counted from the filing of the petition with the reviewing office.

While the pendency of a petition for review is a ground for suspension of the arraignment, the
aforecited provision limits the deferment of the arraignment to a period of 60 days reckoned
from the filing of the petition with the reviewing office. It follows, therefore, that after the
expiration of said period, the trial court is bound to arraign the accused or to deny the motion to
defer arraignment.
In the instant case, petitioner failed to establish that respondent Judge abused his discretion in
denying his motion to suspend. His pleadings and annexes submitted before the Court do not
show the date of filing of the petition for review with the Secretary of Justice.15 Moreover, the
Order dated August 9, 2002 denying his motion to suspend was not appended to the petition. He
thus failed to discharge the burden of proving that he was entitled to a suspension of his
arraignment and that the questioned orders are contrary to Section 11 (c), Rule 116 of the
Revised Rules on Criminal Procedure. Indeed, the age-old but familiar rule is that he who alleges
must prove his allegations.

In sum, the dismissal of the petition is proper considering that petitioner has not established
that the trial court committed grave abuse of discretion. So also, his failure to attach documents
relevant to his allegations warrants the dismissal of the petition, pursuant to Section 3, Rule 46
of the Rules of Civil Procedure, which states:

SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. The
petition shall contain the full names and actual addresses of all the petitioners and respondents,
a concise statement of the matters involved, the factual background of the case, and the
grounds relied upon for the relief prayed for.

It shall be filed in seven (7) clearly legible copies together with proof of service thereof on the
respondent with the original copy intended for the court indicated as such by the petitioner, and
shall be accompanied by a clearly legible duplicate original or certified true copy of the
judgment, order, resolution, or ruling subject thereof, such material portions of the
record as are referred to therein, and other documents relevant or pertinent thereto.

xxxxxxxxx

The failure of the petitioner to comply with any of the foregoing requirements shall be
sufficient ground for the dismissal of the petition. (Emphasis added)

WHEREFORE, in view of all the foregoing, the petition is DISMISSED.

SO ORDERED.

G.R. No. 169504 March 3, 2010

COFFEE PARTNERS, INC., Petitioner,

vs.
SAN FRANCISCO COFFEE & ROASTERY, INC., Respondent.

DECISION

CARPIO, J.:

The Case

This is a petition for review1 of the 15 June 2005 Decision2 and the 1 September 2005
Resolution3 of the Court of Appeals in CA-G.R. SP No. 80396. In its 15 June 2005 Decision, the
Court of Appeals set aside the 22 October 2003 Decision4 of the Office of the Director General-
Intellectual Property Office and reinstated the 14 August 2002 Decision5 of the Bureau of Legal
Affairs-Intellectual Property Office. In its 1 September 2005 Resolution, the Court of Appeals
denied petitioner’s motion for reconsideration and respondent’s motion for partial
reconsideration.

The Facts

Petitioner Coffee Partners, Inc. is a local corporation engaged in the business of establishing and
maintaining coffee shops in the country. It registered with the Securities and Exchange
Commission (SEC) in January 2001. It has a franchise agreement6 with Coffee Partners Ltd.
(CPL), a business entity organized and existing under the laws of British Virgin Islands, for a
non-exclusive right to operate coffee shops in the Philippines using trademarks designed by CPL
such as "SAN FRANCISCO COFFEE."

Respondent is a local corporation engaged in the wholesale and retail sale of coffee. It registered
with the SEC in May 1995. It registered the business name "SAN FRANCISCO COFFEE &
ROASTERY, INC." with the Department of Trade and Industry (DTI) in June 1995. Respondent
had since built a customer base that included Figaro Company, Tagaytay Highlands, Fat Willy’s,
and other coffee companies.

In 1998, respondent formed a joint venture company with Boyd Coffee USA under the company
name Boyd Coffee Company Philippines, Inc. (BCCPI). BCCPI engaged in the processing,
roasting, and wholesale selling of coffee. Respondent later embarked on a project study of
setting up coffee carts in malls and other commercial establishments in Metro Manila.

In June 2001, respondent discovered that petitioner was about to open a coffee shop under the
name "SAN FRANCISCO COFFEE" in Libis, Quezon City. According to respondent, petitioner’s
shop caused confusion in the minds of the public as it bore a similar name and it also engaged in
the business of selling coffee. Respondent sent a letter to petitioner demanding that the latter
stop using the name "SAN FRANCISCO COFFEE." Respondent also filed a complaint with the
Bureau of Legal Affairs-Intellectual Property Office (BLA-IPO) for infringement and/or unfair
competition with claims for damages.

In its answer, petitioner denied the allegations in the complaint. Petitioner alleged it filed with
the Intellectual Property Office (IPO) applications for registration of the mark "SAN FRANCISCO
COFFEE & DEVICE" for class 42 in 1999 and for class 35 in 2000. Petitioner maintained its mark
could not be confused with respondent’s trade name because of the notable distinctions in their
appearances. Petitioner argued respondent stopped operating under the trade name "SAN
FRANCISCO COFFEE" when it formed a joint venture with Boyd Coffee USA. Petitioner contended
respondent did not cite any specific acts that would lead one to believe petitioner had, through
fraudulent means, passed off its mark as that of respondent, or that it had diverted business
away from respondent.

Mr. David Puyat, president of petitioner corporation, testified that the coffee shop in Libis,
Quezon City opened sometime in June 2001 and that another coffee shop would be opened in
Glorietta Mall, Makati City. He stated that the coffee shop was set up pursuant to a franchise
agreement executed in January 2001 with CPL, a British Virgin Island Company owned by Robert
Boxwell. Mr. Puyat said he became involved in the business when one Arthur Gindang invited
him to invest in a coffee shop and introduced him to Mr. Boxwell. For his part, Mr. Boxwell
attested that the coffee shop "SAN FRANCISCO COFFEE" has branches in Malaysia and
Singapore. He added that he formed CPL in 1997 along with two other colleagues, Shirley Miller
John and Leah Warren, who were former managers of Starbucks Coffee Shop in the United
States. He said they decided to invest in a similar venture and adopted the name "SAN
FRANCISCO COFFEE" from the famous city in California where he and his former colleagues once
lived and where special coffee roasts came from.

The Ruling of the Bureau of Legal Affairs-Intellectual Property Office

In its 14 August 2002 Decision, the BLA-IPO held that petitioner’s trademark infringed on
respondent’s trade name. It ruled that the right to the exclusive use of a trade name with
freedom from infringement by similarity is determined from priority of adoption. Since
respondent registered its business name with the DTI in 1995 and petitioner registered its
trademark with the IPO in 2001 in the Philippines and in 1997 in other countries, then
respondent must be protected from infringement of its trade name.

The BLA-IPO also held that respondent did not abandon the use of its trade name as substantial
evidence indicated respondent continuously used its trade name in connection with the purpose
for which it was organized. It found that although respondent was no longer involved in
blending, roasting, and distribution of coffee because of the creation of BCCPI, it continued
making plans and doing research on the retailing of coffee and the setting up of coffee carts. The
BLA-IPO ruled that for abandonment to exist, the disuse must be permanent, intentional, and
voluntary.

The BLA-IPO held that petitioner’s use of the trademark "SAN FRANCISCO COFFEE" will likely
cause confusion because of the exact similarity in sound, spelling, pronunciation, and
commercial impression of the words "SAN FRANCISCO" which is the dominant portion of
respondent’s trade name and petitioner’s trademark. It held that no significant difference
resulted even with a diamond-shaped figure with a cup in the center in petitioner's trademark
because greater weight is given to words – the medium consumers use in ordering coffee
products.

On the issue of unfair competition, the BLA-IPO absolved petitioner from liability. It found that
petitioner adopted the trademark "SAN FRANCISCO COFFEE" because of the authority granted to
it by its franchisor. The BLA-IPO held there was no evidence of intent to defraud on the part of
petitioner.

The BLA-IPO also dismissed respondent’s claim of actual damages because its claims of profit
loss were based on mere assumptions as respondent had not even started the operation of its
coffee carts. The BLA-IPO likewise dismissed respondent’s claim of moral damages, but granted
its claim of attorney’s fees.

Both parties moved for partial reconsideration. Petitioner protested the finding of infringement,
while respondent questioned the denial of actual damages. The BLA-IPO denied the parties’
partial motion for reconsideration. The parties appealed to the Office of the Director General-
Intellectual Property Office (ODG-IPO).

The Ruling of the Office of the Director General-

Intellectual Property Office

In its 22 October 2003 Decision, the ODG-IPO reversed the BLA-IPO. It ruled that petitioner’s
use of the trademark "SAN FRANCISCO COFFEE" did not infringe on respondent's trade name.
The ODG-IPO found that respondent had stopped using its trade name after it entered into a
joint venture with Boyd Coffee USA in 1998 while petitioner continuously used the trademark
since June 2001 when it opened its first coffee shop in Libis, Quezon City. It ruled that between
a subsequent user of a trade name in good faith and a prior user who had stopped using such
trade name, it would be inequitable to rule in favor of the latter.

The Ruling of the Court of Appeals

In its 15 June 2005 Decision, the Court of Appeals set aside the 22 October 2003 decision of the
ODG-IPO in so far as it ruled that there was no infringement. It reinstated the 14 August 2002
decision of the BLA-IPO finding infringement. The appellate court denied respondent’s claim for
actual damages and retained the award of attorney’s fees. In its 1 September 2005 Resolution,
the Court of Appeals denied petitioner’s motion for reconsideration and respondent’s motion for
partial reconsideration.

The Issue

The sole issue is whether petitioner’s use of the trademark "SAN FRANCISCO COFFEE"
constitutes infringement of respondent’s trade name "SAN FRANCISCO COFFEE & ROASTERY,
INC.," even if the trade name is not registered with the Intellectual Property Office (IPO).

The Court’s Ruling

The petition has no merit.

Petitioner contends that when a trade name is not registered, a suit for infringement is not
available. Petitioner alleges respondent has abandoned its trade name. Petitioner points out that
respondent’s registration of its business name with the DTI expired on 16 June 2000 and it was
only in 2001 when petitioner opened a coffee shop in Libis, Quezon City that respondent made a
belated effort to seek the renewal of its business name registration. Petitioner stresses
respondent’s failure to continue the use of its trade name to designate its goods negates any
allegation of infringement. Petitioner claims no confusion is likely to occur between its trademark
and respondent’s trade name because of a wide divergence in the channels of trade, petitioner
serving ready-made coffee while respondent is in wholesale blending, roasting, and distribution
of coffee. Lastly, petitioner avers the proper noun "San Francisco" and the generic word "coffee"
are not capable of exclusive appropriation.

Respondent maintains the law protects trade names from infringement even if they are not
registered with the IPO. Respondent claims Republic Act No. 8293 (RA 8293)7 dispensed with
registration of a trade name with the IPO as a requirement for the filing of an action for
infringement. All that is required is that the trade name is previously used in trade or commerce
in the Philippines. Respondent insists it never abandoned the use of its trade name as evidenced
by its letter to petitioner demanding immediate discontinuation of the use of its trademark and
by the filing of the infringement case. Respondent alleges petitioner’s trademark is confusingly
similar to respondent’s trade name. Respondent stresses ordinarily prudent consumers are likely
to be misled about the source, affiliation, or sponsorship of petitioner’s coffee.
As to the issue of alleged abandonment of trade name by respondent, the BLA-IPO found that
respondent continued to make plans and do research on the retailing of coffee and the
establishment of coffee carts, which negates abandonment. This finding was upheld by the Court
of Appeals, which further found that while respondent stopped using its trade name in its
business of selling coffee, it continued to import and sell coffee machines, one of the services for
which the use of the business name has been registered. The binding effect of the factual
findings of the Court of Appeals on this Court applies with greater force when both the quasi-
judicial body or tribunal like the BLA-IPO and the Court of Appeals are in complete agreement on
their factual findings. It is also settled that absent any circumstance requiring the overturning of
the factual conclusions made by the quasi-judicial body or tribunal, particularly if affirmed by the
Court of Appeals, the Court necessarily upholds such findings of fact.8

Coming now to the main issue, in Prosource International, Inc. v. Horphag Research
Management SA,9 this Court laid down what constitutes infringement of an unregistered trade
name, thus:

(1) The trademark being infringed is registered in the Intellectual Property Office; however, in
infringement of trade name, the same need not be registered;

(2) The trademark or trade name is reproduced, counterfeited, copied, or colorably imitated by
the infringer;

(3) The infringing mark or trade name is used in connection with the sale, offering for sale, or
advertising of any goods, business or services; or the infringing mark or trade name is applied to
labels, signs, prints, packages, wrappers, receptacles, or advertisements intended to be used
upon or in connection with such goods, business, or services;

(4) The use or application of the infringing mark or trade name is likely to cause confusion or
mistake or to deceive purchasers or others as to the goods or services themselves or as to the
source or origin of such goods or services or the identity of such business; and

(5) It is without the consent of the trademark or trade name owner or the assignee
thereof.10 (Emphasis supplied)

Clearly, a trade name need not be registered with the IPO before an infringement suit may be
filed by its owner against the owner of an infringing trademark. All that is required is that the
trade name is previously used in trade or commerce in the Philippines.11

Section 22 of Republic Act No. 166,12 as amended, required registration of a trade name as a
condition for the institution of an infringement suit, to wit:

Sec. 22. Infringement, what constitutes. – Any person who shall use, without the consent of the
registrant, any reproduction, counterfeit, copy, or colorable imitation of any registered mark or
trade name in connection with the sale, offering for sale, or advertising of any goods, business
or services on or in connection with which such use is likely to cause confusion or mistake or to
deceive purchasers or others as to the source or origin of such goods or services, or identity of
such business; or reproduce, counterfeit, copy, or colorably imitate any such mark or trade
name and apply such reproduction, counterfeit, copy, or colorable imitation to labels, signs,
prints, packages, wrappers, receptacles, or advertisements intended to be used upon or in
connection with such goods, business, or services, shall be liable to a civil action by the
registrant for any or all of the remedies herein provided. (Emphasis supplied)

However, RA 8293, which took effect on 1 January 1998, has dispensed with the registration
requirement. Section 165.2 of RA 8293 categorically states that trade names shall be protected,
even prior to or without registration with the IPO, against any unlawful act including any
subsequent use of the trade name by a third party, whether as a trade name or a trademark
likely to mislead the public.1avvph!1 Thus:

SEC. 165.2 (a) Notwithstanding any laws or regulations providing for any obligation to
register trade names, such names shall be protected, even prior to or without
registration, against any unlawful act committed by third parties.

(b) In particular, any subsequent use of a trade name by a third party, whether as a trade name
or a mark or collective mark, or any such use of a similar trade name or mark, likely to mislead
the public, shall be deemed unlawful. (Emphasis supplied)

It is the likelihood of confusion that is the gravamen of infringement. But there is no absolute
standard for likelihood of confusion. Only the particular, and sometimes peculiar, circumstances
of each case can determine its existence. Thus, in infringement cases, precedents must be
evaluated in the light of each particular case.13

In determining similarity and likelihood of confusion, our jurisprudence has developed two tests:
the dominancy test and the holistic test. The dominancy test focuses on the similarity of the
prevalent features of the competing trademarks that might cause confusion and deception, thus
constituting infringement. If the competing trademark contains the main, essential, and
dominant features of another, and confusion or deception is likely to result, infringement occurs.
Exact duplication or imitation is not required. The question is whether the use of the marks
involved is likely to cause confusion or mistake in the mind of the public or to deceive
consumers.14

In contrast, the holistic test entails a consideration of the entirety of the marks as applied to the
products, including the labels and packaging, in determining confusing similarity.15 The
discerning eye of the observer must focus not only on the predominant words but also on the
other features appearing on both marks in order that the observer may draw his conclusion
whether one is confusingly similar to the other.16

Applying either the dominancy test or the holistic test, petitioner’s "SAN FRANCISCO COFFEE"
trademark is a clear infringement of respondent’s "SAN FRANCISCO COFFEE & ROASTERY, INC."
trade name. The descriptive words "SAN FRANCISCO COFFEE" are precisely the dominant
features of respondent’s trade name. Petitioner and respondent are engaged in the same
business of selling coffee, whether wholesale or retail. The likelihood of confusion is higher in
cases where the business of one corporation is the same or substantially the same as that of
another corporation. In this case, the consuming public will likely be confused as to the source of
the coffee being sold at petitioner’s coffee shops. Petitioner’s argument that "San Francisco" is
just a proper name referring to the famous city in California and that "coffee" is simply a generic
term, is untenable. Respondent has acquired an exclusive right to the use of the trade name
"SAN FRANCISCO COFFEE & ROASTERY, INC." since the registration of the business name with
the DTI in 1995. Thus, respondent’s use of its trade name from then on must be free from any
infringement by similarity. Of course, this does not mean that respondent has exclusive use of
the geographic word "San Francisco" or the generic word "coffee." Geographic or generic words
are not, per se, subject to exclusive appropriation. It is only the combination of the words "SAN
FRANCISCO COFFEE," which is respondent’s trade name in its coffee business, that is protected
against infringement on matters related to the coffee business to avoid confusing or deceiving
the public.

In Philips Export B.V. v. Court of Appeals,17 this Court held that a corporation has an exclusive
right to the use of its name. The right proceeds from the theory that it is a fraud on the
corporation which has acquired a right to that name and perhaps carried on its business
thereunder, that another should attempt to use the same name, or the same name with a slight
variation in such a way as to induce persons to deal with it in the belief that they are dealing
with the corporation which has given a reputation to the name.18

This Court is not just a court of law, but also of equity. We cannot allow petitioner to profit by
the name and reputation so far built by respondent without running afoul of the basic demands
of fair play. Not only the law but equity considerations hold petitioner liable for infringement of
respondent’s trade name.

The Court of Appeals was correct in setting aside the 22 October 2003 Decision of the Office of
the Director General-Intellectual Property Office and in reinstating the 14 August 2002 Decision
of the Bureau of Legal Affairs-Intellectual Property Office.

WHEREFORE, we DENY the petition for review. We AFFIRM the 15 June 2005 Decision and 1
September 2005 Resolution of the Court of Appeals in CA-G.R. SP No. 80396.

Costs against petitioner.

SO ORDERED.

G.R. No. 161295 June 29, 2005

JESSIE G. CHING, petitioner,

vs.
WILLIAM M. SALINAS, SR., WILLIAM M. SALINAS, JR., JOSEPHINE L. SALINAS,
JENNIFER Y. SALINAS, ALONTO SOLAIMAN SALLE, JOHN ERIC I. SALINAS, NOEL M.
YABUT (Board of Directors and Officers of WILAWARE PRODUCT
CORPORATION), respondents.

DECISION

CALLEJO, SR., J.:

This petition for review on certiorari assails the Decision1 and Resolution2 of the Court of Appeals
(CA) in CA-G.R. SP No. 70411 affirming the January 3, 2002 and February 14, 2002 Orders3 of
the Regional Trial Court (RTC) of Manila, Branch 1, which quashed and set aside Search Warrant
Nos. 01-2401 and 01-2402 granted in favor of petitioner Jessie G. Ching.
Jessie G. Ching is the owner and general manager of Jeshicris Manufacturing Co., the maker and
manufacturer of a Utility Model, described as "Leaf Spring Eye Bushing for Automobile" made up
of plastic.

On September 4, 2001, Ching and Joseph Yu were issued by the National Library Certificates of
Copyright Registration and Deposit of the said work described therein as "Leaf Spring Eye
Bushing for Automobile."4

On September 20, 2001, Ching requested the National Bureau of Investigation (NBI) for
police/investigative assistance for the apprehension and prosecution of illegal manufacturers,
producers and/or distributors of the works.5

After due investigation, the NBI filed applications for search warrants in the RTC of Manila
against William Salinas, Sr. and the officers and members of the Board of Directors of Wilaware
Product Corporation. It was alleged that the respondents therein reproduced and distributed the
said models penalized under Sections 177.1 and 177.3 of Republic Act (R.A.) No. 8293. The
applications sought the seizure of the following:

a.) Undetermined quantity of Leaf spring eye bushing for automobile that are made up of plastic
polypropylene;

b.) Undetermined quantity of Leaf spring eye bushing for automobile that are made up of
polyvinyl chloride plastic;

c.) Undetermined quantity of Vehicle bearing cushion that is made up of polyvinyl chloride
plastic;

d.) Undetermined quantity of Dies and jigs, patterns and flasks used in the
manufacture/fabrication of items a to d;

e.) Evidences of sale which include delivery receipts, invoices and official receipts.6

The RTC granted the application and issued Search Warrant Nos. 01-2401 and 01-2402 for the
seizure of the aforecited articles.7 In the inventory submitted by the NBI agent, it appears that
the following articles/items were seized based on the search warrants:

Leaf Spring eye bushing

a) Plastic Polypropylene

- C190 27 }

- C240 rear 40 }

- C240 front 41 } BAG 1

b) Polyvinyl Chloride Plastic

- C190 13 }

c) Vehicle bearing cushion

- center bearing cushion 11 }

Budder for C190 mold 8 }

Diesel Mold

a) Mold for spring eye bushing rear 1 set

b) Mold for spring eye bushing front 1 set

c) Mold for spring eye bushing for C190 1 set

d) Mold for C240 rear 1 piece of the set

e) Mold for spring eye bushing for L300 2 sets

f) Mold for leaf spring eye bushing C190 with metal 1 set

g) Mold for vehicle bearing cushion 1 set8

The respondents filed a motion to quash the search warrants on the following grounds:

2. The copyright registrations were issued in violation of the Intellectual Property Code on the
ground that:

a) the subject matter of the registrations are not artistic or literary;

b) the subject matter of the registrations are spare parts of automobiles meaning – there (sic)
are original parts that they are designed to replace. Hence, they are not original.9

The respondents averred that the works covered by the certificates issued by the National
Library are not artistic in nature; they are considered automotive spare parts and pertain to
technology. They aver that the models are not original, and as such are the proper subject of a
patent, not copyright.10

In opposing the motion, the petitioner averred that the court which issued the search warrants
was not the proper forum in which to articulate the issue of the validity of the copyrights issued
to him. Citing the ruling of the Court in Malaloan v. Court of Appeals,11 the petitioner stated that
a search warrant is merely a judicial process designed by the Rules of Court in anticipation of a
criminal case. Until his copyright was nullified in a proper proceeding, he enjoys rights of a
registered owner/holder thereof.

On January 3, 2002, the trial court issued an Order12 granting the motion, and quashed the
search warrant on its finding that there was no probable cause for its issuance. The court ruled
that the work covered by the certificates issued to the petitioner pertained to solutions to
technical problems, not literary and artistic as provided in Article 172 of the Intellectual Property
Code.

His motion for reconsideration of the order having been denied by the trial court’s Order of
February 14, 2002, the petitioner filed a petition for certiorari in the CA, contending that the RTC
had no jurisdiction to delve into and resolve the validity of the copyright certificates issued to
him by the National Library. He insisted that his works are covered by Sections 172.1 and 172.2
of the Intellectual Property Code. The petitioner averred that the copyright certificates are prima
facie evidence of its validity, citing the ruling of the United States Court of Appeals in Wildlife
Express Corporation v. Carol Wright Sales, Inc.13 The petitioner asserted that the respondents
failed to adduce evidence to support their motion to quash the search warrants. The petitioner
noted that respondent William Salinas, Jr. was not being honest, as he was able to secure a
similar copyright registration of a similar product from the National Library on January 14, 2002.

On September 26, 2003, the CA rendered judgment dismissing the petition on its finding that
the RTC did not commit any grave abuse of its discretion in issuing the assailed order, to wit:

It is settled that preliminarily, there must be a finding that a specific offense must have been
committed to justify the issuance of a search warrant. In a number of cases decided by the
Supreme Court, the same is explicitly provided, thus:

"The probable cause must be in connection with one specific offense, and the judge must, before
issuing the warrant, personally examine in the form of searching questions and answers, in
writing and under oath, the complainant and any witness he may produce, on facts personally
known to them and attach to the record their sworn statements together with any affidavit
submitted.

"In the determination of probable cause, the court must necessarily resolve whether or not an
offense exists to justify the issuance or quashal of the search warrant."

In the instant case, the petitioner is praying for the reinstatement of the search warrants issued,
but subsequently quashed, for the offense of Violation of Class Designation of Copyrightable
Works under Section 177.1 in relation to Section 177.3 of Republic Act 8293, when the objects
subject of the same, are patently not copyrightable.

It is worthy to state that the works protected under the Law on Copyright are: literary or artistic
works (Sec. 172) and derivative works (Sec. 173). The Leaf Spring Eye Bushing and Vehicle
Bearing Cushion fall on neither classification. Accordingly, if, in the first place, the item subject
of the petition is not entitled to be protected by the law on copyright, how can there be any
violation?14

The petitioner’s motion for reconsideration of the said decision suffered the same fate. The
petitioner forthwith filed the present petition for review on certiorari, contending that the
revocation of his copyright certificates should be raised in a direct action and not in a search
warrant proceeding.

The petitioner posits that even assuming ex argumenti that the trial court may resolve the
validity of his copyright in a proceeding to quash a search warrant for allegedly infringing items,
the RTC committed a grave abuse of its discretion when it declared that his works are not
copyrightable in the first place. He claims that R.A. No. 8293, otherwise known as the
Intellectual Property Code of the Philippines, which took effect on January 1, 1998, provides in
no uncertain terms that copyright protection automatically attaches to a work by the sole fact of
its creation, irrespective of its mode or form of expression, as well as of its content, quality or
purpose.15 The law gives a non-inclusive definition of "work" as referring to original intellectual
creations in the literary and artistic domain protected from the moment of their creation; and
includes original ornamental designs or models for articles of manufacture, whether or not
registrable as an industrial design and other works of applied art under Section 172.1(h) of R.A.
No. 8293.lawphil.net
As such, the petitioner insists, notwithstanding the classification of the works as either literary
and/or artistic, the said law, likewise, encompasses works which may have a bearing on the
utility aspect to which the petitioner’s utility designs were classified. Moreover, according to the
petitioner, what the Copyright Law protects is the author’s intellectual creation, regardless of
whether it is one with utilitarian functions or incorporated in a useful article produced on an
industrial scale.

The petitioner also maintains that the law does not provide that the intended use or use in
industry of an article eligible for patent bars or invalidates its registration under the Law on
Copyright. The test of protection for the aesthetic is not beauty and utility, but art for the
copyright and invention of original and ornamental design for design patents.16 In like manner,
the fact that his utility designs or models for articles of manufacture have been expressed in the
field of automotive parts, or based on something already in the public domain does not
automatically remove them from the protection of the Law on Copyright.17

The petitioner faults the CA for ignoring Section 218 of R.A. No. 8293 which gives the same
presumption to an affidavit executed by an author who claims copyright ownership of his work.

The petitioner adds that a finding of probable cause to justify the issuance of a search warrant
means merely a reasonable suspicion of the commission of the offense. It is not equivalent to
absolute certainty or a finding of actual and positive cause.18 He assists that the determination of
probable cause does not concern the issue of whether or not the alleged work is copyrightable.
He maintains that to justify a finding of probable cause in the issuance of a search warrant, it is
enough that there exists a reasonable suspicion of the commission of the offense.

The petitioner contends that he has in his favor the benefit of the presumption that his copyright
is valid; hence, the burden of overturning this presumption is on the alleged infringers, the
respondents herein. But this burden cannot be carried in a hearing on a proceeding to quash the
search warrants, as the issue therein is whether there was probable cause for the issuance of
the search warrant. The petitioner concludes that the issue of probable cause should be resolved
without invalidating his copyright.

In their comment on the petition, the respondents aver that the work of the petitioner is
essentially a technical solution to the problem of wear and tear in automobiles, the substitution
of materials, i.e., from rubber to plastic matter of polyvinyl chloride, an oil resistant soft texture
plastic material strong enough to endure pressure brought about by the vibration of the counter
bearing and thus brings bushings. Such work, the respondents assert, is the subject of copyright
under Section 172.1 of R.A. No. 8293. The respondents posit that a technical solution in any
field of human activity which is novel may be the subject of a patent, and not of a copyright.
They insist that the certificates issued by the National Library are only certifications that, at a
point in time, a certain work was deposited in the said office. Furthermore, the registration of
copyrights does not provide for automatic protection. Citing Section 218.2(b) of R.A. No. 8293,
the respondents aver that no copyright is said to exist if a party categorically questions its
existence and legality. Moreover, under Section 2, Rule 7 of the Implementing Rules of R.A. No.
8293, the registration and deposit of work is not conclusive as to copyright outlay or the time of
copyright or the right of the copyright owner. The respondents maintain that a copyright exists
only when the work is covered by the protection of R.A. No. 8293.

The petition has no merit.

The RTC had jurisdiction to delve into and resolve the issue whether the petitioner’s utility
models are copyrightable and, if so, whether he is the owner of a copyright over the said
models. It bears stressing that upon the filing of the application for search warrant, the RTC was
duty-bound to determine whether probable cause existed, in accordance with Section 4, Rule
126 of the Rules of Criminal Procedure:

SEC. 4. Requisite for issuing search warrant. – A search warrant shall not issue but upon
probable cause in connection with one specific offense to be determined personally 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 things to be seized.

In Solid Triangle Sales Corporation v. The Sheriff of RTC QC, Br. 93,19 the Court held that in the
determination of probable cause, the court must necessarily resolve whether or not an offense
exists to justify the issuance of a search warrant or the quashal of one already issued by the
court. Indeed, probable cause is deemed to exist only where facts and circumstances exist which
could lead a reasonably cautious and prudent man to believe that an offense has been
committed or is being committed. Besides, in Section 3, Rule 126 of the Rules of Criminal
Procedure, a search warrant may be issued for the search and seizure of personal property (a)
subject of the offense; (b) stolen or embezzled and other proceeds or fruits of the offense; or (c)
used or intended to be used as the means of committing an offense.

The RTC is mandated under the Constitution and Rules of Criminal Procedure to determine
probable cause. The court cannot abdicate its constitutional obligation by refusing to determine
whether an offense has been committed.20 The absence of probable cause will cause the outright
nullification of the search warrant.21

For the RTC to determine whether the crime for infringement under R.A. No. 8293 as alleged in
an application is committed, the petitioner-applicant was burdened to prove that (a) respondents
Jessie Ching and Joseph Yu were the owners of copyrighted material; and (b) the copyrighted
material was being copied and distributed by the respondents. Thus, the ownership of a valid
copyright is essential.22

Ownership of copyrighted material is shown by proof of originality and copyrightability. By

originality is meant that the material was not copied, and evidences at least minimal creativity;
that it was independently created by the author and that it possesses at least same minimal
degree of creativity.23 Copying is shown by proof of access to copyrighted material and
substantial similarity between the two works.24 The applicant must thus demonstrate the
existence and the validity of his copyright because in the absence of copyright protection, even
original creation may be freely copied.25

By requesting the NBI to investigate and, if feasible, file an application for a search warrant for
infringement under R.A. No. 8293 against the respondents, the petitioner thereby authorized the
RTC (in resolving the application), to delve into and determine the validity of the copyright which
he claimed he had over the utility models. The petitioner cannot seek relief from the RTC based
on his claim that he was the copyright owner over the utility models and, at the same time,
repudiate the court’s jurisdiction to ascertain the validity of his claim without running afoul to
the doctrine of estoppel.
To discharge his burden, the applicant may present the certificate of registration covering the
work or, in its absence, other evidence.26 A copyright certificate provides prima facie evidence of
originality which is one element of copyright validity. It constitutes prima facie evidence of both
validity and ownership27 and the validity of the facts stated in the certificate.28 The presumption
of validity to a certificate of copyright registration merely orders the burden of proof. The
applicant should not ordinarily be forced, in the first instance, to prove all the multiple facts that
underline the validity of the copyright unless the respondent, effectively challenging them, shifts
the burden of doing so to the applicant.29 Indeed, Section 218.2 of R.A. No. 8293 provides:

218.2. In an action under this Chapter:

(a) Copyright shall be presumed to subsist in the work or other subject matter to which the
action relates if the defendant does not put in issue the question whether copyright subsists in
the work or other subject matter; and

(b) Where the subsistence of the copyright is established, the plaintiff shall be presumed to be
the owner of the copyright if he claims to be the owner of the copyright and the defendant does
not put in issue the question of his ownership.

A certificate of registration creates no rebuttable presumption of copyright validity where other

evidence in the record casts doubt on the question. In such a case, validity will not be
presumed.30

To discharge his burden of probable cause for the issuance of a search warrant for violation of
R.A. No. 8293, the petitioner-applicant submitted to the RTC Certificate of Copyright Registration
Nos. 2001-197 and 2001-204 dated September 3, 2001 and September 4, 2001, respectively,
issued by the National Library covering work identified as Leaf Spring Eye Bushing for
Automobile and Vehicle Bearing Cushion both classified under Section 172.1(h) of R.A. No. 8293,
to wit:

SEC. 172. Literary and Artistic Works. – 172.1. Literary and artistic works, hereinafter referred
to as "works," are original intellectual creations in the literary and artistic domain protected from
the moment of their creation and shall include in particular:

...

(h) Original ornamental designs or models for articles of manufacture, whether or not registrable
as an industrial design, and other works of applied art.

Related to the provision is Section 171.10, which provides that a "work of applied art" is an
artistic creation with utilitarian functions or incorporated in a useful article, whether made by
hand or produced on an industrial scale.

But, as gleaned from the specifications appended to the application for a copyright certificate
filed by the petitioner, the said Leaf Spring Eye Bushing for Automobile is merely a utility model
described as comprising a generally cylindrical body having a co-axial bore that is centrally
located and provided with a perpendicular flange on one of its ends and a cylindrical metal jacket
surrounding the peripheral walls of said body, with the bushing made of plastic that is either
polyvinyl chloride or polypropylene.31 Likewise, the Vehicle Bearing Cushion is illustrated as a
bearing cushion comprising a generally semi-circular body having a central hole to secure a
conventional bearing and a plurality of ridges provided therefore, with said cushion bearing
being made of the same plastic materials.32 Plainly, these are not literary or artistic works. They
are not intellectual creations in the literary and artistic domain, or works of applied art. They are
certainly not ornamental designs or one having decorative quality or value.

It bears stressing that the focus of copyright is the usefulness of the artistic design, and not its
marketability. The central inquiry is whether the article is a work of art.33 Works for applied art
include all original pictorials, graphics, and sculptural works that are intended to be or have been
embodied in useful article regardless of factors such as mass production, commercial
exploitation, and the potential availability of design patent protection.34

As gleaned from the description of the models and their objectives, these articles are useful
articles which are defined as one having an intrinsic utilitarian function that is not merely to
portray the appearance of the article or to convey information. Indeed, while works of applied
art, original intellectual, literary and artistic works are copyrightable, useful articles and works of
industrial design are not.35 A useful article may be copyrightable only if and only to the extent
that such design incorporates pictorial, graphic, or sculptural features that can be identified
separately from, and are capable of existing independently of the utilitarian aspects of the
article.

We agree with the contention of the petitioner (citing Section 171.10 of R.A. No. 8293), that the
author’s intellectual creation, regardless of whether it is a creation with utilitarian functions or
incorporated in a useful article produced on an industrial scale, is protected by copyright law.
However, the law refers to a "work of applied art which is an artistic creation." It bears stressing
that there is no copyright protection for works of applied art or industrial design which have
aesthetic or artistic features that cannot be identified separately from the utilitarian aspects of
the article.36Functional components of useful articles, no matter how artistically designed, have
generally been denied copyright protection unless they are separable from the useful article.37

In this case, the petitioner’s models are not works of applied art, nor artistic works. They are
utility models, useful articles, albeit with no artistic design or value. Thus, the petitioner
described the utility model as follows:

LEAF SPRING EYE BUSHING FOR AUTOMOBILE

Known bushings inserted to leaf-spring eye to hold leaf-springs of automobile are made of hard
rubber. These rubber bushings after a time, upon subjecting them to so much or intermittent
pressure would eventually wore (sic) out that would cause the wobbling of the leaf spring.

The primary object of this utility model, therefore, is to provide a leaf-spring eye bushing for
automobile that is made up of plastic.

Another object of this utility model is to provide a leaf-spring eye bushing for automobiles made
of polyvinyl chloride, an oil resistant soft texture plastic or polypropylene, a hard plastic, yet
both causes cushion to the leaf spring, yet strong enough to endure pressure brought about by
the up and down movement of said leaf spring.

Yet, an object of this utility model is to provide a leaf-spring eye bushing for automobiles that
has a much longer life span than the rubber bushings.
Still an object of this utility model is to provide a leaf-spring eye bushing for automobiles that
has a very simple construction and can be made using simple and ordinary molding equipment.

A further object of this utility model is to provide a leaf-spring eye bushing for automobile that is
supplied with a metal jacket to reinforce the plastic eye bushing when in engaged with the steel
material of the leaf spring.

These and other objects and advantages will come to view and be understood upon a reading of
the detailed description when taken in conjunction with the accompanying drawings.

Figure 1 is an exploded perspective of a leaf-spring eye bushing according to the present utility
model;

Figure 2 is a sectional view taken along line 2-2 of Fig. 1;

Figure 3 is a longitudinal sectional view of another embodiment of this utility model;

Figure 4 is a perspective view of a third embodiment; and

Figure 5 is a sectional view thereof.

Referring now to the several views of the drawings wherein like reference numerals designated
same parts throughout, there is shown a utility model for a leaf-spring eye bushing for
automobile generally designated as reference numeral 10.

Said leaf-spring eye bushing 10 comprises a generally cylindrical body 11 having a co-axial bore
12 centrally provided thereof.

As shown in Figs. 1 and 2, said leaf-spring eye bushing 10 is provided with a perpendicular
flange 13 on one of its ends and a cylindrical metal jacket 14 surrounding the peripheral walls 15
of said body 11. When said leaf-spring bushing 10 is installed, the metal jacket 14 acts with the
leaf-spring eye (not shown), which is also made of steel or cast steel. In effect, the bushing 10
will not be directly in contact with steel, but rather the metal jacket, making the life of the
bushing 10 longer than those without the metal jacket.

In Figure 2, the bushing 10 as shown is made of plastic, preferably polyvinyl chloride, an oil
resistant soft texture plastic or a hard polypropylene plastic, both are capable to endure the
pressure applied thereto, and, in effect, would lengthen the life and replacement therefor.

Figure 3, on the other hand, shows the walls 16 of the co-axial bore 12 of said bushing 10 is
insertably provided with a steel tube 17 to reinforce the inner portion thereof. This steel tube 17
accommodates or engages with the leaf-spring bolt (not shown) connecting the leaf spring and
the automobile’s chassis.

Figures 4 and 5 show another embodiment wherein the leaf eye bushing 10 is elongated and
cylindrical as to its construction. Said another embodiment is also made of polypropylene or
polyvinyl chloride plastic material. The steel tube 17 and metal jacket 14 may also be applied to
this embodiment as an option thereof.38

VEHICLE BEARING CUSHION

Known bearing cushions inserted to bearing housings for vehicle propeller shafts are made of
hard rubber. These rubber bushings after a time, upon subjecting them to so much or
intermittent pressure would eventually be worn out that would cause the wobbling of the center
bearing.

The primary object of this utility model therefore is to provide a vehicle-bearing cushion that is
made up of plastic.

Another object of this utility model is to provide a vehicle bearing cushion made of polyvinyl
chloride, an oil resistant soft texture plastic material which causes cushion to the propeller’s
center bearing, yet strong enough to endure pressure brought about by the vibration of the
center bearing.

Yet, an object of this utility model is to provide a vehicle-bearing cushion that has a much longer
life span than rubber bushings.

Still an object of this utility model is to provide a vehicle bearing cushion that has a very simple
construction and can be made using simple and ordinary molding equipment.

These and other objects and advantages will come to view and be understood upon a reading of
the detailed description when taken in conjunction with the accompanying drawings.

Figure 1 is a perspective view of the present utility model for a vehicle-bearing cushion; and

Figure 2 is a sectional view thereof.

Referring now to the several views of the drawing, wherein like reference numeral designate
same parts throughout, there is shown a utility model for a vehicle-bearing cushion generally
designated as reference numeral 10.

Said bearing cushion 10 comprises of a generally semi-circular body 11, having central hole 12
to house a conventional bearing (not shown). As shown in Figure 1, said body 11 is provided
with a plurality of ridges 13 which serves reinforcing means thereof.

The subject bearing cushion 10 is made of polyvinyl chloride, a soft texture oil and chemical
resistant plastic material which is strong, durable and capable of enduring severe pressure from
the center bearing brought about by the rotating movement of the propeller shaft of the
vehicle.39

A utility model is a technical solution to a problem in any field of human activity which is new
and industrially applicable. It may be, or may relate to, a product, or process, or an
improvement of any of the aforesaid.40Essentially, a utility model refers to an invention in the
mechanical field. This is the reason why its object is sometimes described as a device or useful
object.41 A utility model varies from an invention, for which a patent for invention is, likewise,
available, on at least three aspects: first, the requisite of "inventive step"42 in a patent for
invention is not required; second, the maximum term of protection is only seven
years43 compared to a patent which is twenty years,44 both reckoned from the date of the
application; and third, the provisions on utility model dispense with its substantive
examination45 and prefer for a less complicated system.
Being plain automotive spare parts that must conform to the original structural design of the
components they seek to replace, the Leaf Spring Eye Bushing and Vehicle Bearing Cushion are
not ornamental. They lack the decorative quality or value that must characterize authentic works
of applied art. They are not even artistic creations with incidental utilitarian functions or works
incorporated in a useful article. In actuality, the personal properties described in the search
warrants are mechanical works, the principal function of which is utility sans any aesthetic
embellishment.

Neither are we to regard the Leaf Spring Eye Bushing and Vehicle Bearing Cushion as included in
the catch-all phrase "other literary, scholarly, scientific and artistic works" in Section 172.1(a) of
R.A. No. 8293. Applying the principle of ejusdem generis which states that "where a statute
describes things of a particular class or kind accompanied by words of a generic character, the
generic word will usually be limited to things of a similar nature with those particularly
enumerated, unless there be something in the context of the state which would repel such
inference,"46 the Leaf Spring Eye Bushing and Vehicle Bearing Cushion are not copyrightable,
being not of the same kind and nature as the works enumerated in Section 172 of R.A. No.
8293.

No copyright granted by law can be said to arise in favor of the petitioner despite the issuance of
the certificates of copyright registration and the deposit of the Leaf Spring Eye Bushing and
Vehicle Bearing Cushion. Indeed, in Joaquin, Jr. v. Drilon47 and Pearl & Dean (Phil.),
Incorporated v. Shoemart, Incorporated,48 the Court ruled that:

Copyright, in the strict sense of the term, is purely a statutory right. It is a new or independent
right granted by the statute, and not simply a pre-existing right regulated by it. Being a
statutory grant, the rights are only such as the statute confers, and may be obtained and
enjoyed only with respect to the subjects and by the persons, and on terms and conditions
specified in the statute. Accordingly, it can cover only the works falling within the statutory
enumeration or description.

That the works of the petitioner may be the proper subject of a patent does not entitle him to
the issuance of a search warrant for violation of copyright laws. In Kho v. Court of
Appeals49 and Pearl & Dean (Phil.), Incorporated v. Shoemart, Incorporated,50 the Court ruled
that "these copyright and patent rights are completely distinct and separate from one another,
and the protection afforded by one cannot be used interchangeably to cover items or works
that exclusively pertain to the others." The Court expounded further, thus:

Trademark, copyright and patents are different intellectual property rights that cannot be
interchanged with one another. A trademark is any visible sign capable of distinguishing the
goods (trademark) or services (service mark) of an enterprise and shall include a stamped or
marked container of goods. In relation thereto, a trade name means the name or designation
identifying or distinguishing an enterprise. Meanwhile, the scope of a copyright is confined to
literary and artistic works which are original intellectual creations in the literary and artistic
domain protected from the moment of their creation. Patentable inventions, on the other hand,
refer to any technical solution of a problem in any field of human activity which is new, involves
an inventive step and is industrially applicable.

The petitioner cannot find solace in the ruling of the United States Supreme Court in Mazer v.
Stein51 to buttress his petition. In that case, the artifacts involved in that case were statuettes of
dancing male and female figures made of semi-vitreous china. The controversy therein centered
on the fact that although copyrighted as "works of art," the statuettes were intended for use and
used as bases for table lamps, with electric wiring, sockets and lampshades attached. The issue
raised was whether the statuettes were copyright protected in the United States, considering
that the copyright applicant intended primarily to use them as lamp bases to be made and sold
in quantity, and carried such intentions into effect. At that time, the Copyright Office interpreted
the 1909 Copyright Act to cover works of artistic craftsmanship insofar as their form, but not the
utilitarian aspects, were concerned. After reviewing the history and intent of the US Congress on
its copyright legislation and the interpretation of the copyright office, the US Supreme Court
declared that the statuettes were held copyrightable works of art or models or designs for works
of art. The High Court ruled that:

"Works of art (Class G) – (a) – In General. This class includes works of artistic craftsmanship, in
so far as their form but not their mechanical or utilitarian aspects are concerned, such as artistic
jewelry, enamels, glassware, and tapestries, as well as all works belonging to the fine arts, such
as paintings, drawings and sculpture. …"

So we have a contemporaneous and long-continued construction of the statutes by the agency

charged to administer them that would allow the registration of such a statuette as is in question
here.52

The High Court went on to state that "[t]he dichotomy of protection for the aesthetic is not
beauty and utility but art for the copyright and the invention of original and ornamental design
for design patents." Significantly, the copyright office promulgated a rule to implement Mazer to
wit:

… [I]f "the sole intrinsic function of an article is its utility, the fact that the work is unique and
attractively shaped will not qualify it as a work of art."

In this case, the bushing and cushion are not works of art. They are, as the petitioner himself
admitted, utility models which may be the subject of a patent.

IN LIGHT OF ALL THE FOREGOING, the instant petition is hereby DENIED for lack of merit.
The assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 70411 are
AFFIRMED. Search Warrant Nos. 01-2401 and 01-2402 issued on October 15, 2001 are
ANNULLED AND SET ASIDE. Costs against the petitioner.

SO ORDERED.

G.R. No. 172835 December 13, 2007

AIR PHILIPPINES CORPORATION, Petitioner,

vs.
PENNSWELL, INC. Respondent.

DECISION
CHICO-NAZARIO, J.:

Petitioner Air Philippines Corporation seeks, via the instant Petition for Review under Rule 45 of
the Rules of Court, the nullification of the 16 February 2006 Decision1 and the 25 May 2006
Resolution2 of the Court of Appeals in CA-G.R. SP No. 86329, which affirmed the Order3 dated 30
June 2004 of the Regional Trial Court (RTC), Makati City, Branch 64, in Civil Case No. 00-561.

Petitioner Air Philippines Corporation is a domestic corporation engaged in the business of air
transportation services. On the other hand, respondent Pennswell, Inc. was organized to engage
in the business of manufacturing and selling industrial chemicals, solvents, and special
lubricants.

On various dates, respondent delivered and sold to petitioner sundry goods in trade, covered by
Sales Invoices No. 8846,4 9105,5 8962,6 and 8963,7 which correspond to Purchase Orders No.
6433, 6684, 6634 and 6633, respectively. Under the contracts, petitioner’s total outstanding
obligation amounted to ₱449,864.98 with interest at 14% per annum until the amount would be
fully paid. For failure of the petitioner to comply with its obligation under said contracts,
respondent filed a Complaint8 for a Sum of Money on 28 April 2000 with the RTC.

In its Answer,9 petitioner contended that its refusal to pay was not without valid and justifiable
reasons. In particular, petitioner alleged that it was defrauded in the amount of ₱592,000.00 by
respondent for its previous sale of four items, covered by Purchase Order No. 6626. Said items
were misrepresented by respondent as belonging to a new line, but were in truth and in fact,
identical with products petitioner had previously purchased from respondent. Petitioner asserted
that it was deceived by respondent which merely altered the names and labels of such goods.
Petitioner specifically identified the items in question, as follows:

Label/Description Item No. Amount P.O. Date

1. a. Anti-Friction Fluid MPL-800 153,941.40 5714 05/20/99

b. Excellent Rust Corrosion MPL-008 155,496.00 5888 06/20/99
(fake)

2. a. Contact Grease COG #2 115,236.00 5540 04/26/99

b. Connector Grease (fake) CG 230,519.52 6327 08/05/99

3. a. Trixohtropic Grease EPC 81,876.96 4582 01/29/99

b. Di-Electric Strength EPC#2 81,876.96 5446 04/21/99
Protective Coating (fake)

4. a. Dry Lubricant ASC-EP 87,346.52 5712 05/20/99

b. Anti-Seize Compound ASC-EP 124,108.10 4763 & 02/16/99 &
(fake) 2000 5890 06/24/99

According to petitioner, respondent’s products, namely Excellent Rust Corrosion, Connector

Grease, Electric Strength Protective Coating, and Anti-Seize Compound, are identical with its
Anti-Friction Fluid, Contact Grease, Thixohtropic Grease, and Dry Lubricant, respectively.
Petitioner asseverated that had respondent been forthright about the identical character of the
products, it would not have purchased the items complained of. Moreover, petitioner alleged that
when the purported fraud was discovered, a conference was held between petitioner and
respondent on 13 January 2000, whereby the parties agreed that respondent would return to
petitioner the amount it previously paid. However, petitioner was surprised when it received a
letter from the respondent, demanding payment of the amount of ₱449,864.94, which later
became the subject of respondent’s Complaint for Collection of a Sum of Money against
petitioner.

During the pendency of the trial, petitioner filed a Motion to Compel10 respondent to give a
detailed list of the ingredients and chemical components of the following products, to wit: (a)
Contact Grease and Connector Grease; (b) Thixohtropic Grease and Di-Electric Strength
Protective Coating; and (c) Dry Lubricant and Anti-Seize Compound.11 It appears that petitioner
had earlier requested the Philippine Institute of Pure and Applied Chemistry (PIPAC) for the
latter to conduct a comparison of respondent’s goods.

On 15 March 2004, the RTC rendered an Order granting the petitioner’s motion. It disposed,
thus:

The Court directs [herein respondent] Pennswell, Inc. to give [herein petitioner] Air Philippines
Corporation[,] a detailed list of the ingredients or chemical components of the following chemical
products:

a. Contact Grease to be compared with Connector Grease;

b. Thixohtropic Grease to be compared with Di-Electric Strength Protective Coating; and

c. Dry Lubricant to be compared with Anti-Seize Compound[.]

[Respondent] Pennswell, Inc. is given fifteen (15) days from receipt of this Order to submit to
[petitioner] Air Philippines Corporation the chemical components of all the above-mentioned
products for chemical comparison/analysis.12

Respondent sought reconsideration of the foregoing Order, contending that it cannot be

compelled to disclose the chemical components sought because the matter is confidential. It
argued that what petitioner endeavored to inquire upon constituted a trade secret which
respondent cannot be forced to divulge. Respondent maintained that its products are specialized
lubricants, and if their components were revealed, its business competitors may easily imitate
and market the same types of products, in violation of its proprietary rights and to its serious
damage and prejudice.

The RTC gave credence to respondent’s reasoning, and reversed itself. It issued an Order dated
30 June 2004, finding that the chemical components are respondent’s trade secrets and are
privileged in character. A priori, it rationalized:

The Supreme Court held in the case of Chavez vs. Presidential Commission on Good
Government, 299 SCRA 744, p. 764, that "the drafters of the Constitution also unequivocally
affirmed that aside from national security matters and intelligence information, trade or
industrial secrets (pursuant to the Intellectual Property Code and other related laws) as well as
banking transactions (pursuant to the Secrecy of Bank Deposit Act) are also exempted from
compulsory disclosure."

Trade secrets may not be the subject of compulsory disclosure. By reason of [their] confidential
and privileged character, ingredients or chemical components of the products ordered by this
Court to be disclosed constitute trade secrets lest [herein respondent] would eventually be
exposed to unwarranted business competition with others who may imitate and market the
same kinds of products in violation of [respondent’s] proprietary rights. Being privileged, the
detailed list of ingredients or chemical components may not be the subject of mode of discovery
under Rule 27, Section 1 of the Rules of Court, which expressly makes privileged information an
exception from its coverage.13

Alleging grave abuse of discretion on the part of the RTC, petitioner filed a Petition for Certiorari
under Rule 65 of the Rules of Court with the Court of Appeals, which denied the Petition and
affirmed the Order dated 30 June 2004 of the RTC.

The Court of Appeals ruled that to compel respondent to reveal in detail the list of ingredients of
its lubricants is to disregard respondent’s rights over its trade secrets. It was categorical in
declaring that the chemical formulation of respondent’s products and their ingredients are
embraced within the meaning of "trade secrets." In disallowing the disclosure, the Court of
Appeals expounded, thus:

The Supreme Court in Garcia v. Board of Investments (177 SCRA 374 [1989]) held that trade
secrets and confidential, commercial and financial information are exempt from public scrutiny.
This is reiterated in Chavez v. Presidential Commission on Good Government (299 SCRA 744
[1998]) where the Supreme Court enumerated the kinds of information and transactions that
are recognized as restrictions on or privileges against compulsory disclosure. There, the
Supreme Court explicitly stated that:

"The drafters of the Constitution also unequivocally affirmed that, aside from national security
matters and intelligence information, trade or industrial secrets (pursuant to the Intellectual
Property Code and other related laws) as well as banking transactions (pursuant to the Secrecy
of Bank Deposits Act) re also exempt from compulsory disclosure."

It is thus clear from the foregoing that a party cannot be compelled to produce, release or
disclose documents, papers, or any object which are considered trade secrets.

In the instant case, petitioner [Air Philippines Corporation] would have [respondent] Pennswell
produce a detailed list of ingredients or composition of the latter’s lubricant products so that a
chemical comparison and analysis thereof can be obtained. On this note, We believe and so hold
that the ingredients or composition of [respondent] Pennswell’s lubricants are trade secrets
which it cannot be compelled to disclose.

[Respondent] Pennswell has a proprietary or economic right over the ingredients or components
of its lubricant products. The formulation thereof is not known to the general public and is
peculiar only to [respondent] Pennswell. The legitimate and economic interests of business
enterprises in protecting their manufacturing and business secrets are well-recognized in our
system.
[Respondent] Pennswell has a right to guard its trade secrets, manufacturing formulas,
marketing strategies and other confidential programs and information against the public.
Otherwise, such information can be illegally and unfairly utilized by business competitors who,
through their access to [respondent] Pennswell’s business secrets, may use the same for their
own private gain and to the irreparable prejudice of the latter.

xxxx

In the case before Us, the alleged trade secrets have a factual basis, i.e., it comprises of the
ingredients and formulation of [respondent] Pennswell’s lubricant products which are unknown
to the public and peculiar only to Pennswell.

All told, We find no grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of public respondent Judge in finding that the detailed list of ingredients or composition of
the subject lubricant products which petitioner [Air Philippines Corporation] seeks to be disclosed
are trade secrets of [respondent] Pennswell; hence, privileged against compulsory disclosure.14

Petitioner’s Motion for Reconsideration was denied.

Unyielding, petitioner brought the instant Petition before us, on the sole issue of:

WHETHER THE COURT OF APPEALS RULED IN ACCORDANCE WITH PREVAILING LAWS AND
JURISPRUDENCE WHEN IT UPHELD THE RULING OF THE TRIAL COURT THAT THE CHEMICAL
COMPONENTS OR INGREDIENTS OF RESPONDENT’S PRODUCTS ARE TRADE SECRETS OR
INDUSTRIAL SECRETS THAT ARE NOT SUBJECT TO COMPULSORY DISCLOSURE.15

Petitioner seeks to convince this Court that it has a right to obtain the chemical composition and
ingredients of respondent’s products to conduct a comparative analysis of its products. Petitioner
assails the conclusion reached by the Court of Appeals that the matters are trade secrets which
are protected by law and beyond public scrutiny. Relying on Section 1, Rule 27 of the Rules of
Court, petitioner argues that the use of modes of discovery operates with desirable flexibility
under the discretionary control of the trial court. Furthermore, petitioner posits that its request
is not done in bad faith or in any manner as to annoy, embarrass, or oppress respondent.

A trade secret is defined as a plan or process, tool, mechanism or compound known only to its
owner and those of his employees to whom it is necessary to confide it.16 The definition also
extends to a secret formula or process not patented, but known only to certain individuals using
it in compounding some article of trade having a commercial value.17 A trade secret may consist
of any formula, pattern, device, or compilation of information that: (1) is used in one's business;
and (2) gives the employer an opportunity to obtain an advantage over competitors who do not
possess the information.18 Generally, a trade secret is a process or device intended for
continuous use in the operation of the business, for example, a machine or formula, but can be a
price list or catalogue or specialized customer list.19 It is indubitable that trade secrets constitute
proprietary rights. The inventor, discoverer, or possessor of a trade secret or similar innovation
has rights therein which may be treated as property, and ordinarily an injunction will be granted
to prevent the disclosure of the trade secret by one who obtained the information "in confidence"
or through a "confidential relationship."20 American jurisprudence has utilized the following
factors21 to determine if an information is a trade secret, to wit:

(1) the extent to which the information is known outside of the employer's business;
(2) the extent to which the information is known by employees and others involved in the
business;

(3) the extent of measures taken by the employer to guard the secrecy of the information;

(4) the value of the information to the employer and to competitors;

(5) the amount of effort or money expended by the company in developing the information; and

(6) the extent to which the information could be easily or readily obtained through an
independent source.22

In Cocoland Development Corporation v. National Labor Relations Commission,23 the issue was
the legality of an employee’s termination on the ground of unauthorized disclosure of trade
secrets. The Court laid down the rule that any determination by management as to the
confidential nature of technologies, processes, formulae or other so-called trade secrets must
have a substantial factual basis which can pass judicial scrutiny. The Court rejected the
employer’s naked contention that its own determination as to what constitutes a trade secret
should be binding and conclusive upon the NLRC. As a caveat, the Court said that to rule
otherwise would be to permit an employer to label almost anything a trade secret, and thereby
create a weapon with which he/it may arbitrarily dismiss an employee on the pretext that the
latter somehow disclosed a trade secret, even if in fact there be none at all to speak of.24 Hence,
in Cocoland, the parameters in the determination of trade secrets were set to be such
substantial factual basis that can withstand judicial scrutiny.

The chemical composition, formulation, and ingredients of respondent’s special lubricants are
trade secrets within the contemplation of the law. Respondent was established to engage in the
business of general manufacturing and selling of, and to deal in, distribute, sell or otherwise
dispose of goods, wares, merchandise, products, including but not limited to industrial
chemicals, solvents, lubricants, acids, alkalies, salts, paints, oils, varnishes, colors, pigments and
similar preparations, among others. It is unmistakable to our minds that the manufacture and
production of respondent’s products proceed from a formulation of a secret list of ingredients. In
the creation of its lubricants, respondent expended efforts, skills, research, and resources. What
it had achieved by virtue of its investments may not be wrested from respondent on the mere
pretext that it is necessary for petitioner’s defense against a collection for a sum of money. By
and large, the value of the information to respondent is crystal clear. The ingredients constitute
the very fabric of respondent’s production and business. No doubt, the information is also
valuable to respondent’s competitors. To compel its disclosure is to cripple respondent’s
business, and to place it at an undue disadvantage. If the chemical composition of respondent’s
lubricants are opened to public scrutiny, it will stand to lose the backbone on which its business
is founded. This would result in nothing less than the probable demise of respondent’s business.
Respondent’s proprietary interest over the ingredients which it had developed and expended
money and effort on is incontrovertible. Our conclusion is that the detailed ingredients sought to
be revealed have a commercial value to respondent. Not only do we acknowledge the fact that
the information grants it a competitive advantage; we also find that there is clearly a glaring
intent on the part of respondent to keep the information confidential and not available to the
prying public.
We now take a look at Section 1, Rule 27 of the Rules of Court, which permits parties to inspect
documents or things upon a showing of good cause before the court in which an action is
pending. Its entire provision reads:

SECTION 1. Motion for production or inspection order. – Upon motion of any party showing good
cause therefore, the court in which an action is pending may (a) order any party to produce and
permit the inspection and copying or photographing, by or on behalf of the moving party, of any
designated documents, papers, books, accounts, letters, photographs, objects or tangible things,
not privileged, which constitute or contain evidence material to any matter involved in the action
and which are in his possession, custody or control; or (b) order any party to permit entry upon
designated land or other property in his possession or control for the purpose of inspecting,
measuring, surveying, or photographing the property or any designated relevant object or
operation thereon. The order shall specify the time, place and manner of making the inspection
and taking copies and photographs, and may prescribe such terms and conditions as are just.

A more than cursory glance at the above text would show that the production or inspection of
documents or things as a mode of discovery sanctioned by the Rules of Court may be availed of
by any party upon a showing of good cause therefor before the court in which an action is
pending. The court may order any party: a) to produce and permit the inspection and copying or
photographing of any designated documents, papers, books, accounts, letters, photographs,
objects or tangible things, which are not privileged;25 which constitute or contain evidence
material to any matter involved in the action; and which are in his possession, custody or
control; or b) to permit entry upon designated land or other property in his possession or control
for the purpose of inspecting, measuring, surveying, or photographing the property or any
designated relevant object or operation thereon.

Rule 27 sets an unequivocal proviso that the documents, papers, books, accounts, letters,
photographs, objects or tangible things that may be produced and inspected should not be
privileged.26 The documents must not be privileged against disclosure.27 On the ground of public
policy, the rules providing for production and inspection of books and papers do not authorize
the production or inspection of privileged matter; that is, books and papers which, because of
their confidential and privileged character, could not be received in evidence.28 Such a condition
is in addition to the requisite that the items be specifically described, and must constitute or
contain evidence material to any matter involved in the action and which are in the party’s
possession, custody or control.

Section 2429 of Rule 130 draws the types of disqualification by reason of privileged
communication, to wit: (a) communication between husband and wife; (b) communication
between attorney and client; (c) communication between physician and patient; (d)
communication between priest and penitent; and (e) public officers and public interest. There
are, however, other privileged matters that are not mentioned by Rule 130. Among them are the
following: (a) editors may not be compelled to disclose the source of published news; (b) voters
may not be compelled to disclose for whom they voted; (c) trade secrets; (d) information
contained in tax census returns; and (d) bank deposits. 30

We, thus, rule against the petitioner. We affirm the ruling of the Court of Appeals which upheld
the finding of the RTC that there is substantial basis for respondent to seek protection of the law
for its proprietary rights over the detailed chemical composition of its products.
That trade secrets are of a privileged nature is beyond quibble. The protection that this
jurisdiction affords to trade secrets is evident in our laws. The Interim Rules of Procedure on
Government Rehabilitation, effective 15 December 2000, which applies to: (1) petitions for
rehabilitation filed by corporations, partnerships, and associations pursuant to Presidential
Decree No. 902-A,31 as amended; and (2) cases for rehabilitation transferred from the Securities
and Exchange Commission to the RTCs pursuant to Republic Act No. 8799, otherwise known as
The Securities Regulation Code, expressly provides that the court may issue an order to protect
trade secrets or other confidential research, development, or commercial information belonging
to the debtor.32 Moreover, the Securities Regulation Code is explicit that the Securities and
Exchange Commission is not required or authorized to require the revelation of trade secrets or
processes in any application, report or document filed with the Commission.33 This confidentiality
is made paramount as a limitation to the right of any member of the general public, upon
request, to have access to all information filed with the Commission.34

Furthermore, the Revised Penal Code endows a cloak of protection to trade secrets under the
following articles:

Art. 291. Revealing secrets with abuse of office. — The penalty of arresto mayor and a fine not
exceeding 500 pesos shall be imposed upon any manager, employee or servant who, in such
capacity, shall learn the secrets of his principal or master and shall reveal such secrets.

Art. 292. Revelation of industrial secrets. — The penalty of prision correccional in its minimum
and medium periods and a fine not exceeding 500 pesos shall be imposed upon the person in
charge, employee or workman of any manufacturing or industrial establishment who, to the
prejudice of the owner thereof, shall reveal the secrets of the industry of
the latter.

Similarly, Republic Act No. 8424, otherwise known as the National Internal Revenue Code of
1997, has a restrictive provision on trade secrets, penalizing the revelation thereof by internal
revenue officers or employees, to wit:

SECTION 278. Procuring Unlawful Divulgence of Trade Secrets. - Any person who causes or
procures an officer or employee of the Bureau of Internal Revenue to divulge any confidential
information regarding the business, income or inheritance of any taxpayer, knowledge of which
was acquired by him in the discharge of his official duties, and which it is unlawful for him to
reveal, and any person who publishes or prints in any manner whatever, not provided by law,
any income, profit, loss or expenditure appearing in any income tax return, shall be punished by
a fine of not more than two thousand pesos (₱2,000), or suffer imprisonment of not less than six
(6) months nor more than five (5) years, or both.

Republic Act No. 6969, or the Toxic Substances and Hazardous and Nuclear Wastes Control Act
of 1990, enacted to implement the policy of the state to regulate, restrict or prohibit the
importation, manufacture, processing, sale, distribution, use and disposal of chemical substances
and mixtures that present unreasonable risk and/or injury to health or the environment, also
contains a provision that limits the right of the public to have access to records, reports
or information concerning chemical substances and mixtures including safety data
submitted and data on emission or discharge into the environment, if the matter is
confidential such that it would divulge trade secrets, production or sales figures; or
methods, production or processes unique to such manufacturer, processor or
distributor; or would otherwise tend to affect adversely the competitive position of
such manufacturer, processor or distributor.35

Clearly, in accordance with our statutory laws, this Court has declared that intellectual and
industrial property rights cases are not simple property cases.36 Without limiting such industrial
property rights to trademarks and trade names, this Court has ruled that all agreements
concerning intellectual property are intimately connected with economic development.37 The
protection of industrial property encourages investments in new ideas and inventions and
stimulates creative efforts for the satisfaction of human needs. It speeds up transfer of
technology and industrialization, and thereby bring about social and economic progress.38 Verily,
the protection of industrial secrets is inextricably linked to the advancement of our economy and
fosters healthy competition in trade.

Jurisprudence has consistently acknowledged the private character of trade

secrets.1âwphi1 There is a privilege not to disclose one’s trade secrets.39 Foremost, this Court
has declared that trade secrets and banking transactions are among the recognized restrictions
to the right of the people to information as embodied in the Constitution.40 We said that the
drafters of the Constitution also unequivocally affirmed that, aside from national security matters
and intelligence information, trade or industrial secrets (pursuant to the Intellectual Property
Code and other related laws) as well as banking transactions (pursuant to the Secrecy of Bank
Deposits Act), are also exempted from compulsory disclosure.41

Significantly, our cases on labor are replete with examples of a protectionist stance towards the
trade secrets of employers. For instance, this Court upheld the validity of the policy of a
pharmaceutical company prohibiting its employees from marrying employees of any competitor
company, on the rationalization that the company has a right to guard its trade secrets,
manufacturing formulas, marketing strategies and other confidential programs and information
from competitors.42 Notably, it was in a labor-related case that this Court made a stark ruling on
the proper determination of trade secrets.

In the case at bar, petitioner cannot rely on Section 7743 of Republic Act 7394, or the Consumer
Act of the Philippines, in order to compel respondent to reveal the chemical components of its
products. While it is true that all consumer products domestically sold, whether manufactured
locally or imported, shall indicate their general make or active ingredients in their respective
labels of packaging, the law does not apply to respondent. Respondent’s specialized lubricants --
namely, Contact Grease, Connector Grease, Thixohtropic Grease, Di-Electric Strength Protective
Coating, Dry Lubricant and Anti-Seize Compound -- are not consumer products. "Consumer
products," as it is defined in Article 4(q),44 refers to goods, services and credits, debts or
obligations which are primarily for personal, family, household or agricultural purposes, which
shall include, but not be limited to, food, drugs, cosmetics, and devices. This is not the nature of
respondent’s products. Its products are not intended for personal, family, household or
agricultural purposes. Rather, they are for industrial use, specifically for the use of aircraft
propellers and engines.

Petitioner’s argument that Republic Act No. 8203, or the Special Law on Counterfeit Drugs,
requires the disclosure of the active ingredients of a drug is also on faulty
ground.45 Respondent’s products are outside the scope of the cited law. They do not come within
the purview of a drug46 which, as defined therein, refers to any chemical compound or biological
substance, other than food, that is intended for use in the treatment, prevention or diagnosis of
disease in man or animals. Again, such are not the characteristics of respondent’s products.

What is clear from the factual findings of the RTC and the Court of Appeals is that the chemical
formulation of respondent’s products is not known to the general public and is unique only to it.
Both courts uniformly ruled that these ingredients are not within the knowledge of the public.
Since such factual findings are generally not reviewable by this Court, it is not duty-bound to
analyze and weigh all over again the evidence already considered in the proceedings below.47 We
need not delve into the factual bases of such findings as questions of fact are beyond the pale of
Rule 45 of the Rules of Court. Factual findings of the trial court when affirmed by the Court of
Appeals, are binding and conclusive on the Supreme Court.48

We do not find merit or applicability in petitioner’s invocation of Section 1249 of the Toxic
Substances and Hazardous and Nuclear Wastes Control Act of 1990, which grants the public
access to records, reports or information concerning chemical substances and mixtures,
including safety data submitted, and data on emission or discharge into the environment. To
reiterate, Section 1250 of said Act deems as confidential matters, which may not be made
public, those that would divulge trade secrets, including production or sales figures or methods;
production or processes unique to such manufacturer, processor or distributor, or would
otherwise tend to affect adversely the competitive position of such manufacturer, processor or
distributor. It is true that under the same Act, the Department of Environment and Natural
Resources may release information; however, the clear import of the law is that said authority is
limited by the right to confidentiality of the manufacturer, processor or distributor, which
information may be released only to a medical research or scientific institution where the
information is needed for the purpose of medical diagnosis or treatment of a person exposed to
the chemical substance or mixture. The right to confidentiality is recognized by said Act as
primordial. Petitioner has not made the slightest attempt to show that these circumstances are
availing in the case at bar.

Indeed, the privilege is not absolute; the trial court may compel disclosure where it is
indispensable for doing justice.51 We do not, however, find reason to except respondent’s trade
secrets from the application of the rule on privilege. The revelation of respondent’s trade secrets
serves no better purpose to the disposition of the main case pending with the RTC, which is on
the collection of a sum of money. As can be gleaned from the facts, petitioner received
respondent’s goods in trade in the normal course of business. To be sure, there are defenses
under the laws of contracts and sales available to petitioner. On the other hand, the greater
interest of justice ought to favor respondent as the holder of trade secrets. If we were to weigh
the conflicting interests between the parties, we rule in favor of the greater interest of
respondent. Trade secrets should receive greater protection from discovery, because they derive
economic value from being generally unknown and not readily ascertainable by the public.52 To
the mind of this Court, petitioner was not able to show a compelling reason for us to lift the veil
of confidentiality which shields respondent’s trade secrets.

WHEREFORE, the Petition is DENIED. The Decision dated 16 February 2006, and the
Resolution dated 25 May 2006, of the Court of Appeals in CA-G.R. SP No. 86329 are AFFIRMED.
No costs.

SO ORDERED.