G.R. No.

209843

KOLIN CORPORATION, LTD., Petitioner,

vs.
KOLIN ELECTRONICS CO., INC., Respondent.

DECISION

VELASCO, JR., J.:

Nature of the Case

Before the Court is a petition for review under Rule 45 of the Rules of Court interposed by
petitioner Taiwan Kolin Corporation, Ltd. (Taiwan Kolin), assailing the April 30, 2013 Decision1
of the Court of Appeals (CA) in CA-G.R. SP No. 122565 and its subsequent November 6, 2013
Resolution.2 The assailed issuances effectively denied petitioner's trademark application for the
use of "KOLIN" on its television and DVD players.

The Facts

On February 29, 1996, Taiwan Kolin filed with the Intellectual Property Office (IPO), then
Bureau of Patents, Trademarks, and Technology Transfer, a trademark application, docketed as
Application No. 4-1996-106310, for the use of "KOLIN" on a combination of goods, including
colored televisions, refrigerators, window-type and split-type air conditioners, electric fans and
water dispensers. Said goods allegedly fall under Classes 9, 11, and 21 of the Nice Classification
(NCL).

Application No. 4-1996-106310 would eventually be considered abandoned for Taiwan Kolin’s
failure to respond to IPO’s Paper No. 5 requiring it to elect one class of good for its coverage.
However, the same application was subsequently revived through Application Serial No. 4-
2002-011002,3 with petitioner electing Class 9 as the subject of its application, particularly:
television sets, cassette recorder, VCD Amplifiers, camcorders and other audio/video election
ronic equipment, flat iron, vacuum cleaners, cordless handsets, videophones, facsimile
machines, teleprinters, cellular phones and automatic goods vending machine. The application
would in time be duly published.4

On July 13, 2006, respondent Kolin Electronics Co., Inc. (Kolin Electronics) opposed
petitioner’s revived application, docketed as Inter Partes Case No. 14-2006-00096. As argued,
the mark Taiwan Kolin seeks to register is identical, if not confusingly similar, with its "KOLIN"
mark registered on November 23, 2003, covering the following products under Class 9 of the
NCL: automatic voltage regulator, converter, recharger, stereo booster, AC-DC regulated power
supply, step-down transformer, and PA amplified AC-DC.5

To digress a bit, Kolin Electronics’ "KOLIN" registration was, as it turns out, the subject of a
prior legal dispute between the parties in Inter Partes Case No. 14-1998-00050 beforethe IPO.
In the said case, Kolin Electronics’ own application was opposed by Taiwan Kolin, being, as
Taiwan Kolin claimed, the prior registrant and user of the "KOLIN" trademark, having
registered the same in Taipei, Taiwan on December 1, 1988. The Bureau of Legal Affairs of the
IPO (BLA-IPO), however, did not accord priority right to Taiwan Kolin’s Taipei registration
absent evidence to prove that it has already used the said mark in the Philippines as early as
1988. On appeal, the IPO Director General affirmed the BLA-IPO’s Decision. Taiwan Kolin
elevated the case to the CA, but without injunctive relief, Kolin Electronics was able to register
the "KOLIN" trademark on November 23, 2003for its products.6 Subsequently, the CA, on July
31, 2006, affirmed7 the Decision of the Director General.

In answer to respondent’s opposition in Inter Partes Case No. 14-2006-00096, petitioner

argued that it should be accorded the benefits of a foreign-registered mark under Secs. 3 and
131.1 of Republic Act No. 8293, otherwise known as the Intellectual Property Code of the
Philippines (IP Code);8 that it has already registered the "KOLIN" mark in the People’s Republic
of China, Malaysia and Vietnam, all of which are parties to the Paris Convention for the
Protection of Industrial Property (Paris Convention) and the Agreement on Trade-Related
Aspects of Intellectual Property Rights (TRIPS); and that benefits accorded to a well-known
mark should be accorded to petitioner.9

Ruling of the BLA-IPO

By Decision10 dated August 16, 2007, the BLA-IPO denied petitioner’s application disposing as
follows:

In view of all the foregoing, the instant Opposition is as, it is hereby SUSTAINED. Accordingly,
application bearing Serial No. 4-1996-106310 for the mark "KOLIN" filed in the name of
TAIWAN KOLIN., LTD. on February 29, 1996 for goods falling under Class 09 of the
International Classification of Goods such as cassette recorder, VCD, woofer, amplifiers,
camcorders and other audio/video electronic equipment, flat iron, vacuum cleaners, cordless
handsets, videophones, facsimile machines, teleprinters, cellular phones, automatic goods
vending machines and other electronic equipment is hereby REJECTED.

Let the file wrapper of "KOLIN", subject of this case be forwarded to the Bureau of Trademarks
(BOT) for appropriate action in accordance with this Decision.

SO ORDERED.

Citing Sec. 123(d) of the IP Code,11 the BLA-IPO held that a mark cannot be registered if it is
identical with a registered mark belonging to a different proprietor in respect of the same or
closely-related goods. Accordingly, respondent, as the registered owner of the mark "KOLIN" for
goods falling under Class 9 of the NCL, should then be protected against anyone who impinges
on its right, including petitioner who seeks to register an identical mark to be used on goods also
belonging to Class 9 of the NCL.12 The BLA-IPO also noted that there was proof of actual
confusion in the form of consumers writing numerous e-mails to respondent asking for
information, service, and complaints about petitioner’s products.13

Petitioner moved for reconsideration but the same was denied on January 26, 2009 for lack of
merit.14 Thus, petitioner appealed the above Decision to the Office of the Director General of
the IPO.

Ruling of the IPO Director General

On November 23, 2011, the IPO Director General rendered a Decision15 reversing that of the
BLA-IPO in the following wise:

Wherefore, premises considered, the appeal is hereby GRANTED. The Appellant’s Trademark
Application No. 4-1996-106310 is hereby GIVEN DUE COURSE subject to the use limitation or
restriction for the goods "television and DVD player". Let a copy of this Decision as well as the
trademark application and records be furnished and returned to the Director of the Bureau of
Legal Affairs for appropriate action. Further, let the Director of the Bureau of Trademarks and
the library of the Documentation, Information and Technology Transfer Bureau be furnished a
copy of this Decision for information, guidance, and records purposes.

SO ORDERED.

In so ruling, the IPO Director General ratiocinated that product classification alone cannot serve
as the decisive factor in the resolution of whether or not the goods are related and that emphasis
should be on the similarity of the products involved and not on the arbitrary classification or
general description of their properties or characteristics. As held, the mere fact that one person
has adopted and used a particular trademark for his goods does not prevent the adoption and
use of the same trademark by others on articles of a different description.16

Aggrieved, respondent elevated the case to the CA.

Ruling of the Court of Appeals

In its assailed Decision, the CA found for Kolin Electronics, on the strength of the following
premises: (a) the mark sought to be registered by Taiwan Kolin is confusingly similar to the one
already registered in favor of Kolin Electronics; (b) there are no other designs, special shape or
easily identifiable earmarks that would differentiate the products of both competing
companies;17 and (c) the intertwined use of television sets with amplifier, booster and voltage
regulator bolstered the fact that televisions can be considered as within the normal expansion of
Kolin Electronics,18 and is thereby deemed covered by its trademark as explicitly protected
under Sec. 13819 of the IP Code.20 Resultantly, the CA granted respondent’s appeal thusly:

WHEREFORE, the appeal is GRANTED. The November 23, 2011 Decision of the Director
General of the Intellectual Property Office in Inter Partes Case No. 14-2006-0096 is REVERSED
and SET ASIDE. The September 17, 2007 Decision of the Bureau of Legal Affairs of the same
office is REINSTATED.

SO ORDERED.

Petitioner moved for reconsideration only to be denied by the CA through its equally assailed
November 6, 2013 Resolution. Hence, the instant recourse.

The Issue

The primordial issue to be resolved boils down to whether or not petitioner is entitled to its
trademark registration of "KOLIN" over its specific goods of television sets and DVD players.
Petitioner postulates, in the main, that its goods are not closely related to those of Kolin
Electronics. On the other hand, respondent hinges its case on the CA’s findings that its and
petitioner’s products are closely-related. Thus, granting petitioner’s application for trademark
registration, according to respondent, would cause confusion as to the public.

The Court's Ruling

The petition is impressed with merit.

Identical marks may be registered for
products from the same classification

To bolster its opposition against petitioner’s application to register trademark "KOLIN,"

respondent maintains that the element of mark identity argues against approval of such
application, quoting the BLA IPO’s ruling in this regard:21

Indubitably, Respondent-Applicant’s [herein petitioner] mark is identical to the registered mark

of herein Opposer [herein respondent] and the identical mark is used on goods belonging to
Class 9 to which Opposer’s goods are also classified. On this point alone, Respondent-
Applicant’s application should already be denied.

The argument is specious.

The parties admit that their respective sets of goods belong to Class 9 of the NCL, which includes
the following:22

Class 9

Scientific, nautical, surveying, photographic, cinematographic, optical, weighing, measuring,

signalling, checking (supervision), life-saving and teaching apparatus and instruments;
apparatus and instruments for conducting, switching, transforming, accumulating, regulating or
controlling electricity; apparatus for recording, transmission or reproduction of sound or
images; magneticdata carriers, recording discs; compact discs, DVDs and other digital recording
media; mechanisms for coin-operated apparatus; cash registers, calculating machines, data
processing equipment, computers; computer software; fire-extinguishing apparatus.

But mere uniformity in categorization, by itself, does not automatically preclude the registration
of what appears to be an identical mark, if that be the case. In fact, this Court, in a long line of
cases, has held that such circumstance does not necessarily result in any trademark
infringement. The survey of jurisprudence cited in Mighty Corporation v. E. & J Gallo Winery23
is enlightening on this point:

(a) in Acoje Mining Co., Inc. vs. Director of Patents,24 we ordered the approval of Acoje
Mining’s application for registration of the trademark LOTUS for its soy sauce even though
Philippine Refining Company had prior registration and use of such identical mark for its edible
oil which, like soy sauce, also belonged to Class 47;

(b) in Philippine Refining Co., Inc. vs. Ng Sam and Director of Patents,25 we upheld the Patent
Director’s registration of the same trademark CAMIA for Ng Sam’s ham under Class 47, despite
Philippine Refining Company’s prior trademark registration and actual use of such mark on its
lard, butter, cooking oil (all of which belonged to Class 47), abrasive detergents, polishing
materials and soaps;

(c) in Hickok Manufacturing Co., Inc. vs. Court of Appeals and Santos Lim Bun Liong,26 we
dismissed Hickok’s petition to cancel private respondent’s HICKOK trademark registration for
its Marikina shoes as against petitioner’s earlier registration of the same trademark for
handkerchiefs, briefs, belts and wallets.

Verily, whether or not the products covered by the trademark sought to be registered by Taiwan
Kolin, on the one hand, and those covered by the prior issued certificate of registration in favor
of Kolin Electronics, on the other, fall under the same categories in the NCL is not the sole and
decisive factor in determining a possible violation of Kolin Electronics’ intellectual property
right should petitioner’s application be granted. It is hornbook doctrine, as held in the above-
cited cases, that emphasis should be on the similarity of the products involved and not on the
arbitrary classification or general description of their properties or characteristics. The mere fact
that one person has adopted and used a trademark on his goods would not, without more,
prevent the adoption and use of the same trademark by others on unrelated articles of a
different kind.27 The CA erred in denying petitioner’s registration application

Respondent next parlays the idea of relation between products as a factor militating against
petitioner’s application. Citing Esso Standard Eastern, Inc. v. Court of Appeals,28 respondent
argues that the goods covered by petitioner’s application and those covered by its registration
are actually related belonging as they do to the same class or have the same physical
characteristics with reference to their form, composition, texture, or quality, or if they serve the
same purpose. Respondent likewise draws parallelisms between the present controversy and the
following cases:29

(a) In Arce & Sons, Inc. vs. Selecta Biscuit Company,30 biscuits were held related to milk
because they were both food products;

(b) In Chua Che vs. Phil. Patents Office,31 soap and perfume, lipstick and nail polish are held to
be similarly related because they are common household items;

(c) In Ang vs. Teodoro,32 the trademark "Ang Tibay" for shoes and slippers was disallowed to be
used for shirts and pants because they belong to the same general class of goods; and

(d) In Khe vs. Lever Bros. Co.,33 soap and pomade, although noncompetitive, were held to be
similar or belong to the same class, since both are toilet articles.

Respondent avers that Kolin Electronics’ and Taiwan Kolin’s products are closely-related not
only because both fall under Class 9 of the NCL, but mainly because they both relate to
electronic products, instruments, apparatus, or appliances.34 Pushing the point, respondent
would argue that Taiwan Kolin and Kolin Electronics’ goods are inherently similar in that they
are all plugged into electric sockets and perform a useful function.35 Furthermore, respondent
echoes the appellate court’s ratiocination in denying petitioner’s application, viz:36

Significantly, Kolin Electronics’ goods (automatic voltage regulator; converter; recharger; stereo
booster; AC-DC regulated power supply; step-down transformer; and PA amplified AC-DC) and
Taiwan Kolin’s television sets and DVD players are both classified under class 9 of the NICE
agreement. At first glance, it is also evident that all these goods are generally described as
electrical devices. x x x [T]he goods of both Kolin Electronics and Taiwan Kolin will inevitably be
introduced to the public as "KOLIN" products and will be offered for sale in the same channels
of trade. Contrary to Taiwan Kolin’s claim, power supply as well as audio and stereo equipment
like booster and amplifier are not only sold in hardware and electrical shops. These products are
commonly found in appliance stores alongside television sets and DVD players. With the present
trend in today’s entertainment of having a home theater system, it is not unlikely to see a stereo
booster, amplifier and automatic voltage regulator displayed together with the television sets
and DVD players. With the intertwined use of these products bearing the identical "KOLIN"
mark, the ordinary intelligent consumer would likely assume that they are produced by the same
manufacturer.
In sum, the intertwined use, the same classification of the products as class 9 under the NICE
Agreement, and the fact that they generally flow through the same channel of trade clearly
establish that Taiwan Kolin’s television sets and DVD players are closely related to Kolin
Electronics’ goods. As correctly pointed out by the BLA-IPO, allowing Taiwan Kolin’s
registration would only confuse consumers as to the origin of the products they intend to
purchase. Accordingly, protection should be afforded to Kolin Electronics, as the registered
owner of the "KOLIN" trademark.37 (emphasis added)

The CA’s approach and reasoning to arrive at the assailed holding that the approval of
petitioner’s application is likely to cause confusion or deceive fail to persuade.

a. The products covered by

petitioner’s application and
respondent’s registration are
unrelated

A certificate of trademark registration confers upon the trademark owner the exclusive right to
sue those who have adopted a similar mark not only in connection with the goods or services
specified in the certificate, but also with those that are related thereto.38

In resolving one of the pivotal issues in this case––whether or not the products of the parties
involved are related––the doctrine in Mighty Corporation is authoritative. There, the Court held
that the goods should be tested against several factors before arriving at a sound conclusion on
the question of relatedness. Among these are:

(a) the business (and its location) to which the goods belong;

(b) the class of product to which the goods belong;

(c) the product’s quality, quantity, or size, including the nature of the package, wrapper or
container;

(d) the nature and cost of the articles;

(e) the descriptive properties, physical attributes or essential characteristics with reference to
their form, composition, texture or quality;

(f) the purpose of the goods;

(g) whether the article is bought for immediate consumption, that is, day-to-day household
items;

(h) the fields of manufacture;

(i) the conditions under which the article is usually purchased; and

(j) the channels of trade through which the goods flow, how they are distributed, marketed,
displayed and sold.39

As mentioned, the classification of the products under the NCL is merely part and parcel of the
factors to be considered in ascertaining whether the goods are related. It is not sufficient to state
that the goods involved herein are electronic products under Class 9 in order to establish
relatedness between the goods, for this only accounts for one of many considerations
enumerated in Mighty Corporation. In this case, credence is accorded to petitioner’s assertions
that:40

a. Taiwan Kolin’s goods are classified as home appliances as opposed to Kolin Electronics’ goods
which are power supply and audio equipment accessories;

b. Taiwan Kolin’s television sets and DVD players perform distinct function and purpose from
Kolin Electronics’ power supply and audio equipment; and

c. Taiwan Kolin sells and distributes its various home appliance products on wholesale and to
accredited dealers, whereas Kolin Electronics’ goods are sold and flow through electrical and
hardware stores.

Clearly then, it was erroneous for respondent to assume over the CA to conclude that all
electronic products are related and that the coverage of one electronic product necessarily
precludes the registration of a similar mark over another. In this digital age wherein electronic
products have not only diversified by leaps and bounds, and are geared towards interoperability,
it is difficult to assert readily, as respondent simplistically did, that all devices that require
plugging into sockets are necessarily related goods.

It bears to stress at this point that the list of products included in Class 941 can be sub-
categorized into five (5) classifications, namely: (1) apparatus and instruments for scientific or
research purposes, (2) information technology and audiovisual equipment, (3) apparatus and
devices for controlling the distribution and use of electricity, (4) optical apparatus and
instruments, and (5) safety equipment.42 From this sub-classification, it becomes apparent that
petitioner’s products, i.e., televisions and DVD players, belong to audio visiual equipment, while
that of respondent, consisting of automatic voltage regulator, converter, recharger, stereo
booster, AC-DC regulated power supply, step-down transformer, and PA amplified AC-DC,
generally fall under devices for controlling the distribution and use of electricity.

b. The ordinarily intelligent

buyer is not likely to be
confused

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

another, no rigid set rules can plausible be formulated. Each case must be decided on its merits,
with due regard to the goods or services involved, the usual purchaser’s character and attitude,
among others. In such cases, even more than in any other litigation, precedent must be studied
in the light of the facts of a 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.43 For
a clearer perspective and as matter of record, the following image on the left44 is the trademark
applied for by petitioner, while the image juxtaposed to its right45 is the trademark registered
by respondent:

While both competing marks refer to the word "KOLIN" written in upper case letters and in bold
font, the Court at once notes the distinct visual and aural differences between them: Kolin
Electronics’ mark is italicized and colored black while that of Taiwan Kolin is white in pantone
red color background. The differing features between the two, though they may appear minimal,
are sufficient to distinguish one brand from the other.

It cannot be stressed enough that the products involved in the case at bar are, generally
speaking, various kinds of electronic products. These are not ordinary consumable household
items, like catsup, soy sauce or soap which are of minimal cost.46 The products of the
contending parties are relatively luxury items not easily considered affordable. 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.47 As further elucidated in Del
Monte Corporation v. Court of Appeals:48

x x x 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 x x x. (emphasis added)
Respondent has made much reliance on Arce & Sons, Chua Che, Ang, and Khe, oblivious that
they involved common household items––i.e., biscuits and milk, cosmetics, clothes, and toilet
articles, respectively–– whereas the extant case involves luxury items not regularly and
inexpensively purchased by the consuming public. In accord with common empirical experience,
the useful lives of televisions and DVD players last for about five (5) years, minimum, making
replacement purchases very infrequent. The same goes true with converters and regulators that
are seldom replaced despite the acquisition of new equipment to be plugged onto it. In addition,
the amount the buyer would be parting with cannot be deemed minimal considering that the
price of televisions or DVD players can exceed today’s monthly minimum wage. In light of these
circumstances, it is then expected that the ordinary intelligent buyer would be more discerning
when it comes to deciding which electronic product they are going to purchase, and it is this
standard which this Court applies herein in determining the likelihood of confusion should
petitioner’s application be granted.

To be sure, the extant case is reminiscent of Emerald Garment Manufacturing Corporation v.

Court of Appeals,49 wherein the opposing trademarks are that of Emerald Garment
Manufacturing Corporation’s "Stylistic Mr. Lee" and H.D. Lee’s "LEE." In the said case, the
appellate court affirmed the decision of the Director of Patents denying Emerald Garment’s
application for registration due to confusing similarity with H.D. Lee’s trademark. This Court,
however, was of a different beat and ruled that there is no confusing similarity between the
marks, given that the products covered by the trademark, i.e., jeans, were, at that time,
considered pricey, typically purchased by intelligent buyers familiar with the products and are
more circumspect, and, therefore, would not easily be deceived. As held:

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 Bok50 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."51 (emphasis added)

Consistent with the above ruling, this Court finds that the differences between the two marks,
subtle as they may be, are sufficient to prevent any confusion that may ensue should petitioner’s
trademark application be granted. As held in Esso Standard Eastern, Inc.:52

Respondent court correctly ruled that considering the general appearances of each mark as a
whole, the possibility of any confusion is unlikely. A comparison of the labels of the samples of
the goods submitted by the parties shows a great many differences on the trademarks used. As
pointed out by respondent court in its appealed decision, "(A) witness for the plaintiff, Mr.
Buhay, admitted that the color of the ‘ESSO’ used by the plaintiff for the oval design where the
blue word ESSO is contained is the distinct and unique kind of blue. In his answer to the trial
court’s question, Mr. Buhay informed the court that the plaintiff never used its trademark on
any product where the combination of colors is similar to the label of the Esso cigarettes," and
"Another witness for the plaintiff, Mr. Tengco, testified that generally, the plaintiff’s trademark
comes all in either red, white, blue or any combination of the three colors. It is to be pointed out
that not even a shade of these colors appears on the trademark of the appellant’s cigarette. The
only color that the appellant uses in its trademark is green."

Even the lower court, which ruled initially for petitioner, found that a "noticeable difference
between the brand ESSO being used by the defendants and the trademark ESSO of the plaintiff
is that the former has a rectangular background, while in that of the plaintiff the word ESSO is
enclosed in an oval background."

All told, We are convinced that petitioner's trademark registration not only covers unrelated
good, but is also incapable of deceiving the ordinary intelligent buyer. The ordinary purchaser
must be thought of as having, and credited with, at least a modicum of intelligence to be able to
see the differences between the two trademarks in question.53

Questions of fact may still be entertained

On a final note, the policy according factual findings of courts a quo great respect, if not finality,
is not binding where they have overlooked, misapprehended, or misapplied any fact or
circumstance of weight and substances.54 So it must be here; the nature of the products
involved materially affects the outcome of the instant case. A reversal of the appellate Court's
Decision is then in order.

WHEREFORE, in view of the foregoing, the petition is hereby GRANTED. The Decision and the
Resolution of the Court of Appeals in CA-G.R. SP No. 122565, dated April 30, 2013 and
November 6, 2013, respectively, are hereby REVERSED and SET ASIDE. Accordingly, the
Decision of the Intellectual Property Office Director General in Inter Partes Case No. 14-2006-
00096, dated November 23, 2011, is hereby REINSTATED.

SO ORDERED.
G.R. No. 154342 July 14, 2004

MIGHTY CORPORATION and LA CAMPANA FABRICA DE TABACO, INC.,

petitioner,
vs.
E. & J. GALLO WINERY and THE ANDRESONS GROUP, INC., respondents.

DECISION

CORONA, J.:

In this petition for review on certiorari under Rule 45, petitioners Mighty Corporation and La
Campana Fabrica de Tabaco, Inc. (La Campana) seek to annul, reverse and set aside: (a) the
November 15, 2001 decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 65175 affirming
the November 26, 1998 decision,2 as modified by the June 24, 1999 order,3 of the Regional Trial
Court of Makati City, Branch 57 (Makati RTC) in Civil Case No. 93-850, which held petitioners
liable for, and permanently enjoined them from, committing trademark infringement and unfair
competition, and which ordered them to pay damages to respondents E. & J. Gallo Winery
(Gallo Winery) and The Andresons Group, Inc. (Andresons); (b) the July 11, 2002 CA resolution
denying their motion for reconsideration4 and (c) the aforesaid Makati RTC decision itself.

I.

The Factual Background

Respondent Gallo Winery is a foreign corporation not doing business in the Philippines but
organized and existing under the laws of the State of California, United States of America (U.S.),
where all its wineries are located. Gallo Winery produces different kinds of wines and brandy
products and sells them in many countries under different registered trademarks, including the
GALLO and ERNEST & JULIO GALLO wine trademarks.

Respondent domestic corporation, Andresons, has been Gallo Winery’s exclusive wine importer
and distributor in the Philippines since 1991, selling these products in its own name and for its
own account.5

Gallo Winery’s GALLO wine trademark was registered in the principal register of the Philippine
Patent Office (now Intellectual Property Office) on November 16, 1971 under Certificate of
Registration No. 17021 which was renewed on November 16, 1991 for another 20 years.6 Gallo
Winery also applied for registration of its ERNEST & JULIO GALLO wine trademark on October
11, 1990 under Application Serial No. 901011-00073599-PN but the records do not disclose if it
was ever approved by the Director of Patents.7

On the other hand, petitioners Mighty Corporation and La Campana and their sister company,
Tobacco Industries of the Philippines (Tobacco Industries), are engaged in the cultivation,
manufacture, distribution and sale of tobacco products for which they have been using the
GALLO cigarette trademark since 1973. 8

The Bureau of Internal Revenue (BIR) approved Tobacco Industries’ use of GALLO 100’s
cigarette mark on September 14, 1973 and GALLO filter cigarette mark on March 26, 1976, both
for the manufacture and sale of its cigarette products. In 1976, Tobacco Industries filed its
manufacturer’s sworn statement as basis for BIR’s collection of specific tax on GALLO
cigarettes.9

On February 5, 1974, Tobacco Industries applied for, but eventually did not pursue, the
registration of the GALLO cigarette trademark in the principal register of the then Philippine
Patent Office.10

In May 1984, Tobacco Industries assigned the GALLO cigarette trademark to La Campana
which, on July 16, 1985, applied for trademark registration in the Philippine Patent Office.11 On
July 17, 1985, the National Library issued Certificate of Copyright Registration No. 5834 for La
Campana’s lifetime copyright claim over GALLO cigarette labels.12

Subsequently, La Campana authorized Mighty Corporation to manufacture and sell cigarettes

bearing the GALLO trademark.13 BIR approved Mighty Corporation’s use of GALLO 100’s
cigarette brand, under licensing agreement with Tobacco Industries, on May 18, 1988, and
GALLO SPECIAL MENTHOL 100’s cigarette brand on April 3, 1989.14

Petitioners claim that GALLO cigarettes have been sold in the Philippines since 1973, initially by
Tobacco Industries, then by La Campana and finally by Mighty Corporation.15

On the other hand, although the GALLO wine trademark was registered in the Philippines in
1971, respondents claim that they first introduced and sold the GALLO and ERNEST & JULIO
GALLO wines in the Philippines circa 1974 within the then U.S. military facilities only. By 1979,
they had expanded their Philippine market through authorized distributors and independent
outlets.16

Respondents claim that they first learned about the existence of GALLO cigarettes in the latter
part of 1992 when an Andresons employee saw such cigarettes on display with GALLO wines in
a Davao supermarket wine cellar section.17 Forthwith, respondents sent a demand letter to
petitioners asking them to stop using the GALLO trademark, to no avail.

II.

The Legal Dispute

On March 12, 1993, respondents sued petitioners in the Makati RTC for trademark and
tradename infringement and unfair competition, with a prayer for damages and preliminary
injunction.

Respondents charged petitioners with violating Article 6bis of the Paris Convention for the
Protection of Industrial Property (Paris Convention)18 and RA 166 (Trademark Law),19
specifically, Sections 22 and 23 (for trademark infringement),20 29 and 3021 (for unfair
competition and false designation of origin) and 37 (for tradename infringement).22 They
claimed that petitioners adopted the GALLO trademark to ride on Gallo Winery’s GALLO and
ERNEST & JULIO GALLO trademarks’ established reputation and popularity, thus causing
confusion, deception and mistake on the part of the purchasing public who had always
associated GALLO and ERNEST & JULIO GALLO trademarks with Gallo Winery’s wines.
Respondents prayed for the issuance of a writ of preliminary injunction and ex parte restraining
order, plus P2 million as actual and compensatory damages, at least P500,000 as exemplary and
moral damages, and at least P500,000 as attorney’s fees and litigation expenses.23
In their answer, petitioners alleged, among other affirmative defenses, that: petitioner’s GALLO
cigarettes and Gallo Winery’s wines were totally unrelated products; Gallo Winery’s GALLO
trademark registration certificate covered wines only, not cigarettes; GALLO cigarettes and
GALLO wines were sold through different channels of trade; GALLO cigarettes, sold at P4.60 for
GALLO filters and P3 for GALLO menthols, were low-cost items compared to Gallo Winery’s
high-priced luxury wines which cost between P98 to P242.50; the target market of Gallo
Winery’s wines was the middle or high-income bracket with at least P10,000 monthly income
while GALLO cigarette buyers were farmers, fishermen, laborers and other low-income workers;
the dominant feature of the GALLO cigarette mark was the rooster device with the
manufacturer’s name clearly indicated as MIGHTY CORPORATION while, in the case of Gallo
Winery’s wines, it was the full names of the founders-owners ERNEST & JULIO GALLO or just
their surname GALLO; by their inaction and conduct, respondents were guilty of laches and
estoppel; and petitioners acted with honesty, justice and good faith in the exercise of their right
to manufacture and sell GALLO cigarettes.

In an order dated April 21, 1993,24 the Makati RTC denied, for lack of merit, respondent’s
prayer for the issuance of a writ of preliminary injunction,25 holding that respondent’s GALLO
trademark registration certificate covered wines only, that respondents’ wines and petitioners’
cigarettes were not related goods and respondents failed to prove material damage or great
irreparable injury as required by Section 5, Rule 58 of the Rules of Court.26

On August 19, 1993, the Makati RTC denied, for lack of merit, respondents’ motion for
reconsideration. The court reiterated that respondents’ wines and petitioners’ cigarettes were
not related goods since the likelihood of deception and confusion on the part of the consuming
public was very remote. The trial court emphasized that it could not rely on foreign rulings cited
by respondents "because the[se] cases were decided by foreign courts on the basis of unknown
facts peculiar to each case or upon factual surroundings which may exist only within their
jurisdiction. Moreover, there [was] no showing that [these cases had] been tested or found
applicable in our jurisdiction."27

On February 20, 1995, the CA likewise dismissed respondents’ petition for review on certiorari,
docketed as CA-G.R. No. 32626, thereby affirming the Makati RTC’s denial of the application for
issuance of a writ of preliminary injunction against petitioners.28

After trial on the merits, however, the Makati RTC, on November 26, 1998, held petitioners
liable for, and permanently enjoined them from, committing trademark infringement and unfair
competition with respect to the GALLO trademark:

WHEREFORE, judgment is rendered in favor of the plaintiff (sic) and against the defendant
(sic), to wit:

a. permanently restraining and enjoining defendants, their distributors, trade outlets, and all
persons acting for them or under their instructions, from (i) using E & J’s registered trademark
GALLO or any other reproduction, counterfeit, copy or colorable imitation of said trademark,
either singly or in conjunction with other words, designs or emblems and other acts of similar
nature, and (ii) committing other acts of unfair competition against plaintiffs by manufacturing
and selling their cigarettes in the domestic or export markets under the GALLO trademark.

b. ordering defendants to pay plaintiffs –

(i) actual and compensatory damages for the injury and prejudice and impairment of plaintiffs’
business and goodwill as a result of the acts and conduct pleaded as basis for this suit, in an
amount equal to 10% of FOURTEEN MILLION TWO HUNDRED THIRTY FIVE THOUSAND
PESOS (PHP14,235,000.00) from the filing of the complaint until fully paid;

(ii) exemplary damages in the amount of PHP100,000.00;

(iii) attorney’s fees and expenses of litigation in the amount of PHP1,130,068.91;

(iv) the cost of suit.

SO ORDERED."29

On June 24, 1999, the Makati RTC granted respondent’s motion for partial reconsideration and
increased the award of actual and compensatory damages to 10% of P199,290,000 or
P19,929,000.30

On appeal, the CA affirmed the Makati RTC decision and subsequently denied petitioner’s
motion for reconsideration.

III.

The Issues

Petitioners now seek relief from this Court contending that the CA did not follow prevailing laws
and jurisprudence when it held that: [a] RA 8293 (Intellectual Property Code of the Philippines
[IP Code]) was applicable in this case; [b] GALLO cigarettes and GALLO wines were identical,
similar or related goods for the reason alone that they were purportedly forms of vice; [c] both
goods passed through the same channels of trade and [d] petitioners were liable for trademark
infringement, unfair competition and damages.31

Respondents, on the other hand, assert that this petition which invokes Rule 45 does not involve
pure questions of law, and hence, must be dismissed outright.

IV.

Discussion

THE EXCEPTIONAL CIRCUMSTANCES

IN THIS CASE OBLIGE THE COURT TO REVIEW
THE CA’S FACTUAL FINDINGS

As a general rule, a petition for review on certiorari under Rule 45 must raise only "questions of
law"32 (that is, the doubt pertains to the application and interpretation of law to a certain set of
facts) and not "questions of fact" (where the doubt concerns the truth or falsehood of alleged
facts),33 otherwise, the petition will be denied. We are not a trier of facts and the Court of
Appeals’ factual findings are generally conclusive upon us.34

This case involves questions of fact which are directly related and intertwined with questions of
law. The resolution of the factual issues concerning the goods’ similarity, identity, relation,
channels of trade, and acts of trademark infringement and unfair competition is greatly
dependent on the interpretation of applicable laws. The controversy here is not simply the
identity or similarity of both parties’ trademarks but whether or not infringement or unfair
competition was committed, a conclusion based on statutory interpretation. Furthermore, one
or more of the following exceptional circumstances oblige us to review the evidence on record:35

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

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

(3) there is grave abuse of discretion;

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

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

(7) 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

(8) the findings of fact of the Court of Appeals are premised on the absence of evidence and are
contradicted [by the evidence] on record.36

In this light, after thoroughly examining the evidence on record, weighing, analyzing and
balancing all factors to determine whether trademark infringement and/or unfair competition
has been committed, we conclude that both the Court of Appeals and the trial court veered away
from the law and well-settled jurisprudence.

Thus, we give due course to the petition.

THE TRADEMARK LAW AND THE PARIS

CONVENTION ARE THE APPLICABLE LAWS,
NOT THE INTELLECTUAL PROPERTY CODE

We note that respondents sued petitioners on March 12, 1993 for trademark infringement and
unfair competition committed during the effectivity of the Paris Convention and the Trademark
Law.

Yet, in the Makati RTC decision of November 26, 1998, petitioners were held liable not only
under the aforesaid governing laws but also under the IP Code which took effect only on January
1, 1998,37 or about five years after the filing of the complaint:

Defendants’ unauthorized use of the GALLO trademark constitutes trademark infringement

pursuant to Section 22 of Republic Act No. 166, Section 155 of the IP Code, Article 6bis of the
Paris Convention, and Article 16 (1) of the TRIPS Agreement as it causes confusion, deception
and mistake on the part of the purchasing public.38 (Emphasis and underscoring supplied)

The CA apparently did not notice the error and affirmed the Makati RTC decision:
In the light of its finding that appellants’ use of the GALLO trademark on its cigarettes is likely
to create confusion with the GALLO trademark on wines previously registered and used in the
Philippines by appellee E & J Gallo Winery, the trial court thus did not err in holding that
appellants’ acts not only violated the provisions of the our trademark laws (R.A. No. 166 and
R.A. Nos. (sic) 8293) but also Article 6bis of the Paris Convention.39 (Emphasis and
underscoring supplied)

We therefore hold that the courts a quo erred in retroactively applying the IP Code in this case.

It is a fundamental principle that the validity and obligatory force of a law proceed from the fact
that it has first been promulgated. A law that is not yet effective cannot be considered as
conclusively known by the populace. To make a law binding even before it takes effect may lead
to the arbitrary exercise of the legislative power.40 Nova constitutio futuris formam imponere
debet non praeteritis. A new state of the law ought to affect the future, not the past. Any doubt
must generally be resolved against the retroactive operation of laws, whether these are original
enactments, amendments or repeals.41 There are only a few instances when laws may be given
retroactive effect,42 none of which is present in this case.

The IP Code, repealing the Trademark Law,43 was approved on June 6, 1997. Section 241
thereof expressly decreed that it was to take effect only on January 1, 1998, without any
provision for retroactive application. Thus, the Makati RTC and the CA should have limited the
consideration of the present case within the parameters of the Trademark Law and the Paris
Convention, the laws in force at the time of the filing of the complaint.

DISTINCTIONS BETWEEN
TRADEMARK INFRINGEMENT
AND UNFAIR COMPETITION

Although the laws on trademark infringement and unfair competition have a common
conception at their root, that is, a person shall not be permitted to misrepresent his goods or his
business as the goods or business of another, the law on unfair competition is broader and more
inclusive than the law on trademark infringement. The latter is more limited but it recognizes a
more exclusive right derived from the trademark adoption and registration by the person whose
goods or business is first associated with it. The law on trademarks is thus a specialized subject
distinct from the law on unfair competition, although the two subjects are entwined with each
other and are dealt with together in the Trademark Law (now, both are covered by the IP Code).
Hence, even if one fails to establish his exclusive property right to a trademark, he may still
obtain relief on the ground of his competitor’s unfairness or fraud. Conduct constitutes unfair
competition if the effect is to pass off on the public the goods of one man as the goods of
another. It is not necessary that any particular means should be used to this end.44

In Del Monte Corporation vs. Court of Appeals,45 we distinguished trademark infringement

from unfair competition:

(1) Infringement of trademark is the unauthorized use of a trademark, whereas unfair

competition is the passing off of one's goods as those of another.

(2) In infringement of trademark fraudulent intent is unnecessary, whereas in unfair

competition fraudulent intent is essential.
(3) In infringement of trademark the prior registration of the trademark is a prerequisite to the
action, whereas in unfair competition registration is not necessary.

Pertinent Provisions on Trademark

Infringement under the Paris
Convention and the Trademark Law

Article 6bis of the Paris Convention,46 an international agreement binding on the Philippines
and the United States (Gallo Winery’s country of domicile and origin) prohibits "the
[registration] or use of a trademark which constitutes a reproduction, imitation or 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 the [Paris] Convention and used for identical or similar goods. [This
rule also applies] when the essential part of the mark constitutes a reproduction of any such
well-known mark or an imitation liable to create confusion therewith." There is no time limit for
seeking the prohibition of the use of marks used in bad faith.47

Thus, under Article 6bis of the Paris Convention, the following are the elements of trademark
infringement:

(a) registration or use by another person of a trademark which is a reproduction, imitation or

translation liable to create confusion,

(b) of a mark considered by the competent authority of the country of registration or use48 to be
well-known in that country and is already the mark of a person entitled to the benefits of the
Paris Convention, and

(c) such trademark is used for identical or similar goods.

On the other hand, Section 22 of the Trademark Law holds a person liable for infringement
when, among others, he "uses without the consent of the registrant, any reproduction,
counterfeit, copy or colorable imitation of any registered mark or tradename in connection with
the sale, offering for sale, or advertising of any goods, business or services 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 tradename 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."49 Trademark registration and actual use are material to the complaining party’s cause
of action.

Corollary to this, Section 20 of the Trademark Law50 considers the trademark registration
certificate as prima facie evidence of the validity of the registration, the registrant’s ownership
and exclusive right to use the trademark in connection with the goods, business or services as
classified by the Director of Patents51 and as specified in the certificate, subject to the conditions
and limitations stated therein. Sections 2 and 2-A52 of the Trademark Law emphasize the
importance of the trademark’s actual use in commerce in the Philippines prior to its
registration. In the adjudication of trademark rights between contending parties, equitable
principles of laches, estoppel, and acquiescence may be considered and applied.53
Under Sections 2, 2-A, 9-A, 20 and 22 of the Trademark Law therefore, the following constitute
the elements of trademark infringement:

(a) a trademark actually used in commerce in the Philippines and registered in the principal
register of the Philippine Patent Office

(b) is used by another person in connection with the sale, offering for sale, or advertising of any
goods, business or services 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 such trademark is reproduced, counterfeited, copied or colorably
imitated by another person and such reproduction, counterfeit, copy or colorable imitation 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 as to likely cause confusion or
mistake or to deceive purchasers,

(c) the trademark is used for identical or similar goods, and

(d) such act is done without the consent of the trademark registrant or assignee.

In summary, the Paris Convention protects well-known trademarks only (to be determined by
domestic authorities), while the Trademark Law protects all trademarks, whether well-known or
not, provided that they have been registered and are in actual commercial use in the Philippines.
Following universal acquiescence and comity, in case of domestic legal disputes on any
conflicting provisions between the Paris Convention (which is an international agreement) and
the Trademark law (which is a municipal law) the latter will prevail.54

Under both the Paris Convention and the Trademark Law, the protection of a registered
trademark is limited only to goods identical or similar to those in respect of which such
trademark is registered and only when there is likelihood of confusion. Under both laws, the
time element in commencing infringement cases is material in ascertaining the registrant’s
express or implied consent to another’s use of its trademark or a colorable imitation thereof.
This is why acquiescence, estoppel or laches may defeat the registrant’s otherwise valid cause of
action.

Hence, proof of all the elements of trademark infringement is a condition precedent to any
finding of liability.

THE ACTUAL COMMERCIAL USE IN THE

PHILIPPINES OF GALLO CIGARETTE
TRADEMARK PRECEDED THAT OF
GALLO WINE TRADEMARK.

By respondents’ own judicial admission, the GALLO wine trademark was registered in the
Philippines in November 1971 but the wine itself was first marketed and sold in the country only
in 1974 and only within the former U.S. military facilities, and outside thereof, only in 1979. To
prove commercial use of the GALLO wine trademark in the Philippines, respondents presented
sales invoice no. 29991 dated July 9, 1981 addressed to Conrad Company Inc., Makati,
Philippines and sales invoice no. 85926 dated March 22, 1996 addressed to Andresons Global,
Inc., Quezon City, Philippines. Both invoices were for the sale and shipment of GALLO wines to
the Philippines during that period.55 Nothing at all, however, was presented to evidence the
alleged sales of GALLO wines in the Philippines in 1974 or, for that matter, prior to July 9, 1981.
On the other hand, by testimonial evidence supported by the BIR authorization letters, forms
and manufacturer’s sworn statement, it appears that petitioners and its predecessor-in-interest,
Tobacco Industries, have indeed been using and selling GALLO cigarettes in the Philippines
since 1973 or before July 9, 1981.56

In Emerald Garment Manufacturing Corporation vs. Court of Appeals,57 we reiterated our

rulings in Pagasa Industrial Corporation vs. Court of Appeals,58 Converse Rubber Corporation
vs. Universal Rubber Products, Inc.,59 Sterling Products International, Inc. vs. Farbenfabriken
Bayer Aktiengesellschaft,60 Kabushi Kaisha Isetan vs. Intermediate Appellate Court,61 and
Philip Morris vs. Court of Appeals,62 giving utmost importance to the actual commercial use of
a trademark in the Philippines prior to its registration, notwithstanding the provisions of the
Paris Convention:

xxx xxx xxx

In addition to the foregoing, we are constrained to agree with petitioner's contention that
private respondent failed to prove prior actual commercial use of its "LEE" trademark in the
Philippines before filing its application for registration with the BPTTT and hence, has not
acquired ownership over said mark.

Actual use in commerce in the Philippines is an essential prerequisite for the acquisition of
ownership over a trademark pursuant to Sec. 2 and 2-A of the Philippine Trademark Law (R.A.
No. 166) x x x

xxx xxx xxx

The provisions of the 1965 Paris Convention for the Protection of Industrial Property relied
upon by private respondent and Sec. 21-A of the Trademark Law (R.A. No. 166) were sufficiently
expounded upon and qualified in the recent case of Philip Morris, Inc. v. Court of Appeals (224
SCRA 576 [1993]):

xxx xxx xxx

Following universal acquiescence and comity, our municipal law on trademarks regarding the
requirement of actual use in the Philippines must subordinate an international agreement
inasmuch as the apparent clash is being decided by a municipal tribunal (Mortisen vs. Peters,
Great Britain, High Court of Judiciary of Scotland, 1906, 8 Sessions, 93; Paras, International
Law and World Organization, 1971 Ed., p. 20). Withal, the fact that international law has been
made part of the law of the land does not by any means imply the primacy of international law
over national law in the municipal sphere. Under the doctrine of incorporation as applied in
most countries, rules of international law are given a standing equal, not superior, to national
legislative enactments.

xxx xxx xxx

In other words, (a foreign corporation) may have the capacity to sue for infringement
irrespective of lack of business activity in the Philippines on account of Section 21-A of the
Trademark Law but the question of whether they have an exclusive right over their symbol as to
justify issuance of the controversial writ will depend on actual use of their trademarks in the
Philippines in line with Sections 2 and 2-A of the same law. It is thus incongruous for petitioners
to claim that when a foreign corporation not licensed to do business in the Philippines files a
complaint for infringement, the entity need not be actually using the trademark in commerce in
the Philippines. Such a foreign corporation may have the personality to file a suit for
infringement but it may not necessarily be entitled to protection due to absence of actual use of
the emblem in the local market.

xxx xxx xxx

Undisputably, private respondent is the senior registrant, having obtained several registration
certificates for its various trademarks "LEE," "LEE RIDERS," and "LEESURES" in both the
supplemental and principal registers, as early as 1969 to 1973. However, registration alone will
not suffice. In Sterling Products International, Inc. v. Farbenfabriken Bayer Aktiengesellschaft
(27 SCRA 1214 [1969]; Reiterated in Kabushi Isetan vs. Intermediate Appellate Court (203
SCRA 583 [1991]) we declared:

xxx xxx xxx

A rule widely accepted and firmly entrenched because it has come down through the years is
that actual use in commerce or business is a prerequisite in the acquisition of the right of
ownership over a trademark.

xxx xxx xxx

The credibility placed on a certificate of registration of one's trademark, or its weight as evidence
of validity, ownership and exclusive use, is qualified. A registration certificate serves merely as
prima facie evidence. It is not conclusive but can and may be rebutted by controverting
evidence.

xxx xxx xxx

In the case at bench, however, we reverse the findings of the Director of Patents and the Court of
Appeals. After a meticulous study of the records, we observe that the Director of Patents and the
Court of Appeals relied mainly on the registration certificates as proof of use by private
respondent of the trademark "LEE" which, as we have previously discussed are not sufficient.
We cannot give credence to private respondent's claim that its "LEE" mark first reached the
Philippines in the 1960's through local sales by the Post Exchanges of the U.S. Military Bases in
the Philippines (Rollo, p. 177) based as it was solely on the self-serving statements of Mr.
Edward Poste, General Manager of Lee (Phils.), Inc., a wholly owned subsidiary of the H.D. Lee,
Co., Inc., U.S.A., herein private respondent. (Original Records, p. 52) Similarly, we give little
weight to the numerous vouchers representing various advertising expenses in the Philippines
for "LEE" products. It is well to note that these expenses were incurred only in 1981 and 1982 by
LEE (Phils.), Inc. after it entered into a licensing agreement with private respondent on 11 May
1981. (Exhibit E)

On the other hand, petitioner has sufficiently shown that it has been in the business of selling
jeans and other garments adopting its "STYLISTIC MR. LEE" trademark since 1975 as evidenced
by appropriate sales invoices to various stores and retailers. (Exhibit 1-e to 1-o)

Our rulings in Pagasa Industrial Corp. v. Court of Appeals (118 SCRA 526 [1982]) and Converse
Rubber Corp. v. Universal Rubber Products, Inc., (147 SCRA 154 [1987]), respectively, are
instructive:
The Trademark Law is very clear. It requires actual commercial use of the mark prior to its
registration. There is no dispute that respondent corporation was the first registrant, yet it failed
to fully substantiate its claim that it used in trade or business in the Philippines the subject
mark; it did not present proof to invest it with exclusive, continuous adoption of the trademark
which should consist among others, of considerable sales since its first use. The invoices
submitted by respondent which were dated way back in 1957 show that the zippers sent to the
Philippines were to be used as "samples" and "of no commercial value." The evidence for
respondent must be clear, definite and free from inconsistencies. "Samples" are not for sale and
therefore, the fact of exporting them to the Philippines cannot be considered to be equivalent to
the "use" contemplated by law. Respondent did not expect income from such "samples." There
were no receipts to establish sale, and no proof were presented to show that they were
subsequently sold in the Philippines.

xxx xxx xxx

For lack of adequate proof of actual use of its trademark in the Philippines prior to petitioner's
use of its own mark and for failure to establish confusing similarity between said trademarks,
private respondent's action for infringement must necessarily fail. (Emphasis supplied.)

In view of the foregoing jurisprudence and respondents’ judicial admission that the actual
commercial use of the GALLO wine trademark was subsequent to its registration in 1971 and to
Tobacco Industries’ commercial use of the GALLO cigarette trademark in 1973, we rule that, on
this account, respondents never enjoyed the exclusive right to use the GALLO wine trademark to
the prejudice of Tobacco Industries and its successors-in-interest, herein petitioners, either
under the Trademark Law or the Paris Convention.

Respondents’ GALLO trademark

registration is limited to wines only

We also note that the GALLO trademark registration certificates in the Philippines and in other
countries expressly state that they cover wines only, without any evidence or indication that
registrant Gallo Winery expanded or intended to expand its business to cigarettes.63

Thus, by strict application of Section 20 of the Trademark Law, Gallo Winery’s exclusive right to
use the GALLO trademark should be limited to wines, the only product indicated in its
registration certificates. This strict statutory limitation on the exclusive right to use trademarks
was amply clarified in our ruling in Faberge, Inc. vs. Intermediate Appellate Court:64

Having thus reviewed the laws applicable to the case before Us, it is not difficult to discern from
the foregoing statutory enactments that private respondent may be permitted to register the
trademark "BRUTE" for briefs produced by it notwithstanding petitioner's vehement
protestations of unfair dealings in marketing its own set of items which are limited to: after-
shave lotion, shaving cream, deodorant, talcum powder and toilet soap. Inasmuch as petitioner
has not ventured in the production of briefs, an item which is not listed in its certificate of
registration, petitioner cannot and should not be allowed to feign that private respondent had
invaded petitioner's exclusive domain. To be sure, it is significant that petitioner failed to annex
in its Brief the so-called "eloquent proof that petitioner indeed intended to expand its mark
‘BRUT’ to other goods" (Page 27, Brief for the Petitioner; page 202, Rollo). Even then, a mere
application by petitioner in this aspect does not suffice and may not vest an exclusive right in its
favor that can ordinarily be protected by the Trademark Law. In short, paraphrasing Section 20
of the Trademark Law as applied to the documentary evidence adduced by petitioner, the
certificate of registration issued by the Director of Patents can confer upon petitioner the
exclusive right to use its own symbol only to those goods specified in the certificate, subject to
any conditions and limitations stated therein. This basic point is perhaps the unwritten rationale
of Justice Escolin in Philippine Refining Co., Inc. vs. Ng Sam (115 SCRA 472 [1982]), when he
stressed the principle enunciated by the United States Supreme Court in American Foundries vs.
Robertson (269 U.S. 372, 381, 70 L ed 317, 46 Sct. 160) that one who has adopted and used a
trademark on his goods does not prevent the adoption and use of the same trademark by others
for products which are of a different description. Verily, this Court had the occasion to observe
in the 1966 case of George W. Luft Co., Inc. vs. Ngo Guan (18 SCRA 944 [1966]) that no serious
objection was posed by the petitioner therein since the applicant utilized the emblem "Tango"
for no other product than hair pomade in which petitioner does not deal.

This brings Us back to the incidental issue raised by petitioner which private respondent sought
to belie as regards petitioner's alleged expansion of its business. It may be recalled that
petitioner claimed that it has a pending application for registration of the emblem "BRUT 33"
for briefs (page 25, Brief for the Petitioner; page 202, Rollo) to impress upon Us the Solomonic
wisdom imparted by Justice JBL Reyes in Sta. Ana vs. Maliwat (24 SCRA 1018 [1968]), to the
effect that dissimilarity of goods will not preclude relief if the junior user's goods are not remote
from any other product which the first user would be likely to make or sell (vide, at page 1025).
Commenting on the former provision of the Trademark Law now embodied substantially under
Section 4(d) of Republic Act No. 166, as amended, the erudite jurist opined that the law in point
"does not require that the articles of manufacture of the previous user and late user of the mark
should possess the same descriptive properties or should fall into the same categories as to bar
the latter from registering his mark in the principal register." (supra at page 1026).

Yet, it is equally true that as aforesaid, the protective mantle of the Trademark Law extends only
to the goods used by the first user as specified in the certificate of registration following the clear
message conveyed by Section 20.

How do We now reconcile the apparent conflict between Section 4(d) which was relied upon by
Justice JBL Reyes in the Sta. Ana case and Section 20? It would seem that Section 4(d) does not
require that the goods manufactured by the second user be related to the goods produced by the
senior user while Section 20 limits the exclusive right of the senior user only to those goods
specified in the certificate of registration. But the rule has been laid down that the clause which
comes later shall be given paramount significance over an anterior proviso upon the
presumption that it expresses the latest and dominant purpose. (Graham Paper Co. vs. National
Newspapers Asso. (Mo. App.) 193 S.W. 1003; Barnett vs. Merchant's L. Ins. Co., 87 Okl. 42;
State ex nel Atty. Gen. vs. Toledo, 26 N.E., p. 1061; cited by Martin, Statutory Construction Sixth
ed., 1980 Reprinted, p. 144). It ineluctably follows that Section 20 is controlling and, therefore,
private respondent can appropriate its symbol for the briefs it manufactures because as aptly
remarked by Justice Sanchez in Sterling Products International Inc. vs. Farbenfabriken Bayer
(27 SCRA 1214 [1969]):

"Really, if the certificate of registration were to be deemed as including goods not specified
therein, then a situation may arise whereby an applicant may be tempted to register a trademark
on any and all goods which his mind may conceive even if he had never intended to use the
trademark for the said goods. We believe that such omnibus registration is not contemplated by
our Trademark Law." (1226).

NO LIKELIHOOD OF CONFUSION, MISTAKE

OR DECEIT AS TO THE IDENTITY OR SOURCE
OF PETITIONERS’ AND RESPONDENTS’
GOODS OR BUSINESS

A crucial issue in any trademark infringement case is the likelihood of confusion, mistake or
deceit as to the identity, source or origin of the goods or identity of the business as a
consequence of using a certain mark. Likelihood of confusion is admittedly a relative term, to be
determined rigidly according to the particular (and sometimes peculiar) circumstances of each
case. Thus, in trademark cases, more than in other kinds of litigation, precedents must be
studied in the light of each particular case. 65

There are two types of confusion in trademark infringement. The first is "confusion of goods"
when an otherwise prudent purchaser is induced to purchase one product in the belief that he is
purchasing another, in which case defendant’s goods are then bought as the plaintiff’s and its
poor quality reflects badly on the plaintiff’s reputation. The other is "confusion of business"
wherein the goods of the parties are different but the defendant’s product can reasonably
(though mistakenly) be assumed to originate from the plaintiff, thus deceiving the public into
believing that there is some connection between the plaintiff and defendant which, in fact, does
not exist.66

In determining the likelihood of confusion, the Court must consider: [a] the resemblance
between the trademarks; [b] the similarity of the goods to which the trademarks are attached;
[c] the likely effect on the purchaser and [d] the registrant’s express or implied consent and
other fair and equitable considerations.

Petitioners and respondents both use "GALLO" in the labels of their respective cigarette and
wine products. But, as held in the following cases, the use of an identical mark does not, by
itself, lead to a legal conclusion that there is trademark infringement:

(a) in Acoje Mining Co., Inc. vs. Director of Patent,67 we ordered the approval of Acoje Mining’s
application for registration of the trademark LOTUS for its soy sauce even though Philippine
Refining Company had prior registration and use of such identical mark for its edible oil which,
like soy sauce, also belonged to Class 47;

(b) in Philippine Refining Co., Inc. vs. Ng Sam and Director of Patents,68 we upheld the Patent
Director’s registration of the same trademark CAMIA for Ng Sam’s ham under Class 47, despite
Philippine Refining Company’s prior trademark registration and actual use of such mark on its
lard, butter, cooking oil (all of which belonged to Class 47), abrasive detergents, polishing
materials and soaps;

(c) in Hickok Manufacturing Co., Inc. vs. Court of Appeals and Santos Lim Bun Liong,69 we
dismissed Hickok’s petition to cancel private respondent’s HICKOK trademark registration for
its Marikina shoes as against petitioner’s earlier registration of the same trademark for
handkerchiefs, briefs, belts and wallets;

(d) in Shell Company of the Philippines vs. Court of Appeals,70 in a minute resolution, we
dismissed the petition for review for lack of merit and affirmed the Patent Office’s registration of
the trademark SHELL used in the cigarettes manufactured by respondent Fortune Tobacco
Corporation, notwithstanding Shell Company’s opposition as the prior registrant of the same
trademark for its gasoline and other petroleum products;
(e) in Esso Standard Eastern, Inc. vs. Court of Appeals,71 we dismissed ESSO’s complaint for
trademark infringement against United Cigarette Corporation and allowed the latter to use the
trademark ESSO for its cigarettes, the same trademark used by ESSO for its petroleum products,
and

(f) in Canon Kabushiki Kaisha vs. Court of Appeals and NSR Rubber Corporation,72 we affirmed
the rulings of the Patent Office and the CA that NSR Rubber Corporation could use the
trademark CANON for its sandals (Class 25) despite Canon Kabushiki Kaisha’s prior registration
and use of the same trademark for its paints, chemical products, toner and dyestuff (Class 2).

Whether a trademark causes confusion and is likely to deceive the public hinges on "colorable
imitation"73 which has been defined as "such similarity in form, content, words, sound,
meaning, special arrangement or general appearance of the trademark or tradename in their
overall presentation or in their essential and substantive and distinctive parts as would likely
mislead or confuse persons in the ordinary course of purchasing the genuine article."74

Jurisprudence has developed two tests in determining similarity and likelihood of confusion in
trademark resemblance:75

(a) the Dominancy Test applied in Asia Brewery, Inc. vs. Court of Appeals76 and other cases,77
and

(b) the Holistic or Totality Test used in Del Monte Corporation vs. Court of Appeals78 and its
preceding cases.79

The Dominancy Test focuses on the similarity of the prevalent features of the competing
trademarks which might cause confusion or deception, and thus infringement. If the competing
trademark contains the main, essential or dominant features of another, and confusion or
deception is likely to result, infringement takes place. Duplication or imitation is not necessary;
nor is it necessary that the infringing label should suggest an effort to imitate. The question is
whether the use of the marks involved is likely to cause confusion or mistake in the mind of the
public or deceive purchasers.80

On the other hand, the Holistic Test requires that the entirety of the marks in question be
considered in resolving confusing similarity. Comparison of words is not the only determining
factor. The trademarks in their entirety as they appear in their respective labels or hang tags
must also be considered in relation to the goods to which they are attached. The discerning eye
of the observer must focus not only on the predominant words but also on the other features
appearing in both labels in order that he may draw his conclusion whether one is confusingly
similar to the other.81

In comparing the resemblance or colorable imitation of marks, various factors have been
considered, such as the dominant color, style, size, form, meaning of letters, words, designs and
emblems used, the likelihood of deception of the mark or name's tendency to confuse82 and the
commercial impression likely to be conveyed by the trademarks if used in conjunction with the
respective goods of the parties.83

Applying the Dominancy and Holistic Tests, we find that the dominant feature of the GALLO
cigarette trademark is the device of a large rooster facing left, outlined in black against a gold
background. The rooster’s color is either green or red – green for GALLO menthols and red for
GALLO filters. Directly below the large rooster device is the word GALLO. The rooster device is
given prominence in the GALLO cigarette packs in terms of size and location on the labels.84

The GALLO mark appears to be a fanciful and arbitrary mark for the cigarettes as it has no
relation at all to the product but was chosen merely as a trademark due to the fondness for
fighting cocks of the son of petitioners’ president. Furthermore, petitioners adopted GALLO, the
Spanish word for rooster, as a cigarette trademark to appeal to one of their target markets, the
sabungeros (cockfight aficionados).85

Also, as admitted by respondents themselves,86 on the side of the GALLO cigarette packs are
the words "MADE BY MIGHTY CORPORATION," thus clearly informing the public as to the
identity of the manufacturer of the cigarettes.

On the other hand, GALLO Winery’s wine and brandy labels are diverse. In many of them, the
labels are embellished with sketches of buildings and trees, vineyards or a bunch of grapes while
in a few, one or two small roosters facing right or facing each other (atop the EJG crest,
surrounded by leaves or ribbons), with additional designs in green, red and yellow colors,
appear as minor features thereof.87 Directly below or above these sketches is the entire printed
name of the founder-owners, "ERNEST & JULIO GALLO" or just their surname "GALLO,"88
which appears in different fonts, sizes, styles and labels, unlike petitioners’ uniform casque-font
bold-lettered GALLO mark.

Moreover, on the labels of Gallo Winery’s wines are printed the words "VINTED AND BOTTLED
BY ERNEST & JULIO GALLO, MODESTO, CALIFORNIA."89

The many different features like color schemes, art works and other markings of both products
drown out the similarity between them – the use of the word “GALLO” ― a family surname for
the Gallo Winery’s wines and a Spanish word for rooster for petitioners’ cigarettes.

WINES AND CIGARETTES ARE NOT

IDENTICAL, SIMILAR, COMPETING OR
RELATED GOODS

Confusion of goods is evident where the litigants are actually in competition; but confusion of
business may arise between non-competing interests as well.90

Thus, apart from the strict application of Section 20 of the Trademark Law and Article 6bis of
the Paris Convention which proscribe trademark infringement not only of goods specified in the
certificate of registration but also of identical or similar goods, we have also uniformly
recognized and applied the modern concept of "related goods."91 Simply stated, when goods are
so related that the public may be, or is actually, deceived and misled that they come from the
same maker or manufacturer, trademark infringement occurs.92

Non-competing goods may be those which, though they are not in actual competition, are so
related to each other that it can reasonably be assumed that they originate from one
manufacturer, in which case, confusion of business can arise out of the use of similar marks.93
They may also be those which, being entirely unrelated, cannot be assumed to have a common
source; hence, there is no confusion of business, even though similar marks are used.94 Thus,
there is no trademark infringement if the public does not expect the plaintiff to make or sell the
same class of goods as those made or sold by the defendant.95
In resolving whether goods are related,96 several factors come into play:

(a) the business (and its location) to which the goods belong

(b) the class of product to which the goods belong

(c) the product's quality, quantity, or size, including the nature of the package, wrapper or
container 97

(d) the nature and cost of the articles98

(e) the descriptive properties, physical attributes or essential characteristics with reference to
their form, composition, texture or quality

(f) the purpose of the goods99

(g) whether the article is bought for immediate consumption,100 that is, day-to-day household
items101

(h) the fields of manufacture102

(i) the conditions under which the article is usually purchased103 and

(j) the channels of trade through which the goods flow,104 how they are distributed, marketed,
displayed and sold.105

The wisdom of this approach is its recognition that each trademark infringement case presents
its own unique set of facts. No single factor is preeminent, nor can the presence or absence of
one determine, without analysis of the others, the outcome of an infringement suit. Rather, the
court is required to sift the evidence relevant to each of the criteria. This requires that the entire
panoply of elements constituting the relevant factual landscape be comprehensively
examined.106 It is a weighing and balancing process. With reference to this ultimate question,
and from a balancing of the determinations reached on all of the factors, a conclusion is reached
whether the parties have a right to the relief sought.107

A very important circumstance though is whether there exists a likelihood that an appreciable
number of ordinarily prudent purchasers will be misled, or simply confused, as to the source of
the goods in question.108 The "purchaser" is not the "completely unwary consumer" but is the
"ordinarily intelligent buyer" considering the type of product involved.109 He is "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."110

Hence, in the adjudication of trademark infringement, we give due regard to the goods’ usual
purchaser’s character, attitude, habits, age, training and education. 111
Applying these legal precepts to the present case, petitioner’s use of the GALLO cigarette
trademark is not likely to cause confusion or mistake, or to deceive the "ordinarily intelligent
buyer" of either wines or cigarettes or both as to the identity of the goods, their source and
origin, or identity of the business of petitioners and respondents.

Obviously, wines and cigarettes are not identical or competing products. Neither do they belong
to the same class of goods. Respondents’ GALLO wines belong to Class 33 under Rule 84[a]
Chapter III, Part II of the Rules of Practice in Trademark Cases while petitioners’ GALLO
cigarettes fall under Class 34.

We are mindful that product classification alone cannot serve as the decisive factor in the
resolution of whether or not wines and cigarettes are related goods. Emphasis should be on the
similarity of the products involved and not on the arbitrary classification or general description
of their properties or characteristics. But the mere fact that one person has adopted and used a
particular trademark for his goods does not prevent the adoption and use of the same trademark
by others on articles of a different description. 112

Both the Makati RTC and the CA held that wines and cigarettes are related products because: (1)
"they are related forms of vice, harmful when taken in excess, and used for pleasure and
relaxation" and (2) "they are grouped or classified in the same section of supermarkets and
groceries."

We find these premises patently insufficient and too arbitrary to support the legal conclusion
that wines and cigarettes are related products within the contemplation of the Trademark Law
and the Paris Convention.

First, anything –- not only wines and cigarettes ― can be used for pleasure and relaxation and
can be harmful when taken in excess. Indeed, it would be a grave abuse of discretion to treat
wines and cigarettes as similar or related products likely to cause confusion just because they are
pleasure-giving, relaxing or potentially harmful. Such reasoning makes no sense.

Second, it is common knowledge that supermarkets sell an infinite variety of wholly unrelated
products and the goods here involved, wines and cigarettes, have nothing whatsoever in
common with respect to their essential characteristics, quality, quantity, size, including the
nature of their packages, wrappers or containers.113

Accordingly, the U.S. patent office and courts have consistently held that the mere fact that
goods are sold in one store under the same roof does not automatically mean that buyers are
likely to be confused as to the goods’ respective sources, connections or sponsorships. The fact
that different products are available in the same store is an insufficient standard, in and of itself,
to warrant a finding of likelihood of confusion.114

In this regard, we adopted the Director of Patents’ finding in Philippine Refining Co., Inc. vs. Ng
Sam and the Director of Patents:115

In his decision, the Director of Patents enumerated the factors that set respondent’s products
apart from the goods of petitioner. He opined and we quote:

"I have taken into account such factors as probable purchaser attitude and habits, marketing
activities, retail outlets, and commercial impression likely to be conveyed by the trademarks if
used in conjunction with the respective goods of the parties, I believe that ham on one hand, and
lard, butter, oil, and soap on the other are products that would not move in the same manner
through the same channels of trade. They pertain to unrelated fields of manufacture, might be
distributed and marketed under dissimilar conditions, and are displayed separately even though
they frequently may be sold through the same retail food establishments. Opposer’s products are
ordinary day-to-day household items whereas ham is not necessarily so. Thus, the goods of the
parties are not of a character which purchasers would likely attribute to a common origin.

The observations and conclusion of the Director of Patents are correct. The particular goods of
the parties are so unrelated that consumers, would not, in any probability mistake one as the
source of origin of the product of the other. (Emphasis supplied).

The same is true in the present case. Wines and cigarettes are non-competing and are totally
unrelated products not likely to cause confusion vis-à-vis the goods or the business of the
petitioners and respondents.

Wines are bottled and consumed by drinking while cigarettes are packed in cartons or packages
and smoked. There is a whale of a difference between their descriptive properties, physical
attributes or essential characteristics like form, composition, texture and quality.

GALLO cigarettes are inexpensive items while GALLO wines are not. GALLO wines are
patronized by middle-to-high-income earners while GALLO cigarettes appeal only to simple
folks like farmers, fishermen, laborers and other low-income workers.116 Indeed, the big price
difference of these two products is an important factor in proving that they are in fact unrelated
and that they travel in different channels of trade. There is a distinct price segmentation based
on vastly different social classes of purchasers.117

GALLO cigarettes and GALLO wines are not sold through the same channels of trade. GALLO
cigarettes are Philippine-made and petitioners neither claim nor pass off their goods as
imported or emanating from Gallo Winery. GALLO cigarettes are distributed, marketed and sold
through ambulant and sidewalk vendors, small local sari-sari stores and grocery stores in
Philippine rural areas, mainly in Misamis Oriental, Pangasinan, Bohol, and Cebu.118 On the
other hand, GALLO wines are imported, distributed and sold in the Philippines through Gallo
Winery’s exclusive contracts with a domestic entity, which is currently Andresons. By
respondents’ own testimonial evidence, GALLO wines are sold in hotels, expensive bars and
restaurants, and high-end grocery stores and supermarkets, not through sari-sari stores or
ambulant vendors.119

Furthermore, the Makati RTC and the CA erred in relying on Carling Brewing Company vs.
Philip Morris, Inc.120 to support its finding that GALLO wines and GALLO cigarettes are
related goods. The courts a quo should have taken into consideration the subsequent case of IDV
North America, Inc. and R & A Bailey Co. Limited vs. S & M Brands, Inc.:121

IDV correctly acknowledges, however, that there is no per se rule that the use of the same mark
on alcohol and tobacco products always will result in a likelihood of confusion. Nonetheless, IDV
relies heavily on the decision in John Walker & Sons, Ltd. vs. Tampa Cigar Co., 124 F. Supp. 254,
256 (S.D. Fla. 1954), aff’d, 222 F. 2d 460 (5th Cir. 1955), wherein the court enjoined the use of
the mark "JOHNNIE WALKER" on cigars because the fame of the plaintiff’s mark for scotch
whiskey and because the plaintiff advertised its scotch whiskey on, or in connection with tobacco
products. The court, in John Walker & Sons, placed great significance on the finding that the
infringers use was a deliberate attempt to capitalize on the senior marks’ fame. Id. At 256. IDV
also relies on Carling Brewing Co. v. Philip Morris, Inc., 297 F. Supp. 1330, 1338 (N.D. Ga.
1968), in which the court enjoined the defendant’s use of the mark "BLACK LABEL" for
cigarettes because it was likely to cause confusion with the plaintiff’s well-known mark "BLACK
LABEL" for beer.

xxx xxx xxx

Those decisions, however, must be considered in perspective of the principle that tobacco
products and alcohol products should be considered related only in cases involving special
circumstances. Schenley Distillers, Inc. v. General Cigar Co., 57C.C.P.A. 1213, 427 F. 2d 783, 785
(1970). The presence of special circumstances has been found to exist where there is a finding of
unfair competition or where a ‘famous’ or ‘well-known mark’ is involved and there is a
demonstrated intent to capitalize on that mark. For example, in John Walker & Sons, the court
was persuaded to find a relationship between products, and hence a likelihood of confusion,
because of the plaintiff’s long use and extensive advertising of its mark and placed great
emphasis on the fact that the defendant used the trademark ‘Johnnie Walker with full
knowledge of its fame and reputation and with the intention of taking advantage thereof.’ John
Walker & Sons, 124 F. Supp. At 256; see Mckesson & Robbins, Inc. v. P. Lorillard Co., 1959 WL
5894, 120 U.S.P.Q. 306, 307 (1959) (holding that the decision in John Walker & Sons was
‘merely the law on the particular case based upon its own peculiar facts’); see also Alfred
Dunhill, 350 F. Supp. At 1363 (defendant’s adoption of ‘Dunhill’ mark was not innocent).
However, in Schenley, the court noted that the relation between tobacco and whiskey products is
significant where a widely known arbitrary mark has long been used for diversified products
emanating from a single source and a newcomer seeks to use the same mark on unrelated goods.
Schenley, 427 F.2d. at 785. Significantly, in Schenley, the court looked at the industry practice
and the facts of the case in order to determine the nature and extent of the relationship between
the mark on the tobacco product and the mark on the alcohol product.

The record here establishes conclusively that IDV has never advertised BAILEYS liqueurs in
conjunction with tobacco or tobacco accessory products and that IDV has no intent to do so.
And, unlike the defendant in Dunhill, S & M Brands does not market bar accessories, or liqueur
related products, with its cigarettes. The advertising and promotional materials presented a trial
in this action demonstrate a complete lack of affiliation between the tobacco and liqueur
products bearing the marks here at issue.

xxx xxx xxx

Of equal significance, it is undisputed that S & M Brands had no intent, by adopting the family
name ‘Bailey’s’ as the mark for its cigarettes, to capitalize upon the fame of the ‘BAILEYS’ mark
for liqueurs. See Schenley, 427 F. 2d at 785. Moreover, as will be discussed below, and as found
in Mckesson & Robbins, the survey evidence refutes the contention that cigarettes and alcoholic
beverages are so intimately associated in the public mind that they cannot under any
circumstances be sold under the same mark without causing confusion. See Mckesson &
Robbins, 120 U.S.P.Q. at 308.

Taken as a whole, the evidence here demonstrates the absence of the ‘special circumstances’ in
which courts have found a relationship between tobacco and alcohol products sufficient to tip
the similarity of goods analysis in favor of the protected mark and against the allegedly
infringing mark. It is true that BAILEYS liqueur, the world’s best selling liqueur and the second
best selling in the United States, is a well-known product. That fact alone, however, is
insufficient to invoke the special circumstances connection here where so much other evidence
and so many other factors disprove a likelihood of confusion. The similarity of products analysis,
therefore, augers against finding that there is a likelihood of confusion. (Emphasis supplied).

In short, tobacco and alcohol products may be considered related only in cases involving special
circumstances which exist only if a famous mark is involved and there is a demonstrated intent
to capitalize on it. Both of these are absent in the present case.

THE GALLO WINE TRADEMARK IS NOT A

WELL-KNOWN MARK IN THE CONTEXT
OF THE PARIS CONVENTION IN THIS CASE
SINCE WINES AND CIGARETTES ARE NOT
IDENTICAL OR SIMILAR GOODS

First, the records bear out that most of the trademark registrations took place in the late 1980s
and the 1990s, that is, after Tobacco Industries’ use of the GALLO cigarette trademark in 1973
and petitioners’ use of the same mark in 1984.

GALLO wines and GALLO cigarettes are neither the same, identical, similar nor related goods, a
requisite element under both the Trademark Law and the Paris Convention.

Second, the GALLO trademark cannot be considered a strong and distinct mark in the
Philippines. Respondents do not dispute the documentary evidence that aside from Gallo
Winery’s GALLO trademark registration, the Bureau of Patents, Trademarks and Technology
Transfer also issued on September 4, 1992 Certificate of Registration No. 53356 under the
Principal Register approving Productos Alimenticios Gallo, S.A’s April 19, 1990 application for
GALLO trademark registration and use for its "noodles, prepared food or canned noodles, ready
or canned sauces for noodles, semolina, wheat flour and bread crumbs, pastry, confectionery, ice
cream, honey, molasses syrup, yeast, baking powder, salt, mustard, vinegar, species and ice."122

Third and most important, pursuant to our ruling in Canon Kabushiki Kaisha vs. Court of
Appeals and NSR Rubber Corporation,123 "GALLO" cannot be considered a "well-known" mark
within the contemplation and protection of the Paris Convention in this case since wines and
cigarettes are not identical or similar goods:

We agree with public respondents that the controlling doctrine with respect to the applicability
of Article 8 of the Paris Convention is that established in Kabushi Kaisha Isetan vs. Intermediate
Appellate Court (203 SCRA 59 [1991]). As pointed out by the BPTTT:

"Regarding the applicability of Article 8 of the Paris Convention, this Office believes that there is
no automatic protection afforded an entity whose tradename is alleged to have been infringed
through the use of that name as a trademark by a local entity.

In Kabushiki Kaisha Isetan vs. The Intermediate Appellate Court, et. al., G.R. No. 75420, 15
November 1991, the Honorable Supreme Court held that:

‘The Paris Convention for the Protection of Industrial Property does not automatically exclude
all countries of the world which have signed it from using a tradename which happens to be
used in one country. To illustrate — if a taxicab or bus company in a town in the United
Kingdom or India happens to use the tradename ‘Rapid Transportation,’ it does not necessarily
follow that ‘Rapid’ can no longer be registered in Uganda, Fiji, or the Philippines.
This office is not unmindful that in (sic) the Treaty of Paris for the Protection of Intellectual
Property regarding well-known marks and possible application thereof in this case. Petitioner,
as this office sees it, is trying to seek refuge under its protective mantle, claiming that the subject
mark is well known in this country at the time the then application of NSR Rubber was filed.

However, the then Minister of Trade and Industry, the Hon. Roberto V. Ongpin, issued a
memorandum dated 25 October 1983 to the Director of Patents, a set of guidelines in the
implementation of Article 6bis of the Treaty of Paris. These conditions are:

a) the mark must be internationally known;

b) the subject of the right must be a trademark, not a patent or copyright or anything else;

c) the mark must be for use in the same or similar kinds of goods; and

d) the person claiming must be the owner of the mark (The Parties Convention Commentary on
the Paris Convention. Article by Dr. Bogsch, Director General of the World Intellectual Property
Organization, Geneva, Switzerland, 1985)’

From the set of facts found in the records, it is ruled that the Petitioner failed to comply with the
third requirement of the said memorandum that is the mark must be for use in the same or
similar kinds of goods. The Petitioner is using the mark "CANON" for products belonging to
class 2 (paints, chemical products) while the Respondent is using the same mark for sandals
(class 25).

Hence, Petitioner's contention that its mark is well-known at the time the Respondent filed its
application for the same mark should fail." (Emphasis supplied.)

Consent of the Registrant and

Other air, Just and Equitable
Considerations

Each trademark infringement case presents a unique problem which must be answered by
weighing the conflicting interests of the litigants.124

Respondents claim that GALLO wines and GALLO cigarettes flow through the same channels of
trade, that is, retail trade. If respondents’ assertion is true, then both goods co-existed peacefully
for a considerable period of time. It took respondents almost 20 years to know about the
existence of GALLO cigarettes and sue petitioners for trademark infringement. Given, on one
hand, the long period of time that petitioners were engaged in the manufacture, marketing,
distribution and sale of GALLO cigarettes and, on the other, respondents’ delay in enforcing
their rights (not to mention implied consent, acquiescence or negligence) we hold that equity,
justice and fairness require us to rule in favor of petitioners. The scales of conscience and reason
tip far more readily in favor of petitioners than respondents.

Moreover, there exists no evidence that petitioners employed malice, bad faith or fraud, or that
they intended to capitalize on respondents’ goodwill in adopting the GALLO mark for their
cigarettes which are totally unrelated to respondents’ GALLO wines. Thus, we rule out
trademark infringement on the part of petitioners.

PETITIONERS ARE ALSO NOT LIABLE

FOR UNFAIR COMPETITION

Under Section 29 of the Trademark Law, any person who employs deception or any other means
contrary to good faith by which he passes 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
commits any acts calculated to produce said result, is guilty of unfair competition. It includes
the following acts:

(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;

(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.

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 constitutes unfair
competition. Actual or probable deception and confusion on the part of customers by reason of
defendant’s practices must always appear.125 On this score, we find that petitioners never
attempted to pass off their cigarettes as those of respondents. There is no evidence of bad faith
or fraud imputable to petitioners in using their GALLO cigarette mark.

All told, after applying all the tests provided by the governing laws as well as those recognized by
jurisprudence, we conclude that petitioners are not liable for trademark infringement, unfair
competition or damages.

WHEREFORE, finding the petition for review meritorious, the same is hereby GRANTED. The
questioned decision and resolution of the Court of Appeals in CA-G.R. CV No. 65175 and the
November 26, 1998 decision and the June 24, 1999 order of the Regional Trial Court of Makati,
Branch 57 in Civil Case No. 93-850 are hereby REVERSED and SET ASIDE and the complaint
against petitioners DISMISSED.

Costs against respondents.

SO ORDERED.
G.R. No. 159938 March 31, 2006

SHANGRI-LA INTERNATIONAL HOTEL MANAGEMENT, LTD., SHANGRI-LA

PROPERTIES, INC., MAKATI SHANGRI-LA HOTEL & RESORT, INC., AND KUOK
PHILIPPINES PROPERTIES, INC., Petitioners,
vs.
DEVELOPERS GROUP OF COMPANIES, INC., Respondent.

DECISION

GARCIA, J.:

In this petition for review under Rule 45 of the Rules of Court, petitioners Shangri-La
International Hotel Management, Ltd. (SLIHM), et al. assail and seek to set aside the Decision
dated May 15, 20031 of the Court of Appeals (CA) in CA-G.R. CV No. 53351 and its Resolution2
of September 15, 2003 which effectively affirmed with modification an earlier decision of the
Regional Trial Court (RTC) of Quezon City in Civil Case No. Q-91-8476, an action for
infringement and damages, thereat commenced by respondent Developers Group of Companies,
Inc. (DGCI) against the herein petitioners.

The facts:

At the core of the controversy are the "Shangri-La" mark and "S" logo. Respondent DGCI claims
ownership of said mark and logo in the Philippines on the strength of its prior use thereof within
the country. As DGCI stresses at every turn, it filed on October 18, 1982 with the Bureau of
Patents, Trademarks and Technology Transfer (BPTTT) pursuant to Sections 2 and 4 of
Republic Act (RA) No. 166,3 as amended, an application for registration covering the subject
mark and logo. On May 31, 1983, the BPTTT issued in favor of DGCI the corresponding
certificate of registration therefor, i.e., Registration No. 31904. Since then, DGCI started using
the "Shangri-La" mark and "S" logo in its restaurant business.

On the other hand, the Kuok family owns and operates a chain of hotels with interest in hotels
and hotel-related transactions since 1969. As far back as 1962, it adopted the name "Shangri-La"
as part of the corporate names of all companies organized under the aegis of the Kuok Group of
Companies (the Kuok Group). The Kuok Group has used the name "Shangri-La" in all Shangri-
La hotels and hotel-related establishments around the world which the Kuok Family owned.

To centralize the operations of all Shangri-la hotels and the ownership of the "Shangri-La" mark
and "S" logo, the Kuok Group had incorporated in Hong Kong and Singapore, among other
places, several companies that form part of the Shangri-La International Hotel Management
Ltd. Group of Companies. EDSA Shangri-La Hotel and Resort, Inc., and Makati Shangri-La
Hotel and Resort, Inc. were incorporated in the Philippines beginning 1987 to own and operate
the two (2) hotels put up by the Kuok Group in Mandaluyong and Makati, Metro Manila.

All hotels owned, operated and managed by the aforesaid SLIHM Group of Companies adopted
and used the distinctive lettering of the name "Shangri-La" as part of their trade names.

From the records, it appears that Shangri-La Hotel Singapore commissioned a Singaporean
design artist, a certain Mr. William Lee, to conceptualize and design the logo of the Shangri-La
hotels.
During the launching of the stylized "S" Logo in February 1975, Mr. Lee gave the following
explanation for the logo, to wit:

The logo which is shaped like a "S" represents the uniquely Asean architectural structures as
well as keep to the legendary Shangri-la theme with the mountains on top being reflected on
waters below and the connecting centre [sic] line serving as the horizon. This logo, which is a
bold, striking definitive design, embodies both modernity and sophistication in balance and
thought.

Since 1975 and up to the present, the "Shangri-La" mark and "S" logo have been used
consistently and continuously by all Shangri-La hotels and companies in their paraphernalia,
such as stationeries, envelopes, business forms, menus, displays and receipts.

The Kuok Group and/or petitioner SLIHM caused the registration of, and in fact registered, the
"Shangri-La" mark and "S" logo in the patent offices in different countries around the world.

On June 21, 1988, the petitioners filed with the BPTTT a petition, docketed as Inter Partes Case
No. 3145, praying for the cancellation of the registration of the "Shangri-La" mark and "S" logo
issued to respondent DGCI on the ground that the same were illegally and fraudulently obtained
and appropriated for the latter's restaurant business. They also filed in the same office Inter
Partes Case No. 3529, praying for the registration of the same mark and logo in their own
names.

Until 1987 or 1988, the petitioners did not operate any establishment in the Philippines, albeit
they advertised their hotels abroad since 1972 in numerous business, news, and/or travel
magazines widely circulated around the world, all readily available in Philippine magazines and
newsstands. They, too, maintained reservations and booking agents in airline companies, hotel
organizations, tour operators, tour promotion organizations, and in other allied fields in the
Philippines.

It is principally upon the foregoing factual backdrop that respondent DGCI filed a complaint for
Infringement and Damages with the RTC of Quezon City against the herein petitioners SLIHM,
Shangri-La Properties, Inc., Makati Shangri-La Hotel & Resort, Inc., and Kuok Philippine
Properties, Inc., docketed as Civil Case No. Q-91-8476 and eventually raffled to Branch 99 of
said court. The complaint with prayer for injunctive relief and damages alleged that DGCI has,
for the last eight (8) years, been the prior exclusive user in the Philippines of the mark and logo
in question and the registered owner thereof for its restaurant and allied services. As DGCI
alleged in its complaint, SLIHM, et al., in promoting and advertising their hotel and other allied
projects then under construction in the country, had been using a mark and logo confusingly
similar, if not identical, with its mark and "S" logo. Accordingly, DGCI sought to prohibit the
petitioners, as defendants a quo, from using the "Shangri-La" mark and "S" logo in their hotels
in the Philippines.

In their Answer with Counterclaim, the petitioners accused DGCI of appropriating and illegally
using the "Shangri-La" mark and "S" logo, adding that the legal and beneficial ownership thereof
pertained to SLIHM and that the Kuok Group and its related companies had been using this
mark and logo since March 1962 for all their corporate names and affairs. In this regard, they
point to the Paris Convention for the Protection of Industrial Property as affording security and
protection to SLIHM's exclusive right to said mark and logo. They further claimed having used,
since late 1975, the internationally-known and specially-designed "Shangri-La" mark and "S"
logo for all the hotels in their hotel chain.
Pending trial on the merits of Civil Case No. Q-91-8476, the trial court issued a Writ of
Preliminary Injunction enjoining the petitioners from using the subject mark and logo. The
preliminary injunction issue ultimately reached the Court in G.R. No. 104583 entitled
Developers Group of Companies, Inc. vs. Court of Appeals, et al. In a decision4 dated March 8,
1993, the Court nullified the writ of preliminary injunction issued by the trial court and directed
it to proceed with the main case and decide it with deliberate dispatch.

While trial was in progress, the petitioners filed with the court a motion to suspend proceedings
on account of the pendency before the BPTTT of Inter Partes Case No. 3145 for the cancellation
of DGCI's certificate of registration. For its part, respondent DGCI filed a similar motion in that
case, invoking in this respect the pendency of its infringement case before the trial court. The
parties' respective motions to suspend proceedings also reached the Court via their respective
petitions in G.R. No. 114802, entitled Developers Group of Companies, Inc. vs. Court of Appeals,
et al. and G.R. No. 111580, entitled Shangri-La International Hotel Management LTD., et al. vs.
Court of Appeals, et al., which were accordingly consolidated.

In a consolidated decision5 dated June 21, 2001, the Court, limiting itself to the core issue of
whether, despite the petitioners' institution of Inter Partes Case No. 3145 before the BPTTT,
herein respondent DGCI "can file a subsequent action for infringement with the regular courts
of justice in connection with the same registered mark," ruled in the affirmative, but nonetheless
ordered the BPTTT to suspend further proceedings in said inter partes case and to await the
final outcome of the main case.

Meanwhile, trial on the merits of the infringement case proceeded. Presented as DGCI's lone
witness was Ramon Syhunliong, President and Chairman of DGCI's Board of Directors. Among
other things, this witness testified that:

1. He is a businessman, with interest in lumber, hotel, hospital, trading and restaurant

businesses but only the restaurant business bears the name "Shangri-La" and uses the same and
the "S-logo" as service marks. The restaurant now known as "Shangri-La Finest Chinese
Cuisine" was formerly known as the "Carvajal Restaurant" until December 1982, when
respondent took over said restaurant business.

2. He had traveled widely around Asia prior to 1982, and admitted knowing the Shangri-La
Hotel in Hong Kong as early as August 1982.

3. The "S-logo" was one of two (2) designs given to him in December 1982, scribbled on a piece
of paper by a jeepney signboard artist with an office somewhere in Balintawak. The unnamed
artist supposedly produced the two designs after about two or three days from the time he
(Syhunliong) gave the idea of the design he had in mind.

4. On October 15, 1982, or before the unknown signboard artist supposedly created the
"Shangri-La" and "S" designs, DGCI was incorporated with the primary purpose of "owning or
operating, or both, of hotels and restaurants".

5. On October 18, 1982, again prior to the alleged creation date of the mark and logo, DGCI filed
an application for trademark registration of the mark "SHANGRI-LA FINEST CHINESE
CUISINE & S. Logo" with the BPTTT. On said date, respondent DGCI amended its Articles of
Incorporation to reflect the name of its restaurant, known and operating under the style and
name of "SHANGRI-LA FINEST CHINESE CUISINE." Respondent DGCI obtained Certificate of
Registration No. 31904 for the "Shangri-La" mark and "S" logo.

Eventually, the trial court, on the postulate that petitioners', more particularly petitioner
SLIHM's, use of the mark and logo in dispute constitutes an infringement of DGCI's right
thereto, came out with its decision6 on March 8, 1996 rendering judgment for DGCI, as follows:

WHEREFORE, judgment is hereby rendered in favor of [respondent DGCI] and against

[SLIHM, et al.] -

a) Upholding the validity of the registration of the service mark "Shangri-la" and "S-Logo" in the
name of [respondent];

b) Declaring [petitioners'] use of said mark and logo as infringement of [respondent's] right
thereto;

c) Ordering [petitioners], their representatives, agents, licensees, assignees and other persons
acting under their authority and with their permission, to permanently cease and desist from
using and/or continuing to use said mark and logo, or any copy, reproduction or colorable
imitation

thereof, in the promotion, advertisement, rendition of their hotel and allied projects and services
or in any other manner whatsoever;

d) Ordering [petitioners] to remove said mark and logo from any premises, objects, materials
and paraphernalia used by them and/or destroy any and all prints, signs, advertisements or
other materials bearing said mark and logo in their possession and/or under their control; and

e) Ordering [petitioners], jointly and severally, to indemnify [respondent] in the amounts of

P2,000,000.00 as actual and compensatory damages, P500,000.00 as attorney's fee and
expenses of litigation.

Let a copy of this Decision be certified to the Director, Bureau of Patents, Trademarks and
Technology Transfer for his information and appropriate action in accordance with the
provisions of Section 25, Republic Act No. 166

Costs against [petitioners].

SO ORDERED. [Words in brackets added.]

Therefrom, the petitioners went on appeal to the CA whereat their recourse was docketed as CA
G.R. SP No. 53351.

As stated at the threshold hereof, the CA, in its assailed Decision of May 15, 2003,7 affirmed that
of the lower court with the modification of deleting the award of attorney's fees. The appellate
court predicated its affirmatory action on the strength or interplay of the following premises:

1. Albeit the Kuok Group used the mark and logo since 1962, the evidence presented shows that
the bulk use of the tradename was abroad and not in the Philippines (until 1987). Since the
Kuok Group does not have proof of actual use in commerce in the Philippines (in accordance
with Section 2 of R.A. No. 166), it cannot claim ownership of the mark and logo in accordance
with the holding in Kabushi Kaisha Isetan v. IAC8, as reiterated in Philip Morris, Inc. v. Court of
Appeals.9

2. On the other hand, respondent has a right to the mark and logo by virtue of its prior use in the
Philippines and the issuance of Certificate of Registration No. 31904.

3. The use of the mark or logo in commerce through the bookings made by travel agencies is
unavailing since the Kuok Group did not establish any branch or regional office in the
Philippines. As it were, the Kuok Group was not engaged in commerce in the Philippines
inasmuch as the bookings were made through travel agents not owned, controlled or managed
by the Kuok Group.

4. While the Paris Convention protects internationally known marks, R.A. No. 166 still requires
use in commerce in the Philippines. Accordingly, and on the premise that international
agreements, such as Paris Convention, must yield to a municipal law, the question on the
exclusive right over the mark and logo would still depend on actual use in commerce in the
Philippines.

Petitioners then moved for a reconsideration, which motion was denied by the CA in its equally
assailed Resolution of September 15, 2003.10

As formulated by the petitioners, the issues upon which this case hinges are:

1. Whether the CA erred in finding that respondent had the right to file an application for
registration of the "Shangri-La" mark and "S" logo although respondent never had any prior
actual commercial use thereof;

2. Whether the CA erred in finding that respondent's supposed use of the identical "Shangri-La"
mark and "S" logo of the petitioners was not evident bad faith and can actually ripen into
ownership, much less registration;

3. Whether the CA erred in overlooking petitioners' widespread prior use of the "Shangri-La"
mark and "S" logo in their operations;

4. Whether the CA erred in refusing to consider that petitioners are entitled to protection under
both R.A. No. 166, the old trademark law, and the Paris Convention for the Protection of
Industrial Property;

5. Whether the CA erred in holding that SLIHM did not have the right to legally own the
"Shangri-La" mark and "S" logo by virtue of and despite their ownership by the Kuok Group;

6. Whether the CA erred in ruling that petitioners' use of the mark and logo constitutes
actionable infringement;

7. Whether the CA erred in awarding damages in favor of respondent despite the absence of any
evidence to support the same, and in failing to award relief in favor of the petitioners; and

8. Whether petitioners should be prohibited from continuing their use of the mark and logo in
question.

There are two preliminary issues, however, that respondent DGCI calls our attention to, namely:
1. Whether the certification against forum-shopping submitted on behalf of the petitioners is
sufficient;

2. Whether the issues posed by petitioners are purely factual in nature hence improper for
resolution in the instant petition for review on certiorari.

DGCI claims that the present petition for review should be dismissed outright for certain
procedural defects, to wit: an insufficient certification against forum shopping and raising pure
questions of fact. On both counts, we find the instant petition formally and substantially sound.

In its Comment, respondent alleged that the certification against forum shopping signed by Atty.
Lee Benjamin Z. Lerma on behalf and as counsel of the petitioners was insufficient, and that he
was not duly authorized to execute such document. Respondent further alleged that since
petitioner SLIHM is a foreign entity based in Hong Kong, the Director's Certificate executed by
Mr. Madhu Rama Chandra Rao, embodying the board resolution which authorizes Atty. Lerma
to act for SLIHM and execute the certification against forum shopping, should contain the
authentication by a consular officer of the Philippines in Hong Kong.

In National Steel Corporation v. CA,11 the Court has ruled that the certification on non-forum
shopping may be signed, for and in behalf of a corporation, by a specifically authorized lawyer
who has personal knowledge of the facts required to be disclosed in such document. The reason
for this is that a corporation can only exercise its powers through its board of directors and/or
its duly authorized officers and agents. Physical acts, like the signing of documents, can be
performed only by natural persons duly authorized for the purpose.12

Moreover, Rule 7, Section 5 of the Rules of Court concerning the certification against forum
shopping does not require any consular certification if the petitioner is a foreign entity.
Nonetheless, to banish any lingering doubt, petitioner SLIHM furnished this Court with a
consular certification dated October 29, 2003 authenticating the Director's Certificate
authorizing Atty. Lerma to execute the certification against forum shopping, together with
petitioners' manifestation of February 9, 2004.

Respondent also attacks the present petition as one that raises pure questions of fact. It points
out that in a petition for review under Rule 45 of the Rules of Court, the questions that may
properly be inquired into are strictly circumscribed by the express limitation that "the petition
shall raise only questions of law which must be distinctly set forth."13 We do not, however, find
that the issues involved in this petition consist purely of questions of fact. These issues will be
dealt with as we go through the questions raised by the petitioners one by one.

Petitioners' first argument is that the respondent had no right to file an application for
registration of the "Shangri-La" mark and "S" logo because it did not have prior actual
commercial use thereof. To respondent, such an argument raises a question of fact that was
already resolved by the RTC and concurred in by the CA.

First off, all that the RTC found was that respondent was the prior user and registrant of the
subject mark and logo in the Philippines. Taken in proper context, the trial court's finding on
"prior use" can only be interpreted to mean that respondent used the subject mark and logo in
the country before the petitioners did. It cannot be construed as being a factual finding that
there was prior use of the mark and logo before registration.
Secondly, the question raised is not purely factual in nature. In the context of this case, it
involves resolving whether a certificate of registration of a mark, and the presumption of
regularity in the performance of official functions in the issuance thereof, are sufficient to
establish prior actual use by the registrant. It further entails answering the question of whether
prior actual use is required before there may be a valid registration of a mark.

Under the provisions of the former trademark law, R.A. No. 166, as amended, which was in
effect up to December 31, 1997, hence, the law in force at the time of respondent's application
for registration of trademark, the root of ownership of a trademark is actual use in commerce.
Section 2 of said law requires that before a trademark can be registered, it must have been
actually used in commerce and service for not less than two months in the Philippines prior to
the filing of an application for its registration.

Registration, without more, does not confer upon the registrant an absolute right to the
registered mark. The certificate of registration is merely a prima facie proof that the registrant is
the owner of the registered mark or trade name. Evidence of prior and continuous use of the
mark or trade name by another can overcome the presumptive ownership of the registrant and
may very well entitle the former to be declared owner in an appropriate case.14

Among the effects of registration of a mark, as catalogued by the Court in Lorenzana v.

Macagba,15 are:

1. Registration in the Principal Register gives rise to a presumption of the validity of the
registration, the registrant's ownership of the mark, and his right to the exclusive use thereof. x x
x

2. Registration in the Principal Register is limited to the actual owner of the trademark and
proceedings therein pass on the issue of ownership, which may be contested through opposition
or interference proceedings, or, after registration, in a petition for cancellation. xxx

[Emphasis supplied]1avvphil.ñet

Ownership of a mark or trade name may be acquired not necessarily by registration but by
adoption and use in trade or commerce. As between actual use of a mark without registration,
and registration of the mark without actual use thereof, the former prevails over the latter. For a
rule widely accepted and firmly entrenched, because it has come down through the years, is that
actual use in commerce or business is a pre-requisite to the acquisition of the right of
ownership.16

While the present law on trademarks17 has dispensed with the requirement of prior actual use
at the time of registration, the law in force at the time of registration must be applied, and
thereunder it was held that as a condition precedent to registration of trademark, trade name or
service mark, the same must have been in actual use in the Philippines before the filing of the
application for registration.18 Trademark is a creation of use and therefore actual use is a pre-
requisite to exclusive ownership and its registration with the Philippine Patent Office is a mere
administrative confirmation of the existence of such right.19

By itself, registration is not a mode of acquiring ownership. When the applicant is not the owner
of the trademark being applied for, he has no right to apply for registration of the same.
Registration merely creates a prima facie presumption of the validity of the registration, of the
registrant's ownership of the trademark and of the exclusive right to the use thereof.20 Such
presumption, just like the presumptive regularity in the performance of official functions, is
rebuttable and must give way to evidence to the contrary.

Here, respondent's own witness, Ramon Syhunliong, testified that a jeepney signboard artist
allegedly commissioned to create the mark and logo submitted his designs only in December
1982.21 This was two-and-a-half months after the filing of the respondent's trademark
application on October 18, 1982 with the BPTTT. It was also only in December 1982 when the
respondent's restaurant was opened for business.22 Respondent cannot now claim before the
Court that the certificate of registration itself is proof that the two-month prior use requirement
was complied with, what with the fact that its very own witness testified otherwise in the trial
court. And because at the time (October 18, 1982) the respondent filed its application for
trademark registration of the "Shangri-La" mark and "S" logo, respondent was not using these in
the Philippines commercially, the registration is void.

Petitioners also argue that the respondent's use of the "Shangri-La" mark and "S" logo was in
evident bad faith and cannot therefore ripen into ownership, much less registration. While the
respondent is correct in saying that a finding of bad faith is factual, not legal,23 hence beyond
the scope of a petition for review, there are, however, noted exceptions thereto. Among these
exceptions are:

1. When the inference made is manifestly mistaken, absurd or impossible;24

2. When there is grave abuse of discretion;25

3. When the judgment is based on a misapprehension of facts;26

4. When the findings of fact are conflicting;27 and

5. When the facts set forth in the petition as well as in the petitioner's main and reply briefs are
not disputed by the respondent.28

And these are naming but a few of the recognized exceptions to the rule.

The CA itself, in its Decision of May 15, 2003, found that the respondent's president and
chairman of the board, Ramon Syhunliong, had been a guest at the petitioners' hotel before he
caused the registration of the mark and logo, and surmised that he must have copied the idea
there:

Did Mr. Ramon Syhunliong, [respondent's] President copy the mark and devise from one of
[petitioners'] hotel (Kowloon Shangri-la) abroad? The mere fact that he was a visitor of
[petitioners'] hotel abroad at one time (September 27, 1982) establishes [petitioners'] allegation
that he got the idea there.29

Yet, in the very next paragraph, despite the preceding admission that the mark and logo must
have been copied, the CA tries to make it appear that the adoption of the same mark and logo
could have been coincidental:

The word or name "Shangri-la" and the S-logo, are not uncommon. The word "Shangri-la" refers
to a (a) remote beautiful imaginary place where life approaches perfection or (b) imaginary
mountain land depicted as a utopia in the novel Lost Horizon by James Hilton. The Lost
Horizon was a well-read and popular novel written in 1976. It is not impossible that the parties,
inspired by the novel, both adopted the mark for their business to conjure [a] place of beauty
and pleasure.

The S-logo is, likewise, not unusual. The devise looks like a modified Old English print.30

To jump from a recognition of the fact that the mark and logo must have been copied to a
rationalization for the possibility that both the petitioners and the respondent coincidentally
chose the same name and logo is not only contradictory, but also manifestly mistaken or absurd.
Furthermore, the "S" logo appears nothing like the "Old English" print that the CA makes it out
to be, but is obviously a symbol with oriental or Asian overtones. At any rate, it is ludicrous to
believe that the parties would come up with the exact same lettering for the word "Shangri-La"
and the exact same logo to boot. As correctly observed by the petitioners, to which we are in full
accord:

x x x When a trademark copycat adopts the word portion of another's trademark as his own,
there may still be some doubt that the adoption is intentional. But if he copies not only the word
but also the word's exact font and lettering style and in addition, he copies also the logo portion
of the trademark, the slightest doubt vanishes. It is then replaced by the certainty that the
adoption was deliberate, malicious and in bad faith.31

It is truly difficult to understand why, of the millions of terms and combination of letters and
designs available, the respondent had to choose exactly the same mark and logo as that of the
petitioners, if there was no intent to take advantage of the goodwill of petitioners' mark and
logo.32

One who has imitated the trademark of another cannot bring an action for infringement,
particularly against the true owner of the mark, because he would be coming to court with
unclean hands.33 Priority is of no avail to the bad faith plaintiff. Good faith is required in order
to ensure that a second user may not merely take advantage of the goodwill established by the
true owner.

This point is further bolstered by the fact that under either Section 17 of R.A. No. 166, or Section
151 of R.A. No. 8293, or Article 6bis(3) of the Paris Convention, no time limit is fixed for the
cancellation of marks registered or used in bad faith.34 This is precisely why petitioners had
filed an inter partes case before the BPTTT for the cancellation of respondent's registration, the
proceedings on which were suspended pending resolution of the instant case.

Respondent DGCI also rebukes the next issue raised by the petitioners as being purely factual in
nature, namely, whether the CA erred in overlooking petitioners' widespread prior use of the
"Shangri-La" mark and "S" logo in their operations. The question, however, is not whether there
had been widespread prior use, which would have been factual, but whether that prior use
entitles the petitioners to use the mark and logo in the Philippines. This is clearly a question
which is legal in nature.

It has already been established in the two courts below, and admitted by the respondent's
president himself, that petitioners had prior widespread use of the mark and logo abroad:

There is, to be sure, an impressive mass of proof that petitioner SLIHM and its related
companies abroad used the name and logo for one purpose or another x x x.35 [Emphasis
supplied]
In respondent's own words, "[T]he Court of Appeals did note petitioners' use of the mark and
logo but held that such use did not confer to them ownership or exclusive right to use them in
the Philippines."36 To petitioners' mind, it was error for the CA to rule that their worldwide use
of the mark and logo in dispute could not have conferred upon them any right thereto. Again,
this is a legal question which is well worth delving into.

R.A. No. 166, as amended, under which this case was heard and decided provides:

Section 2. What are registrable. - Trademarks, trade names and service marks owned by
persons, corporations, partnerships or associations domiciled in the Philippines and by persons,
corporations, partnerships or associations domiciled in any foreign country may be registered in
accordance with the provisions of this Act: Provided, That said trademarks trade names, or
service marks are actually in use in commerce and services not less than two months in the
Philippines before the time the applications for registration are filed: And provided, further,
That the country of which the applicant for registration is a citizen grants by law substantially
similar privileges to citizens of the Philippines, and such fact is officially certified, with a
certified true copy of the foreign law translated into the English language, by the government of
the foreign country to the Government of the Republic of the Philippines.

Section 2-A. Ownership of trademarks, trade names and service marks; how acquired. - Anyone
who lawfully produces or deals in merchandise of any kind or who engages in any lawful
business, or who renders any lawful service in commerce, by actual use thereof in manufacture
or trade, in business, and in the service rendered, may appropriate to his exclusive use a
trademark, a trade name, or a service-mark not so appropriated by another, to distinguish his
merchandise, business or service from the merchandise, business or services of others. The
ownership or possession of a trademark, trade name, service mark, heretofore or hereafter
appropriated, as in this section provided, shall be recognized and protected in the same manner
and to the same extent as are other property rights known to this law. [Emphasis supplied]

Admittedly, the CA was not amiss in saying that the law requires the actual use in commerce of
the said trade name and "S" logo in the Philippines. Hence, consistent with its finding that the
bulk of the petitioners' evidence shows that the alleged use of the Shangri-La trade name was
done abroad and not in the Philippines, it is understandable for that court to rule in
respondent's favor. Unfortunately, however, what the CA failed to perceive is that there is a
crucial difference between the aforequoted Section 2 and Section 2-A of R.A. No. 166. For, while
Section 2 provides for what is registrable, Section 2-A, on the other hand, sets out how
ownership is acquired. These are two distinct concepts.

Under Section 2, in order to register a trademark, one must be the owner thereof and must have
actually used the mark in commerce in the Philippines for 2 months prior to the application for
registration. Since "ownership" of the trademark is required for registration, Section 2-A of the
same law sets out to define how one goes about acquiring ownership thereof. Under Section 2-A,
it is clear that actual use in commerce is also the test of ownership but the provision went
further by saying that the mark must not have been so appropriated by another. Additionally, it
is significant to note that Section 2-A does not require that the actual use of a trademark must be
within the Philippines. Hence, under R.A. No. 166, as amended, one may be an owner of a mark
due to actual use thereof but not yet have the right to register such ownership here due to failure
to use it within the Philippines for two months.

While the petitioners may not have qualified under Section 2 of R.A. No. 166 as a registrant,
neither did respondent DGCI, since the latter also failed to fulfill the 2-month actual use
requirement. What is worse, DGCI was not even the owner of the mark. For it to have been the
owner, the mark must not have been already appropriated (i.e., used) by someone else. At the
time of respondent DGCI's registration of the mark, the same was already being used by the
petitioners, albeit abroad, of which DGCI's president was fully aware.

It is respondent's contention that since the petitioners adopted the "Shangri-La" mark and "S"
logo as a mere corporate name or as the name of their hotels, instead of using them as a
trademark or service mark, then such name and logo are not trademarks. The two concepts of
corporate name or business name and trademark or service mark, are not mutually exclusive. It
is common, indeed likely, that the name of a corporation or business is also a trade name,
trademark or service mark. Section 38 of R.A. No. 166 defines the terms as follows:

Sec. 38. Words and terms defined and construed - In the construction of this Act, unless the
contrary is plainly apparent from the context - The term "trade name" includes individual names
and surnames, firm names, trade names, devices or words used by manufacturers, industrialists,
merchants, agriculturists, and others to identify their business, vocations or occupations; the
names or titles lawfully adopted and used by natural or juridical persons, unions, and any
manufacturing, industrial, commercial, agricultural or other organizations engaged in trade or
commerce.

The term "trade mark" includes 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.

The term "service mark" means a mark used in the sale or advertising of services to identify the
services of one person and distinguish them from the services of others and includes without
limitation the marks, names, symbols, titles, designations, slogans, character names, and
distinctive features of radio or other advertising. [Emphasis supplied]

Clearly, from the broad definitions quoted above, the petitioners can be considered as having
used the "Shangri-La" name and "S" logo as a tradename and service mark.

The new Intellectual Property Code (IPC), Republic Act No. 8293, undoubtedly shows the firm
resolve of the Philippines to observe and follow the Paris Convention by incorporating the
relevant portions of the Convention such that persons who may question a mark (that is, oppose
registration, petition for the cancellation thereof, sue for unfair competition) include persons
whose internationally well-known mark, whether or not registered, is

identical with or confusingly similar to or constitutes a translation of a mark that is sought to be

registered or is actually registered.37

However, while the Philippines was already a signatory to the Paris Convention, the IPC only
took effect on January 1, 1988, and in the absence of a retroactivity clause, R.A. No. 166 still
applies.38 Under the prevailing law and jurisprudence at the time, the CA had not erred in
ruling that:

The Paris Convention mandates that protection should be afforded to internationally known
marks as signatory to the Paris Convention, without regard as to whether the foreign
corporation is registered, licensed or doing business in the Philippines. It goes without saying
that the same runs afoul to Republic Act No. 166, which requires the actual use in commerce in
the Philippines of the subject mark or devise. The apparent conflict between the two (2) was
settled by the Supreme Court in this wise -

"Following universal acquiescence and comity, our municipal law on trademarks regarding the
requirement of actual use in the Philippines must subordinate an international agreement
inasmuch as the apparent clash is being decided by a municipal tribunal (Mortensen vs. Peters,
Great Britain, High Court of Judiciary of Scotland, 1906, 8 Sessions 93; Paras, International
Law and World Organization, 1971 Ed., p. 20). Withal, the fact that international law has been
made part of the law of the land does not by any means imply the primacy of international law
over national law in the municipal sphere. Under the doctrine of incorporation as applied in
most countries, rules of international law are given a standing equal, not superior, to national
legislative enactments (Salonga and Yap, Public International Law, Fourth ed., 1974, p. 16)."39
[Emphasis supplied]

Consequently, the petitioners cannot claim protection under the Paris Convention. Nevertheless,
with the double infirmity of lack of two-month prior use, as well as bad faith in the respondent's
registration of the mark, it is evident that the petitioners cannot be guilty of infringement. It
would be a great injustice to adjudge the petitioners guilty of infringing a mark when they are
actually the originator and creator thereof.

Nor can the petitioners' separate personalities from their mother corporation be an obstacle in
the enforcement of their rights as part of the Kuok Group of Companies and as official
repository, manager and operator of the subject mark and logo. Besides, R.A. No. 166 did not
require the party seeking relief to be the owner of the mark but "any person who believes that he
is or will be damaged by the registration of a mark or trade name."40

WHEREFORE, the instant petition is GRANTED. The assailed Decision and Resolution of the
Court of Appeals dated May 15, 2003 and September 15, 2003, respectively, and the Decision of
the Regional Trial Court of Quezon City dated March 8, 1996 are hereby SET ASIDE.
Accordingly, the complaint for infringement in Civil Case No. Q-91-8476 is ordered
DISMISSED.

SO ORDERED.
G.R. No. 180073 November 25, 2009

PROSOURCE INTERNATIONAL, INC., Petitioner,

vs.
HORPHAG RESEARCH MANAGEMENT SA, Respondent.

DECISION

NACHURA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to reverse
and set aside the Court of Appeals (CA) Decision1 dated July 27, 2007 and Resolution2 dated
October 15, 2007 in CA-G.R. CV No. 87556. The assailed decision affirmed the Regional Trial
Court (RTC)3 Decision4 dated January 16, 2006 and Order5 dated May 3, 2006 in Civil Case
No. 68048; while the assailed resolution denied petitioner’s motion for reconsideration.

The facts are as follows:

Respondent Horphag Research Management SA is a corporation duly organized and existing

under the laws of Switzerland and the owner6 of trademark PYCNOGENOL, a food supplement
sold and distributed by Zuellig Pharma Corporation. Respondent later discovered that petitioner
Prosource International, Inc. was also distributing a similar food supplement using the mark
PCO-GENOLS since 1996.7 This prompted respondent to demand that petitioner cease and
desist from using the aforesaid mark.8

Without notifying respondent, petitioner discontinued the use of, and withdrew from the
market, the products under the name PCO-GENOLS as of June 19, 2000. It, likewise, changed
its mark from PCO-GENOLS to PCO-PLUS.9

On August 22, 2000, respondent filed a Complaint10 for Infringement of Trademark with
Prayer for Preliminary Injunction against petitioner, praying that the latter cease and desist
from using the brand PCO-GENOLS for being confusingly similar with respondent’s trademark
PYCNOGENOL. It, likewise, prayed for actual and nominal damages, as well as attorney’s fees.11

In its Answer,12 petitioner contended that respondent could not file the infringement case
considering that the latter is not the registered owner of the trademark PYCNOGENOL, but one
Horphag Research Limited. It, likewise, claimed that the two marks were not confusingly
similar. Finally, it denied liability, since it discontinued the use of the mark prior to the
institution of the infringement case. Petitioner thus prayed for the dismissal of the complaint.
By way of counterclaim, petitioner prayed that respondent be directed to pay exemplary
damages and attorney’s fees.13

During the pre-trial, the parties admitted the following:

1. Defendant [petitioner] is a corporation duly organized and existing under the laws of the
Republic of the Philippines with business address at No. 7 Annapolis Street, Greenhills, San
Juan, Metro Manila;

2. The trademark PYCNOGENOL of the plaintiff is duly registered with the Intellectual Property
Office but not with the Bureau of Food and Drug (BFAD).
3. The defendant’s product PCO-GENOLS is duly registered with the BFAD but not with the
Intellectual Property Office (IPO).

4. The defendant corporation discontinued the use of and had withdrawn from the market the
products under the name of PCO-GENOLS as of June 19, 2000, with its trademark changed
from PCO-GENOLS to PCO-PLUS.

5. Plaintiff corporation sent a demand letter to the defendant dated 02 June 2000.14

On January 16, 2006, the RTC decided in favor of respondent. It observed that PYCNOGENOL
and PCO-GENOLS have the same suffix "GENOL" which appears to be merely descriptive and
thus open for trademark registration by combining it with other words. The trial court, likewise,
concluded that the marks, when read, sound similar, and thus confusingly similar especially
since they both refer to food supplements. The court added that petitioner’s liability was not
negated by its act of pulling out of the market the products bearing the questioned mark since
the fact remains that from 1996 until June 2000, petitioner had infringed respondent’s product
by using the trademark PCO-GENOLS. As respondent manifested that it was no longer
interested in recovering actual damages, petitioner was made to answer only for attorney’s fees
amounting to ₱50,000.00.15 For lack of sufficient factual and legal basis, the court dismissed
petitioner’s counterclaim. Petitioner’s motion for reconsideration was likewise denied.

On appeal to the CA, petitioner failed to obtain a favorable decision. The appellate court
explained that under the Dominancy or the Holistic Test, PCO-GENOLS is deceptively similar to
PYCNOGENOL. It also found just and equitable the award of attorney’s fees especially since
respondent was compelled to litigate.16

Hence, this petition, assigning the following errors:

I. THAT THE COURT OF APPEALS ERRED IN AFFRIMING THE RULING OF THE LOWER
[COURT] THAT RESPONDENT’S TRADEMARK P[YC]NOGENOLS (SIC) WAS INFRINGED
BY PETITIONER’S PCO-GENOLS.

II. THAT THE COURT OF APPEALS ERRED IN AFFIRMING THE AWARD OF ATTORNEY’S
FEES IN FAVOR OF RESPONDENT HORPHAG RESEARCH MANAGEMENT S.A. IN THE
AMOUNT OF Php50,000.00.17

The petition is without merit.

It must be recalled that respondent filed a complaint for trademark infringement against
petitioner for the latter’s use of the mark PCO-GENOLS which the former claimed to be
confusingly similar to its trademark PYCNOGENOL. Petitioner’s use of the questioned mark
started in 1996 and ended in June 2000. The instant case should thus be decided in light of the
provisions of Republic Act (R.A.) No. 16618 for the acts committed until December 31, 1997, and
R.A. No. 829319 for those committed from January 1, 1998 until June 19, 2000.

A trademark is any distinctive word, name, symbol, emblem, sign, or device, or any combination
thereof, adopted and used by a manufacturer or merchant on his goods to identify and
distinguish them from those manufactured, sold, or dealt by others. Inarguably, a trademark
deserves protection.20
Section 22 of R.A. No. 166, as amended, and Section 155 of R.A. No. 8293 define what
constitutes trademark infringement, as follows:

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
tradename 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 of colorably imitate any such mark or tradename
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.

Sec. 155. 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 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.

In accordance with Section 22 of R.A. No. 166, as well as Sections 2, 2-A, 9-A, and 20 thereof,
the following constitute the elements of trademark infringement:

(a) A trademark actually used in commerce in the Philippines and registered in the principal
register of the Philippine Patent Office[;]

(b) [It] is used by another person in connection with the sale, offering for sale, or advertising of
any goods, business or services 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 such trademark is reproduced, counterfeited, copied or colorably
imitated by another person and such reproduction, counterfeit, copy or colorable imitation 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 as to likely cause confusion or
mistake or to deceive purchasers[;]

(c) [T]he trademark is used for identical or similar goods[;] and

(d) [S]uch act is done without the consent of the trademark registrant or assignee.21
On the other hand, the elements of infringement under R.A. No. 8293 are as follows:

(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.22

In the foregoing enumeration, it is the element of "likelihood of confusion" that is the gravamen
of trademark infringement. But "likelihood of confusion" is a relative concept. The particular,
and sometimes peculiar, circumstances of each case are determinative of its existence. Thus, in
trademark infringement cases, precedents must be evaluated in the light of each particular
case.23

In determining similarity and likelihood of confusion, jurisprudence has developed two tests:
the Dominancy Test and the Holistic or Totality 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.24 If the competing trademark contains the main,
essential and dominant features of another, and confusion or deception is likely to result,
infringement takes place. Duplication or imitation is not necessary; nor is it necessary that the
infringing label should suggest an effort to imitate. 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
purchasers.25 Courts will consider more the aural and visual impressions created by the marks
in the public mind, giving little weight to factors like prices, quality, sales outlets, and market
segments.26

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.27 The
discerning eye of the observer must focus not only on the predominant words but also on the
other features appearing on both labels in order that the observer may draw his conclusion
whether one is confusingly similar to the other.28

The trial and appellate courts applied the Dominancy Test in determining whether there was a
confusing similarity between the marks PYCNOGENOL and PCO-GENOL. Applying the test, the
trial court found, and the CA affirmed, that:

Both the word[s] PYCNOGENOL and PCO-GENOLS have the same suffix "GENOL" which on
evidence, appears to be merely descriptive and furnish no indication of the origin of the article
and hence, open for trademark registration by the plaintiff thru combination with another word
or phrase such as PYCNOGENOL, Exhibits "A" to "A-3." Furthermore, although the letters "Y"
between P and C, "N" between O and C and "S" after L are missing in the [petitioner’s] mark
PCO-GENOLS, nevertheless, when the two words are pronounced, the sound effects are
confusingly similar not to mention that they are both described by their manufacturers as a food
supplement and thus, identified as such by their public consumers. And although there were
dissimilarities in the trademark due to the type of letters used as well as the size, color and
design employed on their individual packages/bottles, still the close relationship of the
competing products’ name in sounds as they were pronounced, clearly indicates that purchasers
could be misled into believing that they are the same and/or originates from a common source
and manufacturer.29

We find no cogent reason to depart from such conclusion.

This is not the first time that the Court takes into account the aural effects of the words and
letters contained in the marks in determining the issue of confusing similarity. In Marvex
Commercial Co., Inc. v. Petra Hawpia & Co., et al.,30 cited in McDonald’s Corporation v. L.C.
Big Mak Burger, Inc.,31 the Court held:

The following random list of confusingly similar sounds in the matter of trademarks, culled from
Nims, Unfair Competition and Trade Marks, 1947, Vol. 1, will reinforce our view that
"SALONPAS" and "LIONPAS" are confusingly similar in sound: "Gold Dust" and "Gold Drop";
"Jantzen" and "Jass-Sea"; "Silver Flash" and "Supper Flash"; "Cascarete" and "Celborite";
"Celluloid" and "Cellonite"; "Chartreuse" and "Charseurs"; "Cutex" and "Cuticlean"; "Hebe" and
"Meje"; "Kotex" and "Femetex"; "Zuso" and "Hoo Hoo." Leon Amdur, in his book "Trade-Mark
Law and Practice," pp. 419-421, cities, as coming within the purview of the idem sonans rule,
"Yusea" and "U-C-A," "Steinway Pianos" and "Steinberg Pianos," and "Seven-Up" and "Lemon-
Up." In Co Tiong vs. Director of Patents, this Court unequivocally said that "Celdura" and
"Cordura" are confusingly similar in sound; this Court held in Sapolin Co. vs. Balmaceda, 67
Phil. 795 that the name "Lusolin" is an infringement of the trademark "Sapolin," as the sound of
the two names is almost the same.32

Finally, we reiterate that the issue of trademark infringement is factual, with both the trial and
appellate courts finding the allegations of infringement to be meritorious. As we have
consistently held, factual determinations of the trial court, concurred in by the CA, are final and
binding on this Court.33 Hence, petitioner is liable for trademark infringement.

We, likewise, sustain the award of attorney’s fees in favor of respondent. Article 2208 of the Civil
Code enumerates the instances when attorney’s fees are awarded, viz.:

Art. 2208. In the absence of stipulation, attorney’s fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:

1. When exemplary damages are awarded;

2. When the defendant’s act or omission has compelled the plaintiff to litigate with third persons
or to incur expenses to protect his interest;

3. In criminal cases of malicious prosecution against the plaintiff;

4. In case of a clearly unfounded civil action or proceeding against the plaintiff;

5. Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff"s
plainly valid, just and demandable claim;

6. In actions for legal support;

7. In actions for the recovery of wages of household helpers, laborers and skilled workers;

8. In actions for indemnity under workmen’s compensation and employer’s liability laws;

9. In a separate civil action to recover civil liability arising from a crime;

10. When at least double judicial costs are awarded;

11. In any other case where the court deems it just and equitable that attorney’s fees and
expenses of litigation should be recovered.

In all cases, the attorney’s fees and expenses of litigation must be reasonable.

As a rule, an award of attorney’s fees should be deleted where the award of moral and exemplary
damages is not granted.34 Nonetheless, attorney’s fees may be awarded where the court deems
it just and equitable even if moral and exemplary damages are unavailing.35 In the instant case,
we find no reversible error in the grant of attorney’s fees by the CA.

WHEREFORE, premises considered, the petition is DENIED for lack of merit. The Court of
Appeals Decision dated July 27, 2007 and its Resolution dated October 15, 2007 in CA-G.R. CV
No. 87556 are AFFIRMED.

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. 169440 November 23, 2011

GEMMA ONG A.K.A. Maria Teresa Gemma Catacutan, Petitioner,

vs.
PEOPLE OF THE PHILIPPINES, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

Before Us is a petition for review on certiorari, filed under Rule 45 of the Rules of Court, to set
aside and reverse the June 16, 2005 Decision1 of the Court of Appeals in CA-G.R. CR No. 28308,
which affirmed the September 23, 2003 Decision2 of the Regional Trial Court (RTC) of Manila,
Branch 24 in Criminal Case No. 00-184454.

On July 28, 2000, petitioner Gemma Ong a.k.a. Maria Teresa Gemma Catacutan (Gemma) was
charged before the RTC for Infringement under Section 155 in relation to Section 170 of
Republic Act No. 8293 or the Intellectual Property Code. The accusatory portion of the
Information reads:

That sometime in September 25, 1998 and prior thereto at Sta. Cruz, Manila and within the
jurisdiction of this Honorable Court, the above-named accused did then and there, knowingly,
maliciously, unlawfully and feloniously engage in the distribution, sale, [and] offering for sale of
counterfeit Marlboro cigarettes which had caused confusion, deceiving the public that such
cigarettes [were] Marlboro cigarettes and those of the Telengtan Brothers and Sons, Inc., doing
business under the style of La Suerte Cigar and Cigarettes Factory, the exclusive manufacturer of
Marlboro Cigarette in the Philippines and that of Philip Morris Products, Inc. (PMP7) the
registered owner and proprietor of the MARLBORO trademark together with the devices,
including the famous-Root Device, to their damage and prejudice, without the accused seeking
their permit or authority to manufacture and distribute the same.3

On August 1, 2000, Judge Rebecca G. Salvador of RTC Manila, Branch 1, issued a warrant of
arrest against Gemma, but lifted4 and set aside5 the same after Gemma voluntarily surrendered
on August 4, 2000, and filed a cash bond for ₱ 12,000.00.

Gemma pleaded not guilty to the charge upon arraignment on October 17, 2000.6 After the pre-
trial conference on February 13, 2001,7 trial on the merits ensued.

The prosecution called to the witness stand the following: Roger Sherman Slagle, the Director of
Operations of Philip Morris Malaysia, and Philip Morris Philippines, Inc.’s (PMPI)
product/brand security expert, to testify that according to his examination, the products they
seized at the subject premises were counterfeit cigarettes;8 as well as Jesse Lara, who, as then
Senior Investigator III at the Intellectual Property Rights (IPR) Unit of the Economic
Intelligence and Investigation Bureau (EIIB), Department of Finance, led the investigating
team, to testify on the events that led to the arrest of Gemma.9 The prosecution also presented
the billing accountant of Quasha Ancheta Peña & Nolasco Law Office (Quasha Law Office),
Juliet Flores, to show that PMPI, being one of Quasha Law Office’s clients, paid the amount of
$4,069.12 for legal services rendered.10 The last witness for the prosecution was Atty. Alonzo Q.
Ancheta, a senior law partner at Quasha Law Office, who testified that as the duly appointed
Attorney-in-Fact of PMPI, he was in charge of the EIIB search operation in the subject premises.
Atty. Ancheta said that while he was not personally present during the implementation of the
search warrant, he sent Atty. Leonardo Salvador, who constantly reported the developments to
him.11

The facts, as succinctly summarized by the Court of Appeals, are as follows:

On September 10, 1998, Jesse S. Lara, then Senior Investigator III at the Intellectual Property
Rights (IPR) Unit of the Economic Intelligence and Investigation Bureau (EIIB), Department of
Finance, received reliable information that counterfeit "Marlboro" cigarettes were being
distributed and sold by two (2) Chinese nationals, Johnny Sia and Jessie Concepcion, in the
areas of Tondo, Binondo, Sta. Cruz and Quiapo, Manila. A mission team formed by EIIB,
including Lara, conducted surveillance operation to verify the report. EIIB agents Leonardo
Villanueva and Jigo Madrigal did a "test-buy" on the different sari-sari stores of Manila located
in Quiapo, Tondo, Sta. Cruz and Blumentritt areas and took samples of "Marlboro" cigarettes
sold therein. During the surveillance, the container van delivering the "Marlboro" packed in
black plastic bags was seen parked at 1677 Bulacan corner Hizon Streets, Sta. Cruz, Manila [(the
subject premises)]. Upon inquiry from the Barangay Chairman, they also learned that the place
is owned by a certain Mr. Jackson Ong.

The EIIB team coordinated with officers of Philip Morris, Inc., owner of the trademark Marlboro
Label in the Philippines duly registered with the Philippine Patents Office and subsequently with
the Intellectual Property Office (IPO) since 1956. Initial examination made by Philip Morris, Inc.
on those random sample purchases revealed that the cigarettes were indeed fake products
unauthorized by the company. With official indorsement by the EIIB, Senior Investigator Lara
filed an application for search warrant before the Regional Trial Court of Dasmariñas, Cavite,
Branch 90.

On September 24, 1998, Executive Judge Dolores L. Español issued a search warrant after
finding probable cause to believe that Mr. Jackson Ong has in his possession/control in the
premises located at 1675-1677 Bulacan St. cor. M. Hizon St., Sta. Cruz, Manila, the following
properties:

"Substantial number of fake locally made and imported fake cigarettes bearing the Marlboro
brand, together with the corresponding labels, cartons, boxes and other packaging as well as
receipts, invoices and other documents relative to the purchase, sale, and distribution of the
aforesaid fake Marlboro cigarettes."

On September 25, 1998, the EIIB team led by Senior Investigator Lara implemented the search
warrant, together with SPO2 Rommel P. Sese of the Western Police District (WPD) as
representative of the Philippine National Police (PNP), Barangay Chairman Ernesto Traje, Sr.,
Barangay Kagawad Vivian V. Rallonza and Atty. Leonardo P. Salvador who was sent by [Quasha
Peña & Nolasco Law Office,] the law firm engaged by Philip Morris, Inc. They proceeded to the
subject premises but Jackson Ong, the alleged owner, was not there. It was accused, who is
supposedly either the spouse or common-law wife of Jackson Ong, who entertained them. At
first, accused refused to allow them entry into the premises but eventually the team was able to
search the premises and found Marlboro cigarettes stocked in several boxes containing fifty (50)
reams inside each box which were packed in black plastic sacks like in "balikbayan boxes." The
"Inventory" and "Certification In the Conduct of Search" were duly accomplished and signed by
the members of the EIIB and the other representatives present during the actual search (SPO2
Sese, Jess Lara, Traje, Sr., Henry Mariano, Isidro Burgos and Atty. Salvador). Accused signed
her name in the said documents as "Gemma Ong," as the Owner/Representative, while a certain
employee, Girlie Cantillo, also signed as witness.
On September 28, 1998, a Return of Search Warrant was submitted by the EIIB to the issuing
court stating that the articles seized pursuant to the warrant were stored in the premises of the
EIIB and requesting that EIIB be granted temporary custody of the goods. Acting on the Urgent
Motion To Transfer Custody of Confiscated Articles filed by Philip Morris Products, Inc. (PMPI)
of Virginia, U.S.A., Executive Judge Dolores L. Español ordered the custody of the seized goods
transferred from EIIB to PMPI c/o Quasha Ancheta Peña and Nolasco Law Office, the Attorney-
in-Fact of PMPI. Judge Español subsequently also issued an order dated October 15, 1998
authorizing PMPI to secure and take out samples of the unauthorized products from the
confiscated cartons/boxes of Marlboro cigarettes which are stored at Four Winds Phils. Inc.
warehouse located at No. 2241 Pasong Tamo Extension, Makati City under the direct and
personal control and supervision of Sheriff IV Tomas C. Azurin. PMPI had earlier sought such
order from the court for the purpose of laboratory analysis and scientific testing of the samples
from the confiscated cigarettes.

On the basis of the results of the examination conducted by PMPI on the samples obtained from
the confiscated boxes of cigarettes bearing the Marlboro brand, which confirmed the same to be
unauthorized products and not genuine Marlboro cigarettes, the EIIB filed a case for Violation
of Sections 155 and 168 in relation to Section 170 of Republic Act No. 8293 against Jackson Ong
who is not an authorized distributor of Marlboro products in the Philippines.12

After the prosecution rested its case, the defense filed a Demurrer to Evidence,13 which the RTC
denied on March 26, 2003.14 The defense moved for a reconsideration of this order but the
same was denied on April 22, 2003.15

Gemma, as the lone witness for the defense, then took the witness stand. She said that she is
married to Co Yok Piao, a Chinese national, but she still uses her maiden name Catacutan.16 She
denied that she is the Gemma Ong accused in this case. She testified that she was arrested on
August 4, 2000, without the arresting officers asking for her name. She said that when she
pleaded to be released, she was instructed to post a cash bond, which she did in the amount of ₱
12,000.00. Gemma averred that when she posted her bond and signed her certificate of
arraignment, she did so under her real name Maria Teresa Gemma Catacutan, as opposed to the
signatures in the Inventory and Certification in the Conduct of Search (search documents),
which she denied signing. She claimed that she was not able to bring up her defense of mistaken
identity early on as she did not know when the proper time to raise it was. She avowed that she
was not interrogated by the police prior to her arrest, despite the two-year gap between it and
the search of the subject premises. She alleged that she did not know Jackson Ong and that the
prosecution witnesses, whom she first saw during her trial, couldn’t even point to her as the
person present during the raid when they testified in court. Gemma further asseverated that
while she could not remember where she was on September 25, 1998, she was sure that she was
not at the subject premises on that date. Gemma presented her Identification Card issued by the
Professional Regulation Commission (PRC) to show that she is a dentist by profession, although
she claimed that she is a businessperson in practice. She said that she used to buy and sell gear
fabrics, t-shirts, truck materials, and real estate17 under the business name "Fascinate Trading"
based in Bulacan Street, Sta. Cruz, Manila, but that it had ceased operations in February 1998.18
Gemma denied ever having engaged in the manufacture and sale of any kind of cigarettes and
claimed that she could not even distinguish between a fake and a genuine Marlboro cigarette.19

On September 30, 2003, the RTC convicted Gemma of the crime as charged. The dispositive
portion of its Decision reads:
Accordingly, this Court finds accused Gemma Catacutan guilty beyond reasonable doubt of
violation of Section 155 in relation to Section 170 of Republic Act No. 8293 and hereby sentences
her to suffer the penalty of imprisonment of two (2) years and to pay a fine of Fifty Thousand (₱
50,000.00) Pesos.

Accused is further directed to indemnify private complainant the sum of US$4,069.12 or its peso
equivalent, as actual damages.

The records of the case as against Jackson Ong is hereby ordered archived pending his arrest.

With costs against accused Gemma Catacutan.20

In resolving the case, the RTC narrowed down the issue to whether Gemma Catacutan was the
same accused identified as Gemma Ong. The RTC answered this in the affirmative as it found
Gemma’s defense of mistaken identity as untenable, especially since she claimed to be a
professional. The RTC explained:

Ranged against the positive and forthright declaration of the prosecution witnesses, the mere
uncorroborated and self-serving denials of the accused cannot stand. (People vs. Hortaleza, 258
SCRA 201)

We note in disbelief that it was only in the hearing of November 26, 2001, that accused’[s]
former lawyer manifested that accused is known as Gemma Catacutan never as Gemma Ong
(tsn, November 26, 2001, p. 3) and as admitted by her, she never revealed her true identity
when arrested, when she posted her bail bond and even during her arraignment.

She could have protested at the time of her arrest that they were arresting the wrong person but
this she did not do. She proceeded to post a bond for her provisional liberty, hired a lawyer to
defend her but failed to divulge the very information that could have led to an early dismissal of
the case, if true.

Her pretensions of ignorance as to the proper stage of when to explain (tsn, May 26, 2003), p. 13
can hardly be given credit. A dentist by profession, it is utterly incredible that she remained
meek all through-out her arrest and the posting of her bail bond.21

The RTC also unfurled the fact that while Gemma claimed to have never engaged in the sale and
manufacture of Marlboro cigarettes, the address of her business "Fascinate Trading" is
registered as 1677 Bulacan Street, Sta. Cruz, Manila, the same property raided by the EIIB that
contained the counterfeit cigarettes.22

Aggrieved, Gemma appealed the RTC’s decision to the Court of Appeals based on the following
grounds:

THE LOWER COURT GRIEVOUSLY ERRED IN CONVICTING DR. MARIA TERESA GEMMA
CATACUTAN GUILTY OF THE CRIME OF VIOLATION OF THE INTELLECTUAL PROPERTY
RIGHTS LAW DESPITE UTTER LACK OF EVIDENCE.

II
THE LOWER COURT IN CONVICTING DR. MARIA TERESA GEMMA CATACUTAN ON THE
BASIS OF SURMISE (sic), CONJECTURES AND GUESSWORK COMMITTED GRAVE
VIOLENCE AGAINST THE CONSTITUTIONAL PRESUMPTION OF INNOCENCE.

III

THE LOWER COURT COMMITTED SERIOUS REVERSIBLE ERROR IN CONVICTING THE

ACCUSED-APPELLANT WHO HAD NOT BEEN POSITIVELY IDENTIFIED AND
PINPOINTED AS MANUFACTURER NOR (sic) DISTRIBUTOR OF FAKE MARLBORO
PRODUCT.

IV

THE LOWER COURT COMMITTED SERIOUS REVERSIBLE ERROR IN NOT GIVING THE
SLIGHTEST CREDENCE TO THE UNCONTRADICTED, UNREFUTED AND CANDID
TESTIMONY OF THE ACCUSED-APPELLANT, BUT INSTEAD, CONVICTED HER ON [T]HE
BASIS OF EXTRAPOLATED EVIDENCE NOT BORNE BY THE RECORDS.

THE LOWER COURT COMMITTED A GRAVE REVERSIBLE ERROR IN CONVICTING

ACCUSED-APPELLANT DESPITE THE UTTER AND PATHETIC LACK OF EVIDENCE TO
SUSTAIN THE PROSECUTION’S LAME, SHALLOW AND UNCONFOUNDED THEORY OF
GUILT.23

The Court of Appeals found Gemma’s appeal to be unmeritorious. It said that Gemma was
positively identified by the prosecution witnesses as the woman who entertained them during
the search of the subject premises on September 25, 1998, and the woman who signed the
Certification in the Conduct of Search and Inventory. The Court of Appeals agreed with the
RTC’s rejection of Gemma’s defense of mistaken identity, as she should have raised it at the
earliest opportunity, which was at the time of her arrest, the posting of her bail bond, or during
her arraignment. The Court of Appeals held that the amendment of the prosecution witnesses’
affidavits was explained during the hearing, and although the original affidavits were the ones
marked during the pre-trial, the amended ones provided the basis for the filing of the
Information against Gemma and her co-accused Jackson Ong. The Court of Appeals also noted
that the March 20, 2000 Resolution of the State Prosecutor specifically mentioned that the
search warrant was served on Gemma Ong. The Court of Appeals then proclaimed that in the
hierarchy of evidence, the testimony of the witness in court commands greater weight than his
written affidavit.24

The Court of Appeals affirmed the conviction of Gemma for trademark infringement under
Section 155 of Republic Act No. 8293, as the counterfeit goods seized by the EIIB were not only
found in her possession and control, but also in the building registered under her business,
Fascinate Trading. The Court of Appeals said that the prosecution had satisfactorily proven
Gemma’s commission of the offense since the unauthorized use of the trademark Marlboro,
owned by PMPI, was clearly intended to deceive the public as to the origin of the cigarettes
being distributed and sold, or intended to be distributed and sold. The Court of Appeals further
sustained the penalty and damages imposed by the RTC for being in accord with the law and
facts.25

Gemma is now before this Court with the following assignment of errors:
A.

THE COURT OF APPEALS ERRED IN GIVING CREDENCE TO THE TESTIMONIES OF

PROSECUTION WITNESSES IDENTIFYING PETITIONER AS PRESENT AT THE TIME AND
PLACE WHEN THE SEARCH AND SEIZURE TOOK PLACE.

B.

THE COURT OF APPEALS ERRED IN GIVING CREDENCE TO THE TESTIMONIES OF

PROSECUTION WITNESSES THAT THEY SAW PETITIONER SIGN HER NAME AS "GEMMA
ONG" AS OWNER/CLAIMANT/REPRESENTATIVE (OF THE ARTICLES SEIZED) ON THE
SEARCH WARRANT (EXH. "A"), CERTIFICATION IN THE CONDUCT OF SEARCH (EXH.
"B") AND INVENTORY OF THE S[E]IZED ARTICLES AT THE TIME OF THE SEARCH (EXH.
"D").

C.

THE COURT OF APPEALS ERRED IN NOT FINDING THAT PETITIONER’S SIGNATURE IN

EXHIBITS "A", "B" AND "C" ARE NOT HERS BUT WERE FORGED, BEING COMPLETELY
AND PATENTLY DISSIMILAR TO HER TRUE AND REAL SIGNATURE AS SHOWN IN HER
OFFICIAL I.D AS PROFESSIONAL DENTIST.

D.

THE COURT OF APPEALS ERRED IN CONCLUDING THAT THE AFFIDAVITS OF THE

PROSECUTION WITNESSES WHICH DID NOT MENTION PETITIONER’S PRESENCE AT
THE TIME AND PLACE OF THE SEARCH CANNOT TAKE PRECEDENCE OVER THEIR
CONTRARY TESTIMONIES IN COURT THAT SHE WAS PRESENT AND IN FACT THE
OCCUPANT AND OWNER OF THE PREMISES FROM WHICH SHE INITIALLY BLOCKED
THEIR ENTRY INTO.

E.

THE COURT OF APPEALS ERRED IN CONCLUDING THAT [PETITIONER] WAS THE VERY
SAME PERSON WHO WAS CAUGHT IN POSSESSION AND CONTROL OF THE PREMISES
WHERE THE COUNTERFEIT ARTICLES WERE SEIZED BECAUSE SHE ALLEGEDLY
NEVER PROTESTED BEING WRONGFULLY ACCUSED AT THE TIME OF HER ARREST ON
4 AUGUST 2000, WHEN SHE POSTED HER CASH BOND AND WHEN SHE EVEN SIGNED
HER NAME AS MA. TERESA GEMMA CATACUTAN IN THE WAIVER, UNDERTAKING AND
CERTIFICATE OR ARRAIGNMENT, ALL IN THE NAME OF THE ACCUSED AS "GEMMA
ONG, a.k.a. MA. THERESA CATACUTAN."

F.

THE COURT OF APPEALS ERRED IN NOT ACQUITTING [PETITIONER] FOR FAILURE OF

THE PROSECUTION TO PROVE THE GUILT OF THE ACCUSED-APPELLANT BEYOND
REASONABLE DOUBT.26

Gemma argues that if it were true that she was in the subject premises when it was raided on
September 25, 1998, then her name and presence would have been mentioned in the respective
affidavits of Slagle and Atty. Ancheta; and the EIIB agents who conducted the search would have
confronted, investigated, or arrested her. Gemma insists that the fact that her name was only
mentioned for the first time in the amended affidavits yields to the conclusion that she was not
in the subject premises when it was searched and that the testimonies of the prosecution
witnesses were perjured.27

Gemma further claims that the courts below were wrong in finding that she never protested that
she was mistakenly identified. She claims that she was arrested without the benefit of a
preliminary investigation and all she wanted to do at that point was to "get out [of] the clutches
of overzealous and eager beaver policemen who were exuberant in arresting an innocent party
like"28 her. Gemma also explains that her non-protest during her arraignment was upon the
advice of her former lawyer, who said that he would correct it in the proper time during the trial.

Respondent People of the Philippines, in its comment,29 avers that there are only two issues to
be resolved in this case, to wit:

1. THE INSTANT PETITION IS FATALLY DEFECTIVE AS IT RAISES QUESTIONS OF FACT

WHICH ARE NOT PROPER FOR REVIEW UNDER RULE 45 OF THE REVISED RULES OF
COURT.

2. THE COURT OF APPEALS DID NOT ERR IN AFFIRMING PETITIONER’S CONVICTION

FOR VIOLATION OF SECTION 155 IN RELATION TO SECTION 170 OF R.A. 8293
(INTELLECTUAL PROPERTY CODE OF THE PHILIPPINES).30

Respondent claims that a perusal of the issues in Gemma’s petition readily discloses that only
questions of fact have been raised, which are not reviewable in an appeal by certiorari.31
Respondent asseverates that Gemma’s conviction was warranted as the prosecution had
sufficiently established her presence during the search of the subject premises where she signed
the search documents as "Gemma Ong." Moreover, the respondent avers, Gemma failed to
timely protest her arrest and raise her claim that she is not Gemma Ong.32

Issues

A study of the pleadings filed before this Court shows that the only issues to be resolved are the
following:

1. Whether or not accused-appellant’s petition for review on certiorari under Rule 45 of the
Rules of Court is fatally defective as it raises questions of fact; and

2. Whether or not Gemma’s guilt was proven beyond reasonable doubt in light of her alleged
mistaken identity.

This Court’s Ruling

Procedural Issue

As this case reached this Court via Rule 45 of the Rules of Court, the basic rule is that factual
questions are beyond the province of this Court, because only questions of law may be raised in
a petition for review.33 However, in exceptional cases, this Court has taken cognizance of
questions of fact in order to resolve legal issues, such as when there was palpable error or a
grave misapprehension of facts by the lower court.34 In Armed Forces of the Philippines Mutual
Benefit Association, Inc. v. Court of Appeals,35 we said that although submission of issues of
fact in an appeal by certiorari taken to this Court is ordinarily proscribed, this Court nonetheless
retains the option in the exercise of its sound discretion, taking into account the attendant
circumstances, either to decide the case or refer it to the proper court for determination.36 Since
the determination of the identity of Gemma is the very issue affecting her guilt or innocence, this
Court chooses to take cognizance of this case in the interest of proper administration of justice.

Gemma is guilty of violating Section 155 in relation to Section 170 of Republic Act No. 8293

Gemma was charged and convicted of violating Section 155 in relation to Section 170 of Republic
Act No. 8293, or the Intellectual Property Code of the Philippines.

Section 155. 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. (Sec. 22, R.A. No 166a)

Section 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. (Arts. 188 and 189, Revised Penal Code.) (Emphases
supplied.)

A "mark" 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.37

In McDonald’s Corporation and McGeorge Food Industries, Inc. v. L.C. Big Mak Burger, Inc.,38
this Court held:

To establish trademark infringement, the following elements must be shown: (1) the validity of
plaintiff’s mark; (2) the plaintiff’s ownership of the mark; and (3) the use of the mark or its
colorable imitation by the alleged infringer results in "likelihood of confusion." Of these, it is the
element of likelihood of confusion that is the gravamen of trademark infringement.

A mark is valid if it is distinctive and not barred from registration. Once registered, not only the
mark’s validity, but also the registrant’s ownership of the mark is prima facie presumed.39
The prosecution was able to establish that the trademark "Marlboro" was not only valid for
being neither generic nor descriptive, it was also exclusively owned by PMPI, as evidenced by
the certificates of registration issued by the Intellectual Property Office of the Department of
Trade and Industry.40

Anent the element of confusion, both the RTC and the Court of Appeals have correctly held that
the counterfeit cigarettes seized from Gemma’s possession were intended to confuse and deceive
the public as to the origin of the cigarettes intended to be sold, as they not only bore PMPI’s
mark, but they were also packaged almost exactly as PMPI’s products.41

Regarding the Claim of Mistaken Identity

Despite all these findings, Gemma has posited only a single defense, from the RTC all the way up
to this Court: that she is not the Gemma Ong named and accused in this case. She bases this
claim on the alleged discrepancies in the prosecution witnesses’ original affidavits vis-à-vis the
amended ones, which discrepancies, according to her, strongly suggest her innocence.

This Court has time and again held that between an affidavit executed outside the court, and a
testimony given in open court, the latter almost always prevails.

Discrepancies between a sworn statement and testimony in court do not outrightly justify the
acquittal of an accused. Such discrepancies do not necessarily discredit the witness since ex
parte affidavits are often incomplete. They do not purport to contain a complete compendium of
the details of the event narrated by the affiant. Thus, our rulings generally consider sworn
statements taken out of court to be inferior to in court testimony. x x x.42

A reading of the original affidavits43 executed by Slagle and Atty. Ancheta, readily reveals that
they concentrated on the facts and events leading up to the search and seizure of the contraband
materials from the subject premises. They not only failed to mention Gemma Ong’s presence
there, but they also failed to mention the other witnesses’ names and presence there as well.
Although this might appear to be a mistake on the part of a known and established law firm like
the Quasha Law Office, the firm immediately sought to rectify this by having the affidavits of
Slagle, Atty. Ancheta, and Lara amended.

If it were true that Gemma was not at the subject premises at all on September 25, 1998, then
she should have grabbed every chance to correct this notion and expose this mistake before she
was arrested. She could have brought up her defense of mistaken identity or absence at the raid
in the preliminary investigation conducted prior to the issuance of her warrant of arrest; but
instead, she chose to ignore her subpoena and disregard the preliminary investigation. Even
then, Gemma had the opportunity to raise the fact that she was not Gemma Ong; not only
during her arrest, but also during the posting of the cash bond for her bail, and more
importantly, during her arraignment, when she was asked if she understood the charges against
her. Gemma also knew that the Information was filed against her on the basis of the amended
affidavits, thus, she could have filed a motion to quash the information before she entered her
plea, or asked that a reinvestigation be conducted. However, all these Gemma failed to do. We
agree with the RTC that it is highly unlikely that a person of her stature and educational
attainment would be so meek and timid that she failed to protest against her being wrongly
identified, accused, arrested, and potentially imprisoned. If what she says were true, she would
not have agreed to post bail or to be arraigned without at the very least, bringing up the fact that
she was not the Gemma Ong the police officers were looking for. In addition, her own lawyer,
Atty. Maglinao, brought up the fact that she was not Gemma Ong, only for the purpose of
correcting the Information, and not to contest it, to wit:

WITNESS ROGER SHERMAN SLAGLE UNDER THE SAME OATH FOR CONTINUATION OF
DIRECT EXAMINATION BY:

ATTY. ERESE:

With the kind permission of the hon. court.

COURT: Proceed.

ATTY. MAGLINAO:

I would just want to be on record that my client, Gemma Catacutan has never been known as
Gemma Ong because her real name is Gemma Catacutan.

COURT: Do you have any objection to the amendment of the information?

ATTY. MAGLINAO:

No, your Honor. May we request to correct the information from Gemma Ong to Gemma
Catacutan.44

Gemma further accuses the prosecution witnesses of falsely testifying and of perjuring
themselves just so they can satisfy a big client like PMPI by showing that somebody had been
arrested for counterfeiting its cigarettes. The crimes Gemma is imputing on these witnesses are
serious crimes, and in the absence of concrete and convincing evidence, this Court could not
believe her mere allegations that imply that these people would destroy someone’s life just so
they can please a client, more so over mere cigarettes. In Principio v. Hon. Barrientos,45 we
said:

Bad faith is never presumed while good faith is always presumed and the chapter on Human
Relations of the Civil Code directs every person, inter alia, to observe good faith, which springs
from the fountain of good conscience. Therefore, he who claims bad faith must prove it. For one
to be in bad faith, the same must be "evident." x x x.46

The prosecution witnesses, contrary to Gemma’s claim, had positively identified her as the
person who initially refused the search team entrance, then later acquiesced to the search
operations. Slagle explained that even though he mentioned Gemma only in his amended
affidavit, he was sure that she was at the subject premises on the day that they searched it:

Testimony of Roger Sherman Slagle

ATTY. MAGLINAO:

Q In this amended affidavit you mentioned the name, Gemma Catacutan as one of the accused?

A Yes sir.
Q Can you tell the court how you were able to include the name of Gemma Catacutan in your
amended affidavit, when in fact it did not appear in the first affidavit?

A When we arrived she was there and she was very nervous and upset.

xxxx

A It is very clear to me when I arrived there that she was somehow involved.47 (Emphases ours.)

Lara on the other hand, even pointed to her and thus positively identified her to be the one who
had signed the search documents,48 as the owner of the subject premises, to wit:

Testimony of Jesse Lara

ATTY. FREZ

Q : Mr. Witness, do you know this person who wrote the name Gemma Ong?

A : Yes, sir, Gemma Ong is the owner of the premises when we served the search warrant and
also, she was the one who refused us to gain entry during the service of the search warrant.

Q : Were you able to gain entry at the premises?

A : Yes, sir.

Q : So, as regard to the person whom you identify as the one who refused you to gain entry,
would you be able to identify this person?

A : Yes, sir, that lady in pink is Mrs. Gemma Ong.

(As witness is pointing to the accused Gemma Ong).

Q : Mr. Witness, why do you say that the person whom you pointed to us is the one who wrote
the name Mrs. Gemma Ong?

WITNESS

Because when we served the search warrant she signed it in our presence and that is her own
signature.

xxxx

ATTY. FREZ

Q : So, Mr. Witness, in this Inventory, we made some markings during the pre-trial conference
and I see here above the signature (Owner/Representative), there exist a handwritten name
which reads GEMMA ONG and above it, there exist a signature, are you familiar with this
person which appears to be Gemma Ong?

A : Yes, sir, Gemma Ong signed that in my presence.

Q : Your Honor, during the pre-trial conference, it was previously marked as Exhibit "D-1". Mr.
Witness, I also see here a Verification but there also exist an entry below the name and I quote
"Owner/Claimant/Representative", there appears a handwritten name Gemma Ong and a
signature above it, are you familiar with this person which appears to be Gemma Ong?

A : Yes, sir, Gemma Ong signed that in my presence.

xxxx

Q : Mr. Witness, in this document which is the certification in the Conduct of Search and I have
here above the entry (Owner/Representative), a handwritten name which reads Gemma Ong
and there exist a signature above the handwritten name, can you identify the signature?

A : Yes, sir, this was signed by Gemma Ong in my presence.49 (Emphases ours.)

Lara further attested to the fact that the search warrant was served on Gemma, who later on
entertained the search team:

ATTY. FREZ

Mr. Witness, the person to whom you served the search warrant is identified as Mrs. Gemma
Ong, do you know her relationship with the accused Jackson Ong?

ATTY. FERNANDEZ

Objection, your honor, the witness would be incompetent . . .

COURT

May answer.

(The stenographer read back the question).

WITNESS

I am not familiar with the relationship of Mrs. Gemma Ong with Jackson Ong because during
the service of the search warrant, Mrs. Gemma Ong was there together with two employees and
when I asked where was Jackson Ong, she was the one who entertained us.

ATTY. FREZ

So, the search warrant was served against Gemma Ong?

WITNESS

Yes, Sir.50

Positive identification of a culprit is of great weight in determining whether an accused is guilty

or not.51 Gemma, in claiming the defense of mistaken identity, is in reality denying her
involvement in the crime. This Court has held that the defense of denial is insipid and weak as it
is easy to fabricate and difficult to prove; thus, it cannot take precedence over the positive
testimony of the offended party.52 The defense of denial is unavailing when placed astride the
undisputed fact that there was positive identification of the accused.53

While Gemma claims she does not know Jackson Ong, the subject premises where the
counterfeit cigarettes were seized was registered under her admitted business "Fascinate
Trading."54 Aside from the bare allegation that she had stopped operations in the subject
premises as early as February 1998, she has neither proven nor shown any evidence that she had
relinquished control of the building after that date. Gemma’s allegation that she did not sign the
search documents, and that the signatures therein did not match the signature on her PRC
identification card, must also be struck down as she has not shown proof that her PRC signature
is the only way she has ever signed her name. She could have, at the very least, gotten a
handwriting expert to testify on her behalf that there is no way that the signatures in the search
documents and the signature on her PRC identification card could have been written by one and
the same person; instead, she relied on the flimsy contention that the two signatures were, on
their face, different.1awp++i1

Gemma’s defense consists of her claim of mistaken identity, her denial of her involvement in the
crime, and her accusation against the prosecution witnesses of allegedly giving false testimonies
and committing perjury. These are all weak, unproven, and unfounded claims, and will not
stand against the strong evidence against her.

WHEREFORE, this Court DENIES the Petition. The June 16, 2005 Decision of the Court of
Appeals in CA-G.R. CR No. 28308 is AFFIRMED.

SO ORDERED.
G.R. No. 194062 June 17, 2013

REPUBLIC GAS CORPORATION, ARNEL U. TY, MARI ANTONETTE N. TY,

ORLANDO REYES, FERRER SUAZO and ALVIN U. TV, Petitioners,
vs.
PETRON CORPORATION, PILIPINAS SHELL PETROLEUM CORPORATION, and
SHELL INTERNATIONAL PETROLEUM COMPANY LIMITED, Respondents.

DECISION

PERALTA, J.:

This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court filed by
petitioners seeking the reversal of the Decision1 dated July 2, 2010, and Resolution2 dated
October 11, 2010 of the Court of Appeals (CA) in CA-G.R. SP No. 106385.

Stripped of non-essentials, the facts of the case, as summarized by the CA, are as follows:

Petitioners Petron Corporation ("Petron" for brevity) and Pilipinas Shell Petroleum Corporation
("Shell" for brevity) are two of the largest bulk suppliers and producers of LPG in the
Philippines. Petron is the registered owner in the Philippines of the trademarks GASUL and
GASUL cylinders used for its LGP products. It is the sole entity in the Philippines authorized to
allow refillers and distributors to refill, use, sell, and distribute GASUL LPG containers,
products and its trademarks.

Pilipinas Shell, on the other hand, is the authorized user in the Philippines of the tradename,
trademarks, symbols or designs of its principal, Shell International Petroleum Company
Limited, including the marks SHELLANE and SHELL device in connection with the production,
sale and distribution of SHELLANE LPGs. It is the only corporation in the Philippines
authorized to allow refillers and distributors to refill, use, sell and distribute SHELLANE LGP
containers and products. Private respondents, on the other hand, are the directors and officers
of Republic Gas Corporation ("REGASCO" for brevity), an entity duly licensed to engage in,
conduct and carry on, the business of refilling, buying, selling, distributing and marketing at
wholesale and retail of Liquefied Petroleum Gas ("LPG").

LPG Dealers Associations, such as the Shellane Dealers Association, Inc., Petron Gasul Dealers
Association, Inc. and Totalgaz Dealers Association, received reports that certain entities were
engaged in the unauthorized refilling, sale and distribution of LPG cylinders bearing the
registered tradenames and trademarks of the petitioners. As a consequence, on February 5,
2004, Genesis Adarlo (hereinafter referred to as Adarlo), on behalf of the aforementioned
dealers associations, filed a letter-complaint in the National Bureau of Investigation ("NBI")
regarding the alleged illegal trading of petroleum products and/or underdelivery or underfilling
in the sale of LPG products.

Acting on the said letter-complaint, NBI Senior Agent Marvin E. De Jemil (hereinafter referred
to as "De Jemil") was assigned to verify and confirm the allegations contained in the letter-
complaint. An investigation was thereafter conducted, particularly within the areas of Caloocan,
Malabon, Novaliches and Valenzuela, which showed that several persons and/or establishments,
including REGASCO, were suspected of having violated provisions of Batas Pambansa Blg. 33
(B.P. 33). The surveillance revealed that REGASCO LPG Refilling Plant in Malabon was engaged
in the refilling and sale of LPG cylinders bearing the registered marks of the petitioners without
authority from the latter. Based on its General Information Sheet filed in the Securities and
Exchange Commission, REGASCO’s members of its Board of Directors are: (1) Arnel U. Ty –
President, (2) Marie Antoinette Ty – Treasurer, (3) Orlando Reyes – Corporate Secretary, (4)
Ferrer Suazo and (5) Alvin Ty (hereinafter referred to collectively as private respondents).

De Jemil, with other NBI operatives, then conducted a test-buy operation on February 19, 2004
with the former and a confidential asset going undercover. They brought with them four (4)
empty LPG cylinders bearing the trademarks of SHELLANE and GASUL and included the same
with the purchase of J&S, a REGASCO’s regular customer. Inside REGASCO’s refilling plant,
they witnessed that REGASCO’s employees carried the empty LPG cylinders to a refilling station
and refilled the LPG empty cylinders. Money was then given as payment for the refilling of the
J&S’s empty cylinders which included the four LPG cylinders brought in by De Jemil and his
companion. Cash Invoice No. 191391 dated February 19, 2004 was issued as evidence for the
consideration paid.

After leaving the premises of REGASCO LPG Refilling Plant in Malabon, De Jemil and the other
NBI operatives proceeded to the NBI headquarters for the proper marking of the LPG cylinders.
The LPG cylinders refilled by REGASCO were likewise found later to be underrefilled.

Thus, on March 5, 2004, De Jemil applied for the issuance of search warrants in the Regional
Trial Court, Branch 24, in the City of Manila against the private respondents and/or occupants
of REGASCO LPG Refilling Plant located at Asucena Street, Longos, Malabon, Metro Manila for
alleged violation of Section 2 (c), in relation to Section 4, of B.P. 33, as amended by PD 1865. In
his sworn affidavit attached to the applications for search warrants, Agent De Jemil alleged as
follows:

"x x x.

"4. Respondent’s REGASCO LPG Refilling Plant-Malabon is not one of those entities authorized
to refill LPG cylinders bearing the marks of PSPC, Petron and Total Philippines Corporation. A
Certification dated February 6, 2004 confirming such fact, together with its supporting
documents, are attached as Annex "E" hereof.

6. For several days in the month of February 2004, the other NBI operatives and I conducted
surveillance and investigation on respondents’ REGASCO LPG refilling Plant-Malabon. Our
surveillance and investigation revealed that respondents’ REGASCO LPG Refilling Plant-
Malabon is engaged in the refilling and sale of LPG cylinders bearing the marks of Shell
International, PSPC and Petron.

x x x.

8. The confidential asset and I, together with the other operatives of the NBI, put together a test-
buy operation. On February 19, 2004, I, together with the confidential asset, went undercover
and executed our testbuy operation. Both the confidential assets and I brought with us four (4)
empty LPG cylinders branded as Shellane and Gasul. x x x in order to have a successful test buy,
we decided to "ride-on" our purchases with the purchase of Gasul and Shellane LPG by J & S,
one of REGASCO’s regular customers.

9. We proceeded to the location of respondents’ REGASCO LPG Refilling Plant-Malabon and

asked from an employee of REGASCO inside the refilling plant for refill of the empty LPG
cylinders that we have brought along, together with the LPG cylinders brought by J & S. The
REGASCO employee, with some assistance from other employees, carried the empty LPG
cylinders to a refilling station and we witnessed the actual refilling of our empty LPG cylinders.

10. Since the REGASCO employees were under the impression that we were together with J & S,
they made the necessary refilling of our empty LPG cylinders alongside the LPG cylinders
brought by J & S. When we requested for a receipt, the REGASCO employees naturally counted
our LPG cylinders together with the LPG cylinders brought by J & S for refilling. Hence, the
amount stated in Cash Invoice No. 191391 dated February 19, 2004, equivalent to Sixteen
Thousand Two Hundred Eighty-Six and 40/100 (Php16,286.40), necessarily included the
amount for the refilling of our four (4) empty LPG cylinders. x x x.

11. After we accomplished the purchase of the illegally refilled LPG cylinders from respondents’
REGASCO LPG Refilling Plant-Malabon, we left its premises bringing with us the said LPG
cylinders. Immediately, we proceeded to our headquarters and made the proper markings of the
illegally refilled LPG cylinders purchased from respondents’ REGASCO LPG Refilling Plant-
Malabon by indicating therein where and when they were purchased. Since REGASCO is not an
authorized refiller, the four (4) LPG cylinders illegally refilled by respondents’ REGASCO LPG
Refilling Plant-Malabon, were without any seals, and when weighed, were underrefilled.
Photographs of the LPG cylinders illegally refilled from respondents’ REGASCO LPG Refilling
Plant-Malabon are attached as Annex "G" hereof. x x x."

After conducting a personal examination under oath of Agent De Jemil and his witness, Joel
Cruz, and upon reviewing their sworn affidavits and other attached documents, Judge Antonio
M. Eugenio, Presiding Judge of the RTC, Branch 24, in the City of Manila found probable cause
and correspondingly issued Search Warrants Nos. 04-5049 and 04-5050.

Upon the issuance of the said search warrants, Special Investigator Edgardo C. Kawada and
other NBI operatives immediately proceeded to the REGASCO LPG Refilling Station in Malabon
and served the search warrants on the private respondents. After searching the premises of
REGASCO, they were able to seize several empty and filled Shellane and Gasul cylinders as well
as other allied paraphernalia.

Subsequently, on January 28, 2005, the NBI lodged a complaint in the Department of Justice
against the private respondents for alleged violations of Sections 155 and 168 of Republic Act
(RA) No. 8293, otherwise known as the Intellectual Property Code of the Philippines.

On January 15, 2006, Assistant City Prosecutor Armando C. Velasco recommended the
dismissal of the complaint. The prosecutor found that there was no proof introduced by the
petitioners that would show that private respondent REGASCO was engaged in selling
petitioner’s products or that it imitated and reproduced the registered trademarks of the
petitioners. He further held that he saw no deception on the part of REGASCO in the conduct of
its business of refilling and marketing LPG. The Resolution issued by Assistant City Prosecutor
Velasco reads as follows in its dispositive portion:

"WHEREFORE, foregoing considered, the undersigned finds the evidence against the
respondents to be insufficient to form a well-founded belief that they have probably committed
violations of Republic Act No. 9293. The DISMISSAL of this case is hereby respectfully
recommended for insufficiency of evidence."

On appeal, the Secretary of the Department of Justice affirmed the prosecutor’s dismissal of the
complaint in a Resolution dated September 18, 2008, reasoning therein that:
"x x x, the empty Shellane and Gasul LPG cylinders were brought by the NBI agent specifically
for refilling. Refilling the same empty cylinders is by no means an offense in itself – it being the
legitimate business of Regasco to engage in the refilling and marketing of liquefied petroleum
gas. In other words, the empty cylinders were merely filled by the employees of Regasco because
they were brought precisely for that purpose. They did not pass off the goods as those of
complainants’ as no other act was done other than to refill them in the normal course of its
business.

"In some instances, the empty cylinders were merely swapped by customers for those which are
already filled. In this case, the end-users know fully well that the contents of their cylinders are
not those produced by complainants. And the reason is quite simple – it is an independent
refilling station.

"At any rate, it is settled doctrine that a corporation has a personality separate and distinct from
its stockholders as in the case of herein respondents. To sustain the present allegations, the acts
complained of must be shown to have been committed by respondents in their individual
capacity by clear and convincing evidence. There being none, the complaint must necessarily
fail. As it were, some of the respondents are even gainfully employed in other business pursuits.
x x x."3

Dispensing with the filing of a motion for reconsideration, respondents sought recourse to the
CA through a petition for certiorari.

In a Decision dated July 2, 2010, the CA granted respondents’ certiorari petition. The fallo
states:

WHEREFORE, in view of the foregoing premises, the petition filed in this case is hereby
GRANTED. The assailed Resolution dated September 18, 2008 of the Department of Justice in
I.S. No. 2005-055 is hereby REVERSED and SET ASIDE.

SO ORDERED.4

Petitioners then filed a motion for reconsideration. However, the same was denied by the CA in
a Resolution dated October 11, 2010.

Accordingly, petitioners filed the instant Petition for Review on Certiorari raising the following
issues for our resolution:

Whether the Petition for Certiorari filed by RESPONDENTS should have been denied outright.

Whether sufficient evidence was presented to prove that the crimes of Trademark Infringement
and Unfair Competition as defined and penalized in Section 155 and Section 168 in relation to
Section 170 of Republic Act No. 8293 (The Intellectual Property Code of the Philippines) had
been committed.

Whether probable cause exists to hold INDIVIDUAL PETITIONERS liable for the offense
charged.5

Let us discuss the issues in seriatim.

Anent the first issue, the general rule is that a motion for reconsideration is a condition sine qua
non before a certiorari petition may lie, its purpose being to grant an opportunity for the court a
quo to correct any error attributed to it by re-examination of the legal and factual circumstances
of the case.6

However, this rule is not absolute as jurisprudence has laid down several recognized exceptions
permitting a resort to the special civil action for certiorari without first filing a motion for
reconsideration, viz.:

(a) Where the order is a patent nullity, as where the court a quo has no jurisdiction;

(b) Where the questions raised in the certiorari proceedings have been duly raised and passed
upon by the lower court, or are the same as those raised and passed upon in the lower court.

(c) Where there is an urgent necessity for the resolution of the question and any further delay
would prejudice the interests of the Government or of the petitioner or the subject matter of the
petition is perishable;

(d) Where, under the circumstances, a motion for reconsideration would be useless;

(e) Where petitioner was deprived of due process and there is extreme urgency for relief;

(f) Where, in a criminal case, relief from an order of arrest is urgent and the granting of such
relief by the trial court is improbable;

(g) Where the proceedings in the lower court are a nullity for lack of due process;

(h) Where the proceeding was ex parte or in which the petitioner had no opportunity to object;
and,

(i) Where the issue raised is one purely of law or public interest is involved.7

In the present case, the filing of a motion for reconsideration may already be dispensed with
considering that the questions raised in this petition are the same as those that have already
been squarely argued and passed upon by the Secretary of Justice in her assailed resolution.

Apropos the second and third issues, the same may be simplified to one core issue: whether
probable cause exists to hold petitioners liable for the crimes of trademark infringement and
unfair competition as defined and penalized under Sections 155 and 168, in relation to Section
170 of Republic Act (R.A.) No. 8293.

Section 155 of R.A. No. 8293 identifies the acts constituting trademark infringement as follows:

Section 155. 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 of 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.8

From the foregoing provision, the Court in a very similar case, made it categorically clear that
the mere unauthorized use of a container bearing a registered trademark in connection with the
sale, distribution or advertising of goods or services which is likely to cause confusion, mistake
or deception among the buyers or consumers can be considered as trademark infringement.9

Here, petitioners have actually committed trademark infringement when they refilled, without
the respondents’ consent, the LPG containers bearing the registered marks of the respondents.
As noted by respondents, petitioners’ acts will inevitably confuse the consuming public, since
they have no way of knowing that the gas contained in the LPG tanks bearing respondents’
marks is in reality not the latter’s LPG product after the same had been illegally refilled. The
public will then be led to believe that petitioners are authorized refillers and distributors of
respondents’ LPG products, considering that they are accepting empty containers of
respondents and refilling them for resale.

As to the charge of unfair competition, Section 168.3, in relation to Section 170, of R.A. No. 8293
describes the acts constituting unfair competition as follows:

Section 168. Unfair Competition, Rights, Regulations and Remedies. x x x.

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 like purpose;

xxxx

Section 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.
From jurisprudence, unfair competition has been defined as 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.10

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. Thus, the defendant gives his goods
the general appearance of the goods of his competitor with the intention of deceiving the public
that the goods are those of his competitor.11

In the present case, respondents pertinently observed that by refilling and selling LPG cylinders
bearing their registered marks, petitioners are selling goods by giving them the general
appearance of goods of another manufacturer.

What's more, the CA correctly pointed out that there is a showing that the consumers may be
misled into believing that the LPGs contained in the cylinders bearing the marks "GASUL" and
"SHELLANE" are those goods or products of the petitioners when, in fact, they are not.
Obviously, the mere use of those LPG cylinders bearing the trademarks "GASUL" and
"SHELLANE" will give the LPGs sold by REGASCO the general appearance of the products of
the petitioners.

In sum, this Court finds that there is sufficient evidence to warrant the prosecution of
petitioners for trademark infringement and unfair competition, considering that petitioner
Republic Gas Corporation, being a corporation, possesses a personality separate and distinct
from the person of its officers, directors and stockholders.12 Petitioners, being corporate officers
and/or directors, through whose act, default or omission the corporation commits a crime, may
themselves be individually held answerable for the crime.13 Veritably, the CA appropriately
pointed out that petitioners, being in direct control and supervision in the management and
conduct of the affairs of the corporation, must have known or are aware that the corporation is
engaged in the act of refilling LPG cylinders bearing the marks of the respondents without
authority or consent from the latter which, under the circumstances, could probably constitute
the crimes of trademark infringement and unfair competition. The existence of the corporate
entity does not shield from prosecution the corporate agent who knowingly and intentionally
caused the corporation to commit a crime. Thus, petitioners cannot hide behind the cloak of the
separate corporate personality of the corporation to escape criminal liability. A corporate officer
cannot protect himself behind a corporation where he is the actual, present and efficient actor.14

WHEREFORE, premises considered, the petition is hereby DENIED and the Decision dated
July 2, 2010 and Resolution dated October 11, 2010 of the Court of Appeals in CA-G.R. SP No.
106385 are AFFIRMED.

SO ORDERED.
G.R. No. 168662 February 19, 2008

SANRIO COMPANY LIMITED, petitioner,

vs.
EDGAR C. LIM, doing business as ORIGNAMURA TRADING, respondent.

DECISION

CORONA, J.:

This petition for review on certiorari1 seeks to set aside the decision of the Court of Appeals (CA)
in CA-G.R. CV No. 746602 and its resolution3 denying reconsideration.

Petitioner Sanrio Company Limited, a Japanese corporation, owns the copyright of various
animated characters such as "Hello Kitty," "Little Twin Stars," "My Melody," "Tuxedo Sam" and
"Zashikibuta" among others.4 While it is not engaged in business in the Philippines, its products
are sold locally by its exclusive distributor, Gift Gate Incorporated (GGI).5

As such exclusive distributor, GGI entered into licensing agreements with JC Lucas Creative
Products, Inc., Paper Line Graphics, Inc. and Melawares Manufacturing Corporation.6 These
local entities were allowed to manufacture certain products (bearing petitioner's copyrighted
animated characters) for the local market.

Sometime in 2001, due to the deluge of counterfeit Sanrio products, GGI asked IP Manila
Associates (IPMA) to conduct a market research. The research's objective was to identify those
factories, department stores and retail outlets manufacturing and/or selling fake Sanrio items.7
After conducting several test-buys in various commercial areas, IPMA confirmed that
respondent's Orignamura Trading in Tutuban Center, Manila was selling imitations of
petitioner's products.8

Consequently, on May 29, 2000, IPMA agents Lea A. Carmona and Arnel P. Dausan executed a
joint affidavit attesting to the aforementioned facts.9 IPMA forwarded the said affidavit to the
National Bureau of Investigation (NBI) which thereafter filed an application for the issuance of a
search warrant in the office of the Executive Judge of the Regional Trial Court of Manila.10

After conducting the requisite searching inquiry, the executive judge issued a search warrant on
May 30, 2000.11 On the same day, agents of the NBI searched the premises of Orignamura
Trading. As a result thereof, they were able to seize various Sanrio products.12

On April 4, 2002, petitioner, through its attorney-in-fact Teodoro Y. Kalaw IV of the

Quisumbing Torres law firm, filed a complaint-affidavit13 with the Task-Force on Anti-
Intellectual Property Piracy (TAPP) of the Department of Justice (DOJ) against respondent for
violation of Section 217 (in relation to Sections 17714 and 17815) of the Intellectual Property
Code (IPC) which states:

Section 217. Criminal Penalties. - 217.1. Any person infringing any right secured by provisions of
Part IV of this Act or aiding or abetting such infringement shall be guilty of a crime punishable
by:

(a) Imprisonment of one (1) year to three (3) years plus a fine ranging from Fifty thousand pesos
(P50,000) to One hundred fifty thousand pesos (P150,000) for the first offense.
(b) Imprisonment of three (3) years and one (1) day to six (6) years plus a fine ranging from One
hundred fifty thousand pesos (P150,000) to Five hundred thousand pesos (P500,000) for the
second offense.

(c) Imprisonment of six (6) years and one (1) day to nine (9) years plus a fine ranging from Five
hundred thousand pesos (P500,000) to One million five hundred thousand pesos (P1,500,000)
for the third and subsequent offenses.

(d) In all cases, subsidiary imprisonment in cases of insolvency.

217.2. In determining the number of years of imprisonment and the amount of fine, the court
shall consider the value of the infringing materials that the defendant has produced or
manufactured and the damage that the copyright owner has suffered by reason of infringement.

217.3. Any person who at the time when copyright subsists in a work has in his possession an
article which he knows, or ought to know, to be an infringing copy of the work for the purpose
of:

(a) Selling, letting for hire, or by way of trade offering or exposing for sale, or hire, the article;

(b) Distributing the article for purpose of trade or any other purpose to an extent that will
prejudice the rights of the copyright of the owner in the work; or

(c) Trade exhibit of the article in public, shall be guilty of an offense and shall be liable on
conviction to imprisonment and fine as above mentioned. (emphasis supplied)

Respondent asserted in his counter-affidavit16 that he committed no violation of the provisions

of the IPC because he was only a retailer.17 Respondent neither reproduced nor manufactured
any of petitioner's copyrighted item; thus, he did not transgress the economic rights of
petitioner.18 Moreover, he obtained his merchandise from authorized manufacturers of
petitioner's products.19

On September 25, 2002, the TAPP found that:

Evidence on record would show that respondent bought his merchandise from legitimate
sources, as shown by official receipts issued by JC Lucas Creative Products, Inc., Paper Line
Graphics, Inc. and Melawares Manufacturing Corporation. In fact, in her letter dated May 23,
2002, Ms. Ma. Angela S. Garcia certified that JC Lucas Creative Products, Inc., Paper Line
Graphics, Inc. and Melawares Manufacturing Corporation are authorized to produce certain
Sanrio products. While it appears that some of the items seized during the search are not among
those products which [GGI] authorized these establishments to produce, the fact remains that
respondent bought these from the abovecited legitimate sources. At this juncture, it bears
stressing that respondent relied on the representations of these manufacturers and distributors
that the items they sold were genuine. As such, it is not incumbent upon respondent to verify
from these sources what items [GGI] only authorized them to produce. Thus, as far as
respondent is concerned, the items in his possession are not infringing copies of the original
[petitioner's] products. (emphasis supplied)20

Thus, in a resolution dated September 25, 2002, it dismissed the complaint due to insufficiency
of evidence.21
Petitioner moved for reconsideration but it was denied.22 Hence, it filed a petition for review in
the Office of the Chief State Prosecutor of the DOJ.23 In a resolution dated August 29, 2003,24
the Office of the Chief State Prosecutor affirmed the TAPP resolution. The petition was
dismissed for lack of reversible error.

Aggrieved, petitioner filed a petition for certiorari in the CA. On May 3, 2005, the appellate
court dismissed the petition on the ground of prescription. It based its action on Act 3326 which
states:

Section 1. Violations penalized by special acts shall, unless otherwise provided in such acts,
prescribe in accordance with the following rules: (a) after a year for offenses punished only by a
fine or by imprisonment for not more than one month, or both; (b) after four years for those
punished by imprisonment for more than one month, but less than two years; (c) after eight
years for those punished by imprisonment for two years or more, but less than six years; and (d)
after twelve years for any other offense punished by imprisonment for six years or more, except
the crime of treason, which shall prescribe after twenty years; Provided, however, That all
offenses against any law or part of law administered by the Bureau of Internal Revenue shall
prescribe after five years. Violations penalized by municipal ordinances shall prescribe after two
months.

Section 2. Prescription shall begin to run from the day of the commission of the violation of the
law, and if the same may not be known at the time, from the discovery thereof and the
institution of judicial proceedings for its investigation and punishment.

The prescription shall be interrupted when proceedings are instituted against the guilty person,
and shall begin to run again if the proceedings are dismissed for reasons not constituting
jeopardy. (emphasis supplied)

According to the CA, because no complaint was filed in court within two years after the
commission of the alleged violation, the offense had already prescribed.25

On the merits of the case, the CA concluded that the DOJ did not commit grave abuse of
discretion in dismissing the petition for review.26 To be criminally liable for violation of Section
217.3 of the IPC, the following requisites must be present:

1. possession of the infringing copy and

2. knowledge or suspicion that the copy is an infringement of the genuine article.

The CA agreed with the DOJ that petitioner failed to prove that respondent knew that the
merchandise he sold was counterfeit. Respondent, on the other hand, was able to show that he
obtained these goods from legitimate sources.27

Petitioner moved for reconsideration but it was denied. Hence, this petition.

Petitioner now essentially avers that the CA erred in concluding that the alleged violations of the
IPC had prescribed. Recent jurisprudence holds that the pendency of a preliminary investigation
suspends the running of the prescriptive period.28 Moreover, the CA erred in finding that the
DOJ did not commit grave abuse of discretion in dismissing the complaint. Respondent is liable
for copyright infringement (even if he obtained his merchandise from legitimate sources)
because he sold counterfeit goods.29

Although we do not agree wholly with the CA, we deny the petition.

Filing Of The Complaint In the DOJ Tolled The Prescriptive Period

Section 2 of Act 3326 provides that the prescriptive period for violation of special laws starts on
the day such offense was committed and is interrupted by the institution of proceedings against
respondent (i.e., the accused).

Petitioner in this instance filed its complaint-affidavit on April 4, 2002 or one year, ten months
and four days after the NBI searched respondent's premises and seized Sanrio merchandise
therefrom. Although no information was immediately filed in court, respondent's alleged
violation had not yet prescribed.30

In the recent case of Brillantes v. Court of Appeals,31 we affirmed that the filing of the complaint
for purposes of preliminary investigation interrupts the period of prescription of criminal
responsibility.32 Thus, the prescriptive period for the prosecution of the alleged violation of the
IPC was tolled by petitioner's timely filing of the complaint-affidavit before the TAPP.

In The Absence Of Grave Abuse Of Discretion, The Factual Findings Of The DOJ In Preliminary
Investigations Will Not Be Disturbed

In a preliminary investigation, a public prosecutor determines whether a crime has been

committed and whether there is probable cause that the accused is guilty thereof.33 Probable
cause is defined as such facts and circumstances that will engender a well-founded belief that a
crime has been committed and that the respondent is probably guilty thereof and should be held
for trial.34 Because a public prosecutor is the one conducting a preliminary investigation, he
determines the existence of probable cause.35 Consequently, the decision to file a criminal
information in court or to dismiss a complaint depends on his sound discretion.36

As a general rule, a public prosecutor is afforded a wide latitude of discretion in the conduct of a
preliminary investigation. For this reason, courts generally do not interfere with the results of
such proceedings. A prosecutor alone determines the sufficiency of evidence that will establish
probable cause justifying the filing of a criminal information against the respondent.37 By way
of exception, however, judicial review is allowed where respondent has clearly established that
the prosecutor committed grave abuse of discretion.38 Otherwise stated, such review is
appropriate only when the prosecutor has exercised his discretion in an arbitrary, capricious,
whimsical or despotic manner by reason of passion or personal hostility, patent and gross
enough to amount to an evasion of a positive duty or virtual refusal to perform a duty enjoined
by law.39

The prosecutors in this case consistently found that no probable cause existed against
respondent for violation of the IPC. They were in the best position to determine whether or not
there was probable cause. We find that they arrived at their findings after carefully evaluating
the respective evidence of petitioner and respondent. Their conclusion was not tainted with
grave abuse of discretion.

WHEREFORE, the petition is hereby DENIED.

Costs against petitioner. SO ORDERED.
G.R. No. 147043 June 21, 2005

NBI - MICROSOFT CORPORATION & LOTUS DEVELOPMENT CORP., petitioners,

vs.
JUDY C. HWANG, BENITO KEH & YVONNE K. CHUA/BELTRON COMPUTER
PHILIPPINES INC., JONATHAN K. CHUA, EMILY K. CHUA, BENITO T. SANCHEZ,
NANCY I. VELASCO, ALFONSO CHUA, ALBERTO CHUA, SOPHIA ONG, DEANNA
CHUA/TAIWAN MACHINERY DISPLAY & TRADE CENTER, INC., and THE
SECRETARY OF JUSTICE, respondents.

DECISION

CARPIO, J.:

The Case

This is a petition for certiorari1 of the Resolutions2 of the Department of Justice dismissing for
"lack of merit and insufficiency of evidence" petitioner Microsoft Corporation’s complaint
against respondents for copyright infringement and unfair competition.

The Facts

Petitioner Microsoft Corporation ("Microsoft"), a Delaware, United States corporation, owns the
copyright and trademark to several computer software.3 Respondents Benito Keh and Yvonne
Keh are the President/Managing Director and General Manager, respectively, of respondent
Beltron Computer Philippines, Inc. ("Beltron"), a domestic corporation. Respondents Jonathan
K. Chua, Emily K. Chua, Benito T. Sanchez, and Nancy I. Velasco are Beltron’s Directors. On the
other hand, respondents Alfonso Chua, Alberto Chua, Judy K. Chua Hwang, Sophia Ong, and
Deanna Chua are the Directors of respondent Taiwan Machinery Display & Trade Center, Inc.
("TMTC"), also a domestic corporation.4

In May 1993, Microsoft and Beltron entered into a Licensing Agreement ("Agreement"). Under
Section 2(a) of the Agreement, as amended in January 1994, Microsoft authorized Beltron, for a
fee, to:

(i) xxx reproduce and install no more than one (1) copy of [Microsoft] software on each
Customer System hard disk or Read Only Memory ("ROM"); [and]

(ii) xxx distribute directly or indirectly and license copies of the Product (reproduced as per
Section 2(a)(i) and/or acquired from Authorized Replicator or Authorized Distributor) in object
code form to end users[.] xxxx5

The Agreement also authorized Microsoft and Beltron to terminate the contract if the other fails
to comply with any of the Agreement’s provisions. Microsoft terminated the Agreement effective
22 June 1995 for Beltron’s non-payment of royalties.6

Afterwards, Microsoft learned that respondents were illegally copying and selling Microsoft
software. Consequently, Microsoft, through its Philippine agent,7 hired the services of Pinkerton
Consulting Services ("PCS"), a private investigative firm. Microsoft also sought the assistance of
the National Bureau of Investigation ("NBI"). On 10 November 1995, PCS employee John
Benedic8 Sacriz ("Sacriz") and NBI agent Dominador Samiano, Jr. ("Samiano"), posing as
representatives of a computer shop,9 bought computer hardware (central processing unit
("CPU") and computer monitor) and software (12 computer disks ("CDs") in read-only memory
("ROM") format) from respondents. The CPU contained pre-installed10 Microsoft Windows 3.1
and MS-DOS software. The 12 CD-ROMs, encased in plastic containers with Microsoft
packaging, also contained Microsoft software.11 At least two of the CD-ROMs were "installers,"
so-called because they contain several software (Microsoft only or both Microsoft and non-
Microsoft).12 Sacriz and Samiano were not given the Microsoft end-user license agreements,
user’s manuals, registration cards or certificates of authenticity for the articles they purchased.
The receipt issued to Sacriz and Samiano for the CPU and monitor bore the heading "T.M.T.C.
(PHILS.) INC. BELTRON COMPUTER."13 The receipt for the 12 CD-ROMs did not indicate its
source although the name "Gerlie" appears below the entry "delivered by."14

On 17 November 1995, Microsoft applied for search warrants against respondents in the
Regional Trial Court, Branch 23, Manila ("RTC").15 The RTC granted Microsoft’s application
and issued two search warrants ("Search Warrant Nos. 95-684 and 95-685").16 Using Search
Warrant Nos. 95-684 and 95-685, the NBI searched the premises of Beltron and TMTC and
seized several computer-related hardware, software, accessories, and paraphernalia. Among
these were 2,831 pieces of CD-ROMs containing Microsoft software.17

Based on the articles obtained from respondents, Microsoft and a certain Lotus Development
Corporation ("Lotus Corporation") charged respondents before the Department of Justice
("DOJ") with copyright infringement under Section 5(A) in relation to Section 29 of Presidential
Decree No. 49, as amended, ("PD 49")18 and with unfair competition under Article 189(1)19 of
the Revised Penal Code. In its Complaint ("I.S. No. 96-193"), which the NBI indorsed, Microsoft
alleged that respondents illegally copied and sold Microsoft software.20

In their joint counter-affidavit, respondents Yvonne Keh ("respondent Keh") and Emily K. Chua
("respondent Chua") denied the charges against respondents. Respondents Keh and Chua
alleged that: (1) Microsoft’s real intention in filing the complaint under I.S. No. 96-193 was to
pressure Beltron to pay its alleged unpaid royalties, thus Microsoft should have filed a collection
suit instead of a criminal complaint; (2) TMTC bought the confiscated 59 boxes of MS-DOS CDs
from a Microsoft dealer in Singapore (R.R. Donnelly); (3) respondents are not the "source" of
the Microsoft Windows 3.1 software pre-installed in the CPU bought by Sacriz and Samiano, but
only of the MS-DOS software; (4) Microsoft’s alleged proof of purchase (receipt) for the 12 CD-
ROMs is inconclusive because the receipt does not indicate its source; and (5) respondents
Benito Keh, Jonathan K. Chua, Alfonso Chua, Alberto Chua, Judy K. Chua Hwang, Sophia Ong,
and Deanna Chua are stockholders of Beltron and TMTC in name only and thus cannot be held
criminally liable.21

The other respondents did not file counter-affidavits.

Meanwhile, respondents moved to quash Search Warrant Nos. 95-684 and 95-685. The RTC
partially granted their motion in its Order of 16 April 1996. Microsoft sought reconsideration but
the RTC denied Microsoft’s motion in its Order of 19 July 1996. Microsoft appealed to the Court
of Appeals in CA-G.R. CV No. 54600. In its Decision of 29 November 2001, the Court of Appeals
granted Microsoft’s appeal and set aside the RTC Orders of 16 April 1996 and 19 July 1996. The
Court of Appeals’ Decision became final on 27 December 2001.

The DOJ Resolutions

In the Resolution of 26 October 1999, DOJ State Prosecutor Jocelyn A. Ong ("State Prosecutor
Ong") recommended the dismissal of Microsoft’s complaint for lack of merit and insufficiency of
evidence. State Prosecutor Ong also recommended the dismissal of Lotus Corporation’s
complaint for lack of interest to prosecute and for insufficiency of evidence. Assistant Chief State
Prosecutor Lualhati R. Buenafe ("Assistant Chief State Prosecutor Buenafe") approved State
Prosecutor Ong’s recommendations.22 The 26 October 1999 Resolution reads in part:

[T]wo (2) issues have to be resolved in this case, namely:

a) Whether or not Beltron Computer and/or its stockholders should be held liable for the
offenses charged.

b) Whether or not prima facie case exist[s] against Taiwan Machinery Display and Trade Center,
Inc. (TMTC) for violation of the offense charged.

Complainant had alleged that from the time the license agreement was terminated,
respondent/s is/are no longer authorized to copy/distribute/sell Microsoft products. However,
respondent/s averred that the case is civil in nature, not criminal, considering that the case
stemmed only out of the desire of complainant to collect from them the amount of
US$135,121.32 and that the contract entered into by the parties cannot be unilaterally
terminated.

In the order of Honorable William Bayhon dated July 19, 1996 [denying reconsideration to the
Order partially quashing the search warrants], he observed the following:

"It is further argued by counsel for respondent that the act taken by private complainant is to
spite revenge against the respondent Beltron for the latter failed to pay the alleged monetary
obligation in the amount of US$135,121.32. That respondent has some monetary obligation to
complainant which is not denied by the complainant."

["]It appears therefore that prior to the issuance of the subject search warrants, complainant
had some business transactions with the respondent [Beltron] along the same line of products.
Complainant failed to reveal the true circumstances existing between the two of them as it now
appears, indeed the search warrant[s] xxx [are] being used as a leverage to secure collection of
the money obligation which the Court cannot allow."

From said order, it can be gleaned that the [RTC] xxx, had admitted that the search warrants
applied for by complainant were merely used as a leverage for the collection of the alleged
monetary obligation of the respondent/s.

From said order, it can be surmise (sic) that the obligations between the parties is civil in nature
not criminal.

Moreover, complainant had time and again harped that respondent/s is/are not authorized to
sell/copy/distribute Microsoft products at the time of the execution of the search warrants. Still,
this office has no power to pass upon said issue for one has then to interpret the provisions of
the contract entered into by the parties, which question, should be raised in a proper civil
proceeding.
Accordingly, absen[t] a resolution from the proper court of (sic) whether or not the contract is
still binding between the parties at the time of the execution of the search warrants, this office
cannot pass upon the issue of whether respondent/s is or are liable for the offense charged.

As to the second issue, we find for the respondent/s. TMTC had provided sufficient evidence
such as pro-forma invoice from R.R. Donnelley; Debt Advice of the Bank of Commerce; Official
Receipts from the Bureau of Customs; and Import Entry Declaration of the Bureau of Customs
to prove that indeed the Microsoft software in their possession were bought from Singapore.

Thus, respondent/s in this case has/have no intent to defraud the public, as provided under
Article 189 of the Revised Penal Code, for they bought said Microsoft MS-DOS 6.0 from an
alleged licensee of Microsoft in Singapore, with all the necessary papers. In their opinion, what
they have are genuine Microsoft software, therefore no unfair competition exist.

Moreover, violation of P.D. 49 does not exist, for respondent/s was/were not the manufacturers
of the Microsoft software seized and were selling their products as genuine Microsoft software,
considering that they bought it from a Microsoft licensee.

Complainant, on the other hand, considering that it has the burden of proving that the
respondent/s is/are liable for the offense charged, has not presented any evidence that the items
seized namely the 59 boxes of MS-DOS 6.0 software are counterfeit.

The certification issued on December 12, 1995 by Christopher Austin, Corporate Attorney of the
complainant, does not disclose this fact. For the term used by Mr. Austin was that the items
seized were unauthorized.

The question now, is whether the products were unauthorized because TMTC has no license to
sell Microsoft products, or is it unauthorized because R.R. Donnelley has no authority to sell
said products here in the Philippines.

Still, to determine the culpability of the respondents, complainant should present evidence that
what is in the possession of the respondent/s is/are counterfeit Microsoft products.

This it failed to do.23

Microsoft sought reconsideration and prayed for an ocular inspection of the articles seized from
respondents. However, in the Resolution of 3 December 1999, Assistant Chief State Prosecutor
Buenafe, upon State Prosecutor Ong’s recommendation, denied Microsoft’s motion.24

Microsoft appealed to the Office of the DOJ Secretary. In the Resolution of 3 August 2000, DOJ
Undersecretary Regis V. Puno dismissed Microsoft’s appeal.25 Microsoft sought reconsideration
but its motion was denied in the Resolution of 22 December 2000.26

Hence, this petition. Microsoft contends that:

I. THE DOJ ERRED IN RULING THAT THE LIABILITY OF RESPONDENTS WAS ONLY
CIVIL IN NATURE BY VIRTUE OF THE LICENSE AGREEMENT.

II. THE DOJ MISAPPRECIATED THE FACT THAT RESPONDENTS WERE ENGAGED IN THE
ILLEGAL IMPORTATION, SALE AND DISTRIBUTION OF COUNTERFEIT SOFTWARE AS
EVIDENCED BY THE ITEMS PURCHASED DURING THE TEST-BUY AND THE ITEMS
SEIZED FROM RESPONDENTS’ PREMISES.

III. THE DOJ MISAPPRECIATED THE LAW ON COPYRIGHT INFRINGEMENT AND UNFAIR
COMPETITION.

IV. ONLY TWO OUT OF THE NINE RESPONDENTS BOTHERED TO FILE COUNTER-
AFFIDAVITS; HENCE, THE CHARGES AGAINST SEVEN [RESPONDENTS] REMAIN
UNCONTROVERTED.27

In its Comment, filed by the Solicitor General, the DOJ maintains that it did not commit grave
abuse of discretion in dismissing Microsoft’s complaint.28

For their part, respondents allege in their Comment that Microsoft is guilty of forum-shopping
because its petition in CA-G.R. CV No. 54600 was filed ahead of, and has a "common interest"
with, this petition. On the merits, respondents reiterate their claims in their motion to quash
Search Warrant Nos. 95-684 and 95-685 that the articles seized from them were either owned
by others, purchased from legitimate sources, or not produced by Microsoft. Respondents also
insist that the Agreement entitled Beltron to "copy and replicate or reproduce" Microsoft
products. On the confiscated 2,831 CD-ROMs, respondents allege that a certain corporation29
left the CD-ROMs with them for safekeeping. Lastly, respondents claim that there is no proof
that the CPU Sacriz and Samiano bought from them contained pre-installed Microsoft software
because the receipt for the CPU does not indicate "[s]oftware hard disk." 30

In its Reply, Microsoft counters that it is not liable for forum-shopping because its petition in
CA-G.R. CV No. 54600 involved the Orders of the RTC partially quashing Search Warrant Nos.
95-684 and 95-685 while this petition concerns the DOJ Resolutions dismissing its complaint
against respondents for copyright infringement and unfair competition. On the merits,
Microsoft maintains that respondents should be indicted for copyright infringement and unfair
competition.31

The Issues

The petition raises the following issues:

(1) Whether Microsoft engaged in forum-shopping; and

(2) Whether the DOJ acted with grave abuse of discretion in not finding probable cause to
charge respondents with copyright infringement and unfair competition.

The Ruling of the Court

The petition has merit.

Microsoft did not Engage in Forum-Shopping

Forum-shopping takes place when a litigant files multiple suits involving the same parties,
either simultaneously or successively, to secure a favorable judgment.32 Thus, it exists where
the elements of litis pendentia are present, namely: (a) identity of parties, or at least such parties
who represent the same interests in both actions; (b) identity of rights asserted and relief prayed
for, the relief being founded on the same facts; and (c) the identity with respect to the two
preceding particulars in the two cases is such that any judgment that may be rendered in the
pending case, regardless of which party is successful, would amount to res judicata in the other
case.33 Forum-shopping is an act of malpractice because it abuses court processes.34 To check
this pernicious practice, Section 5, Rule 7 of the 1997 Rules of Civil Procedure requires the
principal party in an initiatory pleading to submit a certification against forum-shopping.35
Failure to comply with this requirement is a cause for the dismissal of the case and, in case of
willful forum-shopping, for the imposition of administrative sanctions.

Here, Microsoft correctly contends that it is not liable for forum-shopping. What Microsoft
appealed in CA-G.R. CV No. 54600 were the RTC Orders partially quashing Search Warrant
Nos. 95-684 and 95-685. In the present case, Microsoft is appealing from the DOJ Resolutions
dismissing its complaint against respondents for copyright infringement and unfair competition.
Thus, although the parties in CA-G.R. CV No. 54600 and this petition are identical, the rights
asserted and the reliefs prayed for are not such that the judgment in CA-G.R. CV No. 54600
does not amount to res judicata in the present case. This renders forum-shopping impossible
here.

The DOJ Acted with Grave Abuse of Discretion

in not Finding Probable Cause to Charge Respondents with
Copyright Infringement and Unfair Competition

Generally, this Court is loath to interfere in the prosecutor’s discretion in determining probable
cause36 — unless such discretion is shown to have been abused.37 This case falls under the
exception.

Unlike the higher quantum of proof beyond reasonable doubt required to secure a conviction, it
is the lower standard of probable cause which is applied during the preliminary investigation to
determine whether the accused should be held for trial. This standard is met if the facts and
circumstances incite a reasonable belief that the act or omission complained of constitutes the
offense charged. As we explained in Pilapil v. Sandiganbayan:38

The term [probable cause] does not mean "actual and positive cause" nor does it import absolute
certainty. It is merely based on opinion and reasonable belief. Thus, a finding of probable cause
does not require an inquiry into whether there is sufficient evidence to procure a conviction. It is
enough that it is believed that the act or omission complained of constitutes the offense charged.
Precisely, there is a trial for the reception of evidence of the prosecution in support of the
charge.

PD 49 and Article 189(1)

Section 539 of PD 49 ("Section 5") enumerates the rights vested exclusively on the copyright
owner. Contrary to the DOJ’s ruling, the gravamen of copyright infringement is not merely the
unauthorized "manufacturing" of intellectual works but rather the unauthorized performance of
any of the acts covered by Section 5. Hence, any person who performs any of the acts under
Section 5 without obtaining the copyright owner’s prior consent renders himself civilly40 and
criminally41 liable for copyright infringement. We held in Columbia Pictures, Inc. v. Court of
Appeals:42

Infringement of a copyright is a trespass on a private domain owned and occupied by the owner
of the copyright, and, therefore, protected by law, and infringement of copyright, or piracy,
which is a synonymous term in this connection, consists in the doing by any person, without the
consent of the owner of the copyright, of anything the sole right to do which is conferred by
statute on the owner of the copyright. (Emphasis supplied)

Significantly, under Section 5(A), a copyright owner is vested with the exclusive right to "copy,
distribute, multiply, [and] sell" his intellectual works.

On the other hand, the elements of unfair competition under Article 189(1)43 of the Revised
Penal Code are:

(a) That the offender gives his goods the general appearance of the goods of another
manufacturer or dealer;

(b) That the general appearance is shown in the (1) goods themselves, or in the (2) wrapping of
their packages, or in the (3) device or words therein, or in (4) any other feature of their
appearance[;]

(c) That the offender offers to sell or sells those goods or gives other persons a chance or
opportunity to do the same with a like purpose[; and]

(d) That there is actual intent to deceive the public or defraud a competitor.44

The element of intent to deceive may be inferred from the similarity of the goods or their
appearance.45

On the Sufficiency of Evidence to

Support a Finding of Probable Cause
Against Respondents

In its pleadings filed with the DOJ, Microsoft invoked three clusters of evidence to support its
complaint against respondents, namely: (1) the 12 CD-ROMs containing Microsoft software
Sacriz and Samiano bought from respondents; (2) the CPU with pre-installed Microsoft software
Sacriz and Samiano also purchased from respondents; and (3) the 2,831 CD-ROMs containing
Microsoft software seized from respondents.46 The DOJ, on the one hand, refused to pass upon
the relevance of these pieces of evidence because: (1) the "obligations between the parties is civil
and not criminal" considering that Microsoft merely sought the issuance of Search Warrant Nos.
95-684 and 95-685 to pressure Beltron to pay its obligation under the Agreement, and (2) the
validity of Microsoft’s termination of the Agreement must first be resolved by the "proper court."
On the other hand, the DOJ ruled that Microsoft failed to present evidence proving that what
were obtained from respondents were counterfeit Microsoft products.

This is grave abuse of discretion.47

First. Being the copyright and trademark owner of Microsoft software, Microsoft acted well
within its rights in filing the complaint under I.S. No. 96-193 based on the incriminating
evidence obtained from respondents. Hence, it was highly irregular for the DOJ to hold, based
on the RTC Order of 19 July 1996, that Microsoft sought the issuance of Search Warrant Nos.
95-684 and 95-685, and by inference, the filing of the complaint under I.S. No. 96-193, merely
to pressure Beltron to pay its overdue royalties to Microsoft. Significantly, in its Decision in CA-
G.R. CV No. 54600 dated 29 November 2001, the Court of Appeals set aside the RTC Order of 19
July 1996. Respondents no longer contested that ruling which became final on 27 December
2001.
Second. There is no basis for the DOJ to rule that Microsoft must await a prior "resolution from
the proper court of (sic) whether or not the [Agreement] is still binding between the parties."
Beltron has not filed any suit to question Microsoft’s termination of the Agreement. Microsoft
can neither be expected nor compelled to wait until Beltron decides to sue before Microsoft can
seek remedies for violation of its intellectual property rights.

Furthermore, some of the counterfeit CD-ROMs bought from respondents were "installer" CD-
ROMs containing Microsoft software only or both Microsoft and non-Microsoft software. These
articles are counterfeit per se because Microsoft does not (and could not have authorized anyone
to) produce such CD-ROMs. The copying of the genuine Microsoft software to produce these
fake CD-ROMs and their distribution are illegal even if the copier or distributor is a Microsoft
licensee. As far as these installer CD-ROMs are concerned, the Agreement (and the alleged
question on the validity of its termination) is immaterial to the determination of respondents’
liability for copyright infringement and unfair competition.

Lastly, Section 10(b)48 of the Agreement provides that Microsoft’s "rights and remedies" under
the contract are "not xxx exclusive and are in addition to any other rights and remedies provided
by law or [the] Agreement." Thus, even if the Agreement still subsists, Microsoft is not
precluded from seeking remedies under PD 49 and Article 189(1) of the Revised Penal Code to
vindicate its rights.

Third. The Court finds that the 12 CD-ROMs ("installer" and "non-installer") and the CPU with
pre-installed Microsoft software Sacriz and Samiano bought from respondents and the 2,831
Microsoft CD-ROMs seized from respondents suffice to support a finding of probable cause to
indict respondents for copyright infringement under Section 5(A) in relation to Section 29 of PD
49 for unauthorized copying and selling of protected intellectual works. The installer CD-ROMs
with Microsoft software, to repeat, are counterfeit per se. On the other hand, the illegality of the
"non-installer" CD-ROMs purchased from respondents and of the Microsoft software pre-
installed in the CPU is shown by the absence of the standard features accompanying authentic
Microsoft products, namely, the Microsoft end-user license agreements, user’s manuals,
registration cards or certificates of authenticity.

On the 2,831 Microsoft CD-ROMs49 seized from respondents, respondent Beltron, the only
respondent who was party to the Agreement, could not have reproduced them under the
Agreement as the Solicitor General50 and respondents contend. Beltron’s rights51 under the
Agreement were limited to:

(1) the "reproduc[tion] and install[ation of] no more than one copy of [Microsoft] software on
each Customer System hard disk or Read Only Memory ("ROM")"; and

(2) the "distribut[ion] xxx and licens[ing of] copies of the [Microsoft] Product [as reproduced
above] and/or acquired from Authorized Replicator or Authorized Distributor) in object code
form to end users."

The Agreement defines an authorized replicator as "a third party approved by [Microsoft] which
may reproduce and manufacture [Microsoft] Product[s] for [Beltron] xxx."52 An authorized
distributor, on the other hand, is a "third party approved by [Microsoft] from which [Beltron]
may purchase MED53 Product."54 Being a mere reproducer/installer of one Microsoft software
copy on each customer’s hard disk or ROM, Beltron could only have acquired the hundreds of
Microsoft CD-ROMs found in respondents’ possession from Microsoft distributors or
replicators.

However, respondents makes no such claim. What respondents contend is that these CD-ROMs
were left to them for safekeeping. But neither is this claim tenable for lack of substantiation.
Indeed, respondents Keh and Chua, the only respondents who filed counter-affidavits, did not
make this claim in the DOJ. These circumstances give rise to the reasonable inference that
respondents mass-produced the CD-ROMs in question without securing Microsoft’s prior
authorization.

The counterfeit "non-installer" CD-ROMs Sacriz and Samiano bought from respondents also
suffice to support a finding of probable cause to indict respondents for unfair competition under
Article 189(1) of the Revised Penal Code for passing off Microsoft products. From the pictures of
the CD-ROMs’ packaging,55 one cannot distinguish them from the packaging of CD-ROMs
containing genuine Microsoft software. Such replication, coupled with the similarity of content
of these fake CD-ROMs and the CD-ROMs with genuine Microsoft software, implies intent to
deceive.

Respondents’ contention that the 12 CD-ROMs Sacriz and Samiano purchased cannot be traced
to them because the receipt for these articles does not indicate its source is unavailing. The
receipt in question should be taken together with Microsoft’s claim that Sacriz and Samiano
bought the CD-ROMs from respondents.56 Together, these considerations point to respondents
as the vendor of the counterfeit CD-ROMs. Respondents do not give any reason why the Court
should not give credence to Microsoft’s claim. For the same reason, the fact that the receipt for
the CPU does not indicate "[s]oftware hard disk" does not mean that the CPU had no pre-
installed Microsoft software. Respondents Keh and Chua admit in their counter-affidavit that
respondents are the "source" of the pre-installed MS-DOS software.

WHEREFORE, we GRANT the petition. We SET ASIDE the Resolutions dated 26 October 1999,
3 December 1999, 3 August 2000, and 22 December 2000 of the Department of Justice.

SO ORDERED.
G.R. No. 165306 September 20, 2005

MANLY SPORTWEAR MANUFACTURING, INC., Petitioners,

vs.
DADODETTE ENTERPRISES AND/OR HERMES SPORTS CENTER, Respondent.

DECISION

YNARES-SANTIAGO, J.:

This petition for review on certiorari1 under Rule 45 of the Revised Rules of Civil Procedure
assails the July 13, 2004 decision2 of the Court of Appeals3 in CA-G.R. SP No. 79887 and its
September 15, 2004 resolution4 denying reconsideration thereof.

The facts are as follows:

On March 14, 2003, Special Investigator Eliezer P. Salcedo of the National Bureau of
Investigation (NBI) applied for a search warrant before the Regional Trial Court (RTC) of
Quezon City, based on the information that Dadodette Enterprises and/or Hermes Sports
Center were in possession of goods, the copyright of which belonged to Manly Sportswear Mfg.,
Inc. (MANLY).5

After finding reasonable grounds that a violation of Sections 172 and 217 of Republic Act (RA)
No. 82936 has been committed, Judge Estrella T. Estrada of RTC-Quezon City, Branch 83,
issued on March 17, 2003 Search Warrant No. 4044(03).7

Respondents thereafter moved to quash and annul the search warrant contending that the same
is invalid since the requisites for its issuance have not been complied with. They insisted that the
sporting goods manufactured by and/or registered in the name of MANLY are ordinary and
common hence, not among the classes of work protected under Section 172 of RA 8293.

On June 10, 2003, the trial court granted the motion to quash and declared Search Warrant No.
4044(03) null and void based on its finding that the copyrighted products of MANLY do not
appear to be original creations and were being manufactured and distributed by different
companies locally and abroad under various brands, and therefore unqualified for protection
under Section 172 of RA 8293. Moreover, MANLY’s certificates of registrations were issued only
in 2002, whereas there were certificates of registrations for the same sports articles which were
issued earlier than MANLY’s, thus further negating the claim that its copyrighted products were
original creations.8

On August 11, 2003, the trial court denied9 MANLY’s motion for reconsideration. Hence it filed
a petition for certiorari10 before the Court of Appeals which was denied for lack of merit. The
appellate court found that the trial court correctly granted the motion to quash and that its
ruling in the ancillary proceeding did not preempt the findings of the intellectual property court
as it did not resolve with finality the status or character of the seized items.

After denial of its motion for reconsideration on September 15, 2004, MANLY filed the instant
petition for review on certiorari raising the sole issue of whether or not the Court of Appeals
erred in finding that the trial court did not gravely abuse its discretion in declaring in the
hearing for the quashal of the search warrant that the copyrighted products of MANLY are not
original creations subject to the protection of RA 8293.
We deny the petition.

The power to issue search warrants is exclusively vested with the trial judges in the exercise of
their judicial function.11 As such, the power to quash the same also rests solely with them. After
the judge has issued a warrant, he is not precluded to subsequently quash the same, if he finds
upon reevaluation of the evidence that no probable cause exists.

Our ruling in Solid Triangle Sales Corp. v. Sheriff, RTC, Q.C., Br. 9312 is instructive, thus:

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. The ruling has since been incorporated
in Rule 126 of the Revised Rules of Criminal Procedure[.]

In the instant case, we find that the trial court did not abuse its discretion when it entertained
the motion to quash considering that no criminal action has yet been instituted when it was
filed. The trial court also properly quashed the search warrant it earlier issued after finding upon
reevaluation of the evidence that no probable cause exists to justify its issuance in the first place.
As ruled by the trial court, the copyrighted products do not appear to be original creations of
MANLY and are not among the classes of work enumerated under Section 172 of RA 8293. The
trial court, thus, may not be faulted for overturning its initial assessment that there was
probable cause in view of its inherent power to issue search warrants and to quash the same. No
objection may be validly posed to an order quashing a warrant already issued as the court must
be provided with the opportunity to correct itself of an error unwittingly committed, or, with like
effect, to allow the aggrieved party the chance to convince the court that its ruling is erroneous.

Moreover, the trial court was acting within bounds when it ruled, in an ancillary proceeding,
that the copyrighted products of petitioner are not original creations. This is because in the
determination of the existence of probable cause for the issuance or quashal of a warrant, it is
inevitable that the court may touch on issues properly threshed out in a regular proceeding. In
so doing, it does not usurp the power of, much less preclude, the court from making a final
judicial determination of the issues in a full-blown trial. Consequently, MANLY’s assertion that
the trial court’s order quashing the warrant preempted the finding of the intellectual property
court has no legal basis.

As pertinently held in Solid Triangle Sales Corp. v. Sheriff, RTC, Q.C., Br. 93:13

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 court’s 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 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.

As correctly observed by the Court of Appeals, the trial court’s finding that the seized products
are not copyrightable was merely preliminary as it did not finally and permanently adjudicate on
the status and character of the seized items. MANLY could still file a separate copyright
infringement suit against the respondents because the order for the issuance or quashal of a
warrant is not res judicata.

Thus, in Vlasons Enterprises Corporation v. Court of Appeals14 we held that:

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. 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. 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…

We have also ruled in Ching v. Salinas, Sr., et al.15 that:

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[.]

Further, the copyright certificates issued in favor of MANLY constitute merely prima facie
evidence of validity and ownership. However, no presumption of validity is created where other
evidence exist that may cast doubt on the copyright validity. Hence, where there is sufficient
proof that the copyrighted products are not original creations but are readily available in the
market under various brands, as in this case, validity and originality will not be presumed and
the trial court may properly quash the issued warrant for lack of probable cause.

Besides, no copyright accrues in favor of MANLY despite issuance of the certificates of

registration and deposit16 pursuant to Section 2, Rule 7 of the Copyrights Safeguards and
Regulations17 which states:

Sec. 2 Effects of Registration and Deposit of Work. The registration and deposit of the work is
purely for recording the date of registration and deposit of the work and shall not be conclusive
as to copyright ownership or the term of the copyrights or the rights of the copyright owner,
including neighboring rights.

At most, the certificates of registration and deposit issued by the National Library and the
Supreme Court Library serve merely as a notice of recording and registration of the work but do
not confer any right or title upon the registered copyright owner or automatically put his work
under the protective mantle of the copyright law. It is not a conclusive proof of copyright
ownership. As it is, non-registration and deposit of the work within the prescribed period only
makes the copyright owner liable to pay a fine.18

WHEREFORE, the petition is DENIED. The July 13, 2004 decision of the Court of Appeals in
CA-G.R. SP No. 79887 and resolution dated September 15, 2004, are AFFIRMED.
G.R. No. 131522 July 19, 1999

PACITA I. HABANA, ALICIA L. CINCO and JOVITA N. FERNANDO, petitioners,

vs.
FELICIDAD C. ROBLES and GOODWILL TRADING CO., INC., respondents.

PARDO, J.:

The case before us is a petition for review on certiorari1 to set aside the (a) decision or the Court
of Appeals2, and (b) the resolution denying petitioners' motion for reconsideration,3 in which
the appellate court affirmed the trial court's dismissal of the complaint for infringement and/or
unfair competition and damages but deleted the award for attorney's fees.1âwphi1.nêt

The facts are as follows:

Petitioners are authors and copyright owners of duly issued certificates of copyright registration
covering their published works, produced through their combined resources and efforts, entitled
COLLEGE ENGLISH FOR TODAY (CET for brevity), Books 1 and 2, and WORKBOOK FOR
COLLEGE FRESHMAN ENGLISH, Series 1.

Respondent Felicidad Robles and Goodwill Trading Co., Inc. are the author/publisher and
distributor/seller of another published work entitled "DEVELOPING ENGLISH PROFICIENCY"
(DEP for brevity), Books 1 and 2 (1985 edition) which book was covered by copyrights issued to
them.

In the course of revising their published works, petitioners scouted and looked around various
bookstores to check on other textbooks dealing with the same subject matter. By chance they
came upon the book of respondent Robles and upon perusal of said book they were surprised to
see that the book was strikingly similar to the contents, scheme of presentation, illustrations and
illustrative examples in their own book, CET.

After an itemized examination and comparison of the two books (CET and DEP), petitioners
found that several pages of the respondent's book are similar, if not all together a copy of
petitioners' book, which is a case of plagiarism and copyright infringement.

Petitioners then made demands for damages against respondents and also demanded that they
cease and desist from further selling and distributing to the general public the infringed copies
of respondent Robles' works.

However, respondents ignored the demands, hence, on July 7, 1988; petitioners filed with the
Regional Trial Court, Makati, a complaint for "Infringement and/or unfair competition with
damages" 4 against private respondents.5

In the complaint, petitioners alleged that in 1985, respondent Felicidad C. Robles being
substantially familiar with the contents of petitioners' works, and without securing their
permission, lifted, copied, plagiarized and/or transposed certain portions of their book CET. The
textual contents and illustrations of CET were literally reproduced in the book DEP. The
plagiarism, incorporation and reproduction of particular portions of the book CET in the book
DEP, without the authority or consent of petitioners, and the misrepresentations of respondent
Robles that the same was her original work and concept adversely affected and substantially
diminished the sale of the petitioners' book and caused them actual damages by way of
unrealized income.

Despite the demands of the petitioners for respondents to desist from committing further acts of
infringement and for respondent to recall DEP from the market, respondents refused.
Petitioners asked the court to order the submission of all copies of the book DEP, together with
the molds, plates and films and other materials used in its printing destroyed, and for
respondents to render an accounting of the proceeds of all sales and profits since the time of its
publication and sale.

Respondent Robles was impleaded in the suit because she authored and directly committed the
acts of infringement complained of, while respondent Goodwill Trading Co., Inc. was impleaded
as the publisher and joint co-owner of the copyright certificates of registration covering the two
books authored and caused to be published by respondent Robles with obvious connivance with
one another.

On July 27, 1988, respondent Robles filed a motion for a bill of particulars6 which the trial court
approved on August 17, 1988. Petitioners complied with the desired particularization, and
furnished respondent Robles the specific portions, inclusive of pages and lines, of the published
and copyrighted books of the petitioners which were transposed, lifted, copied and plagiarized
and/or otherwise found their way into respondent's book.

On August 1, 1988, respondent Goodwill Trading Co., Inc. filed its answer to the complaint7 and
alleged that petitioners had no cause of action against Goodwill Trading Co., Inc. since it was not
privy to the misrepresentation, plagiarism, incorporation and reproduction of the portions of
the book of petitioners; that there was an agreement between Goodwill and the respondent
Robles that Robles guaranteed Goodwill that the materials utilized in the manuscript were her
own or that she had secured the necessary permission from contributors and sources; that the
author assumed sole responsibility and held the publisher without any liability.

On November 28, 1988, respondent Robles filed her answer8, and denied the allegations of
plagiarism and copying that petitioners claimed. Respondent stressed that (1) the book DEP is
the product of her independent researches, studies and experiences, and was not a copy of any
existing valid copyrighted book; (2) DEP followed the scope and sequence or syllabus which are
common to all English grammar writers as recommended by the Association of Philippine
Colleges of Arts and Sciences (APCAS), so any similarity between the respondents book and that
of the petitioners was due to the orientation of the authors to both works and standards and
syllabus; and (3) the similarities may be due to the authors' exercise of the "right to fair use of
copyrigthed materials, as guides."

Respondent interposed a counterclaim for damages on the ground that bad faith and malice
attended the filing of the complaint, because petitioner Habana was professionally jealous and
the book DEP replaced CET as the official textbook of the graduate studies department of the
Far Eastern University.9

During the pre-trial conference, the parties agreed to a stipulation of

facts 10 and for the trial court to first resolve the issue of infringement before disposing of the
claim for damages.

After the trial on the merits, on April 23, 1993, the trial court rendered its judgment finding
thus:
WHEREFORE, premises considered, the court hereby orders that the complaint filed against
defendants Felicidad Robles and Goodwill Trading Co., Inc. shall be DISMISSED; that said
plaintiffs solidarily reimburse defendant Robles for P20,000.00 attorney's fees and defendant
Goodwill for P5,000.00 attorney's fees. Plaintiffs are liable for cost of suit.

IT IS SO ORDERED.

Done in the City of Manila this 23rd day of April, 1993.

(s/t) MARVIE R. ABRAHAM SINGSON

Assisting Judge

S. C. Adm. Order No. 124-92 11

On May 14, 1993, petitioners filed their notice of appeal with the trial court 12, and on July 19,
1993, the court directed its branch clerk of court to forward all the records of the case to the
Court of Appeals. 13

In the appeal, petitioners argued that the trial court completely disregarded their evidence and
fully subscribed to the arguments of respondent Robles that the books in issue were purely the
product of her researches and studies and that the copied portions were inspired by foreign
authors and as such not subject to copyright. Petitioners also assailed the findings of the trial
court that they were animated by bad faith in instituting the complaint. 14

On June 27, 1997, the Court of Appeals rendered judgment in favor of respondents Robles and
Goodwill Trading Co., Inc. The relevant portions of the decision state:

It must be noted, however, that similarity of the allegedly infringed work to the author's or
proprietor's copyrighted work does not of itself establish copyright infringement, especially if
the similarity results from the fact that both works deal with the same subject or have the same
common source, as in this case.

Appellee Robles has fully explained that the portion or material of the book claimed by
appellants to have been copied or lifted from foreign books. She has duly proven that most of the
topics or materials contained in her book, with particular reference to those matters claimed by
appellants to have been plagiarized were topics or matters appearing not only in appellants and
her books but also in earlier books on College English, including foreign books, e.i. Edmund
Burke's "Speech on Conciliation", Boerigs' "Competence in English" and Broughton's, "Edmund
Burke's Collection."

xxx xxx xxx

Appellant's reliance on the last paragraph on Section II is misplaced. It must be emphasized that
they failed to prove that their books were made sources by appellee. 15

The Court of Appeals was of the view that the award of attorneys' fees was not proper, since
there was no bad faith on the part of petitioners Habana et al. in instituting the action against
respondents.
On July 12, 1997, petitioners filed a motion for reconsideration, 16 however, the Court of
Appeals denied the same in a Resolution 17 dated November 25, 1997.

Hence, this petition.

In this appeal, petitioners submit that the appellate court erred in affirming the trial court's
decision.

Petitioners raised the following issues: (1) whether or not, despite the apparent textual, thematic
and sequential similarity between DEP and CET, respondents committed no copyright
infringement; (2) whether or not there was animus furandi on the part of respondent when they
refused to withdraw the copies of CET from the market despite notice to withdraw the same; and
(3) whether or not respondent Robles abused a writer's right to fair use, in violation of Section 11
of Presidential Decree No. 49. 18

We find the petition impressed with merit.

The complaint for copyright infringement was filed at the time that Presidential Decree No. 49
was in force. At present, all laws dealing with the protection of intellectual property rights have
been consolidated and as the law now stands, the protection of copyrights is governed by
Republic Act No. 8293. Notwithstanding the change in the law, the same principles are
reiterated in the new law under Section 177. It provides for the copy or economic rights of an
owner of a copyright as follows:

Sec. 177. Copy or Economic rights. — Subject to the provisions of chapter VIII, copyright
or economic rights shall consist of the exclusive right to carry out, authorize or prevent the
following acts:

177.1 Reproduction of the work or substanlial portion of the work;

177.2 Dramatization, translation, adaptation, abridgement, arrangement or other

transformation of the work;

177.3 The first public distribution of the original and each copy of the work by sale or other
forms of transfer of ownership;

177.4 Rental of the original or a copy of an audiovisual or cinematographic work, a work

embodied in a sound recording, a computer program, a compilation of data and other materials
or a musical work in graphic form, irrespective of the ownership of the original or the copy
which is the subject of the rental; (n)

177.5 Public display of the original or copy of the work;

177.6 Public performance of the work; and

177.7 Other communication to the public of the work 19

The law also provided for the limitations on copyright, thus:

Sec. 184.1 Limitations on copyright. — Notwithstanding the provisions of Chapter V, the

following acts shall not constitute infringement of copyright:
(a) the recitation or performance of a work, once it has been lawfully made accessible to the
public, if done privately and free of charge or if made strictly for a charitable or religious
institution or society; [Sec. 10(1), P.D. No. 49]

(b) The making of quotations from a published work if they are compatible with fair use and
only to the extent justified for the purpose, including quotations from newspaper articles and
periodicals in the form of press summaries; Provided, that the source and the name of the
author, if appearing on the work are mentioned; (Sec. 11 third par. P.D. 49)

xxx xxx xxx

(e) The inclusion of a work in a publication, broadcast, or other communication to the

public, sound recording of film, if such inclusion is made by way of illustration for teaching
purposes and is compatible with fair use: Provided, That the source and the name of the author,
if appearing in the work is mentioned; 20

In the above quoted provisions, "work" has reference to literary and artistic creations and this
includes books and other literary, scholarly and scientific works. 21

A perusal of the records yields several pages of the book DEP that are similar if not identical
with the text of CET.

On page 404 of petitioners' Book 1 of College English for Today, the authors wrote:

Items in dates and addresses:

He died on Monday, April 15, 1975.

Miss Reyes lives in 214 Taft Avenue,

Manila 22

On page 73 of respondents Book 1 Developing English Today, they wrote:

He died on Monday, April 25, 1975.

Miss Reyes address is 214 Taft Avenue Manila 23

On Page 250 of CET, there is this example on parallelism or repetition of sentence structures,
thus:

The proposition is peace. Not peace through the medium of war; not peace to be hunted through
the labyrinth of intricate and endless negotiations; not peace to arise out of universal discord,
fomented from principle, in all parts of the empire; not peace to depend on the juridical
determination of perplexing questions, or the precise marking of the boundary of a complex
government. It is simple peace; sought in its natural course, and in its ordinary haunts. It is
peace sought in the spirit of peace, and laid in principles purely pacific.

— Edmund Burke, "Speech on Criticism." 24

On page 100 of the book DEP 25, also in the topic of parallel structure and repetition, the same
example is found in toto. The only difference is that petitioners acknowledged the author
Edmund Burke, and respondents did not.

In several other pages 26 the treatment and manner of presentation of the topics of DEP are
similar if not a rehash of that contained in CET.

We believe that respondent Robles' act of lifting from the book of petitioners substantial
portions of discussions and examples, and her failure to acknowledge the same in her book is an
infringement of petitioners' copyrights.

When is there a substantial reproduction of a book? It does not necessarily require that the
entire copyrighted work, or even a large portion of it, be copied. If so much is taken that the
value of the original work is substantially diminished, there is an infringement of copyright and
to an injurious extent, the work is appropriated. 27

In determining the question of infringement, the amount of matter copied from the copyrighted
work is an important consideration. To constitute infringement, it is not necessary that the
whole or even a large portion of the work shall have been copied. If so much is taken that the
value of the original is sensibly diminished, or the labors of the original author are substantially
and to an injurious extent appropriated by another, that is sufficient in point of law to constitute
piracy. 28

The essence of intellectual piracy should be essayed in conceptual terms in order to underscore
its gravity by an appropriate understanding thereof. Infringement of a copyright is a trespass on
a private domain owned and occupied by the owner of the copyright, and, therefore, protected
by law, and infringement of copyright, or piracy, which is a synonymous term in this connection,
consists in the doing by any person, without the consent of the owner of the copyright, of
anything the sole right to do which is conferred by statute on the owner of the copyright. 29

The respondents' claim that the copied portions of the book CET are also found in foreign books
and other grammar books, and that the similarity between her style and that of petitioners can
not be avoided since they come from the same background and orientation may be true.
However, in this jurisdiction under Sec 184 of Republic Act 8293 it is provided that:

Limitations on Copyright. Notwithstanding the provisions of Chapter V, the following shall not
constitute infringement of copyright:

xxx xxx xxx

(c) The making of quotations from a published work if they are compatible with fair use and
only to the extent justified for the purpose, including quotations from newspaper articles and
periodicals in the form of press summaries: Provided, That the source and the name of the
author, if appearing on the work, are mentioned.

A copy of a piracy is an infringement of the original, and it is no defense that the pirate, in such
cases, did not know whether or not he was infringing any copyright; he at least knew that what
he was copying was not his, and he copied at his peril. 30
The next question to resolve is to what extent can copying be injurious to the author of the book
being copied. Is it enough that there are similarities in some sections of the books or large
segments of the books are the same?

In the case at bar, there is no question that petitioners presented several pages of the books CET
and DEP that more or less had the same contents. It may be correct that the books being
grammar books may contain materials similar as to some technical contents with other
grammar books, such as the segment about the "Author Card". However, the numerous pages
that the petitioners presented showing similarity in the style and the manner the books were
presented and the identical examples can not pass as similarities merely because of technical
consideration.

The respondents claim that their similarity in style can be attributed to the fact that both of
them were exposed to the APCAS syllabus and their respective academic experience, teaching
approach and methodology are almost identical because they were of the same background.

However, we believe that even if petitioners and respondent Robles were of the same
background in terms of teaching experience and orientation, it is not an excuse for them to be
identical even in examples contained in their books. The similarities in examples and material
contents are so obviously present in this case. How can similar/identical examples not be
considered as a mark of copying?

We consider as an indicia of guilt or wrongdoing the act of respondent Robles of pulling out
from Goodwill bookstores the book DEP upon learning of petitioners' complaint while
pharisaically denying petitioners' demand. It was further noted that when the book DEP was re-
issued as a revised version, all the pages cited by petitioners to contain portion of their book
College English for Today were eliminated.

In cases of infringement, copying alone is not what is prohibited. The copying must produce an
"injurious effect". Here, the injury consists in that respondent Robles lifted from petitioners'
book materials that were the result of the latter's research work and compilation and
misrepresented them as her own. She circulated the book DEP for commercial use did not
acknowledged petitioners as her source.

Hence, there is a clear case of appropriation of copyrighted work for her benefit that respondent
Robles committed. Petitioners' work as authors is the product of their long and assiduous
research and for another to represent it as her own is injury enough. In copyrighting books the
purpose is to give protection to the intellectual product of an author. This is precisely what the
law on copyright protected, under Section 184.1 (b). Quotations from a published work if they
are compatible with fair use and only to the extent justified by the purpose, including quotations
from newspaper articles and periodicals in the form of press summaries are allowed provided
that the source and the name of the author, if appearing on the work, are mentioned.

In the case at bar, the least that respondent Robles could have done was to acknowledge
petitioners Habana et. al. as the source of the portions of DEP. The final product of an author's
toil is her book. To allow another to copy the book without appropriate acknowledgment is
injury enough.

WHEREFORE, the petition is hereby GRANTED. The decision and resolution of the Court of
Appeals in CA-G. R. CV No. 44053 are SET ASIDE. The case is ordered remanded to the trial
court for further proceedings to receive evidence of the parties to ascertain the damages caused
and sustained by petitioners and to render decision in accordance with the evidence submitted
to it.

SO ORDERED.
G.R. No. 108946 January 28, 1999

FRANCISCO G. JOAQUIN, JR., and BJ PRODUCTIONS, INC., petitioners,

vs.
HONORABLE FRANKLIN DRILON, GABRIEL ZOSA, WILLIAM ESPOSO, FELIPE
MEDINA, JR., and CASEY FRANCISCO, respondents.

MENDOZA, J.:

This is a petition for certiorari. Petitioners seek to annul the resolution of the Department of
Justice, dated August 12, 1992, in Criminal Case No. Q-92-27854, entitled "Gabriel Zosa, et al. v.
City Prosecutor of Quezon City and Francisco Joaquin, Jr.," and its resolution, dated December
3, 1992, denying petitioner Joaquin's motion for reconsideration.

Petitioner BJ Productions, Inc. (BJPI) is the holder/grantee of Certificate of Copyright No.

M922, dated January 28, 1971, of Rhoda and Me, a dating game show aired from 1970 to 1977.

On June 28, 1973, petitioner BJPI submitted to the National Library an addendum to its
certificate of copyright specifying the show's format and style of presentation.

On July 14, 1991, while watching television, petitioner Francisco Joaquin, Jr., president of BJPI,
saw on RPN Channel 9 an episode of It's a Date, which was produced by IXL Productions, Inc.
(IXL). On July 18, 1991, he wrote a letter to private respondent Gabriel M. Zosa, president and
general manager of IXL, informing Zosa that BJPI had a copyright to Rhoda and Me and
demanding that IXL discontinue airing It's a Date.

In a letter, dated July 19, 1991, private respondent Zosa apologized to petitioner Joaquin and
requested a meeting to discuss a possible settlement. IXL, however, continued airing It's a Date,
prompting petitioner Joaquin to send a second letter on July 25, 1991 in which he reiterated his
demand and warned that, if IXL did not comply, he would endorse the matter to his attorneys
for proper legal action.

Meanwhile, private respondent Zosa sought to register IXL's copyright to the first episode of It's
a Date for which it was issued by the National Library a certificate of copyright August 14, 1991.

Upon complaint of petitioners, an information for violation of P.D. No. 49 was filed against
private respondent Zosa together with certain officers of RPN Channel 9, namely, William
Esposo, Felipe Medina, and Casey Francisco, in the Regional Trial Court of Quezon City where it
was docketed as Criminal Case No. 92-27854 and assigned to Branch 104 thereof. However,
private respondent Zosa sought a review of the resolution of the Assistant City Prosecutor before
the Department of Justice.

On August 12, 1992, respondent Secretary of Justice Franklin M. Drilon reversed the Assistant
City Prosecutor's findings and directed him to move for the dismissal of the case against private
respondents. 1

Petitioner Joaquin filed a motion for reconsideration, but his motion denied by respondent
Secretary of Justice on December 3, 1992. Hence, this petition. Petitioners contend that:
1. The public respondent gravely abused his discretion amounting to lack of jurisdiction —
when he invoked non-presentation of the master tape as being fatal to the existence of probable
cause to prove infringement, despite the fact that private respondents never raised the same as a
controverted issue.

2. The public respondent gravely abused his discretion amounting to lack of jurisdiction
when he arrogated unto himself the determination of what is copyrightable — an issue which is
exclusively within the jurisdiction of the regional trial court to assess in a proper proceeding.

Both public and private respondents maintain that petitioners failed to establish the existence of
probable cause due to their failure to present the copyrighted master videotape of Rhoda and
Me. They contend that petitioner BJPI's copyright covers only a specific episode of Rhoda and
Me and that the formats or concepts of dating game shows are not covered by copyright
protection under P.D. No. 49.

Non-Assignment of Error.

Petitioners claim that their failure to submit the copyrighted master videotape of the television
show Rhoda and Me was not raised in issue by private respondents during the preliminary
investigation and, therefore, it was error for the Secretary of Justice to reverse the investigating
prosecutor's finding of probable cause on this ground.

A preliminary investigation falls under the authority of the state prosecutor who is given by law
the power to direct and control criminal
actions. 2 He is, however, subject to the control of the Secretary of Justice. Thus, Rule 112, §4 of
the Revised Rules of Criminal Procedure, provides:

Sec. 4. Duty of investigating fiscal. — If the investigating fiscal finds cause to hold the
respondent for trial, he shall prepare the resolution and corresponding information. He shall
certify under oath that he, or as shown by the record, an authorized officer, has personally
examined the complainant and his witnesses, that there is reasonable ground to believe that a
crime has been committed and that the accused is probably guilty thereof, that the accused was
informed of the complaint and of the evidence submitted against him and that he was given an
opportunity to submit controverting evidence. Otherwise, he shall recommend dismissal of the
complaint.

In either case, he shall forward the records of the case to the provincial or city fiscal or chief
state prosecutor within five (5) days from his resolution. The latter shall take appropriate action
thereon ten (10) days from receipt thereof, immediately informing the parties of said action.

No complaint or information may be filed or dismissed by an investigating fiscal without the

prior written authority or approval of the provincial or city fiscal or chief state prosecutor.

Where the investigating assistant fiscal recommends the dismissal of the case but his findings
are reversed by the provincial or city fiscal or chief state prosecutor on the ground that a
probable cause exists, the latter may, by himself, file the corresponding information against the
respondent or direct any other assistant fiscal or state prosecutor to do so, without conducting
another preliminary investigation.

If upon petition by a proper party, the Secretary of Justice reverses the resolution of the
provincial or city fiscal or chief state prosecutor, he shall direct the fiscal concerned to file the
corresponding information without conducting another preliminary investigation or to dismiss
or move for dismissal of the complaint or information.

In reviewing resolutions of prosecutors, the Secretary of Justice is not precluded from

considering errors, although unassigned, for the purpose of determining whether there is
probable cause for filing cases in court. He must make his own finding, of probable cause and is
not confined to the issues raised by the parties during preliminary investigation. Moreover, his
findings are not subject to review unless shown to have been made with grave abuse.

Opinion of the Secretary of Justice

Petitioners contend, however, that the determination of the question whether the format or
mechanics of a show is entitled to copyright protection is for the court, and not the Secretary of
Justice, to make. They assail the following portion of the resolution of the respondent Secretary
of Justice:

[T]he essence of copyright infringement is the copying, in whole or in part, of copyrightable

materials as defined and enumerated in Section 2 of PD. No. 49. Apart from the manner in
which it is actually expressed, however, the idea of a dating game show is, in the opinion of this
Office, a non-copyrightable material. Ideas, concepts, formats, or schemes in their abstract form
clearly do not fall within the class of works or materials susceptible of copyright registration as
provided in PD. No. 49. 3 (Emphasis added.)

It is indeed true that the question whether the format or mechanics of petitioners television
show is entitled to copyright protection is a legal question for the court to make. This does not,
however, preclude respondent Secretary of Justice from making a preliminary determination of
this question in resolving whether there is probable cause for filing the case in court. In doing so
in this case, he did not commit any grave error.

Presentation of Master Tape

Petitioners claim that respondent Secretary of Justice gravely abused his discretion in ruling
that the master videotape should have been predented in order to determine whether there was
probable cause for copyright infringement. They contend that 20th Century Fox Film
Corporation v. Court of Appeals, 4 on which respondent Secretary of Justice relied in reversing
the resolution of the investigating prosecutor, is inapplicable to the case at bar because in the
present case, the parties presented sufficient evidence which clearly establish "linkage between
the copyright show "Rhoda and Me" and the infringing TV show "It's a Date." 5

The case of 20th Century Fox Film Corporation involved raids conducted on various videotape
outlets allegedlly selling or renting out "pirated" videotapes. The trial court found that the
affidavits of NBI agents, given in support of the application for the search warrant, were
insufficient without the master tape. Accordingly, the trial court lifted the search warrants it had
previously issued against the defendants. On petition for review, this Court sustained the action
of the trial court and ruled: 6

The presentation of the master tapes of the copyrighted films from which the pirated films were
allegedly copied, was necessary for the validity of search warrants against those who have in
their possession the pirated films. The petitioner's argument to the effect that the presentation
of the master tapes at the time of application may not be necessary as these would be merely
evidentiary in nature and not determinative of whether or not a probable cause exists to justify
the issuance of the search warrants is not meritorious. The court cannot presume that duplicate
or copied tapes were necessarily reproduced from master tapes that it owns.

The application for search warrants was directed against video tape outlets which allegedly were
engaged in the unauthorized sale and renting out of copyrighted films belonging to the
petitioner pursuant to P.D. 49.

The essence of a copyright infringement is the similarity or at least substantial similarity of the
purported pirated works to the copyrighted work. Hence, the applicant must present to the court
the copyrighted films to compare them with the purchased evidence of the video tapes allegedly
pirated to determine whether the latter is an unauthorized reproduction of the former. This
linkage of the copyrighted films to the pirated films must be established to satisfy the
requirements of probable cause. Mere allegations as to the existence of the copyrighted films
cannot serve as basis for the issuance of a search warrant.

This ruling was qualified in the later case of Columbia Pictures, Inc. v. Court of Appeals 7 in
which it was held:

In fine, the supposed pronunciamento in said case regarding the necessity for the presentation
of the master tapes of the copyrighted films for the validity of search warrants should at most be
understood to merely serve as a guidepost in determining the existence of probable cause in
copyright infringement cases where there is doubt as to the true nexus between the master tape
and the printed copies. An objective and careful reading of the decision in said case could lead to
no other conclusion than that said directive was hardly intended to be a sweeping and inflexible
requirement in all or similar copyright infringement cases. . . 8

In the case at bar during the preliminary investigation, petitioners and private respondents
presented written descriptions of the formats of their respective televisions shows, on the basis
of which the investigating prosecutor ruled:

As may [be] gleaned from the evidence on record, the substance of the television productions
complainant's "RHODA AND ME" and Zosa's "IT'S A DATE" is that two matches are made
between a male and a female, both single, and the two couples are treated to a night or two of
dining and/or dancing at the expense of the show. The major concepts of both shows is the
same. Any difference appear mere variations of the major concepts.

That there is an infringement on the copyright of the show "RHODA AND ME" both in content
and in the execution of the video presentation are established because respondent's "IT'S A
DATE" is practically an exact copy of complainant's "RHODA AND ME" because of substantial
similarities as follows, to wit:

RHODA AND ME

"IT'S A DATE"

Set 1

Set 1
a. Unmarried participant of one gender (searcher) appears on one side of a divider, while three
(3) unmarried participants of the other gender are on the other side of the divider. This
arrangement is done to ensure that the searcher does not see the searchees.

a. same

b. Searcher asks a question to be answered by each of the searchees. The purpose is to determine
who among the searchees is the most compatible with the searcher.

b. same

c. Searcher speculates on the match to the searchee.

c. same

d. Selection is made by the use of compute (sic) methods, or by the way questions are answered,
or similar methods.

d. Selection is based on the answer of the Searchees.

Set 2

Set 2

Same as above with the genders of the searcher and searchees interchanged. 9

same

Petitioners assert that the format of Rhoda and Me is a product of ingenuity and skill and is thus
entitled to copyright protection. It is their position that the presentation of a point-by-point
comparison of the formats of the two shows clearly demonstrates the nexus between the shows
and hence establishes the existence of probable cause for copyright infringement. Such being the
case, they did not have to produce the master tape.

To begin with the format of a show is not copyrightable. Section 2 of P.D. No. 49, 10 otherwise
known as the DECREE ON INTELLECTUAL PROPERTY, enumerates the classes of work
entitled to copyright protection, to wit:

Sec. 2. The rights granted by this Decree shall, from the moment of creation, subsist with
respect to any of the following classes of works:

(A) Books, including composite and cyclopedic works, manuscripts, directories, and
gazetteers:

(B) Periodicals, including pamphlets and newspapers;

(C) Lectures, sermons, addresses, dissertations prepared for oral delivery;

(D) Letters;
(E) Dramatic or dramatico-musical compositions; choreographic works and entertainments
in dumb shows, the acting form of which is fixed in writing or otherwise;

(F) Musical compositions, with or without words;

(G) Works of drawing, painting, architecture, sculpture, engraving, lithography, and other
works of art; models or designs for works of art;

(H) Reproductions of a work of art;

(I) Original ornamental designs or models for articles of manufacture, whether or not
patentable, and other works of applied art;

(J) Maps, plans, sketches, and charts;

(K) Drawings or plastic works of a scientific or technical character;

(I) Photographic works and works produced by a process analogous to photography lantern
slides;

(M) Cinematographic works and works produced by a process analogous to cinematography

or any process for making audio-visual recordings;

(N) Computer programs;

(O) Prints, pictorial illustrations advertising copies, labels tags, and box wraps;

(P) Dramatizations, translations, adaptations, abridgements, arrangements and other

alterations of literary, musical or artistic works or of works of the Philippine government as
herein defined, which shall be protected as provided in Section 8 of this Decree.

(Q) Collections of literary, scholarly, or artistic works or of works referred to in Section 9 of

this Decree which by reason of the selection and arrangement of their contents constitute
intellectual creations, the same to be protected as such in accordance with Section 8 of this
Decree.

(R) Other literary, scholarly, scientific and artistic works.

This provision is substantially the same as §172 of the INTELLECTUAL PROPERTY CODE OF
PHILIPPINES (R.A. No. 8293). 11 The format or mechanics of a television show is not included
in the list of protected works in §2 of P.D. No. 49. For this reason, the protection afforded by the
law cannot be extended to cover them.

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 the statute. 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. 12

Since . . . copyright in published works is purely a statutory creation, a copyright may be

obtained only for a work falling within the statutory enumeration or description. 13
Regardless of the historical viewpoint, it is authoritatively settled in the United States that there
is no copyright except that which is both created and secured by act of Congress . . . . . 14

P.D. No. 49, §2, in enumerating what are subject to copyright, refers to finished works and not
to concepts. The copyright does not extend to an idea, procedure, process, system, method of
operation, concept, principle, or discovery, regardless of the form in which it is described,
explained, illustrated, or embodied in such work. 15 Thus, the new INTELLECTUAL PROPERTY
CODE OF THE PHILIPPINES provides:

Sec. 175. Unprotected Subject Matter. — Notwithstanding the provisions of Sections 172
and 173, no protection shall extend, under this law, to any idea, procedure, system, method or
operation, concept, principle, discovery or mere data as such, even if they are expressed,
explained, illustrated or embodied in a work; news of the day and other miscellaneous facts
having the character of mere items of press information; or any official text of a legislative,
administrative or legal nature, as well as any official translation thereof.

What then is the subject matter of petitioners' copyright? This Court is of the opinion that
petitioner BJPI's copyright covers audio-visual recordings of each episode of Rhoda and Me, as
falling within the class of works mentioned in P.D. 49, §2(M), to wit:

Cinematographic works and works produced by a process analogous to cinematography or any

process for making audio-visual recordings;

The copyright does not extend to the general concept or format of its dating game show.
Accordingly, by the very nature of the subject of petitioner BJPI's copyright, the investigating
prosecutor should have the opportunity to compare the videotapes of the two shows.

Mere description by words of the general format of the two dating game shows is insufficient;
the presentation of the master videotape in evidence was indispensable to the determination of
the existence of probable cause. As aptly observed by respondent Secretary of Justice:

A television show includes more than mere words can describe because it involves a whole
spectrum of visuals and effects, video and audio, such that no similarity or dissimilarity may be
found by merely describing the general copyright/format of both dating game shows.

WHEREFORE, the petition is hereby DISMISSED

SO ORDERED.
G.R. No. L-36402 March 16, 1987

FILIPINO SOCIETY OF COMPOSERS, AUTHORS AND PUBLISHERS, INC.,

plaintiff-appellant,
vs.
BENJAMIN TAN, defendant-appellee.

Lichauco, Picazo & Agcaoili Law Office for plaintiff-appellant.

Ramon A. Nieves for defendant-appellee.

PARAS, J.:

An appeal was made to the Court of Appeals docketed as CA-G.R. No. 46373-R * entitled
Filipino Society of Composers, Authors, Publishers, Inc., Plaintiff-Appellant v. Benjamin Tan,
Defendant-Appellee, from the decision of the Court of First Instance of Manila, Branch VII in
Civil Case No. 71222 ** "Filipino Society of Composers, Authors and Publishers, Inc., Plaintiff v.
Benjamin Tan, Defendant," which had dismissed plaintiffs' complaint without special
pronouncement as to costs.

The Court of Appeals, finding that the case involves pure questions of law, certified the same to
the Supreme Court for final determination (Resolution, CA-G.R. No. 46373-R, Rollo, p. 36;
Resolution of the Supreme Court of February 16, 1973 in L-36402, Rollo, p. 38).

The undisputed facts of this case are as follows:

Plaintiff-appellant is a non-profit association of authors, composers and publishers duly

organized under the Corporation Law of the Philippines and registered with the Securities and
Exchange Commission. Said association is the owner of certain musical compositions among
which are the songs entitled: "Dahil Sa Iyo", "Sapagkat Ikaw Ay Akin," "Sapagkat Kami Ay Tao
Lamang" and "The Nearness Of You."

On the other hand, defendant-appellee is the operator of a restaurant known as "Alex Soda
Foundation and Restaurant" where a combo with professional singers, hired to play and sing
musical compositions to entertain and amuse customers therein, were playing and singing the
above-mentioned compositions without any license or permission from the appellant to play or
sing the same. Accordingly, appellant demanded from the appellee payment of the necessary
license fee for the playing and singing of aforesaid compositions but the demand was ignored.

Hence, on November 7, 1967, appellant filed a complaint with the lower court for infringement
of copyright against defendant-appellee for allowing the playing in defendant-appellee's
restaurant of said songs copyrighted in the name of the former.

Defendant-appellee, in his answer, countered that the complaint states no cause of action. While
not denying the playing of said copyrighted compositions in his establishment, appellee
maintains that the mere singing and playing of songs and popular tunes even if they are
copyrighted do not constitute an infringement (Record on Appeal, p. 11; Resolution, CA-G.R.
NO. 46373-R, Rollo, pp. 32-36) under the provisions of Section 3 of the Copyright Law (Act 3134
of the Philippine Legislature).
The lower court, finding for the defendant, dismissed the complaint (Record on Appeal, p. 25).

Plaintiff appealed to the Court of Appeals which as already stated certified the case to the
Supreme Court for adjudication on the legal question involved. (Resolution, Court of Appeals,
Rollo, p. 36; Resolution of the Supreme Court of February 18, 1973, Rollo, p. 38).

In its brief in the Court of Appeals, appellant raised the following Assignment of Errors:

THE LOWER COURT ERRED IN HOLDING THAT THE MUSICAL COMPOSITIONS OF THE
APPELLANT WERE IN THE NATURE OF PUBLIC PROPERTY WHEN THEY WERE
COPYRIGHTED OR REGISTERED.

II

THE LOWER COURT ERRED IN HOLDING THAT THE MUSICAL COMPOSITIONS OF THE
APPELLANT WERE PLAYED AND SUNG IN THE SODA FOUNTAIN AND RESTAURANT OF
THE APPELLEE BY INDEPENDENT CONTRACTORS AND ONLY UPON THE REQUEST OF
CUSTOMERS.

III

THE LOWER COURT ERRED IN HOLDING THAT THE PLAYING AND SINGING OF
COPYRIGHTED MUSICAL COMPOSITIONS IN THE SODA FOUNTAIN AND RESTAURANT
OF THE APPELLEE ARE NOT PUBLIC PERFORMANCES FOR PROFIT OF THE SAID
COMPOSITIONS WITHIN THE MEANING AND CONTEMPLATION OF THE COPYRIGHT
LAW.

IV

THE LOWER COURT ERRED IN NOT HOLDING THAT THE APPELLEE IS LIABLE TO THE
APPELLANT FOR FOUR (4) SEPARATE INFRINGEMENTS. (Brief for Appellant, pp. A and B).

The petition is devoid of merit.

The principal issues in this case are whether or not the playing and signing of musical
compositions which have been copyrighted under the provisions of the Copyright Law (Act
3134) inside the establishment of the defendant-appellee constitute a public performance for
profit within the meaning and contemplation of the Copyright Law of the Philippines; and
assuming that there were indeed public performances for profit, whether or not appellee can be
held liable therefor.

Appellant anchors its claim on Section 3(c) of the Copyright Law which provides:

SEC. 3. The proprietor of a copyright or his heirs or assigns shall have the exclusive right:

xxx xxx xxx

(c) To exhibit, perform, represent, produce, or reproduce the copyrighted work in any
manner or by any method whatever for profit or otherwise; if not reproduced in copies for sale,
to sell any manuscripts or any record whatsoever thereof;

xxx xxx xxx

It maintains that playing or singing a musical composition is universally accepted as performing

the musical composition and that playing and singing of copyrighted music in the soda fountain
and restaurant of the appellee for the entertainment of the customers although the latter do not
pay for the music but only for the food and drink constitute performance for profit under the
Copyright Law (Brief for the Appellant, pp. 19-25).

We concede that indeed there were "public performances for profit. "

The word "perform" as used in the Act has been applied to "One who plays a musical
composition on a piano, thereby producing in the air sound waves which are heard as music ...
and if the instrument he plays on is a piano plus a broadcasting apparatus, so that waves are
thrown out, not only upon the air, but upon the other, then also he is performing the musical
composition." (Buck, et al. v. Duncan, et al.; Same Jewell La Salle Realty Co., 32F. 2d. Series
367).

In relation thereto, it has been held that "The playing of music in dine and dance establishment
which was paid for by the public in purchases of food and drink constituted "performance for
profit" within a Copyright Law." (Buck, et al. v. Russon No. 4489 25 F. Supp. 317). Thus, it has
been explained that while it is possible in such establishments for the patrons to purchase their
food and drinks and at the same time dance to the music of the orchestra, the music is furnished
and used by the orchestra for the purpose of inducing the public to patronize the establishment
and pay for the entertainment in the purchase of food and drinks. The defendant conducts his
place of business for profit, and it is public; and the music is performed for profit (Ibid, p. 319).
In a similar case, the Court ruled that "The Performance in a restaurant or hotel dining room, by
persons employed by the proprietor, of a copyrighted musical composition, for the
entertainment of patrons, without charge for admission to hear it, infringes the exclusive right of
the owner of the copyright." (Herbert v. Shanley Co.; John Church Co. v. Hillard Hotel Co., et al.,
242 U.S. 590-591). In delivering the opinion of the Court in said two cases, Justice Holmes
elaborated thus:

If the rights under the copyright are infringed only by a performance where money is taken at
the door, they are very imperfectly protected. Performances not different in kind from those of
the defendants could be given that might compete with and even destroy the success of the
monopoly that the law intends the plaintiffs to have. It is enough to say that there is no need to
construe the statute so narrowly. The defendants' performances are not eleemosynary. They are
part of a total for which the public pays, and the fact that the price of the whole is attributed to a
particular item which those present are expected to order is not important. It is true that the
music is not the sole object, but neither is the food, which probably could be got cheaper
elsewhere. The object is a repast in surroundings that to people having limited power of
conversation or disliking the rival noise, give a luxurious pleasure not to be had from eating a
silent meal. If music did not pay, it would be given up. If it pays, it pays out of the public's
pocket. Whether it pays or not, the purpose of employing it is profit, and that is enough. (Ibid.,
p. 594).
In the case at bar, it is admitted that the patrons of the restaurant in question pay only for the
food and drinks and apparently not for listening to the music. As found by the trial court, the
music provided is for the purpose of entertaining and amusing the customers in order to make
the establishment more attractive and desirable (Record on Appeal, p. 21). It will be noted that
for the playing and singing the musical compositions involved, the combo was paid as
independent contractors by the appellant (Record on Appeal, p. 24). It is therefore obvious that
the expenses entailed thereby are added to the overhead of the restaurant which are either
eventually charged in the price of the food and drinks or to the overall total of additional income
produced by the bigger volume of business which the entertainment was programmed to attract.
Consequently, it is beyond question that the playing and singing of the combo in defendant-
appellee's restaurant constituted performance for profit contemplated by the Copyright Law.
(Act 3134 amended by P.D. No. 49, as amended).

Nevertheless, appellee cannot be said to have infringed upon the Copyright Law. Appellee's
allegation that the composers of the contested musical compositions waived their right in favor
of the general public when they allowed their intellectual creations to become property of the
public domain before applying for the corresponding copyrights for the same (Brief for
Defendant-Appellee, pp. 14-15) is correct.

The Supreme Court has ruled that "Paragraph 33 of Patent Office Administrative Order No. 3
(as amended, dated September 18, 1947) entitled 'Rules of Practice in the Philippines Patent
Office relating to the Registration of Copyright Claims' promulgated pursuant to Republic Act
165, provides among other things that an intellectual creation should be copyrighted thirty (30)
days after its publication, if made in Manila, or within the (60) days if made elsewhere, failure of
which renders such creation public property." (Santos v. McCullough Printing Company, 12
SCRA 324-325 [1964]. Indeed, if the general public has made use of the object sought to be
copyrighted for thirty (30) days prior to the copyright application the law deems the object to
have been donated to the public domain and the same can no longer be copyrighted.

A careful study of the records reveals that the song "Dahil Sa Iyo" which was registered on April
20, 1956 (Brief for Appellant, p. 10) became popular in radios, juke boxes, etc. long before
registration (TSN, May 28, 1968, pp. 3-5; 25) while the song "The Nearness Of You" registered
on January 14, 1955 (Brief for Appellant, p. 10) had become popular twenty five (25) years prior
to 1968, (the year of the hearing) or from 1943 (TSN, May 28, 1968, p. 27) and the songs
"Sapagkat Ikaw Ay Akin" and "Sapagkat Kami Ay Tao Lamang" both registered on July 10, 1966,
appear to have been known and sang by the witnesses as early as 1965 or three years before the
hearing in 1968. The testimonies of the witnesses at the hearing of this case on this subject were
unrebutted by the appellant. (Ibid, pp. 28; 29 and 30).

Under the circumstances, it is clear that the musical compositions in question had long become
public property, and are therefore beyond the protection of the Copyright Law.

PREMISES CONSIDERED, the appealed decision of the Court of First Instance of Manila in
Civil Case No. 71222 is hereby AFFIRMED.

SO ORDERED.
G.R. No. 175769-70 January 19, 2009

ABS-CBN BROADCASTING CORPORATION, Petitioners,

vs.
PHILIPPINE MULTI-MEDIA SYSTEM, INC., CESAR G. REYES, FRANCIS CHUA
(ANG BIAO), MANUEL F. ABELLADA, RAUL B. DE MESA, AND ALOYSIUS M.
COLAYCO, Respondents.

DECISION

YNARES-SANTIAGO, J.:

This petition for review on certiorari1 assails the July 12, 2006 Decision2 of the Court of Appeals
in CA-G.R. SP Nos. 88092 and 90762, which affirmed the December 20, 2004 Decision of the
Director-General of the Intellectual Property Office (IPO) in Appeal No. 10-2004-0002. Also
assailed is the December 11, 2006 Resolution3 denying the motion for reconsideration.

Petitioner ABS-CBN Broadcasting Corporation (ABS-CBN) is licensed under the laws of the
Republic of the Philippines to engage in television and radio broadcasting.4 It broadcasts
television programs by wireless means to Metro Manila and nearby provinces, and by satellite to
provincial stations through Channel 2 on Very High Frequency (VHF) and Channel 23 on Ultra
High Frequency (UHF). The programs aired over Channels 2 and 23 are either produced by
ABS-CBN or purchased from or licensed by other producers.

ABS-CBN also owns regional television stations which pattern their programming in accordance
with perceived demands of the region. Thus, television programs shown in Metro Manila and
nearby provinces are not necessarily shown in other provinces.

Respondent Philippine Multi-Media System, Inc. (PMSI) is the operator of Dream Broadcasting
System. It delivers digital direct-to-home (DTH) television via satellite to its subscribers all over
the Philippines. Herein individual respondents, Cesar G. Reyes, Francis Chua, Manuel F.
Abellada, Raul B. De Mesa, and Aloysius M. Colayco, are members of PMSI’s Board of Directors.

PMSI was granted a legislative franchise under Republic Act No. 86305 on May 7, 1998 and was
given a Provisional Authority by the National Telecommunications Commission (NTC) on
February 1, 2000 to install, operate and maintain a nationwide DTH satellite service. When it
commenced operations, it offered as part of its program line-up ABS-CBN Channels 2 and 23,
NBN, Channel 4, ABC Channel 5, GMA Channel 7, RPN Channel 9, and IBC Channel 13,
together with other paid premium program channels.

However, on April 25, 2001,6 ABS-CBN demanded for PMSI to cease and desist from
rebroadcasting Channels 2 and 23. On April 27, 2001,7 PMSI replied that the rebroadcasting
was in accordance with the authority granted it by NTC and its obligation under NTC
Memorandum Circular No. 4-08-88,8 Section 6.2 of which requires all cable television system
operators operating in a community within Grade “A” or “B” contours to carry the television
signals of the authorized television broadcast stations.9

Thereafter, negotiations ensued between the parties in an effort to reach a settlement; however,
the negotiations were terminated on April 4, 2002 by ABS-CBN allegedly due to PMSI’s inability
to ensure the prevention of illegal retransmission and further rebroadcast of its signals, as well
as the adverse effect of the rebroadcasts on the business operations of its regional television
stations.10

On May 13, 2002, ABS-CBN filed with the IPO a complaint for “Violation of Laws Involving
Property Rights, with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of
Preliminary Injunction,” which was docketed as IPV No. 10-2002-0004. It alleged that PMSI’s
unauthorized rebroadcasting of Channels 2 and 23 infringed on its broadcasting rights and
copyright.

On July 2, 2002, the Bureau of Legal Affairs (BLA) of the IPO granted ABS-CBN’s application
for a temporary restraining order. On July 12, 2002, PMSI suspended its retransmission of
Channels 2 and 23 and likewise filed a petition for certiorari with the Court of Appeals, which
was docketed as CA-G.R. SP No. 71597.

Subsequently, PMSI filed with the BLA a Manifestation reiterating that it is subject to the must-
carry rule under Memorandum Circular No. 04-08-88. It also submitted a letter dated
December 20, 2002 of then NTC Commissioner Armi Jane R. Borje to PMSI stating as follows:

This refers to your letter dated December 16, 2002 requesting for regulatory guidance from this
Commission in connection with the application and coverage of NTC Memorandum Circular No.
4-08-88, particularly Section 6 thereof, on mandatory carriage of television broadcast signals, to
the direct-to-home (DTH) pay television services of Philippine Multi-Media System, Inc.
(PMSI).

Preliminarily, both DTH pay television and cable television services are broadcast services, the
only difference being the medium of delivering such services (i.e. the former by satellite and the
latter by cable). Both can carry broadcast signals to the remote areas, thus enriching the lives of
the residents thereof through the dissemination of social, economic, educational information
and cultural programs.

The DTH pay television services of PMSI is equipped to provide nationwide DTH satellite
services. Concededly, PMSI’s DTH pay television services covers very much wider areas in terms
of carriage of broadcast signals, including areas not reachable by cable television services
thereby providing a better medium of dissemination of information to the public.

In view of the foregoing and the spirit and intent of NTC memorandum Circular No. 4-08-88,
particularly section 6 thereof, on mandatory carriage of television broadcast signals, DTH pay
television services should be deemed covered by such NTC Memorandum Circular.

For your guidance. (Emphasis added)11

On August 26, 2003, PMSI filed another Manifestation with the BLA that it received a letter
dated July 24, 2003 from the NTC enjoining strict and immediate compliance with the must-
carry rule under Memorandum Circular No. 04-08-88, to wit:

Dear Mr. Abellada:

Last July 22, 2003, the National Telecommunications Commission (NTC) received a letter dated
July 17, 2003 from President/COO Rene Q. Bello of the International Broadcasting Corporation
(IBC-Channel 13) complaining that your company, Dream Broadcasting System, Inc., has cut-
off, without any notice or explanation whatsoever, to air the programs of IBC-13, a free-to-air
television, to the detriment of the public.

We were told that, until now, this has been going on.

Please be advised that as a direct broadcast satellite operator, operating a direct-to-home (DTH)
broadcasting system, with a provisional authority (PA) from the NTC, your company, along with
cable television operators, are mandated to strictly comply with the existing policy of NTC on
mandatory carriage of television broadcast signals as provided under Memorandum Circular
No. 04-08-88, also known as the Revised Rules and Regulations Governing Cable Television
System in the Philippines.

This mandatory coverage provision under Section 6.2 of said Memorandum Circular, requires
all cable television system operators, operating in a community within the Grade “A” or “B”
contours to “must-carry” the television signals of the authorized television broadcast stations,
one of which is IBC-13. Said directive equally applies to your company as the circular was issued
to give consumers and the public a wider access to more sources of news, information,
entertainment and other programs/contents.

This Commission, as the governing agency vested by laws with the jurisdiction, supervision and
control over all public services, which includes direct broadcast satellite operators, and taking
into consideration the paramount interest of the public in general, hereby directs you to
immediately restore the signal of IBC-13 in your network programs, pursuant to existing
circulars and regulations of the Commission.

For strict compliance. (Emphasis added)12

Meanwhile, on October 10, 2003, the NTC issued Memorandum Circular No. 10-10-2003,
entitled “Implementing Rules and Regulations Governing Community Antenna/Cable
Television (CATV) and Direct Broadcast Satellite (DBS) Services to Promote Competition in the
Sector.” Article 6, Section 8 thereof states:

As a general rule, the reception, distribution and/or transmission by any CATV/DBS operator of
any television signals without any agreement with or authorization from program/content
providers are prohibited.

On whether Memorandum Circular No. 10-10-2003 amended Memorandum Circular No. 04-
08-88, the NTC explained to PMSI in a letter dated November 3, 2003 that:

To address your query on whether or not the provisions of MC 10-10-2003 would have the effect
of amending the provisions of MC 4-08-88 on mandatory carriage of television signals, the
answer is in the negative.

xxxx

The Commission maintains that, MC 4-08-88 remains valid, subsisting and enforceable.

Please be advised, therefore, that as duly licensed direct-to-home satellite television service
provider authorized by this Commission, your company continues to be bound by the guidelines
provided for under MC 04-08-88, specifically your obligation under its mandatory carriage
provisions, in addition to your obligations under MC 10-10-2003. (Emphasis added)
Please be guided accordingly.13

On December 22, 2003, the BLA rendered a decision14 finding that PMSI infringed the
broadcasting rights and copyright of ABS-CBN and ordering it to permanently cease and desist
from rebroadcasting Channels 2 and 23.

On February 6, 2004, PMSI filed an appeal with the Office of the Director-General of the IPO
which was docketed as Appeal No. 10-2004-0002. On December 23, 2004, it also filed with the
Court of Appeals a “Motion to Withdraw Petition; Alternatively, Memorandum of the Petition
for Certiorari” in CA-G.R. SP No. 71597, which was granted in a resolution dated February 17,
2005.

On December 20, 2004, the Director-General of the IPO rendered a decision15 in favor of PMSI,
the dispositive portion of which states:

WHEREFORE, premises considered, the instant appeal is hereby GRANTED. Accordingly,

Decision No. 2003-01 dated 22 December 2003 of the Director of Bureau of Legal Affairs is
hereby REVERSED and SET ASIDE.

Let a copy of this Decision be furnished the Director of the Bureau of Legal Affairs for
appropriate action, and the records be returned to her for proper disposition. The
Documentation, Information and Technology Transfer Bureau is also given a copy for library
and reference purposes.

SO ORDERED.16

Thus, ABS-CBN filed a petition for review with prayer for issuance of a temporary restraining
order and writ of preliminary injunction with the Court of Appeals, which was docketed as CA-
G.R. SP No. 88092.

On July 18, 2005, the Court of Appeals issued a temporary restraining order. Thereafter, ABS-
CBN filed a petition for contempt against PMSI for continuing to rebroadcast Channels 2 and 23
despite the restraining order. The case was docketed as CA- G.R. SP No. 90762.

On November 14, 2005, the Court of Appeals ordered the consolidation of CA-G.R. SP Nos.
88092 and 90762.

In the assailed Decision dated July 12, 2006, the Court of Appeals sustained the findings of the
Director-General of the IPO and dismissed both petitions filed by ABS-CBN.17

ABS-CBN’s motion for reconsideration was denied, hence, this petition.

ABS-CBN contends that PMSI’s unauthorized rebroadcasting of Channels 2 and 23 is an

infringement of its broadcasting rights and copyright under the Intellectual Property Code (IP
Code);18that Memorandum Circular No. 04-08-88 excludes DTH satellite television operators;
that the Court of Appeals’ interpretation of the must-carry rule violates Section 9 of Article III19
of the Constitution because it allows the taking of property for public use without payment of
just compensation; that the Court of Appeals erred in dismissing the petition for contempt
docketed as CA-G.R. SP No. 90762 without requiring respondents to file comment.
Respondents, on the other hand, argue that PMSI’s rebroadcasting of Channels 2 and 23 is
sanctioned by Memorandum Circular No. 04-08-88; that the must-carry rule under the
Memorandum Circular is a valid exercise of police power; and that the Court of Appeals
correctly dismissed CA-G.R. SP No. 90762 since it found no need to exercise its power of
contempt.

After a careful review of the facts and records of this case, we affirm the findings of the Director-
General of the IPO and the Court of Appeals.

There is no merit in ABS-CBN’s contention that PMSI violated its broadcaster’s rights under
Section 211 of the IP Code which provides in part:

Chapter XIV
BROADCASTING ORGANIZATIONS

Sec. 211. Scope of Right. - Subject to the provisions of Section 212, broadcasting organizations
shall enjoy the exclusive right to carry out, authorize or prevent any of the following acts:

211.1. The rebroadcasting of their broadcasts;

xxxx

Neither is PMSI guilty of infringement of ABS-CBN’s copyright under Section 177 of the IP Code
which states that copyright or economic rights shall consist of the exclusive right to carry out,
authorize or prevent the public performance of the work (Section 177.6), and other
communication to the public of the work (Section 177.7).20

Section 202.7 of the IP Code defines broadcasting as “the transmission by wireless means for the
public reception of sounds or of images or of representations thereof; such transmission by
satellite is also ‘broadcasting’ where the means for decrypting are provided to the public by the
broadcasting organization or with its consent.”

On the other hand, rebroadcasting as defined in Article 3(g) of the International Convention for
the Protection of Performers, Producers of Phonograms and Broadcasting Organizations,
otherwise known as the 1961 Rome Convention, of which the Republic of the Philippines is a
signatory, 21 is “the simultaneous broadcasting by one broadcasting organization of the
broadcast of another broadcasting organization.”

The Director-General of the IPO correctly found that PMSI is not engaged in rebroadcasting and
thus cannot be considered to have infringed ABS-CBN’s broadcasting rights and copyright, thus:

That the Appellant’s [herein respondent PMSI] subscribers are able to view Appellee’s [herein
petitioner ABS-CBN] programs (Channels 2 and 23) at the same time that the latter is
broadcasting the same is undisputed. The question however is, would the Appellant in doing so
be considered engaged in broadcasting. Section 202.7 of the IP Code states that broadcasting
means

“the transmission by wireless means for the public reception of sounds or of images or of
representations thereof; such transmission by satellite is also ‘broadcasting’ where the means for
decrypting are provided to the public by the broadcasting organization or with its consent.”
Section 202.7 of the IP Code, thus, provides two instances wherein there is broadcasting, to wit:

1. The transmission by wireless means for the public reception of sounds or of images or of
representations thereof; and

2. The transmission by satellite for the public reception of sounds or of images or of

representations thereof where the means for decrypting are provided to the public by the
broadcasting organization or with its consent.

It is under the second category that Appellant’s DTH satellite television service must be
examined since it is satellite-based. The elements of such category are as follows:

1. There is transmission of sounds or images or of representations thereof;

2. The transmission is through satellite;

3. The transmission is for public reception; and

4. The means for decrypting are provided to the public by the broadcasting organization or with
its consent.

It is only the presence of all the above elements can a determination that the DTH is
broadcasting and consequently, rebroadcasting Appellee’s signals in violation of Sections 211
and 177 of the IP Code, may be arrived at.

Accordingly, this Office is of the view that the transmission contemplated under Section 202.7 of
the IP Code presupposes that the origin of the signals is the broadcaster. Hence, a program that
is broadcasted is attributed to the broadcaster. In the same manner, the rebroadcasted program
is attributed to the rebroadcaster.

In the case at hand, Appellant is not the origin nor does it claim to be the origin of the programs
broadcasted by the Appellee. Appellant did not make and transmit on its own but merely carried
the existing signals of the Appellee. When Appellant’s subscribers view Appellee’s programs in
Channels 2 and 23, they know that the origin thereof was the Appellee.

Aptly, it is imperative to discern the nature of broadcasting. When a broadcaster transmits, the
signals are scattered or dispersed in the air. Anybody may pick-up these signals. There is no
restriction as to its number, type or class of recipients. To receive the signals, one is not required
to subscribe or to pay any fee. One only has to have a receiver, and in case of television signals, a
television set, and to tune-in to the right channel/frequency. The definition of broadcasting,
wherein it is required that the transmission is wireless, all the more supports this discussion.
Apparently, the undiscriminating dispersal of signals in the air is possible only through wireless
means. The use of wire in transmitting signals, such as cable television, limits the recipients to
those who are connected. Unlike wireless transmissions, in wire-based transmissions, it is not
enough that one wants to be connected and possesses the equipment. The service provider, such
as cable television companies may choose its subscribers.

The only limitation to such dispersal of signals in the air is the technical capacity of the
transmitters and other equipment employed by the broadcaster. While the broadcaster may use
a less powerful transmitter to limit its coverage, this is merely a business strategy or decision
and not an inherent limitation when transmission is through cable.
Accordingly, the nature of broadcasting is to scatter the signals in its widest area of coverage as
possible. On this score, it may be said that making public means that accessibility is
undiscriminating as long as it [is] within the range of the transmitter and equipment of the
broadcaster. That the medium through which the Appellant carries the Appellee’s signal, that is
via satellite, does not diminish the fact that it operates and functions as a cable television. It
remains that the Appellant’s transmission of signals via its DTH satellite television service
cannot be considered within the purview of broadcasting. x x x

xxxx

This Office also finds no evidence on record showing that the Appellant has provided decrypting
means to the public indiscriminately. Considering the nature of this case, which is punitive in
fact, the burden of proving the existence of the elements constituting the acts punishable rests
on the shoulder of the complainant.

Accordingly, this Office finds that there is no rebroadcasting on the part of the Appellant of the
Appellee’s programs on Channels 2 and 23, as defined under the Rome Convention.22

Under the Rome Convention, rebroadcasting is “the simultaneous broadcasting by one

broadcasting organization of the broadcast of another broadcasting organization.” The Working
Paper23 prepared by the Secretariat of the Standing Committee on Copyright and Related
Rights defines broadcasting organizations as “entities that take the financial and editorial
responsibility for the selection and arrangement of, and investment in, the transmitted
content.”24 Evidently, PMSI would not qualify as a broadcasting organization because it does
not have the aforementioned responsibilities imposed upon broadcasting organizations, such as
ABS-CBN.

ABS-CBN creates and transmits its own signals; PMSI merely carries such signals which the
viewers receive in its unaltered form. PMSI does not produce, select, or determine the programs
to be shown in Channels 2 and 23. Likewise, it does not pass itself off as the origin or author of
such programs. Insofar as Channels 2 and 23 are concerned, PMSI merely retransmits the same
in accordance with Memorandum Circular 04-08-88. With regard to its premium channels, it
buys the channels from content providers and transmits on an as-is basis to its viewers. Clearly,
PMSI does not perform the functions of a broadcasting organization; thus, it cannot be said that
it is engaged in rebroadcasting Channels 2 and 23.

The Director-General of the IPO and the Court of Appeals also correctly found that PMSI’s
services are similar to a cable television system because the services it renders fall under cable
“retransmission,” as described in the Working Paper, to wit:

(G) Cable Retransmission

47. When a radio or television program is being broadcast, it can be retransmitted to new
audiences by means of cable or wire. In the early days of cable television, it was mainly used to
improve signal reception, particularly in so-called “shadow zones,” or to distribute the signals in
large buildings or building complexes. With improvements in technology, cable operators now
often receive signals from satellites before retransmitting them in an unaltered form to their
subscribers through cable.
48. In principle, cable retransmission can be either simultaneous with the broadcast over-the-
air or delayed (deferred transmission) on the basis of a fixation or a reproduction of a fixation.
Furthermore, they might be unaltered or altered, for example through replacement of
commercials, etc. In general, however, the term “retransmission” seems to be reserved for such
transmissions which are both simultaneous and unaltered.

49. The Rome Convention does not grant rights against unauthorized cable retransmission.
Without such a right, cable operators can retransmit both domestic and foreign over the air
broadcasts simultaneously to their subscribers without permission from the broadcasting
organizations or other rightholders and without obligation to pay remuneration.25 (Emphasis
added)

Thus, while the Rome Convention gives broadcasting organizations the right to authorize or
prohibit the rebroadcasting of its broadcast, however, this protection does not extend to cable
retransmission. The retransmission of ABS-CBN’s signals by PMSI – which functions essentially
as a cable television – does not therefore constitute rebroadcasting in violation of the former’s
intellectual property rights under the IP Code.

It must be emphasized that the law on copyright is not absolute. The IP Code provides that:

Sec. 184. Limitations on Copyright. -

184.1. Notwithstanding the provisions of Chapter V, the following acts shall not constitute
infringement of copyright:

xxxx

(h) The use made of a work by or under the direction or control of the Government, by the
National Library or by educational, scientific or professional institutions where such use is in the
public interest and is compatible with fair use;

The carriage of ABS-CBN’s signals by virtue of the must-carry rule in Memorandum Circular No.
04-08-88 is under the direction and control of the government though the NTC which is vested
with exclusive jurisdiction to supervise, regulate and control telecommunications and broadcast
services/facilities in the Philippines.26 The imposition of the must-carry rule is within the NTC’s
power to promulgate rules and regulations, as public safety and interest may require, to
encourage a larger and more effective use of communications, radio and television broadcasting
facilities, and to maintain effective competition among private entities in these activities
whenever the Commission finds it reasonably feasible.27 As correctly observed by the Director-
General of the IPO:

Accordingly, the “Must-Carry Rule” under NTC Circular No. 4-08-88 falls under the foregoing
category of limitations on copyright. This Office agrees with the Appellant [herein respondent
PMSI] that the “Must-Carry Rule” is in consonance with the principles and objectives
underlying Executive Order No. 436,28 to wit:

The Filipino people must be given wider access to more sources of news, information, education,
sports event and entertainment programs other than those provided for by mass media and
afforded television programs to attain a well informed, well-versed and culturally refined
citizenry and enhance their socio-economic growth:
WHEREAS, cable television (CATV) systems could support or supplement the services provided
by television broadcast facilities, local and overseas, as the national information highway to the
countryside.29

The Court of Appeals likewise correctly observed that:

[T]he very intent and spirit of the NTC Circular will prevent a situation whereby station owners
and a few networks would have unfettered power to make time available only to the highest
bidders, to communicate only their own views on public issues, people, and to permit on the air
only those with whom they agreed – contrary to the state policy that the (franchise) grantee like
the petitioner, private respondent and other TV station owners, shall provide at all times sound
and balanced programming and assist in the functions of public information and education.

This is for the first time that we have a structure that works to accomplish explicit state policy
goals.30

Indeed, intellectual property protection is merely a means towards the end of making society
benefit from the creation of its men and women of talent and genius. This is the essence of
intellectual property laws, and it explains why certain products of ingenuity that are concealed
from the public are outside the pale of protection afforded by the law. It also explains why the
author or the creator enjoys no more rights than are consistent with public welfare.31

Further, as correctly observed by the Court of Appeals, the must-carry rule as well as the
legislative franchises granted to both ABS-CBN and PMSI are in consonance with state policies
enshrined in the Constitution, specifically Sections 9,32 17,33 and 2434 of Article II on the
Declaration of Principles and State Policies.35

ABS-CBN was granted a legislative franchise under Republic Act No. 7966, Section 1 of which
authorizes it “to construct, operate and maintain, for commercial purposes and in the public
interest, television and radio broadcasting in and throughout the Philippines x x x.” Section 4
thereof mandates that it “shall provide adequate public service time to enable the government,
through the said broadcasting stations, to reach the population on important public issues;
provide at all times sound and balanced programming; promote public participation such as in
community programming; assist in the functions of public information and education x x x.”

PMSI was likewise granted a legislative franchise under Republic Act No. 8630, Section 4 of
which similarly states that it “shall provide adequate public service time to enable the
government, through the said broadcasting stations, to reach the population on important
public issues; provide at all times sound and balanced programming; promote public
participation such as in community programming; assist in the functions of public information
and education x x x.” Section 5, paragraph 2 of the same law provides that “the radio spectrum is
a finite resource that is a part of the national patrimony and the use thereof is a privilege
conferred upon the grantee by the State and may be withdrawn anytime, after due process.”

In Telecom. & Broadcast Attys. of the Phils., Inc. v. COMELEC,36 the Court held that a franchise
is a mere privilege which may be reasonably burdened with some form of public service. Thus:

All broadcasting, whether by radio or by television stations, is licensed by the government.

Airwave frequencies have to be allocated as there are more individuals who want to broadcast
than there are frequencies to assign. A franchise is thus a privilege subject, among other things,
to amendment by Congress in accordance with the constitutional provision that “any such
franchise or right granted . . . shall be subject to amendment, alteration or repeal by the
Congress when the common good so requires.”

xxxx

Indeed, provisions for COMELEC Time have been made by amendment of the franchises of
radio and television broadcast stations and, until the present case was brought, such provisions
had not been thought of as taking property without just compensation. Art. XII, §11 of the
Constitution authorizes the amendment of franchises for “the common good.” What better
measure can be conceived for the common good than one for free air time for the benefit not
only of candidates but even more of the public, particularly the voters, so that they will be fully
informed of the issues in an election? “[I]t is the right of the viewers and listeners, not the right
of the broadcasters, which is paramount.”

Nor indeed can there be any constitutional objection to the requirement that broadcast stations
give free air time. Even in the United States, there are responsible scholars who believe that
government controls on broadcast media can constitutionally be instituted to ensure diversity of
views and attention to public affairs to further the system of free expression. For this purpose,
broadcast stations may be required to give free air time to candidates in an election. Thus,
Professor Cass R. Sunstein of the University of Chicago Law School, in urging reforms in
regulations affecting the broadcast industry, writes:

xxxx

In truth, radio and television broadcasting companies, which are given franchises, do not own
the airwaves and frequencies through which they transmit broadcast signals and images. They
are merely given the temporary privilege of using them. Since a franchise is a mere privilege, the
exercise of the privilege may reasonably be burdened with the performance by the grantee of
some form of public service. x x x37

There is likewise no merit to ABS-CBN’s claim that PMSI’s carriage of its signals is for a
commercial purpose; that its being the country’s top broadcasting company, the availability of
its signals allegedly enhances PMSI’s attractiveness to potential customers;38 or that the
unauthorized carriage of its signals by PMSI has created competition between its Metro Manila
and regional stations.

ABS-CBN presented no substantial evidence to prove that PMSI carried its signals for profit; or
that such carriage adversely affected the business operations of its regional stations. Except for
the testimonies of its witnesses,[39] no studies, statistical data or information have been
submitted in evidence.

Administrative charges cannot be based on mere speculation or conjecture. The complainant

has the burden of proving by substantial evidence the allegations in the complaint.40 Mere
allegation is not evidence, and is not equivalent to proof.41

Anyone in the country who owns a television set and antenna can receive ABS-CBN’s signals for
free. Other broadcasting organizations with free-to-air signals such as GMA-7, RPN-9, ABC-5,
and IBC-13 can likewise be accessed for free. No payment is required to view the said
channels42 because these broadcasting networks do not generate revenue from subscription
from their viewers but from airtime revenue from contracts with commercial advertisers and
producers, as well as from direct sales.
In contrast, cable and DTH television earn revenues from viewer subscription. In the case of
PMSI, it offers its customers premium paid channels from content providers like Star Movies,
Star World, Jack TV, and AXN, among others, thus allowing its customers to go beyond the
limits of “Free TV and Cable TV.”43 It does not advertise itself as a local channel carrier because
these local channels can be viewed with or without DTH television.

Relevantly, PMSI’s carriage of Channels 2 and 23 is material in arriving at the ratings and
audience share of ABS-CBN and its programs. These ratings help commercial advertisers and
producers decide whether to buy airtime from the network. Thus, the must-carry rule is actually
advantageous to the broadcasting networks because it provides them with increased viewership
which attracts commercial advertisers and producers.

On the other hand, the carriage of free-to-air signals imposes a burden to cable and DTH
television providers such as PMSI. PMSI uses none of ABS-CBN’s resources or equipment and
carries the signals and shoulders the costs without any recourse of charging.44 Moreover, such
carriage of signals takes up channel space which can otherwise be utilized for other premium
paid channels.

There is no merit to ABS-CBN’s argument that PMSI’s carriage of Channels 2 and 23 resulted in
competition between its Metro Manila and regional stations. ABS-CBN is free to decide to
pattern its regional programming in accordance with perceived demands of the region; however,
it cannot impose this kind of programming on the regional viewers who are also entitled to the
free-to-air channels. It must be emphasized that, as a national broadcasting organization, one of
ABS-CBN’s responsibilities is to scatter its signals to the widest area of coverage as possible.
That it should limit its signal reach for the sole purpose of gaining profit for its regional stations
undermines public interest and deprives the viewers of their right to access to information.

Indeed, television is a business; however, the welfare of the people must not be sacrificed in the
pursuit of profit. The right of the viewers and listeners to the most diverse choice of programs
available is paramount.45 The Director-General correctly observed, thus:

The “Must-Carry Rule” favors both broadcasting organizations and the public. It prevents cable
television companies from excluding broadcasting organization especially in those places not
reached by signal. Also, the rule prevents cable television companies from depriving viewers in
far-flung areas the enjoyment of programs available to city viewers. In fact, this Office finds the
rule more burdensome on the part of the cable television companies. The latter carries the
television signals and shoulders the costs without any recourse of charging. On the other hand,
the signals that are carried by cable television companies are dispersed and scattered by the
television stations and anybody with a television set is free to pick them up.

With its enormous resources and vaunted technological capabilities, Appellee’s [herein
petitioner ABS-CBN] broadcast signals can reach almost every corner of the archipelago. That in
spite of such capacity, it chooses to maintain regional stations, is a business decision. That the
“Must-Carry Rule” adversely affects the profitability of maintaining such regional stations since
there will be competition between them and its Metro Manila station is speculative and an
attempt to extrapolate the effects of the rule. As discussed above, Appellant’s DTH satellite
television services is of limited subscription. There was not even a showing on part of the
Appellee the number of Appellant’s subscribers in one region as compared to non-subscribing
television owners. In any event, if this Office is to engage in conjecture, such competition
between the regional stations and the Metro Manila station will benefit the public as such
competition will most likely result in the production of better television programs.”46

All told, we find that the Court of Appeals correctly upheld the decision of the IPO Director-
General that PMSI did not infringe on ABS-CBN’s intellectual property rights under the IP Code.
The findings of facts of administrative bodies charged with their specific field of expertise, are
afforded great weight by the courts, and in the absence of substantial showing that such findings
are made from an erroneous estimation of the evidence presented, they are conclusive, and in
the interest of stability of the governmental structure, should not be disturbed.47

Moreover, the factual findings of the Court of Appeals are conclusive on the parties and are not
reviewable by the Supreme Court. They carry even more weight when the Court of Appeals
affirms the factual findings of a lower fact-finding body,48 as in the instant case.

There is likewise no merit to ABS-CBN’s contention that the Memorandum Circular excludes
from its coverage DTH television services such as those provided by PMSI. Section 6.2 of the
Memorandum Circular requires all cable television system operators operating in a community
within Grade “A” or “B” contours to carry the television signals of the authorized television
broadcast stations.49 The rationale behind its issuance can be found in the whereas clauses
which state:

Whereas, Cable Television Systems or Community Antenna Television (CATV) have shown their
ability to offer additional programming and to carry much improved broadcast signals in the
remote areas, thereby enriching the lives of the rest of the population through the dissemination
of social, economic, educational information and cultural programs;

Whereas, the national government supports the promotes the orderly growth of the Cable
Television industry within the framework of a regulated fee enterprise, which is a hallmark of a
democratic society;

Whereas, public interest so requires that monopolies in commercial mass media shall be
regulated or prohibited, hence, to achieve the same, the cable TV industry is made part of the
broadcast media;

Whereas, pursuant to Act 3846 as amended and Executive Order 205 granting the National
Telecommunications Commission the authority to set down rules and regulations in order to
protect the public and promote the general welfare, the National Telecommunications
Commission hereby promulgates the following rules and regulations on Cable Television
Systems;

The policy of the Memorandum Circular is to carry improved signals in remote areas for the
good of the general public and to promote dissemination of information. In line with this policy,
it is clear that DTH television should be deemed covered by the Memorandum Circular.
Notwithstanding the different technologies employed, both DTH and cable television have the
ability to carry improved signals and promote dissemination of information because they
operate and function in the same way.

In its December 20, 2002 letter,50 the NTC explained that both DTH and cable television
services are of a similar nature, the only difference being the medium of delivering such services.
They can carry broadcast signals to the remote areas and possess the capability to enrich the
lives of the residents thereof through the dissemination of social, economic, educational
information and cultural programs. Consequently, while the Memorandum Circular refers to
cable television, it should be understood as to include DTH television which provides essentially
the same services.

In Eastern Telecommunications Philippines, Inc. v. International Communication

Corporation,51 we held:

The NTC, being the government agency entrusted with the regulation of activities coming under
its special and technical forte, and possessing the necessary rule-making power to implement its
objectives, is in the best position to interpret its own rules, regulations and guidelines. The Court
has consistently yielded and accorded great respect to the interpretation by administrative
agencies of their own rules unless there is an error of law, abuse of power, lack of jurisdiction or
grave abuse of discretion clearly conflicting with the letter and spirit of the law.52

With regard to the issue of the constitutionality of the must-carry rule, the Court finds that its
resolution is not necessary in the disposition of the instant case. One of the essential requisites
for a successful judicial inquiry into constitutional questions is that the resolution of the
constitutional question must be necessary in deciding the case.53 In Spouses Mirasol v. Court of
Appeals,54 we held:

As a rule, the courts will not resolve the constitutionality of a law, if the controversy can be
settled on other grounds. The policy of the courts is to avoid ruling on constitutional questions
and to presume that the acts of the political departments are valid, absent a clear and
unmistakable showing to the contrary. To doubt is to sustain. This presumption is based on the
doctrine of separation of powers. This means that the measure had first been carefully studied
by the legislative and executive departments and found to be in accord with the Constitution
before it was finally enacted and approved.55

The instant case was instituted for violation of the IP Code and infringement of ABS-CBN’s
broadcasting rights and copyright, which can be resolved without going into the
constitutionality of Memorandum Circular No. 04-08-88. As held by the Court of Appeals, the
only relevance of the circular in this case is whether or not compliance therewith should be
considered manifestation of lack of intent to commit infringement, and if it is, whether such lack
of intent is a valid defense against the complaint of petitioner.56

The records show that petitioner assailed the constitutionality of Memorandum Circular No. 04-
08-88 by way of a collateral attack before the Court of Appeals. In Philippine National Bank v.
Palma,57 we ruled that for reasons of public policy, the constitutionality of a law cannot be
collaterally attacked. A law is deemed valid unless declared null and void by a competent court;
more so when the issue has not been duly pleaded in the trial court.58

As a general rule, the question of constitutionality must be raised at the earliest opportunity so
that if not raised in the pleadings, ordinarily it may not be raised in the trial, and if not raised in
the trial court, it will not be considered on appeal.59 In Philippine Veterans Bank v. Court of
Appeals,60 we held:

We decline to rule on the issue of constitutionality as all the requisites for the exercise of judicial
review are not present herein. Specifically, the question of constitutionality will not be passed
upon by the Court unless, at the first opportunity, it is properly raised and presented in an
appropriate case, adequately argued, and is necessary to a determination of the case,
particularly where the issue of constitutionality is the very lis mota presented.x x x61
Finally, we find that the dismissal of the petition for contempt filed by ABS-CBN is in order.

Indirect contempt may either be initiated (1) motu proprio by the court by issuing an order or
any other formal charge requiring the respondent to show cause why he should not be punished
for contempt or (2) by the filing of a verified petition, complying with the requirements for filing
initiatory pleadings.62

ABS-CBN filed a verified petition before the Court of Appeals, which was docketed CA G.R. SP
No. 90762, for PMSI’s alleged disobedience to the Resolution and Temporary Restraining
Order, both dated July 18, 2005, issued in CA-G.R. SP No. 88092. However, after the cases were
consolidated, the Court of Appeals did not require PMSI to comment on the petition for
contempt. It ruled on the merits of CA-G.R. SP No. 88092 and ordered the dismissal of both
petitions.

ABS-CBN argues that the Court of Appeals erred in dismissing the petition for contempt without
having ordered respondents to comment on the same. Consequently, it would have us reinstate
CA-G.R. No. 90762 and order respondents to show cause why they should not be held in
contempt.

It bears stressing that the proceedings for punishment of indirect contempt are criminal in
nature. The modes of procedure and rules of evidence adopted in contempt proceedings are
similar in nature to those used in criminal prosecutions. 63 While it may be argued that the
Court of Appeals should have ordered respondents to comment, the issue has been rendered
moot in light of our ruling on the merits. To order respondents to comment and have the Court
of Appeals conduct a hearing on the contempt charge when the main case has already been
disposed of in favor of PMSI would be circuitous. Where the issues have become moot, there is
no justiciable controversy, thereby rendering the resolution of the same of no practical use or
value.64

WHEREFORE, the petition is DENIED. The July 12, 2006 Decision of the Court of Appeals in
CA-G.R. SP Nos. 88092 and 90762, sustaining the findings of the Director-General of the
Intellectual Property Office and dismissing the petitions filed by ABS-CBN Broadcasting
Corporation, and the December 11, 2006 Resolution denying the motion for reconsideration, are
AFFIRMED.

SO ORDERED.
G.R. No. 202423 January 28, 2013

CHESTER UYCO, WINSTON UYCHIYONG, and CHERRY C. UYCO-ONG,

Petitioners,
vs.
VICENTE LO, Respondent.

RESOLUTION

BRION, J.:

We resolve the motion for reconsideration1 dated October 22, 2012 filed by petitioners Chester
Uyco, Winston Uychiyong and Cherry C. Uyco-Ong to set aside the Resolution2 dated
September 12, 2012 of this Court, which affirmed the decision3 dated March 9, 2012 and the
resolution4 dated June 21, 2012 of the Court of Appeals (CA) in CA-G.R. SP No. 111964. The CA
affirmed the resolution5 dated September 1, 2008 of the Department of Justice (DOJ). Both the
CA and the DOJ found probable cause to charge the petitioners with false designation of origin,
in violation of Section 169.1, in relation with Section 170, of Republic Act No. (RA) 8293,
otherwise known as the "Intellectual Property Code of the Philippines."6

The disputed marks in this case are the "HIPOLITO & SEA HORSE & TRIANGULAR DEVICE,"
"FAMA," and other related marks, service marks and trade names of Casa Hipolito S.A. Portugal
appearing in kerosene burners. Respondent Vicente Lo and Philippine Burners Manufacturing
Corporation (PBMC) filed a complaint against the officers of Wintrade Industrial
SalesCorporation (Wintrade), including petitioners Chester Uyco, Winston Uychiyong and
Cherry Uyco-Ong, and of National Hardware, including Mario Sy Chua, for violation of Section
169.1, in relation to Section 170, of RA 8293.

Lo claimed in his complaint that Gasirel-Industria de Comercio e Componentes para Gass, Lda.
(Gasirel), the owner of the disputed marks, executed a deed of assignment transferring these
marks in his favor, to be used in all countries except for those in Europe and America.7 In a test
buy, Lo purchased from National Hardware kerosene burners with the subject marks and the
designations "Made in Portugal" and "Original Portugal" in the wrappers. These products were
manufactured by Wintrade. Lo claimed that as the assignee for the trademarks, he had not
authorized Wintrade to use these marks, nor had Casa Hipolito S.A. Portugal. While a prior
authority was given to Wintrade’s predecessor-in-interest, Wonder Project & Development
Corporation (Wonder), Casa Hipolito S.A. Portugal had already revoked this authority through a
letter of cancellation dated May 31, 1993.8 The kerosene burners manufactured by Wintrade
have caused confusion, mistake and deception on the part of the buying public. Lo stated that
the real and genuine burners are those manufactured by its agent, PBMC.

In their Answer, the petitioners stated that they are the officers of Wintrade which owns the
subject trademarks and their variants. To prove this assertion, they submitted as evidence the
certificates of registration with the Intellectual Property Office. They alleged that Gasirel, not Lo,
was the real party-in-interest. They allegedly derived their authority to use the marks from Casa
Hipolito S.A. Portugal through Wonder, their predecessor-in-interest. Moreover, PBMC had
already ceased to be a corporation and, thus, the licensing agreement between PBMC and Lo
could not be given effect, particularly because the agreement was not notarized and did not
contain the provisions required by Section 87 of RA 8293. The petitioners pointed out that Lo
failed to sufficiently prove that the burners bought from National Hardware were those that they
manufactured. But at the same time, they also argued that the marks "Made in Portugal" and
"Original Portugal" are merely descriptive and refer to the source of the design and the history of
manufacture.

In a separate Answer, Chua admitted that he had dealt with Wintrade for several years and had
sold its products. He had not been aware that Wintrade had lost the authority to manufacture,
distribute, and deal with products containing the subject marks, and he was never informed of
Wintrade’s loss of authority. Thus, he could have not been part of any conspiracy.

After the preliminary investigation, the Chief State Prosecutor found probable cause to indict
the petitioners for violation of Section 169.1, in relation with Section 170, of RA 8293. This law
punishes any person who uses in commerce any false designation of origin which is likely to
cause confusion or mistake as to the origin of the product. The law seeks to protect the public;
thus, even if Lo does not have the legal capacity to sue, the State can still prosecute the
petitioners to prevent damage and prejudice to the public.

On appeal, the DOJ issued a resolution affirming the finding of probable case. It gave credence
to Lo’s assertion that he is the proper assignee of the subject marks. More importantly, it took
note of the petitioners’ admission that they used the words "Made in Portugal" when in fact,
these products were made in the Philippines. Had they intended to refer to the source of the
design or the history of the manufacture, they should have explicitly said so in their packaging.
It then concluded that the petitioners’ defenses would be better ventilated during the trial and
that the admissions of the petitioners make up a sufficient basis for probable cause.

The CA found no grave abuse of discretion on the part of the DOJ and affirmed the DOJ’s ruling.

When the petitioners filed their petition before us, we denied the petition for failure to
sufficiently show any reversible error in the assailed judgment to warrant the exercise of the
Court’s discretionary power.

We find no reversible error on the part of the CA and the DOJ to merit reconsideration. The
petitioners reiterate their argument that the products bought during the test buy bearing the
trademarks in question were not manufactured by, or in any way connected with, the petitioners
and/or Wintrade. They also allege that the words "Made in Portugal" and "Original Portugal"
refer to the origin of the design and not to the origin of the goods.

The petitioners again try to convince the Court that they have not manufactured the products
bearing the marks "Made in Portugal" and "Original Portugal" that were bought during the test
buy. However, their own admission and the statement given by Chua bear considerable weight.

The admission in the petitioners’ Joint Affidavit is not in any way hypothetical, as they would
have us believe. They narrate incidents that have happened. They refer to Wintrade’s former
association with Casa Hipolito S.A. Portugal; to their decision to produce the burners in the
Philippines; to their use of the disputed marks; and to their justification for their use. It reads as
follows:

24. As earlier mentioned, the predecessor-in-interest of Wintrade was the former exclusive
licensee of Casa Hipolito SA of Portugal since the 1970’s, and that Wintrade purchased all the
rights on the said trademarks prior to the closure of said company. Indeed, the burners sold by
Wintrade used to be imported from Portugal, but Wintrade later on discovered the possibility of
obtaining these burners from other sources or of manufacturing the same in the Philippines.
Wintrade’s decision to procure these burners from sources other than Portugal is certainly its
management prerogative. The presence of the words "made in Portugal" and "original Portugal"
on the wrappings of the burners and on the burners themselves which are manufactured by
Wintrade is an allusion to the fact that the origin of the design of said burners can be traced back
to Casa Hipolito SA of Portugal, and that the history of the manufacture of said burners are
rooted in Portugal. These words were not intended to deceive or cause mistake and confusion in
the minds of the buying public.9

Chua, the owner of National Hardware — the place where the test buy was conducted — admits
that Wintrade has been furnishing it with kerosene burners with the markings "Made in
Portugal" for the past 20 years, to wit:

5. I hereby manifests (sic) that I had been dealing with Wintrade Industrial Sales Corporation
(WINTRADE for brevity) for around 20 years now by buying products from it. I am not however
aware that WINTRADE was no longer authorized to deal, distribute or sell kerosene burner
bearing the mark HIPOLITO and SEA HORSE Device, with markings "Made in Portugal" on the
wrapper as I was never informed of such by WINTRADE nor was ever made aware of any
notices posted in the newspapers informing me of such fact. Had I been informed, I would have
surely stopped dealing with WINTRADE.101âwphi1

Thus, the evidence shows that petitioners, who are officers of Wintrade, placed the words "Made
in Portugal" and "Original Portugal" with the disputed marks knowing fully well — because of
their previous dealings with the Portuguese company — that these were the marks used in the
products of Casa Hipolito S.A. Portugal. More importantly, the products that Wintrade sold
were admittedly produced in the Philippines, with no authority from Casa Hipolito S.A.
Portugal. The law on trademarks and trade names precisely precludes a person from profiting
from the business reputation built by another and from deceiving the public as to the origins of
products. These facts support the consistent findings of the State Prosecutor, the DOJ and the
CA that probable cause exists to charge the petitioners with false designation of origin. The fact
that the evidence did not come from Lo, but had been given by the petitioners, is of no
significance.

The argument that the words "Made in Portugal" and "Original Portugal" refer to the origin of
the design and not to the origin of the goods does not negate the finding of probable cause; at
the same time, it is an argument that the petitioners are not barred by this Resolution from
raising as a defense during the hearing of the case.

WHEREFORE, premises considered, we hereby DENY the motion for reconsideration for lack of
merit.

SO ORDERED.
G.R. No. 188526 November 11, 2013

CENTURY CHINESE MEDICINE CO., MING SENG CHINESE DRUGSTORE, XIANG

JIAN CHINESE DRUG STORE, TEK SAN CHINESE DRUG STORE, SIM SIM
CHINESE DRUG STORE, BAN SHIONG TAY CHINESE DRUG STORE and/or
WILCENDO TAN MENDEZ, SHUANG YING CHINESE DRUGSTORE, and
BACLARAN CHINESE DRUG STORE, Petitioners,
vs.
PEOPLE OF THE PHILIPPINES and LING NA LAU, Respondents.

DECISION

PERALTA, J.:

Before us is a petition for review on certiorari which seeks to reverse and set aside the Decision1
dated March 31, 2009 of the Court of Appeals in CA-G.R. CV No. 88952 and the Resolution2
dated July 2, 2009, which denied reconsideration thereof. The CA reversed the Order3 dated
September 25, 2006 of the Regional Trial Court (RTC), Branch 143, Makati City, quashing
Search Warrants Nos. 05-030, 05-033, 05-038, 05-022, 05-023, 05-025, 05-042 and 05-043,
and the Order4 dated March 7, 2007 denying reconsideration thereof.

The antecedent facts are as follows:

Respondent Ling Na Lau, doing business under the name and style Worldwide Pharmacy,5 is
the sole distributor and registered trademark owner of TOP GEL T.G. & DEVICE OF A LEAF
papaya whitening soap as shown by Certificate of Registration 4-2000-009881 issued to her by
the Intellectual Property Office (IPO) for a period of ten years from August 24, 2003.6 On
November 7, 2005, her representative, Ping Na Lau, (Ping) wrote a letter7 addressed to National
Bureau of Investigation (NBI) Director Reynaldo Wycoco, through Atty. Jose Justo Yap and
Agent Joseph G. Furing (Agent Furing), requesting assistance for an investigation on several
drugstores which were selling counterfeit whitening papaya soaps bearing the general
appearance of their products.

Agent Furing was assigned to the case and he executed an affidavit8 stating that: he conducted
his own investigation, and on November 9 and 10, 2005, he, together with Junayd Esmael
(Esmael), were able to buy whitening soaps bearing the trademark "TOP-GEL", "T.G." &
"DEVICE OF A LEAF" with corresponding receipts from a list of drugstores which included
herein petitioners Century Chinese Medicine Co., Min Seng Chinese Drugstore, Xiang Jiang
Chinese Drug Store, Tek San Chinese Drug Store, Sim Sim Chinese Drug Store, Ban Shiong Tay
Drugstore, Shuang Ying Chinese Drugstore, and Baclaran Chinese Drug Store; while conducting
the investigation and test buys, he was able to confirm Ping's complaint to be true as he
personally saw commercial quantities of whitening soap bearing the said trademarks being
displayed and offered for sale at the said drugstores; he and Esmael took the purchased items to
the NBI, and Ping, as the authorized representative and expert of Worldwide Pharmacy in
determining counterfeit and unauthorized reproductions of its products, personally examined
the purchased samples, and issued a Certification9 dated November 18, 2005 wherein he
confirmed that, indeed, the whitening soaps bearing the trademarks "TOP-GEL", "T.G." &
"DEVICE OF A LEAF" from the subject drugstores were counterfeit.

Esmael also executed an affidavit10 corroborating Agent Furing's statement. Ping's affidavit11
stated that upon his personal examination of the whitening soaps purchased from petitioners
bearing the subject trademark, he found that the whitening soaps were different from the
genuine quality of their original whitening soaps with the trademarks "TOP-GEL", "T.G." &
"DEVICE OF A LEAF" and certified that they were all counterfeit.

On November 21, 2005, Agent Furing applied for the issuance of search warrants before the
Regional Trial Court (RTC), Branch 143, Makati City, against petitioners and other
establishments for violations of Sections 168 and 155, both in relation to Section 170 of Republic
Act (RA) No. 8293, otherwise known as the Intellectual Property Code of the Philippines.
Section 168, in relation to Section 170, penalizes unfair competition; while Section 155, in
relation to Section 170, punishes trademark infringement.

On November 23, 2005, after conducting searching questions upon Agent Furing and his
witnesses, the RTC granted the applications and issued Search Warrants Nos. 05-030, 05-033,
and 05-038 for unfair competition and Search Warrants Nos. 05-022, 05-023, 05-025, 05-042
and 05-043 for trademark infringement against petitioners.

On December 5, 2005, Agent Furing filed his Consolidated Return of Search Warrants.12

On December 8, 2005, petitioners collectively filed their Motion to Quash13 the Search
Warrants contending that their issuances violated the rule against forum shopping; that
Benjamin Yu (Yu) is the sole owner and distributor of the product known as "TOP-GEL"; and
there was a prejudicial question posed in Civil Case No. 05-54747 entitled Zenna Chemical
Industry v. Ling Na Lau, et al., pending in Branch 93 of the RTC of Quezon City, which is a case
filed by Yu against respondent for damages due to infringement of trademark/tradename, unfair
competition with prayer for the immediate issuance of a temporary restraining order and/or
preliminary prohibitory injunction.

On January 9, 2006, respondent filed her Comment/Opposition14 thereto arguing the non-
existence of forum shopping; that Yu is not a party- respondent in these cases and the pendency
of the civil case filed by him is immaterial and irrelevant; and that Yu cannot be considered the
sole owner and distributor of "TOP GEL T.G. & DEVICE OF A LEAF." The motion was then
submitted for resolution in an Order dated January 30, 2006. During the pendency of the case,
respondent, on April 20, 2006, filed a Submission15 in relation to the Motion to Quash
attaching an Order16 dated March 21, 2006 of the IPO in IPV Case No. 10-2005-00001 filed by
respondent against Yu, doing business under the name and style of MCA Manufacturing and
Heidi S. Cua, proprietor of South Ocean Chinese Drug Stores for trademark infringement
and/or unfair competition and damages with prayer for preliminary injunction. The Order
approved therein the parties' Joint Motion To Approve Compromise Agreement filed on March
8, 2006. We quote in its entirety the Order as follows:

The Compromise Agreement between the herein complainant and respondents provides as
follows:

1. Respondents acknowledge the exclusive right of Complainant over the trademark TOP GEL
T.G. & DEVICE OF A LEAF for use on papaya whitening soap as registered under Registration
No. 4-2000-009881 issued on August 24, 2003.

2. Respondents acknowledge the appointment by Zenna Chemical Industry Co., Ltd. of

Complainant as the exclusive Philippine distributor of its products under the tradename and
trademark TOP GEL MCA & MCA DEVICE (A SQUARE DEVICE CONSISTING OF A STYLIZED
REPRESENTATION OF A LETTER "M" ISSUED " OVER THE LETTER "CA") as registered
under Registration No. 4-1996-109957 issued on November 17, 2000, as well as the assignment
by Zenna Chemical Industry Co., Ltd. to Complainant of said mark for use on papaya whitening
soap.

3. Respondents admit having used the tradename and trademark aforesaid but after having
realized that Complainant is the legitimate assignee of TOP GEL MCA & MCA DEVICE and the
registered owner of TOP GEL T.G. & DEVICE OF A LEAF, now undertake to voluntarily cease
and desist from using the aforesaid tradename and trademark and further undertake not to
manufacture, sell, distribute, and otherwise compete with Complainant, now and at anytime in
the future, any papaya whitening soap using or bearing a mark or name identical or confusingly
similar to, or constituting a colorable imitation of, the tradename and trademark TOP GEL MCA
& MCA DEVICE and/or TOP GEL T.G. & DEVICE OF A LEAF as registered and described
above.

4. Respondents further undertake to withdraw and/or dismiss their counterclaim and petition to
cancel and/or revoke Registration No. 4-2000-009881 issued to Complainant. Respondents
also further undertake to pull out within 45 days from approval of the Compromise Agreement
all their products bearing a mark or name identical or confusingly similar to, or constituting a
colorable imitation of, the tradename and trademark TOP GEL MCA & MCA DEVICE and/or
TOP GEL T.G. & DEVICE OF A LEAF, from the market nationwide.

5. Respondents finally agree and undertake to pay Complainant liquidated damages in the
amount of FIVE HUNDRED THOUSAND (Php500,000.00) PESOS for every breach or
violation of any of the foregoing undertakings which complainant may enforce by securing a writ
of execution from this Office, under this case.

6. Complainant, on the other hand, agrees to waive all her claim for damages against
Respondents as alleged in her complaint filed in the Intellectual Property Office only.

7. The Parties hereby agree to submit this Compromise Agreement for Approval of this Office
and pray for issuance of a decision on the basis thereof.

Finding the Compromise Agreement to have been duly executed and signed by the parties
and/or their representatives/counsels and the terms and conditions thereof to be in conformity
with the law, morals, good customs, public order and public policy, the same is hereby
APPROVED. Accordingly, the above-entitled case is DISMISSED as all issues raised concerning
herein parties have been rendered MOOT AND ACADEMIC.

SO ORDERED.17

On September 25, 2006, the RTC issued its Order18 sustaining the Motion to Quash the Search
Warrants, the dispositive portion of which reads as follows:

WHEREFORE, finding that the issuance of the questioned search warrants were not supported
by probable cause, the Motion to Quash is GRANTED. Search warrants nos. 05-030, 05-033,
05-038, 05-022, 05-023, 05-025, 05-042, 05-043 are ordered lifted and recalled.

The NBI Officers who effected the search warrants are hereby ordered to return the seized items
to herein respondents within ten (10) days from receipt of this Order.

So Ordered.19
In quashing the search warrants, the RTC applied the Rules on Search and Seizure for Civil
Action in Infringement of Intellectual Property Rights.20 It found the existence of a prejudicial
question which was pending before Branch 93 of RTC Quezon City, docketed as Civil Case No.
05-54747, on the determination as to who between respondent and Yu is the rightful holder of
the intellectual property right over the trademark TOP GEL T.G. & DEVICE OF A LEAF; and
there was also a case for trademark infringement and/or unfair competition filed by respondent
against Yu before the IPO which was pending at the time of the application for the search
warrants. It is clear, therefore, that at the time of the filing of the application for the search
warrants, there is yet no determination of the alleged right of respondent over the subject
trademark/tradename. Also, the RTC found that petitioners relied heavily on Yu's
representation that he is the sole owner/distributor of the Top Gel whitening soap, as the latter
even presented Registration No. 4-1996-109957 from the IPO for a term of 20 years from
November 17, 2000 covering the same product. There too was the notarized certification from
Zenna Chemical Industry of Taiwan, owner of Top Gel MCA, with the caveat that the sale,
production or representation of any imitated products under its trademark and tradename shall
be dealt with appropriate legal action.

The RTC further said 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 the one already issued. In this case, respondent failed to prove the existence of probable
cause, which warranted the quashal of the questioned search warrants.

On November 13, 2006, respondent filed an Urgent Motion to Hold in Abeyance the Release of
Seized Evidence.21

Respondent filed a motion for reconsideration, which the RTC denied in its Order22 dated
March 7, 2007.

Respondent then filed her appeal with the CA. After respondent filed her appellant's brief and
petitioners their appellee's brief, the case was submitted for decision.

On March 31, 2009, the CA rendered its assailed Decision, the dispositive portion of which
reads:

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us

GRANTING the appeal filed in this case and SETTING ASIDE the Order dated March 7, 2007
issued by Branch 143 of the Regional Trial Court of the National Capital Judicial Region
stationed in Makati City in the case involving Search Warrants Nos. 05-030, 05-033, 05-038,
05-022, 05-023, 05-025, 05-042, 05-043.23

In reversing the RTC's quashal of the search warrants, the CA found that the search warrants
were applied for and issued for violations of Sections 155 and 168, in relation to Section 170, of
the Intellectual Property Code and that the applications for the search warrants were in
anticipation of criminal actions which are to be instituted against petitioners; thus, Rule 126 of
the Rules of Criminal Procedure was applicable. It also ruled that the basis for the applications
for issuance of the search warrants on grounds of trademarks infringement and unfair
competition was the trademark TOP GEL T.G. & DEVICE OF A LEAF; that respondent was the
registered owner of the said trademark, which gave her the right to enforce and protect her
intellectual property rights over it by seeking assistance from the NBI.
The CA did not agree with the RTC that there existed a prejudicial question, since Civil Case No.
05-54747 was already dismissed on June 10, 2005, i.e., long before the search warrants subject
of this appeal were applied for; and that Yu's motion for reconsideration was denied on
September 15, 2005 with no appeal having been filed thereon as evidenced by the Certificate of
Finality issued by the said court.

Petitioners' motion for reconsideration was denied by the CA in a Resolution dated July 2, 2009.
Hence, this petition filed by petitioners raising the issue that:

(A) THE COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION IN
REVERSING THE FINDINGS OF THE REGIONAL TRIAL COURT AND HELD THAT THE
LATTER APPLIED THE RULES ON SEARCH AND SEIZURE IN CIVIL ACTIONS FOR
INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS.24

(B) THE COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION WHEN IT
BASED ITS RULING ON THE ARGUMENT WHICH WAS BROUGHT UP FOR THE FIRST
TIME IN RESPONDENT LING NA LAU'S APPELLANT'S BRIEF.25

Petitioners contend that the products seized from their respective stores cannot be the subject of
the search warrants and seizure as those Top Gel products are not fruits of any crime, infringed
product nor intended to be used in any crime; that they are legitimate distributors who are
authorized to sell the same, since those genuine top gel products bore the original
trademark/tradename of TOP GEL MCA, owned and distributed by Yu. Petitioners also claim
that despite the RTC's order to release the seized TOP GEL products, not one had been returned;
that one or two samples from each petitioner’s' drugstore would have sufficed in case there is a
need to present them in a criminal prosecution, and that confiscation of thousands of these
products was an overkill.

Petitioners also argue that the issue that the RTC erred in applying the rules on search and
seizure in anticipation of a civil action was never raised in the RTC.

The issue for resolution is whether or not the CA erred in reversing the RTC's quashal of the
assailed search warrants.

We find no merit in the petition.

The applications for the issuance of the assailed search warrants were for violations of Sections
155 and 168, both in relation to Section 170 of Republic Act (RA) No. 8293, otherwise known as
the Intellectual Property Code of the Philippines. Section 155, in relation to Section 170,
punishes trademark infringement; while Section 168, in relation to Section 170, penalizes unfair
competition, to wit:

Sec 155. 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
While

Sec. 168. Unfair Competition, Rights, Regulation and Remedies. –

xxxx

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 like purpose;

And

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 (₱50,000.00) to Two hundred thousand pesos (₱200,000.00) 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 Subsection 169.1 [False Designation
of Origin and False Description or Representation].

Thus, we agree with the CA that A.M. No. 02-1-06-SC, which provides for the Rules on the
Issuance of the Search and Seizure in Civil Actions for Infringement of Intellectual Property
Rights, is not applicable in this case as the search warrants were not applied based thereon, but
in anticipation of criminal actions for violation of intellectual property rights under RA 8293. It
was established that respondent had asked the NBI for assistance to conduct investigation and
search warrant implementation for possible apprehension of several drugstore owners selling
imitation or counterfeit TOP GEL T.G. & DEVICE OF A LEAF papaya whitening soap. Also, in
his affidavit to support his application for the issuance of the search warrants, NBI Agent Furing
stated that "the items to be seized will be used as relevant evidence in the criminal actions that
are likely to be instituted." Hence, Rule 126 of the Rules of Criminal Procedure applies.

Rule 126 of the Revised Rules of Court, which governs the issuance of the assailed Search
Warrants, provides, to wit:

SEC. 3. Personal property to be seized. - 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.

SEC. 4. Requisites for issuing search warrant. - A search warrant shall not issue except 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 which
may be anywhere in the Philippines.

SEC. 5. Examination of complainant; record. - 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 the witnesses he may produce on facts personally known to them and
attach to the record their sworn statements together with the affidavits submitted.

A core requisite before a warrant shall validly issue is the existence of a probable cause, meaning
"the existence of such facts and circumstances which would lead a reasonably discreet and
prudent man to believe that an offense has been committed and that the objects sought in
connection with the offense are in the place to be searched."26 And when the law speaks of facts,
the reference is to facts, data or information personally known to the applicant and the
witnesses he may present. Absent the element of personal knowledge by the applicant or his
witnesses of the facts upon which the issuance of a search warrant may be justified, the warrant
is deemed not based on probable cause and is a nullity, its issuance being, in legal
contemplation, arbitrary.27 The determination of probable cause does not call for the
application of rules and standards of proof that a judgment of conviction requires after trial on
the merits.28 As implied by the words themselves, "probable cause" is concerned with
probability, not absolute or even moral certainty. The prosecution need not present at this stage
proof beyond reasonable doubt. The standards of judgment are those of a reasonably prudent
man,29 not the exacting calibrations of a judge after a full-blown trial.30

The RTC quashed the search warrants, saying that (1) there exists a prejudicial question pending
before Branch 93 of the RTC of Quezon City, docketed as Civil Case No. 05-54747, i.e., the
determination as to who between respondent and Yu is the rightful holder of the intellectual
property right over the trademark TOP GEL T.G. & DEVICE OF A LEAF; and there was also a
case for trademark infringement and/or unfair competition filed by respondent against Yu
pending before the IPO, docketed as IPV Case No. 10-2005-00001; and (2) Yu's representation
that he is the sole distributor of the Top Gel whitening soap, as the latter even presented
Registration No. 4-1996-109957 issued by the IPO to Zenna Chemical Industry as the registered
owner of the trademark TOP GEL MCA & DEVICE MCA for a term of 20 years from November
17, 2000 covering the same product.

We do not agree. We affirm the CA's reversal of the RTC Order quashing the search warrants.

The affidavits of NBI Agent Furing and his witnesses, Esmael and Ling, clearly showed that they
are seeking protection for the trademark "TOP GEL T.G. and DEVICE OF A LEAF" registered to
respondent under Certificate of Registration 4-2000-009881 issued by the IPO on August 24,
2003, and no other. While petitioners claim that the product they are distributing was owned by
Yu with the trademark TOP GEL MCA and MCA DEVISE under Certificate of Registration 4-
1996-109957, it was different from the trademark TOP GEL T.G. and DEVICE OF A LEAF
subject of the application. We agree with the CA's finding in this wise:

x x x It bears stressing that the basis for the applications for issuances of the search warrants on
grounds of trademark infringement and unfair competition is the trademark TOP GEL T.G. &
DEVICE OF A LEAF. Private complainant-appellant was issued a Certificate of Registration No.
4-2000-009881 of said trademark on August 24, 2003 by the Intellectual Property Office, and is
thus considered the lawful holder of the said trademark. Being the registrant and the holder of
the same, private complainant-appellant had the authority to enforce and protect her
intellectual property rights over it. This prompted her to request for assistance from the agents
of the NBI, who thereafter conducted a series of investigation, test buys and inspection
regarding the alleged trademark infringement by herein respondents-appellees. Subsequently,
Ping Na Lau, private complainant-appellant’s representative, issued a certification with the
finding that the examined goods were counterfeit. This prompted the NBI agents to apply for the
issuances of search warrants against the respondents-appellees. Said applications for the search
warrants were granted after by Judge Laguilles after examining under oath the applicant Agent
Furing of the NBI and his witnesses Ping Na Lau and Junayd R. Ismael.

Based on the foregoing, it is clear that the requisites for the issuance of the search warrants had
been complied with and that there is probable cause to believe that an offense had been
committed and that the objects sought in connection with the offense were in the places to be
searched. The offense pertains to the alleged violations committed by respondents-appellees
upon the intellectual property rights of herein private complainant-appellant, as holder of the
trademark TOP GEL T.G. & DEVICE OF A LEAF under Certificate of Registration No. 4-2000-
009881, issued on August 24, 2003 by the Intellectual Property Office.31

Notably, at the time the applications for the issuance of the search warrants were filed on
November 21, 2005, as the CA correctly found, Civil Case No. Q-05-54747, which the RTC found
to be where a prejudicial question was raised, was already dismissed on June 10, 2005,32
because of the pendency of a case involving the same issues and parties before the IPO. Yu's
motion for reconsideration was denied in an Order33 dated September 15, 2005. In fact, a
Certificate of Finality34 was issued by the RTC on January 4, 2007.

Moreover, the IPO case for trademark infringement and unfair competition and damages with
prayer for preliminary injunction filed by respondent against Yu and Heidi Cua, docketed as IPV
Case No. 10-2005-00001, would not also be a basis for quashing the warrants.1avvphi1 In fact,
prior to the applications for the issuance of the assailed search warrants on November 21, 2005,
the IPO had issued an Order35 dated October 20, 2005 granting a writ of preliminary injunction
against Yu and Cua, the dispositive portion of which reads:

WHEREFORE, the WRIT OF PRELIMINARY INJUNCTION is hereby issued against

Respondent, Benjamin Yu, doing business under the name and style of MCA Manufacturing and
Heidi S. Cua, Proprietor of South Ocean Chinese Drug Store, and their agents, representatives,
dealers and distributors and all persons acting in their behalf, to cease and desist using the
trademark "TOP GEL T.G. & DEVICE OF A LEAF" or any colorable imitation thereof on Papaya
whitening soaps they manufacture, sell, and/or offer for sale, and otherwise, from packing their
Papaya Whitening Soaps in boxes with the same general appearance as those of complainant's
boxes within a period of NINETY (90) DAYS, effective upon the receipt of respondent of the
copy of the COMPLIANCE filed with this Office by the Complainant stating that it has posted a
CASH BOND in the amount of ONE HUNDRED THOUSAND PESOS (Php100,000.00) together
with the corresponding Official Receipt Number and date thereof. Consequently, complainant is
directed to inform this Office of actual date of receipt by Respondent of the aforementioned
COMPLIANCE.36

To inform the public of the issuance of the writ of preliminary injunction, respondent's counsel
had the dispositive portion of the Order published in The Philippine Star newspaper on October
30, 2005.37 Thus, it was clearly stated that Yu, doing business under the name and style of MCA
Manufacturing, his agents, representatives, dealers and distributors and all persons acting in his
behalf, were to cease and desist from using the trademark "TOP GEL & DEVICE OF A LEAF" or
any colorable imitation thereof on Papaya Whitening soaps they manufacture, sell and/or offer
for sale. Petitioners, who admitted having derived their TOP GEL products from Yu, are,
therefore, notified of such injunction and were enjoined from selling the same.

Notwithstanding, at the time of the application of the search warrants on November 21, 2005,
and while the injunction was in effect, petitioners were still selling the alleged counterfeit
products bearing the trademark TOP GEL T.G. & DEVICE OF A LEAF. There exists a probable
cause for violation of respondent's intellectual property rights, which entitles her as the
registered owner of the trademark TOP GEL and DEVICE OF A LEAF to be protected by the
issuance of the search warrants.

More importantly, during the pendency of petitioners' motion to quash in the RTC, respondent
submitted the Order dated March 8, 2006 of the IPO in IPV Case No. 10-2005-00001, where the
writ of preliminary injunction was earlier issued, approving the compromise agreement entered
into by respondent with Yu and Cua where it was stated, among others, that:

1. Respondents acknowledge the exclusive right of Complainant over the trademark TOP GEL
T.G. & DEVICE OF A LEAF for use on papaya whitening soap as registered under Registration
No. 4-2000-009881 issued on August 24, 2003.

2. Respondents acknowledge the appointment by Zenna Chemical Industry Co., Ltd. of

Complainant as the exclusive Philippine distributor of its products under the tradename and
trademark TOP GEL MCA & MCA DEVICE (A SQUARE DEVICE CONSISTING OF A STYLIZED
REPRESENTATION OF A LETTER "M" OVER THE LETTER "CA") as registered under
Registration No 4-1996-109957 issued on November 17, 2000, as well as the assignment by
Zenna Chemical Industry Co., Ltd. to Complainant of said mark for use on papaya whitening
soap.

3. Respondents admit having used the tradename and trademark aforesaid, but after having
realized that Complainant is the legitimate assignee of TOP GEL MCA & MCA DEVICE and the
registered owner of TOP GEL T.G. & DEVICE OF A LEAF, now undertake to voluntarily cease
and desist from using the aforesaid tradename and trademark, and further undertake not to
manufacture, sell and distribute and otherwise compete with complainant, now and at anytime
in the future, any papaya whitening soap using or bearing a mark or name identical or
confusingly similar to, or constituting a colorable imitation of the tradename and trademark
TOP GEL MCA & MCA DEVICE and/or TOP GEL T.G. & DEVICE OF A LEAF as registered and
described above.38

Hence, it appears that there is no more controversy as to who is the rightful holder of the
trademark TOP GEL T.G. & DEVICE OF A LEAF. Therefore, respondent, as owner of such
registered trademark has the right to the issuance of the search warrants.

Anent petitioners' claim that one or two samples of the Top Gel products from each of them,
instead of confiscating thousands of the products, would have sufficed for the purpose of an
anticipated criminal action, citing our ruling in Summerville General Merchandising Co. v.
Court of Appeals,39 is not meritorious.

We do not agree.
The factual milieu of the two cases are different. In Summerville, the object of the violation of
Summerville's intellectual property rights, as assignee of Royal playing cards and Royal brand
playing cards case, was limited to the design of Summerville's Royal plastic container case which
encased and wrapped the Crown brand playing cards. In the application for the search warrant
which the RTC subsequently issued, one of the items to be seized were the Crown brand playing
cards using the copyright plastic and Joker of Royal brand. Thus, numerous boxes containing
Crown playing cards were seized and upon the RTC's instruction were turned over to
Summerville, subject to the condition that the key to the said warehouse be turned over to the
court sheriff. Respondents moved for the quashal of the search warrant and for the return of the
seized properties. The RTC partially granted the motion by ordering the release of the seized
Crown brand playing cards and the printing machines; thus, only the Royal plastic container
cases of the playing cards were left in the custody of Summerville. The CA sustained the RTC
order. On petition with us, we affirmed the CA. We found therein that the Crown brand playing
cards are not the subject of the offense as they are genuine and the Crown trademark was
registered to therein respondents’ names; that it was the design of the plastic container/case
that is alleged to have been utilized by respondents to deceive the public into believing that the
Crown brand playing cards are the same as those manufactured by Summerville. We then said
that assuming that the Crown playing cards could be considered subject of the offense, a sample
or two are more than enough to retain should there have been a need to examine them along
with the plastic container/case; and that there was no need to hold the hundreds of articles
seized. We said so in the context that since what was in dispute was the design of the Royal
plastic cases/containers of playing cards and not the playing card per se, a small number of
Crown brand playing cards would suffice to examine them with the Royal plastic
cases/containers. And the return of the playing cards would better serve the purposes of justice
and expediency. However, in this case, the object of the violation of respondent's intellectual
property right is the alleged counterfeit TOP GEL T.G. & DEVICE OF A LEAF papaya whitening
soap being sold by petitioners, so there is a need to confiscate all these articles to protect
respondent's right as the registered owner of such trademark.

Petitioners next contend that the CA's ruling on the applicability of Rule 126 of the Rules of
Court that the search warrants were issued in anticipation of a criminal action was only based on
respondent's claim which was only brought for the first time in her appellant's brief.

We are not persuaded.

We find worth quoting respondent's argument addressing this issue in its Comment, thus:

In the assailed Decision, the Court of Appeals found that the Rule correctly applicable to the
subject search warrants was Rule 126 of the Rules of Court. Petitioners fault the appellate court
for ruling that the Regional Trial Court incorrectly applied the Rules on Search and Seizure in
Civil Actions for Infringement of Intellectual Property Rights on the basis of an argument that
private respondent brought up for the first time in her Appellant's Brief.

A cursory perusal of the Appellant's Brief shows that the following issues/errors were raised,
that: (1) the Honorable Trial Court erred in holding that the "Rules on Search and Seizure for
Infringement of Intellectual Property Rights" apply to the search warrants at bar; (2) x x x.

It must be remembered that there was no trial on the merits to speak of in the trial court, and
the matter of the application of the wrong set of Rules only arose in the Order dated 25th
September 2006 which sustained the Motion to Quash. A thorough examination of the
Appellee's Brief filed by petitioners (respondents-appellees in the Court of Appeals) reveals,
however, that petitioners NEVER assailed the first issue/error on the ground that the same was
raised for the first time on appeal. It is only now, after the appellate court rendered a Decision
and Resolution unfavorable to them, that petitioners questioned the alleged procedural error.
Petitioners should now be considered in estoppel to question the same.40

Indeed, perusing the appellee's (herein petitioners) brief filed with the CA, the matter of the
non-applicability of the rules on search and seizure in civil action for infringement of intellectual
property rights was never objected as being raised for the first time. On the contrary, petitioners
had squarely faced respondent's argument in this wise:

Appellant (herein respondent) contends that the rule (SC Adm. Memo 1-06, No. 02-1-06, Rule
on Search and Seizure in Civil Actions for Infringement of Intellectual Property Rights) does
[not] apply to the search warrants in the [case] at bar, for the reason that the search warrants
themselves reveal that the same were applied for and issued for violations of "Section 155 in
relation to Section 170 of RA 8293" and violations of "Section 168 in relation to Section 170 of
RA 8293," and that a perusal of the records would show that there is no mention of a civil action
or anticipation thereof, upon which the search warrants are applied for.

Appellees (herein petitioners) cannot agree with the contention of the appellant.1âwphi1
Complainant NBI Agent Joseph G. Furing, who applied for the search warrants, violated the
very rule on search and seizure for infringement of Intellectual Property Rights. The search
warrants applied for by the complainants cannot be considered a criminal action. There was no
criminal case yet to speak of when complainants applied for issuance of the search warrants.
There is distinction here because the search applied for is civil in nature and no criminal case
had been filed. The complaint is an afterthought after the respondents-appellees filed their
Motion to Quash Search Warrant before the Regional Trial Court of Manila, Branch 24. The
grounds enumerated in the rule must be complied with in order to protect the constitutional
mandate that "no person shall be deprived of life liberty or property without due process of law
nor shall any person be denied the equal protection of the law." Clearly, the application of the
search warrants for violation of unfair competition and infringement is in the nature of a civil
action.41

WHEREFORE, the petition for review is DENIED. The Decision dated March 31, 2009 and the
Resolution dated July 2, 2009 of the Court of Appeals, in CA-G.R. CV No. 88952, are hereby
AFFIRMED.

SO ORDERED.
G.R. No. 154491 November 14, 2008

COCA-COLA BOTTLERS, PHILS., INC. (CCBPI), Naga Plant, petitioner,

vs.
QUINTIN J. GOMEZ, a.k.a. "KIT" GOMEZ and DANILO E. GALICIA, a.k.a. "DANNY
GALICIA", respondents.

DECISION

BRION, J.:

Is the hoarding of a competitor's product containers punishable as unfair competition under the
Intellectual Property Code (IP Code, Republic Act No. 8293) that would entitle the aggrieved
party to a search warrant against the hoarder? This is the issue we grapple with in this petition
for review on certiorari involving two rival multinational softdrink giants; petitioner Coca-Cola
Bottlers, Phils., Inc. (Coca-Cola) accuses Pepsi Cola Products Phils., Inc. (Pepsi), represented by
the respondents, of hoarding empty Coke bottles in bad faith to discredit its business and to
sabotage its operation in Bicolandia.

BACKGROUND

The facts, as culled from the records, are summarized below.

On July 2, 2001, Coca-Cola applied for a search warrant against Pepsi for hoarding Coke empty
bottles in Pepsi's yard in Concepcion Grande, Naga City, an act allegedly penalized as unfair
competition under the IP Code. Coca-Cola claimed that the bottles must be confiscated to
preclude their illegal use, destruction or concealment by the respondents.1 In support of the
application, Coca-Cola submitted the sworn statements of three witnesses: Naga plant
representative Arnel John Ponce said he was informed that one of their plant security guards
had gained access into the Pepsi compound and had seen empty Coke bottles; acting plant
security officer Ylano A. Regaspi said he investigated reports that Pepsi was hoarding large
quantities of Coke bottles by requesting their security guard to enter the Pepsi plant and he was
informed by the security guard that Pepsi hoarded several Coke bottles; security guard Edwin
Lirio stated that he entered Pepsi's yard on July 2, 2001 at 4 p.m. and saw empty Coke bottles
inside Pepsi shells or cases.2

Municipal Trial Court (MTC) Executive Judge Julian C. Ocampo of Naga City, after taking the
joint deposition of the witnesses, issued Search Warrant No. 2001-013 to seize 2,500 Litro and
3,000 eight and 12 ounces empty Coke bottles at Pepsi's Naga yard for violation of Section 168.3
(c) of the IP Code.4 The local police seized and brought to the MTC's custody 2,464 Litro and
4,036 eight and 12 ounces empty Coke bottles, 205 Pepsi shells for Litro, and 168 Pepsi shells
for smaller (eight and 12 ounces) empty Coke bottles, and later filed with the Office of the City
Prosecutor of Naga a complaint against two Pepsi officers for violation of Section 168.3 (c) in
relation to Section 170 of the IP Code.5 The named respondents, also the respondents in this
petition, were Pepsi regional sales manager Danilo E. Galicia (Galicia) and its Naga general
manager Quintin J. Gomez, Jr. (Gomez).

In their counter-affidavits, Galicia and Gomez claimed that the bottles came from various Pepsi
retailers and wholesalers who included them in their return to make up for shortages of empty
Pepsi bottles; they had no way of ascertaining beforehand the return of empty Coke bottles as
they simply received what had been delivered; the presence of the bottles in their yard was not
intentional nor deliberate; Ponce and Regaspi's statements are hearsay as they had no personal
knowledge of the alleged crime; there is no mention in the IP Code of the crime of possession of
empty bottles; and that the ambiguity of the law, which has a penal nature, must be construed
strictly against the State and liberally in their favor. Pepsi security guards Eduardo E. Miral and
Rene Acebuche executed a joint affidavit stating that per their logbook, Lirio did not visit or
enter the plant premises in the afternoon of July 2, 2001.

The respondents also filed motions for the return of their shells and to quash the search
warrant. They contended that no probable cause existed to justify the issuance of the search
warrant; the facts charged do not constitute an offense; and their Naga plant was in urgent need
of the shells.

Coca-Cola opposed the motions as the shells were part of the evidence of the crime, arguing that
Pepsi used the shells in hoarding the bottles. It insisted that the issuance of warrant was based
on probable cause for unfair competition under the IP Code, and that the respondents violated
R.A. 623, the law regulating the use of stamped or marked bottles, boxes, and other similar
containers.

THE MTC RULINGS

On September 19, 2001, the MTC issued the first assailed order6 denying the twin motions. It
explained there was an exhaustive examination of the applicant and its witnesses through
searching questions and that the Pepsi shells are prima facie evidence that the bottles were
placed there by the respondents.

In their motion for reconsideration, the respondents argued for the quashal of the warrant as
the MTC did not conduct a probing and exhaustive examination; the applicant and its witnesses
had no personal knowledge of facts surrounding the hoarding; the court failed to order the
return of the "borrowed" shells; there was no crime involved; the warrant was issued based on
hearsay evidence; and the seizure of the shells was illegal because they were not included in the
warrant.

On November 14, 2001, the MTC denied the motion for reconsideration in the second assailed
order,7 explaining that the issue of whether there was unfair competition can only be resolved
during trial.

The respondents responded by filing a petition for certiorari under Rule 65 of the Revised Rules
of Court before the Regional Trial Court (RTC) of Naga City on the ground that the subject
search warrant was issued without probable cause and that the empty shells were neither
mentioned in the warrant nor the objects of the perceived crime.

THE RTC RULINGS

On May 8, 2002, the RTC voided the warrant for lack of probable cause and the non-
commission of the crime of unfair competition, even as it implied that other laws may have been
violated by the respondents. The RTC, though, found no grave abuse of discretion on the part of
the issuing MTC judge.8 Thus,

Accordingly, as prayed for, Search Warrant No. 2001-02 issued by the Honorable Judge Julian
C. Ocampo III on July 2, 2001 is ANNULLED and SET ASIDE. The Orders issued by the Pairing
Judge of Br. 1, MTCC of Naga City dated September 19, 2001 and November 14, 2001 are also
declared VOID and SET ASIDE. The City Prosecutor of Naga City and SPO1 Ernesto Paredes are
directed to return to the Petitioner the properties seized by virtue of Search Warrant No. 2001-
02. No costs.

SO ORDERED.9

In a motion for reconsideration, which the RTC denied on July 12, 2002, the petitioner stressed
that the decision of the RTC was contradictory because it absolved Judge Ocampo of grave abuse
of discretion in issuing the search warrant, but at the same time nullified the issued warrant.
The MTC should have dismissed the petition when it found out that Judge Ocampo did not
commit any grave abuse of discretion.

Bypassing the Court of Appeals, the petitioner asks us through this petition for review on
certiorari under Rule 45 of the Rules of Court to reverse the decision of the RTC. Essentially, the
petition raises questions against the RTC's nullification of the warrant when it found no grave
abuse of discretion committed by the issuing judge.

THE PETITION and

THE PARTIES' POSITIONS

In its petition, the petitioner insists the RTC should have dismissed the respondents' petition for
certiorari because it found no grave abuse of discretion by the MTC in issuing the search
warrant. The petitioner further argues that the IP Code was enacted into law to remedy various
forms of unfair competition accompanying globalization as well as to replace the inutile
provision of unfair competition under Article 189 of the Revised Penal Code. Section 168.3(c) of
the IP Code does not limit the scope of protection on the particular acts enumerated as it
expands the meaning of unfair competition to include "other acts contrary to good faith of a
nature calculated to discredit the goods, business or services of another." The inherent element
of unfair competition is fraud or deceit, and that hoarding of large quantities of a competitor's
empty bottles is necessarily characterized by bad faith. It claims that its Bicol bottling operation
was prejudiced by the respondents' hoarding and destruction of its empty bottles.

The petitioner also argues that the quashal of the search warrant was improper because it
complied with all the essential requisites of a valid warrant. The empty bottles were concealed in
Pepsi shells to prevent discovery while they were systematically being destroyed to hamper the
petitioner's bottling operation and to undermine the capability of its bottling operations in Bicol.

The respondents counter-argue that although Judge Ocampo conducted his own examination,
he gravely erred and abused his discretion when he ignored the rule on the need of sufficient
evidence to establish probable cause; satisfactory and convincing evidence is essential to hold
them guilty of unfair competition; the hoarding of empty Coke bottles did not cause actual or
probable deception and confusion on the part of the general public; the alleged criminal acts do
not show conduct aimed at deceiving the public; there was no attempt to use the empty bottles
or pass them off as the respondents' goods.

The respondents also argue that the IP Code does not criminalize bottle hoarding, as the acts
penalized must always involve fraud and deceit. The hoarding does not make them liable for
unfair competition as there was no deception or fraud on the end-users.

THE ISSUE
Based on the parties' positions, the basic issue submitted to us for resolution is whether the
Naga MTC was correct in issuing Search Warrant No. 2001-01 for the seizure of the empty Coke
bottles from Pepsi's yard for probable violation of Section 168.3 (c) of the IP Code. This basic
issue involves two sub-issues, namely, the substantive issue of whether the application for
search warrant effectively charged an offense, i.e., a violation of Section 168.3 (c) of the IP Code;
and the procedural issue of whether the MTC observed the procedures required by the Rules of
Court in the issuance of search warrants.

OUR RULING

We resolve to deny the petition for lack of merit.

We clarify at the outset that while we agree with the RTC decision, our agreement is more in the
result than in the reasons that supported it. The decision is correct in nullifying the search
warrant because it was issued on an invalid substantive basis - the acts imputed on the
respondents do not violate Section 168.3 (c) of the IP Code. For this reason, we deny the present
petition.

The issuance of a search warrant10 against a personal property11 is governed by Rule 126 of the
Revised Rules of Court whose relevant sections state:

Section 4. Requisites for issuing search warrant. - A search warrant shall not issue except 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 which
may be anywhere in the Philippines.

Section 5. Examination of complainant; record. - 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 the witnesses he may produce on facts personally known to them and
attach to the record their sworn statements together with the affidavits submitted.

Section 6. Issuance and form of search warrant. - If the judge is satisfied of the existence of facts
upon which the application is based or that there is probable cause to believe that they exist, he
shall issue the warrant, which must be substantially in the form prescribed by these Rules.
[Emphasis supplied]

To paraphrase this rule, a search warrant may be issued only if there is probable cause in
connection with a specific offense alleged in an application based on the personal knowledge of
the applicant and his or her witnesses. This is the substantive requirement in the issuance of a
search warrant. Procedurally, the determination of probable cause is a personal task of the judge
before whom the application for search warrant is filed, as he has to examine under oath or
affirmation the applicant and his or her witnesses in the form of "searching questions and
answers" in writing and under oath. The warrant, if issued, must particularly describe the place
to be searched and the things to be seized.

We paraphrase these requirements to stress that they have substantive and procedural aspects.
Apparently, the RTC recognized this dual nature of the requirements and, hence, treated them
separately; it approved of the way the MTC handled the procedural aspects of the issuance of the
search warrant but found its action on the substantive aspect wanting. It therefore resolved to
nullify the warrant, without however expressly declaring that the MTC gravely abused its
discretion when it issued the warrant applied for. The RTC's error, however, is in the form
rather than the substance of the decision as the nullification of the issued warrant for the reason
the RTC gave was equivalent to the declaration that grave abuse of discretion was committed. In
fact, we so rule as the discussions below will show.

Jurisprudence teaches us that probable cause, as a condition for the issuance of a search
warrant, is such reasons supported by facts and circumstances as will warrant a cautious man in
the belief that his action and the means taken in prosecuting it are legally just and proper.
Probable cause requires facts and circumstances that would lead a reasonably prudent man to
believe that an offense has been committed and the objects sought in connection with that
offense are in the place to be searched.12 Implicit in this statement is the recognition that an
underlying offense must, in the first place, exist. In other words, the acts alleged, taken together,
must constitute an offense and that these acts are imputable to an offender in relation with
whom a search warrant is applied for.

In the context of the present case, the question is whether the act charged - alleged to be
hoarding of empty Coke bottles - constitutes an offense under Section 168.3 (c) of the IP Code.
Section 168 in its entirety states:

SECTION 168. Unfair Competition, Rights, Regulation and Remedies. -

168.1. 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 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 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.

168.4. The remedies provided by Sections 156, 157 and 161 shall apply mutatis mutandis. (Sec.
29,R.A. No. 166a)

The petitioner theorizes that the above section does not limit the scope of protection on the
particular acts enumerated as it expands the meaning of unfair competition to include "other
acts contrary to good faith of a nature calculated to discredit the goods, business or services of
another." Allegedly, the respondents' hoarding of Coca Cola empty bottles is one such act.

We do not agree with the petitioner's expansive interpretation of Section 168.3 (c).

"Unfair competition," previously defined in Philippine jurisprudence in relation with R.A. No.
166 and Articles 188 and 189 of the Revised Penal Code, is now covered by Section 168 of the IP
Code as this Code has expressly repealed R.A. No. 165 and R.A. No. 166, and Articles 188 and
189 of the Revised Penal Code.

Articles 168.1 and 168.2, as quoted above, provide the concept and general rule on the definition
of unfair competition. The law does not thereby cover every unfair act committed in the course
of business; it covers only acts characterized by "deception or any other means contrary to good
faith" in the passing off of goods and services as those of another who has established goodwill
in relation with these goods or services, or any other act calculated to produce the same result.

What unfair competition is, is further particularized under Section 168.3 when it provides
specifics of what unfair competition is "without in any way limiting the scope of protection
against unfair competition." Part of these particulars is provided under Section 168.3(c) which
provides the general "catch-all" phrase that the petitioner cites. Under this phrase, a person
shall be guilty of unfair competition "who shall commit any other act contrary to good faith of a
nature calculated to discredit the goods, business or services of another."

From jurisprudence, unfair competition has been defined as the passing off (or palming off) or
attempting to pass off upon the public the goods or business of one person as the goods or
business of another with the end and probable effect of deceiving the public. It formulated the
"true test" of unfair competition: whether the acts of defendant are such as are calculated to
deceive the ordinary buyer making his purchases under the ordinary conditions which prevail in
the particular trade to which the controversy relates.13 One of the essential requisites in an
action to restrain unfair competition is proof of fraud; the intent to deceive must be shown
before the right to recover can exist.14 The advent of the IP Code has not significantly changed
these rulings as they are fully in accord with what Section 168 of the Code in its entirety
provides. Deception, passing off and fraud upon the public are still the key elements that must
be present for unfair competition to exist.

The act alleged to violate the petitioner's rights under Section 168.3 (c) is hoarding which we
gather to be the collection of the petitioner's empty bottles so that they can be withdrawn from
circulation and thus impede the circulation of the petitioner's bottled products. This, according
to the petitioner, is an act contrary to good faith - a conclusion that, if true, is indeed an unfair
act on the part of the respondents. The critical question, however, is not the intrinsic unfairness
of the act of hoarding; what is critical for purposes of Section 168.3 (c) is to determine if the
hoarding, as charged, "is of a nature calculated to discredit the goods, business or services" of
the petitioner.

We hold that it is not. Hoarding as defined by the petitioner is not even an act within the
contemplation of the IP Code.

The petitioner's cited basis is a provision of the IP Code, a set of rules that refer to a very specific
subject - intellectual property. Aside from the IP Code's actual substantive contents (which
relate specifically to patents, licensing, trademarks, trade names, service marks, copyrights, and
the protection and infringement of the intellectual properties that these protective measures
embody), the coverage and intent of the Code is expressly reflected in its "Declaration of State
Policy" which states:

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. (n)

"Intellectual property rights" have furthermore been defined under Section 4 of the Code to
consist of: a) Copyright and Related Rights; b) Trademarks and Service Marks; c) Geographic
Indications; d) IndustrialDesigns; e) Patents; f) Layout-Designs (Topographies) of Integrated
Circuits; and g)Protection of Undisclosed Information.

Given the IP Code's specific focus, a first test that should be made when a question arises on
whether a matter is covered by the Code is to ask if it refers to an intellectual property as defined
in the Code. If it does not, then coverage by the Code may be negated.

A second test, if a disputed matter does not expressly refer to an intellectual property right as
defined above, is whether it falls under the general "unfair competition" concept and definition
under Sections 168.1 and 168.2 of the Code. The question then is whether there is "deception" or
any other similar act in "passing off" of goods or services to be those of another who enjoys
established goodwill.

Separately from these tests is the application of the principles of statutory construction giving
particular attention, not so much to the focus of the IP Code generally, but to the terms of
Section 168 in particular. Under the principle of "noscitur a sociis," when a particular word or
phrase is ambiguous in itself or is equally susceptible of various meanings, its correct
construction may be made clear and specific by considering the company of words in which it is
found or with which it is associated.15
As basis for this interpretative analysis, we note that Section 168.1 speaks of a person who has
earned goodwill with respect to his goods and services and who is entitled to protection under
the Code, with or without a registered mark. Section 168.2, as previously discussed, refers to the
general definition of unfair competition. Section 168.3, on the other hand, refers to the specific
instances of unfair competition, with Section 168.1 referring to the sale of goods given the
appearance of the goods of another; Section 168.2, to the inducement of belief that his or her
goods or services are that of another who has earned goodwill; while the disputed Section 168.3
being a "catch all" clause whose coverage the parties now dispute.

Under all the above approaches, we conclude that the "hoarding" - as defined and charged by the
petitioner - does not fall within the coverage of the IP Code and of Section 168 in particular. It
does not relate to any patent, trademark, trade name or service mark that the respondents have
invaded, intruded into or used without proper authority from the petitioner. Nor are the
respondents alleged to be fraudulently "passing off" their products or services as those of the
petitioner. The respondents are not also alleged to be undertaking any representation or
misrepresentation that would confuse or tend to confuse the goods of the petitioner with those
of the respondents, or vice versa. What in fact the petitioner alleges is an act foreign to the Code,
to the concepts it embodies and to the acts it regulates; as alleged, hoarding inflicts unfairness
by seeking to limit the opposition's sales by depriving it of the bottles it can use for these sales.

In this light, hoarding for purposes of destruction is closer to what another law - R.A. No. 623 -
covers, to wit:

SECTION 1. Persons engaged or licensed to engage in the manufacture, bottling or selling of

soda water, mineral or aerated waters, cider, milk, cream, or other lawful beverages in bottles,
boxes, casks, kegs, or barrels, and other similar containers, with their names or the names of
their principals or products, or other marks of ownership stamped or marked thereon, may
register with the Philippine Patent Office a description of the names or are used by them, under
the same conditions, rules, and regulations, made applicable by law or regulation to the issuance
of trademarks.

SECTION 2. It shall be unlawful for any person, without the written consent of the
manufacturer, bottler or seller who has successfully registered the marks of ownership in
accordance with the provisions of the next preceding section, to fill such bottles, boxes, kegs,
barrels, or other similar containers so marked or stamped, for the purpose of sale, or to sell,
dispose of, buy, or traffic in, or wantonly destroy the same, whether filled or not, or to use the
same for drinking vessels or glasses or for any other purpose than that registered by the
manufacturer, bottler or seller. Any violation of this section shall be punished by a fine or not
more than one hundred pesos or imprisonment of not more than thirty days or both.

As its coverage is defined under Section 1, the Act appears to be a measure that may overlap or
be affected by the provisions of Part II of the IP Code on "The Law on Trademarks, Service
Marks and Trade Names." What is certain is that the IP Code has not expressly repealed this
Act. The Act appears, too, to have specific reference to a special type of registrants - the
manufacturers, bottlers or sellers of soda water, mineral or aerated waters, cider, milk, cream, or
other lawful beverages in bottles, boxes, casks, kegs, or barrels, and other similar containers -
who are given special protection with respect to the containers they use. In this sense, it is in fact
a law of specific coverage and application, compared with the general terms and application of
the IP Code. Thus, under its Section 2, it speaks specifically of unlawful use of containers and
even of the unlawfulness of their wanton destruction - a matter that escapes the IP Code's
generalities unless linked with the concepts of "deception" and "passing off" as discussed above.
Unfortunately, the Act is not the law in issue in the present case and one that the parties did not
consider at all in the search warrant application. The petitioner in fact could not have cited it in
its search warrant application since the "one specific offense" that the law allows and which the
petitioner used was Section 168.3 (c). If it serves any purpose at all in our discussions, it is to
show that the underlying factual situation of the present case is in fact covered by another law,
not by the IP Code that the petitioner cites. Viewed in this light, the lack of probable cause to
support the disputed search warrant at once becomes apparent.

Where, as in this case, the imputed acts do not violate the cited offense, the ruling of this Court
penned by Mr. Justice Bellosillo is particularly instructive:

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. The nullity of the warrant renders moot and academic the other issues raised in
petitioners' Motion to Quash and Motion for Reconsideration. Since the assailed search warrant
is null and void, all property seized by virtue thereof should be returned to petitioners in
accordance with established jurisprudence.16

Based on the foregoing, we conclude that the RTC correctly ruled that the petitioner's search
warrant should properly be quashed for the petitioner's failure to show that the acts imputed to
the respondents do not violate the cited offense. There could not have been any probable cause
to support the issuance of a search warrant because no crime in the first place was effectively
charged. This conclusion renders unnecessary any further discussion on whether the search
warrant application properly alleged that the imputed act of holding Coke empties was in fact a
"hoarding" in bad faith aimed to prejudice the petitioner's operations, or whether the MTC duly
complied with the procedural requirements for the issuance of a search warrant under Rule 126
of the Rules of Court.

WHEREFORE, we hereby DENY the petition for lack of merit. Accordingly, we confirm that
Search Warrant No. 2001-01, issued by the Municipal Trial Court, Branch 1, Naga City, is NULL
and VOID. Costs against the petitioner.

SO ORDERED.