ABS-CBN V. PHILIPPINE MULTI-MEDIA SYSTEM (G.R. NO.
175769-70)  Negotiations ensued between the parties in an effort to reach a
FACTS:
ABS-CBN BROADCASTING CORPORATION (ABS-CBN)
 licensed under the laws of the Republic of the Philippines to engage in
television and radio broadcasting. 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
 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 province
PHILIPPINE MULTI-MEDIA SYSTEM, INC. (PMSI)
 the operator of Dream Broadcasting System. It delivers digital direct-to-
home (DTH) television via satellite to its subscribers all over the
Philippines. Cesar G. Reyes, Francis Chua, Manuel F. Abellada, Raul B.
De Mesa, and Aloysius M. Colayco, are members of PMSI’s Board of
Directors
 granted a legislative franchise under Republic Act No. 8630 and was
given a Provisional Authority by the National Telecommunications
Commission (NTC) on 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
 ABS-CBN demanded for PMSI to cease and desist from rebroadcasting
Channels 2 and 23.
 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, 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.
settlement.
 However, the negotiations were terminated 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
 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 PMSIs unauthorized rebroadcasting of Channels 2
and 23 infringed on its broadcasting rights and copyright.
Bureau of Legal Affairs (BLA) of the IPO granted ABS-CBNs application for
a temporary restraining order.
 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.
 PMSI filed with the BLA a Manifestation reiterating that it is subject to
the must-carry rule under Memorandum Circular No. 04-08-88.
 PMSI also submitted a letter 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.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 1
  The DTH pay television services of PMSI is equipped to provide
nationwide DTH satellite services. Concededly, PMSIs 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.
 PMSI filed another Manifestation with the BLA that it received another
letter from the NTC enjoining strict and immediate compliance with the
must-carry rule under Memorandum Circular No. 04-08-88
 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.
 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.
 Meanwhile, 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 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.
 The Commission maintains that, MC 4-08-88 remains valid,
subsisting and enforceable.
 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.
BLA rendered a decision 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.
 PMSI filed an appeal with the Office of the Director-General of the IPO
which was docketed as Appeal No. 10-2004-0002. It also filed with the
Court of Appeals a Motion to Withdraw Petition; Alternatively,
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 2
 Memorandum of the Petition for Certiorari in CA-G.R. SP No. 71597,
which was granted in a resolution.
Director-General of the IPO rendered a decision 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.
 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.
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.
Court of Appeals sustained the findings of the Director-General of the IPO
and dismissed both petitions filed by ABS-CBN.
 ABS-CBNs motion for reconsideration was denied, hence, this petition.
ABS-CBN contends that:
- PMSIs unauthorized rebroadcasting of Channels 2 and 23 is an
infringement of its broadcasting rights and copyright under the
Intellectual Property Code (IP Code);
- 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 III of the Constitution
because it allows the taking of property for public use without
payment of just compensation;
- the Court of Appeals erred in dismissing the petition for contempt
without requiring respondents to file comment
PMSI argues that:
- PMSIs rebroadcasting of Channels 2 and 23 is sanctioned by
Memorandum Circular No. 04-08-88;
- the must-carry rule under the Memorandum Circular is a valid
exercise of police power;
- the Court of Appeals correctly dismissed CA-G.R. SP No. 90762
since it found no need to exercise its power of contempt
Supreme Court affirmed the findings of the Director-General of the IPO
and the Court of Appeals.
ABS-CBN contends that
- PMSI violated its broadcasters rights under Section 211 of the IP Code:
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;
- PMSI guilty of infringement of ABS-CBNs 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).
 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.
 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, is the simultaneous broadcasting by one broadcasting
organization of the broadcast of another broadcasting organization.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 3

SUPREME COURT there is no merit
 The Director-General of the IPO correctly found that PMSI is not
engaged in rebroadcasting and thus cannot be considered to have
infringed ABS-CBNs broadcasting rights and copyright.
That the Appellants [PMSI] subscribers are able to view Appellees [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 Appellants 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 Appellees 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 Appellants subscribers view Appellees 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.
This Office also finds no evidence on record showing that the Appellant has
provided decrypting means to the public indiscriminately. Considering the
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 4
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 Appellees programs on Channels 2 and 23, as defined
under the Rome Convention.
 Under the Rome Convention, rebroadcasting is the simultaneous
broadcasting by one broadcasting organization of the broadcast of
another broadcasting organization.
 The Working Paper 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.
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.
 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.
 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
. provides that:
 The Director-General of the IPO and the Court of Appeals also correctly
found that PMSIs services are similar to a cable television system
because the services it renders fall under cable retransmission, as
described in the Working Paper
(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. (Emphasis
added)
 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-CBNs signals by PMSI which functions
essentially as a cable television does not therefore constitute
rebroadcasting in violation of the formers intellectual property
rights under the IP Code.
It must be emphasized that the law on copyright is not absolute. The IP Code
Sec. 184. Limitations on Copyright. -
184.1. Notwithstanding the provisions of Chapter V, the following acts shall
not constitute infringement of copyright:
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 5
(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-CBNs 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.
 The imposition of the must-carry rule is within the NTCs 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.
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 [PMSI] that the Must-Carry Rule is in
consonance with the principles and objectives underlying Executive
Order No. 436, 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.
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.
 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.
 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, 17, and 24 of Article II on the
Declaration of Principles and State Policies.
ABS-CBN claims that:
- PMSIs 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 PMSIs attractiveness to potential customers; or that
the unauthorized carriage of its signals by PMSI has created competition
between its Metro Manila and regional stations
SUPREME COURT there is no merit in the argument
 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, 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. Mere allegation is not
evidence, and is not equivalent to proof.
 Anyone in the country who owns a television set and antenna can
receive ABS-CBNs signals for free. Other broadcasting organizations
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 6
 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
channels 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.
– PMSIs 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-CBNs 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.
ABS-CBN argues that:
- PMSIs carriage of Channels 2 and 23 resulted in competition between
its Metro Manila and regional stations.
- It 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-CBNs 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.
SUPREME COURT there is no merit in the argument.
 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.
 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, Appellees [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, Appellants DTH satellite television services is
of limited subscription. There was not even a showing on part of
the Appellee the number of Appellants 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
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 7
 public as such competition will most likely result in the production
of better television programs.
 Tthe Court of Appeals correctly upheld the decision of the IPO Director-
General that PMSI did not infringe on ABS-CBNs 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.
The petition is DENIED. The Decision of the Court of Appeals sustaining the
findings of the Director-General of the Intellectual Property Office and
dismissing the petitions filed by ABS-CBN Broadcasting Corporation, and
the Resolution denying the motion for reconsideration, are AFFIRMED.
-----------------------------------------------------------------------------------
Facts:
Petitioner ABS-CBN, a broadcasting corporation, filed a complaint against
respondent PMSI alleging that the latter’s unauthorized rebroadcasting of
Channels 2 and 23 infringed on its broadcasting rights and copyright. PMSI
posits that it was granted a franchise to operate a digital direct-to-home
satellite service and that the rebroadcasting was in accordance with the NTC
memo to carry television signals of authorized television broadcast stations,
which includes petitioner’s programs. The IPO Bureau of Legal Affairs found
PMSI to have infringed petitioner’s broadcasting rights and ordered it to
permanently desist from rebroadcasting. On appeal, the IPO Director
General found for PMSI. CA affirmed.
Issue:
Whether or not petitioner’s broadcasting rights and copyright are infringed.
Ruling: NO.
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.
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, is “the simultaneous broadcasting
by one broadcasting organization of the broadcast of another broadcasting
organization.” The Working Paper 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.” 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.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 8
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 9
AIR PHILIPPINES CORPORATION VS. PENNSWELL, INC
Air Philippines Corporation (Petitioner)
- a domestic corporation engaged in the business of air transportation
services
Pennswell, Inc. (Respodent)
- organized to engage in the business of manufacturing and selling
industrial chemicals, solvents, and special lubricants
FACTS:
 respondent delivered and sold to petitioner sundry goods in trade
which correspond to Purchase Orders
 Under the contracts, petitioner’s total outstanding obligation
amounted to P449, 864.98 with interest at 14% per annum until the
amount would be fully paid.
 For failure of the petitioner to comply with its obligation under said
contracts, respondent filed a Complaint for a Sum of Money with the
RTC.
 Petitioner contended that its refusal to pay was not without valid and
justifiable reasons.
 it was defrauded in the amount of P592,000.00 by respondent for
its previous sale of four items
 Said items were misrepresented by respondent as belonging to a
new line, but were in truth and in fact, identical with products
petitioner had previously purchased from respondent.
 it was deceived by respondent which merely altered the names and
labels of such goods
 respondents products, namely Excellent Rust Corrosion, Connector
Grease, Electric Strength Protective Coating, and Anti-Seize
Compound, are identical with its Anti-Friction Fluid, Contact
Grease, Thixohtropic Grease, and Dry Lubricant, respectively
 had respondent been forthright about the identical character of
the products, it would not have purchased the items complained of
 when the purported fraud was discovered, a conference was held
between petitioner and respondent whereby the parties agreed
that respondent would return to petitioner the amount it
previously paid; however, petitioner was surprised when it
received a letter from the respondent, demanding payment of the
amount of P449,864.94, which later became the subject of
respondents Complaint for Collection of a Sum of Money against
petitioner
 During the pendency of the trial, petitioner filed a Motion to Compel
respondent to give a detailed list of the ingredients and chemical
components of the following products, to wit: (a) Contact Grease and
Connector Grease; (b) Thixohtropic Grease and Di-Electric Strength
Protective Coating; and (c) Dry Lubricant and Anti-Seize Compound.
 petitioner had earlier requested the Philippine Institute of Pure and
Applied Chemistry (PIPAC) for the latter to conduct a comparison
of respondents goods
 RTC: granted the petitioner’s motion
 directs Pennswell, Inc. to give Air Philippines Corporation a detailed
list of the ingredients or chemical components of the following
chemical products:
a. Contact Grease to be compared with Connector Grease;
b. Thixohtropic Grease to be compared with Di-Electric Strength
Protective Coating; and
c. Dry Lubricant to be compared with Anti-Seize Compound
 Respondent sought reconsideration
 it cannot be compelled to disclose the chemical components
sought because the matter is confidential
 what petitioner endeavored to inquire upon constituted a trade
secret which respondent cannot be forced to divulge
 its products are specialized lubricants, and if their components
were revealed, its business competitors may easily imitate and
market the same types of products, in violation of its proprietary
rights and to its serious damage and prejudice
 RTC: reversed itself
 the chemical components are respondents trade secrets and are
privileged in character
 Trade secrets may not be the subject of compulsory disclosure.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 10
 Petitioner appealed with the CA
 CA: denied appeal; affirmed order of the RTC
 to compel respondent to reveal in detail the list of ingredients of
its lubricants is to disregard respondents rights over its trade
secrets
 the chemical formulation of respondents products and their
ingredients are embraced within the meaning of trade secrets
ISSUE: Whether or not the chemicals compnents or ingrediants or
respondent’s products are trade secrets that are not subject to compulsory
disclosure?
SC: Yes; affirmed the decision of CA
PETITIONER: Relying on Section 1, Rule 27 of the Rules of Court, it argues
that the use of modes of discovery operates with desirable flexibility under
the discretionary control of the trial court.
 A trade secret is defined as a plan or process, tool, mechanism or
compound known only to its owner and those of his employees to
whom it is necessary to confide it.
 also extends to a secret formula or process not patented, but
known only to certain individuals using it in compounding some
article of trade having a commercial value
 may consist of any formula, pattern, device, or compilation of
information that:
(1) is used in one's business; and
(2) gives the employer an opportunity to obtain an advantage over
competitors who do not possess the information
 Generally, a trade secret is a process or device intended for continuous
use in the operation of the business, for example, a machine or
formula, but can be a price list or catalogue or specialized customer list
 trade secrets constitute proprietary rights
 The inventor, discoverer, or possessor of a trade secret or similar
innovation has rights therein which may be treated as property,
and ordinarily an injunction will be granted to prevent the
disclosure of the trade secret by one who obtained the information
"in confidence" or through a "confidential relationship."
 American jurisprudence has utilized the following factors to determine
if an information is a trade secret, to wit:
1. the extent to which the information is known outside of the
employer's business;
2. the extent to which the information is known by employees and
others involved in the business;
3. the extent of measures taken by the employer to guard the secrecy
of the information;
4. the value of the information to the employer and to competitors;
5. the amount of effort or money expended by the company in
6. developing the information; and
7. the extent to which the information could be easily or readily
obtained through an independent source.
 In Cocoland, the parameters in the determination of trade secrets were
set to be such substantial factual basis that can withstand judicial
scrutiny.
 The chemical composition, formulation, and ingredients of
respondent’s special lubricants are trade secrets within the
contemplation of the law.
 Respondent was established to engage in the business of general
manufacturing and selling of, and to deal in, distribute, sell or
otherwise dispose of goods, wares, merchandise, products,
including but not limited to industrial chemicals, solvents,
lubricants, acids, alkalies, salts, paints, oils, varnishes, colors,
pigments and similar preparations, among others.
 The manufacture and production of respondent’s products
proceed from a formulation of a secret list of ingredients.
 In the creation of its lubricants, respondent expended efforts, skills,
research, and resources.
 What it had achieved by virtue of its investments may not be
wrested from respondent on the mere pretext that it is necessary
for petitioner’s defense against a collection for a sum of money.
 The ingredients constitute the very fabric of respondent’s
production and business.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 11
  To compel its disclosure is to cripple respondents business, and to
place it at an undue disadvantage.
 If the chemical composition of respondents lubricants are opened
to public scrutiny, it will stand to lose the backbone on which its
business is founded.
 This would result in nothing less than the probable demise of
respondents business.
 there is substantial basis for respondent to seek protection of the
law for its proprietary rights over the detailed chemical
composition of its products
 Trade secrets should receive greater protection from discovery,
because they derive economic value from being generally unknown and
not readily ascertainable by the public.
Section 1, Rule 27 of the Rules of Court, which permits parties to inspect
documents or things upon a showing of good cause before the court in
which an action is pending. Its entire provision reads:
SECTION 1. Motion for production or inspection order. Upon motion of any
party showing good cause therefore, the court in which an action is pending
may (a) order any party to produce and permit the inspection and copying
or photographing, by or on behalf of the moving party, of any designated
documents, papers, books, accounts, letters, photographs, objects or
tangible things, not privileged, which constitute or contain evidence material
to any matter involved in the action and which are in his possession, custody
or control; or (b) order any party to permit entry upon designated land or
other property in his possession or control for the purpose of inspecting,
measuring, surveying, or photographing the property or any designated
relevant object or operation thereon. The order shall specify the time, place
and manner of making the inspection and taking copies and photographs,
and may prescribe such terms and conditions as are just.
 the production or inspection of documents or things as a mode of
discovery sanctioned by the Rules of Court may be availed of by any
party upon a showing of good cause therefor before the court in which
an action is pending
 The court may order any party: a) to produce and permit the inspection
and copying or photographing of any designated documents, papers,
books, accounts, letters, photographs, objects or tangible things, which
are not privileged; which constitute or contain evidence material to any
matter involved in the action; and which are in his possession, custody
or control; or b) to permit entry upon designated land or other property
in his possession or control for the purpose of inspecting, measuring,
surveying, or photographing the property or any designated relevant
object or operation thereon
 Rule 27 sets an unequivocal proviso that the documents, papers, books,
accounts, letters, photographs, objects or tangible things that may be
produced and inspected should not be privileged.
 The documents must not be privileged against disclosure.
 On the ground of public policy, the rules providing for production and
inspection of books and papers do not authorize the production or
inspection of privileged matter; that is, books and papers which,
because of their confidential and privileged character, could not be
received in evidence.
Section 24 of Rule 130 draws the types of disqualification by reason of
privileged communication, to wit: (a) communication between husband and
wife; (b) communication between attorney and client; (c) communication
between physician and patient; (d) communication between priest and
penitent; and (e) public officers and public interest.
There are, however, other privileged matters that are not mentioned by
Rule 130. Among them are the following: (a) editors may not be compelled
to disclose the source of published news; (b) voters may not be compelled to
disclose for whom they voted; (c) trade secrets; (d) information contained in
tax census returns; and (d) bank deposits.
 intellectual and industrial property rights cases are not simple property
cases
 Without limiting such industrial property rights to trademarks and trade
names, this Court has ruled that all agreements concerning intellectual
property are intimately connected with economic development
 The protection of industrial property encourages investments in new
ideas and inventions and stimulates creative efforts for the satisfaction
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 12
 of human needs. It speeds up transfer of technology and
industrialization, and thereby bring about social and economic
progress.
 the protection of industrial secrets is inextricably linked to the
advancement of our economy and fosters healthy competition in trade

 Petitioner cannot rely on Section 77[43] of Republic Act 7394, or the

Consumer Act of the Philippines, in order to compel respondent to
reveal the chemical components of its products
 While it is true that all consumer products domestically sold,
whether manufactured locally or imported, shall indicate their
general make or active ingredients in their respective labels of
packaging, the law does not apply to respondent.
 Responden’ts specialized lubricants -- namely, Contact Grease,
Connector Grease, Thixohtropic Grease, Di-Electric Strength
Protective Coating, Dry Lubricant and Anti-Seize Compound -- are
not consumer products.
 Consumer products, as it is defined in Article 4(q), refers to goods,
services and credits, debts or obligations which are primarily for
personal, family, household or agricultural purposes, which shall
include, but not be limited to, food, drugs, cosmetics, and devices.
 This is not the nature of respondent’s products.
 Its products are not intended for personal, family, household or
agricultural purposes rather, they are for industrial use, specifically
for the use of aircraft propellers and engines.

 Petitioners argument that Republic Act No. 8203, or the Special Law on
Counterfeit Drugs, requires the disclosure of the active ingredients of a
drug is also on faulty ground.
 Respondent’s products are outside the scope of the cited law.
 They do not come within the purview of a drug which, as defined
therein, refers to any chemical compound or biological substance,
other than food, that is intended for use in the treatment,
prevention or diagnosis of disease in man or animals.
 such are not the characteristics of respondent's products

 the privilege is not absolute; the trial court may compel disclosure
where it is indispensable for doing justice

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 13

The AUTHORS GUILD vs. GOOGLE,INC.
FACTS:
 Plaintiffs, who are authors of published books under copyright, sued
Google, Inc. for copyright infringement in the United States District
Court for the Southern District of New York.
 Plaintiffs sought injunctive and declaratory relief as well as damages.
 Plaintiffs brought the suit, as a putative class action on behalf of
similarly situated, rights-owning authors.
 Through its Library Project and its Google Books project,
acting without permission of rights holders, Google has made
digital copies of tens of millions of books, including Plaintiffs',
that were submitted to it for that purpose by major libraries.
Google has scanned the digital copies and established a
publicly available search function.
→ An Internet user can use this function to search without
charge to determine whether the book contains a
specified word or term and also see "snippets" of text
containing the searched-for terms. In addition, Google
has allowed the participating libraries to download and
retain digital copies of the books they submit, under
agreements which commit the libraries not to use their
digital copies in violation of the copyright laws.
→ These activities of Google are alleged to constitute
infringement of Plaintiffs' copyrights.
 After several years of negotiation, the parties reached a proposed
settlement that would have resolved the claims on a class-wide basis.
→ The proposed settlement allowed Google to make substantially
more extensive use of its scans of copyrighted books than
contemplated under the present judgment, and provided that
Google would make payments to the rights holders in return.
→ However, the district court rejected the proposed settlement as
unfair to the class members who relied on the named plaintiffs to
represent their interests.
 Plaintiffs filed a fourth amended class action complaint.
 Google appealed from the certification, and moved in the district court
for summary judgment on its fair use defense.
→ Google defended on the ground that its actions constitute "fair
use," which, under 17 U.S.C. § 107, is "not an infringement."
 Plaintiffs cross-moved in the district court for summary judgment.
DISTRICT COURT: The district court agreed with Google.
 the uses made by Google of copyrighted books were fair uses, protected
by § 107
 Upon consideration of the four statutory factors of § 107, the district
court found that Google's uses were transformative, that its display of
copyrighted material was properly limited, and that the Google Books
program did not impermissibly serve as a market substitute for the
original works.
Plaintiffs brought this appeal. They argue:
(1) Google's digital copying of entire books, allowing users through the
snippet function to read portions, is not a "transformative use"
within the meaning of Campbell v. Acuff-Rose Music, Inc., 510 U.S.
569, 578-585, 114 S.Ct. 1164, 127 L.Ed.2d 500 (1994), and provides
a substitute for Plaintiffs' works;
(2) notwithstanding that Google provides public access to the search
and snippet functions without charge and without advertising, its
ultimate commercial profit motivation and its derivation of
revenue from its dominance of the world-wide Internet search
market to which the books project contributes, preclude a finding
of fair use;
(3) even if Google's copying and revelations of text do not infringe
plaintiffs' books, they infringe Plaintiffs' derivative rights in search
functions, depriving Plaintiffs of revenues or other benefits they
would gain from licensed search markets;
(4) Google's storage of digital copies exposes Plaintiffs to the risk that
hackers will make their books freely (or cheaply) available on the
Internet, destroying the value of their copyrights; and
(5) Google's distribution of digital copies to participant libraries is not
a transformative use, and it subjects Plaintiffs to the risk of loss of
copyright revenues through access allowed by libraries. We reject
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 14
 these arguments and conclude that the district court correctly
sustained Google's fair use defense.
SUPREME COURT:
 Google's making of a digital copy to provide a search function is a
transformative use, which augments public knowledge by making
available information about Plaintiffs' books without providing the
public with a substantial substitute for matter protected by the
Plaintiffs' copyright interests in the original works or derivatives of
them.
 The same is true, at least under present conditions, of Google's
provision of the snippet function.
 Plaintiffs' contention that Google has usurped their opportunity to
access paid and unpaid licensing markets for substantially the same
functions that Google provides fails, in part because the licensing
markets in fact involve very different functions than those that Google
provides, and in part because an author's derivative rights do not
include an exclusive right to supply information (of the sort provided by
Google) about her works.
 Google's profit motivation does not in these circumstances justify
denial of fair use.
→ Google's program does not, at this time and on the record before
us, expose Plaintiffs to an unreasonable risk of loss of copyright
value through incursions of hackers.
 Finally, Google's provision of digital copies to participating libraries,
authorizing them to make non-infringing uses, is noninfringing, and the
mere speculative possibility that the libraries might allow use of their
copies in an infringing manner does not make Google a contributory
infringer. Plaintiffs have failed to show a material issue of fact in
dispute.
We affirm the judgment.
LAW OF FAIR USE
 The ultimate goal of copyright is to expand public knowledge and
understanding, which copyright seeks to achieve by giving potential
creators exclusive control over copying of their works, thus giving them
a financial incentive to create informative, intellectually enriching
works for public consumption.
→ This objective is clearly reflected in the Constitution's
empowerment of Congress "To promote the Progress of Science ...
by securing for limited Times to Authors ... the exclusive Right to
their respective Writings." U.S. Const., Art. I, § 8, cl. 8.
→ while authors are undoubtedly important intended beneficiaries of
copyright, the ultimate, primary intended beneficiary is the public,
whose access to knowledge copyright seeks to advance by
providing rewards for authorship
 Courts thus developed the doctrine, eventually named fair use, which
permits unauthorized copying in some circumstances, so as to further
"copyright's very purpose, `[t]o promote the Progress of Science and
useful Arts.'"
 Although well established in the common law development of
copyright, fair use was not recognized in the terms of our statute until
the adoption of § 107 in the Copyright Act of 1976. 17 U.S.C. §§ 101 et
seq.
 Section 107, in its present form, provides: [T]he fair use of a copyrighted
work ... for purposes such as criticism, comment, news reporting,
teaching (including multiple copies for classroom use), scholarship, or
research, is not an infringement of copyright. In determining whether
the use made of a work in any particular case is a fair use the factors to
be considered shall include —
(1) the purpose and character of the use, including whether such use
is of a commercial nature or is for nonprofit educational purposes;
(2) the nature of the copyrighted work;
(3) the amount and substantiality of the portion used in relation to the
copyrighted work as a whole; and
(4) the effect of the use upon the potential market for or value of the
copyrighted work.
The fact that a work is unpublished shall not itself bar a finding of fair
use if such finding is made upon consideration of all the above factors.
17 U.S.C. § 107.
 As the Supreme Court has designated fair use an affirmative defense,
the party asserting fair use bears the burden of proof.
 The statute's wording, does not furnish standards for recognition of fair
use.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 15
 → Its instruction to consider the "purpose and character" of the
secondary use and the "nature" of the copyrighted work does not
explain what types of "purpose and character" or "nature" favor a
finding of fair use and which do not.
→ The purpose of the enactment was to give recognition in the
statute itself to such an important part of copyright law developed
by the courts through the common law process. "Congress meant
§ 107 `to restate the present judicial doctrine of fair use, not to
change, narrow, or enlarge it an any way,' and intended that courts
continue the common-law tradition of fair use adjudication."
 The Campbell Court undertook a comprehensive analysis of fair use's
requirements, discussing every segment of § 107.
→ Each factor stands as part of a multifaceted assessment of the
crucial question: how to define the boundary limit of the original
author's exclusive rights in order to best serve the overall
objectives of the copyright law to expand public learning while
protecting the incentives of authors to create for the public good.
→ the Supreme Court has made clear that some of the statute's four
listed factors are more significant than others
→ the Court observed in Harper & Row Publishers, Inc. v. Nation
Enterprises that the fourth factor, which assesses the harm the
secondary use can cause to the market for, or the value of, the
copyright for the original, "is undoubtedly the single most
important element of fair use."
→ This is consistent with the fact that the copyright is a commercial
right, intended to protect the ability of authors to profit from the
exclusive right to merchandise their own work.
 In Campbell, the Court stressed the importance of the first factor, the
"purpose and character of the secondary use."
→ The more the appropriator is using the copied material for new,
transformative purposes, the more it serves copyright's goal of
enriching public knowledge and the less likely it is that the
appropriation will serve as a substitute for the original or its
plausible derivatives, shrinking the protected market opportunities
of the copyrighted work.
 Google's Library Project, began in 2004, involves bi-lateral agreements
between Google and a number of the world's major research libraries.
→ Under these agreements, the participating libraries select books
from their collections to submit to Google for inclusion in the
project. Google makes a digital scan of each book, extracts a
machine-readable text, and creates an index of the machine-
readable text of each book. Google retains the original scanned
image of each book, in part so as to improve the accuracy of the
machine-readable texts and indices as image-to-text conversion
technologies improve.
 Since 2004, Google has scanned, rendered machine-readable, and
indexed more than 20 million books, including both copyrighted works
and works in the public domain. The vast majority of the books are
nonfiction, and most are out of print.
 All of the digital information created by Google in the process is stored
on servers protected by the same security systems Google uses to shield
its own confidential information.
 The digital corpus created by the scanning of these millions of books
enables the Google Books search engine.
 Members of the public who access the Google Books website can enter
search words or terms of their own choice, receiving in response a list
of all books in the database in which those terms appear, as well as the
number of times the term appears in each book.
→ A brief description of each book, entitled "About the Book," gives
some rudimentary additional information, including a list of the
words and terms that appear with most frequency in the book.
→ It sometimes provides links to buy the book online and identifies
libraries where the book can be found.
→ The search tool permits a researcher to identify those books, out
of millions, that do, as well as those that do not, use the terms
selected by the researcher.
→ Google notes that this identifying information instantaneously
supplied would otherwise not be obtainable in lifetimes of
searching.
 No advertising is displayed to a user of the search function. Nor does
Google receive payment by reason of the searcher's use of Google's link
to purchase the book.
 The search engine also makes possible new forms of research, known
as "text mining" and "data mining."
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 16
 → Google's "ngrams" research tool draws on the Google Library
Project corpus to furnish statistical information to Internet users
about the frequency of word and phrase usage over centuries.
→ This tool permits users to discern fluctuations of interest in a
particular subject over time and space by showing increases and
decreases in the frequency of reference and usage in different
periods and different linguistic regions. It also allows researchers
to comb over the tens of millions of books Google has scanned in
order to examine "word frequencies, syntactic patterns, and
thematic markers" and to derive information on how
nomenclature, linguistic usage, and literary style have changed
over time.
→ The Google Books search function also allows the user a limited
viewing of text.
→ In addition to telling the number of times the word or term selected
by the searcher appears in the book, the search function will
display a maximum of three "snippets" containing it.
→ A snippet is a horizontal segment comprising ordinarily an eighth
of a page.
→ Each page of a conventionally formatted book in the Google Books
database is divided into eight non-overlapping horizontal
segments, each such horizontal segment being a snippet.
→ Each search for a particular word or term within a book will reveal
the same three snippets, regardless of the number of computers
from which the search is launched.
→ Only the first usage of the term on a given page is displayed. Thus,
if the top snippet of a page contains two (or more) words for which
the user searches, and Google's program is fixed to reveal that
particular snippet in response to a search for either term, the
second search will duplicate the snippet already revealed by the
first search, rather than moving to reveal a different snippet
containing the word because the first snippet was already revealed.
 Google's program does not allow a searcher to increase the number of
snippets revealed by repeated entry of the same search term or by
entering searches from different computers.
→ A searcher can view more than three snippets of a book by entering
additional searches for different terms.
→ However, Google makes permanently unavailable for snippet view
one snippet on each page and one complete page out of every ten
— a process Google calls "blacklisting."
 Google also disables snippet view entirely for types of books for which
a single snippet is likely to satisfy the searcher's present need for the
book, such as dictionaries, cookbooks, and books of short poems.
 Since 2005, Google will exclude any book altogether from snippet view
at the request of the rights holder by the submission of an online form.
 Under its contracts with the participating libraries, Google allows each
library to download copies — of both the digital image and machine-
readable versions — of the books that library submitted to Google for
scanning (but not of books submitted by other libraries).
→ This is done by giving each participating library access to the Google
Return Interface ("GRIN").
→ The agreements between Google and the libraries, although not in
all respects uniform, require the libraries to abide by copyright law
in utilizing the digital copies they download and to take precautions
to prevent dissemination of their digital copies to the public at
large.
→ Through the GRIN facility, participant libraries have downloaded at
least 2.7 million digital copies of their own volumes.
The Search and Snippet View Functions
Factor One: the purpose and character of the use, including whether such
use is of a commercial nature or is for nonprofit educational purposes
 Transformative purpose.
→ Campbell's explanation of the first factor's inquiry into the
"purpose and character" of the secondary use focuses on whether
the new work, merely `supersedes the objects' of the original
creation, or instead adds something new, with a further purpose.
→ in other words, it asks, whether and to what extent the new work
is transformative
→ transformative uses tend to favor a fair use finding because a
transformative use is one that communicates something new and
different from the original or expands its utility, thus serving
copyright's overall objective of contributing to public knowledge
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 17
 → it does not mean that any and all changes made to an author's
original text will necessarily support a finding of fair use
The Supreme Court's discussion in Campbell gave important guidance on
assessing when a transformative use tends to support a conclusion of fair
use. The defendant in that case defended on the ground that its work was a
parody of the original and that parody is a time-honored category of fair use.
→ the would-be fair user of another's work must have justification for the
taking
→ A secondary author is not necessarily at liberty to make wholesale
takings of the original author's expression merely because of how well
the original author's expression would convey the secondary author's
different message.
Among the best recognized justifications for copying from another's work is
to provide comment on it or criticism of it. A taking from another author's
work for the purpose of making points that have no bearing on the original
may well be fair use, but the taker would need to show a justification. This
part of the Supreme Court's discussion is significant in assessing Google's
claim of fair use because, as discussed extensively below, Google's claim of
transformative purpose for copying from the works of others is to provide
otherwise unavailable information about the originals.
A further complication that can result from oversimplified reliance on
whether the copying involves transformation is that the word "transform"
also plays a role in defining "derivative works," over which the original rights
holder retains exclusive control. Section 106 of the Act specifies the
"exclusive right[]" of the copyright owner "(2) to prepare derivative works
based upon the copyrighted work." See 17 U.S.C. § 106. The statute defines
derivative works largely by example, rather than explanation. The examples
include "translation, musical arrangement, dramatization, fictionalization,
motion picture version, sound recording, art reproduction, abridgement,
condensation," to which list the statute adds "any other form in which a
work may be ... transformed." 17 U.S.C. § 101 (emphasis added).[15] As we
noted in Authors Guild, Inc. v. HathiTrust, "[p]aradigmatic examples of
derivative works include the translation of a novel into another language,
the adaptation of a novel into a movie or play, or the recasting of a novel as
an e-book or an audiobook." 755 F.3d 87, 95 (2d Cir.2014). While such
changes can be described as transformations, they do not involve the kind
of transformative purpose that favors a fair use finding. The statutory
definition suggests that derivative works generally involve transformations
in the nature of changes of form. 17 U.S.C. § 101. By contrast, copying from
an original for the purpose of criticism or commentary on the original[16] or
provision of information about *216 it,[17] tends most clearly to satisfy
Campbell's notion of the "transformative" purpose involved in the analysis
of Factor One.[18]
216
With these considerations in mind, we first consider whether Google's
search and snippet views functions satisfy the first fair use factor with
respect to Plaintiffs' rights in their books. (The question whether these
functions might infringe upon Plaintiffs' derivative rights is discussed in the
next Part.)
(2) Search Function.
→ making of a digital copy of Plaintiffs' books for the purpose of enabling
a search for identification of books containing a term of interest to the
searcher involves a highly transformative purpose, in the sense
intended by Campbell.
→ the purpose of Google's copying of the original copyrighted books is to
make available significant information about those books, permitting a
searcher to identify those that contain a word or term of interest, as
well as those that do not include reference to it. In addition, through
the ngrams tool, Google allows readers to learn the frequency of usage
of selected words in the aggregate corpus of published books in
different historical periods
→ the purpose of this copying is the sort of transformative purpose
described in Campbell as strongly favoring satisfaction of the first factor
(3) Snippet View.
Plaintiffs correctly point out that this case is significantly different from
HathiTrust in that the Google Books search function allows searchers to read
snippets from the book searched, whereas HathiTrust did not allow
searchers to view any part of the book. Snippet view adds important value
to the basic transformative search function, which tells only whether and
how often the searched term appears in the book. Merely knowing that a
term of interest appears in a book does not necessarily tell the searcher
whether she needs to obtain the book, because it does not reveal whether
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 18
the *218 term is discussed in a manner or context falling within the scope
of the searcher's interest. For example, a searcher seeking books that
explore Einstein's theories, who finds that a particular book includes 39
usages of "Einstein," will nonetheless conclude she can skip that book if the
snippets reveal that the book speaks of "Einstein" because that is the name
of the author's cat. In contrast, the snippet will tell the searcher that this is
a book she needs to obtain if the snippet shows that the author is engaging
with Einstein's theories.
218
Google's division of the page into tiny snippets is designed to show the
searcher just enough context surrounding the searched term to help her
evaluate whether the book falls within the scope of her interest (without
revealing so much as to threaten the author's copyright interests). Snippet
view thus adds importantly to the highly transformative purpose of
identifying books of interest to the searcher. With respect to the first factor
test, it favors a finding of fair use (unless the value of its transformative
purpose is overcome by its providing text in a manner that offers a
competing substitute for Plaintiffs' books, which we discuss under factors
three and four below).
(4) Google's Commercial Motivation. Plaintiffs also contend that Google's
commercial motivation weighs in their favor under the first factor. Google's
commercial motivation distinguishes this case from HathiTrust, as the
defendant in that case was a non-profit entity founded by, and acting as the
representative of, libraries. Although Google has no revenues flowing
directly from its operation of the Google Books functions, Plaintiffs stress
that Google is profit-motivated and seeks to use its dominance of book
search to fortify its overall dominance of the Internet search market, and
that thereby Google indirectly reaps profits from the Google Books
functions.
For these arguments Plaintiffs rely primarily on two sources. First is
Congress's specification in spelling out the first fair use factor in the text of
§ 107 that consideration of the "purpose and character of the [secondary]
use" should "include[e] whether such use is of a commercial nature or is for
nonprofit educational purposes." Second is the Supreme Court's assertion
in dictum in Sony Corporation of America v. Universal City Studios, Inc, that
"every commercial use of copyrighted material is presumptively ... unfair."
464 U.S. 417, 451, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984). If that were the
extent of precedential authority on the relevance of commercial motivation,
Plaintiffs' arguments would muster impressive support. However, while the
commercial motivation of the secondary use can undoubtedly weigh against
a finding of fair use in some circumstances, the Supreme Court, our court,
and others have eventually recognized that the Sony dictum was
enormously overstated.[19]
The Sixth Circuit took the Sony dictum at its word in Acuff-Rose Music, Inc.
v. Campbell, concluding that, because the defendant rap music group's
spoof of the plaintiff's ballad was done for profit, it could not be fair use.
972 F.2d 1429, 1436-1437 (6th Cir.1992). The Supreme *219 Court reversed
on this very point, observing that "Congress could not have intended" such
a broad presumption against commercial fair uses, as "nearly all of the
illustrative uses listed in the preamble paragraph of § 107 ... are generally
conducted for profit in this country." Campbell, 510 U.S. at 584, 114 S.Ct.
1164 (internal quotation marks and citations omitted). The Court
emphasized Congress's statement in the House Report to the effect that the
commercial or nonprofit character of a work is "not conclusive" but merely
"a fact to be `weighed along with other[s] in fair use decisions.'" Id. at 585,
114 S.Ct. 1164 (quoting H.R.Rep. No. 94-1476, at 66 (1976)). In explaining
the first fair use factor, the Court clarified that "the more transformative the
[secondary] work, the less will be the significance of other factors, like
commercialism, that may weigh against a finding of fair use." Id. at 579, 114
S.Ct. 1164.
Our court has since repeatedly rejected the contention that commercial
motivation should outweigh a convincing transformative purpose and
absence of significant substitutive competition with the original. See Cariou
v. Prince, 714 F.3d 694, 708 (2d Cir.2013), cert. denied, ___ U.S. ___, 134
S.Ct. 618, 187 L.Ed.2d 411 (2013) ("The commercial/nonprofit dichotomy
concerns the unfairness that arises when a secondary user makes
unauthorized use of copyrighted material to capture significant revenues as
a direct consequence of copying the original work. This factor must be
applied with caution because, as the Supreme Court has recognized,
Congress could not have intended a rule that commercial uses are
presumptively unfair. Instead, the more transformative the new work, the
less will be the significance of other factors, like commercialism, that may
weigh against a finding of fair use.") (internal quotation marks, citations, and
alterations omitted); Castle Rock Entm't, Inc. v. Carol Pub. Grp., Inc., 150
F.3d 132, 141-42 (2d Cir.1998) ("We ... do not give much weight to the fact
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 19
that the secondary use was for commercial gain. The more critical inquiry
under the first factor and in fair use analysis generally is whether the
allegedly infringing work merely supersedes the original work or instead
adds something new, with a further purpose or different character, altering
the first with new meaning or message, in other words whether and to what
extent the new work is transformative.") (internal quotation marks,
citations, and alterations omitted).
While we recognize that in some circumstances, a commercial motivation
on the part of the secondary user will weigh against her, especially, as the
Supreme Court suggested, when a persuasive transformative purpose is
lacking, Campbell, 510 U.S. at 579, 114 S.Ct. 1164, we see no reason in this
case why Google's overall profit motivation should prevail as a reason for
denying fair use over its highly convincing transformative purpose, together
with the absence of significant substitutive competition, as reasons for
granting fair use. Many of the most universally accepted forms of fair use,
such as news reporting and commentary, quotation in historical or analytic
books, reviews of books, and performances, as well as parody, are all
normally done commercially for profit.[20]

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 20

The AUTHORS GUILD vs. GOOGLE,INC. (FAIR USE)
FACTS:
 Plaintiffs, who are authors of published books under copyright, sued
Google, Inc. for copyright infringement in the United States District
Court for the Southern District of New York.
 Plaintiffs sought injunctive and declaratory relief as well as damages.
 Plaintiffs brought the suit, as a putative class action on behalf of
similarly situated, rights-owning authors.
Through its Library Project and its Google Books project,
acting without permission of rights holders, Google has
made digital copies of tens of millions of books, including
Plaintiffs', that were submitted to it for that purpose by major
libraries. Google has scanned the digital copies and
established a publicly available search function.
→ An Internet user can use this function to search without
charge to determine whether the book contains a
specified word or term and also see "snippets" of text
containing the searched-for terms. In addition, Google
has allowed the participating libraries to download and
retain digital copies of the books they submit, under
agreements which commit the libraries not to use their
digital copies in violation of the copyright laws.
→ These activities of Google are alleged to constitute
infringement of Plaintiffs' copyrights.
 After several years of negotiation, the parties reached a proposed
settlement that would have resolved the claims on a class-wide basis.
→ The proposed settlement allowed Google to make substantially
more extensive use of its scans of copyrighted books than
contemplated under the present judgment, and provided that
Google would make payments to the rights holders in return.
→ However, the district court rejected the proposed settlement as
unfair to the class members who relied on the named plaintiffs to
represent their interests.
 Plaintiffs filed a fourth amended class action complaint.
 Google appealed from the certification, and moved in the district court
for summary judgment on its fair use defense.
→ Google defended on the ground that its actions constitute "fair
use," which, under 17 U.S.C. § 107, is "not an infringement."
 Plaintiffs cross-moved in the district court for summary judgment.
DISTRICT COURT: The district court agreed with Google.
 the uses made by Google of copyrighted books were fair uses, protected
by § 107
 Upon consideration of the four statutory factors of § 107, the district
court found that Google's uses were transformative, that its display of
copyrighted material was properly limited, and that the Google Books
program did not impermissibly serve as a market substitute for the
original works.
Plaintiffs brought this appeal. They argue:
(6) Google's digital copying of entire books, allowing users through the
snippet function to read portions, is not a "transformative use"
within the meaning of Campbell v. Acuff-Rose Music, Inc., 510 U.S.
569, 578-585, 114 S.Ct. 1164, 127 L.Ed.2d 500 (1994), and provides
a substitute for Plaintiffs' works;
(7) notwithstanding that Google provides public access to the search
and snippet functions without charge and without advertising, its
ultimate commercial profit motivation and its derivation of
revenue from its dominance of the world-wide Internet search
market to which the books project contributes, preclude a finding
of fair use;
(8) even if Google's copying and revelations of text do not infringe
plaintiffs' books, they infringe Plaintiffs' derivative rights in search
functions, depriving Plaintiffs of revenues or other benefits they
would gain from licensed search markets;
(9) Google's storage of digital copies exposes Plaintiffs to the risk that
hackers will make their books freely (or cheaply) available on the
Internet, destroying the value of their copyrights; and
(10) Google's distribution of digital copies to participant libraries is not
a transformative use, and it subjects Plaintiffs to the risk of loss of
copyright revenues through access allowed by libraries. We reject
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 21
 these arguments and conclude that the district court correctly
sustained Google's fair use defense.
SUPREME COURT:
 Google's making of a digital copy to provide a search function is a
transformative use, which augments public knowledge by making
available information about Plaintiffs' books without providing the
public with a substantial substitute for matter protected by the
Plaintiffs' copyright interests in the original works or derivatives of
them.
 The same is true, at least under present conditions, of Google's
provision of the snippet function.
 Plaintiffs' contention that Google has usurped their opportunity to
access paid and unpaid licensing markets for substantially the same
functions that Google provides fails, in part because the licensing
markets in fact involve very different functions than those that Google
provides, and in part because an author's derivative rights do not
include an exclusive right to supply information (of the sort provided by
Google) about her works.
 Google's profit motivation does not in these circumstances justify
denial of fair use.
→ Google's program does not, at this time and on the record before
us, expose Plaintiffs to an unreasonable risk of loss of copyright
value through incursions of hackers.
 Finally, Google's provision of digital copies to participating libraries,
authorizing them to make non-infringing uses, is noninfringing, and the
mere speculative possibility that the libraries might allow use of their
copies in an infringing manner does not make Google a contributory
infringer. Plaintiffs have failed to show a material issue of fact in
dispute.
We affirm the judgment.
LAW OF FAIR USE
 The ultimate goal of copyright is to expand public knowledge and
understanding, which copyright seeks to achieve by giving potential
creators exclusive control over copying of their works, thus giving them
a financial incentive to create informative, intellectually enriching
works for public consumption.
→ This objective is clearly reflected in the Constitution's
empowerment of Congress "To promote the Progress of Science ...
by securing for limited Times to Authors ... the exclusive Right to
their respective Writings." U.S. Const., Art. I, § 8, cl. 8.
→ while authors are undoubtedly important intended beneficiaries of
copyright, the ultimate, primary intended beneficiary is the public,
whose access to knowledge copyright seeks to advance by
providing rewards for authorship
 Courts thus developed the doctrine, eventually named fair use, which
permits unauthorized copying in some circumstances, so as to further
"copyright's very purpose, `to promote the Progress of Science and
useful Arts.'”
 Although well established in the common law development of
copyright, fair use was not recognized in the terms of our statute until
the adoption of § 107 in the Copyright Act of 1976. 17 U.S.C. §§ 101 et
seq.
 Section 107, in its present form, provides: [T]he fair use of a copyrighted
work ... for purposes such as criticism, comment, news reporting,
teaching (including multiple copies for classroom use), scholarship, or
research, is not an infringement of copyright. In determining whether
the use made of a work in any particular case is a fair use the factors to
be considered shall include —
(5) the purpose and character of the use, including whether such use
is of a commercial nature or is for nonprofit educational purposes;
(6) the nature of the copyrighted work;
(7) the amount and substantiality of the portion used in relation to the
copyrighted work as a whole; and
(8) the effect of the use upon the potential market for or value of the
copyrighted work
The fact that a work is unpublished shall not itself bar a finding of fair
use if such finding is made upon consideration of all the above factors.
17 U.S.C. § 107.
 As the Supreme Court has designated fair use an affirmative defense,
the party asserting fair use bears the burden of proof.
 The statute's wording, does not furnish standards for recognition of fair
use.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 22
 → Its instruction to consider the "purpose and character" of the
secondary use and the "nature" of the copyrighted work does not
explain what types of "purpose and character" or "nature" favor a
finding of fair use and which do not.
→ The purpose of the enactment was to give recognition in the
statute itself to such an important part of copyright law developed
by the courts through the common law process. "Congress meant
§ 107 `to restate the present judicial doctrine of fair use, not to
change, narrow, or enlarge it an any way,' and intended that courts
continue the common-law tradition of fair use adjudication."
 The Campbell Court undertook a comprehensive analysis of fair use's
requirements, discussing every segment of § 107.
→ Each factor stands as part of a multifaceted assessment of the
crucial question: how to define the boundary limit of the original
author's exclusive rights in order to best serve the overall
objectives of the copyright law to expand public learning while
protecting the incentives of authors to create for the public good.
→ the Supreme Court has made clear that some of the statute's four
listed factors are more significant than others
→ the Court observed in Harper & Row Publishers, Inc. v. Nation
Enterprises that the fourth factor, which assesses the harm the
secondary use can cause to the market for, or the value of, the
copyright for the original, "is undoubtedly the single most
important element of fair use."
→ This is consistent with the fact that the copyright is a commercial
right, intended to protect the ability of authors to profit from the
exclusive right to merchandise their own work.
 In Campbell, the Court stressed the importance of the first factor, the
"purpose and character of the secondary use."
→ The more the appropriator is using the copied material for new,
transformative purposes, the more it serves copyright's goal of
enriching public knowledge and the less likely it is that the
appropriation will serve as a substitute for the original or its
plausible derivatives, shrinking the protected market opportunities
of the copyrighted work.
 Google's Library Project, began in 2004, involves bi-lateral agreements
between Google and a number of the world's major research libraries.
→ Under these agreements, the participating libraries select books
from their collections to submit to Google for inclusion in the
project. Google makes a digital scan of each book, extracts a
machine-readable text, and creates an index of the machine-
readable text of each book. Google retains the original scanned
image of each book, in part so as to improve the accuracy of the
machine-readable texts and indices as image-to-text conversion
technologies improve.
 Since 2004, Google has scanned, rendered machine-readable, and
indexed more than 20 million books, including both copyrighted works
and works in the public domain. The vast majority of the books are
nonfiction, and most are out of print.
 All of the digital information created by Google in the process is stored
on servers protected by the same security systems Google uses to shield
its own confidential information.
 The digital corpus created by the scanning of these millions of books
enables the Google Books search engine.
 Members of the public who access the Google Books website can enter
search words or terms of their own choice, receiving in response a list
of all books in the database in which those terms appear, as well as the
number of times the term appears in each book.
→ A brief description of each book, entitled "About the Book," gives
some rudimentary additional information, including a list of the
words and terms that appear with most frequency in the book.
→ It sometimes provides links to buy the book online and identifies
libraries where the book can be found.
→ The search tool permits a researcher to identify those books, out
of millions, that do, as well as those that do not, use the terms
selected by the researcher.
→ Google notes that this identifying information instantaneously
supplied would otherwise not be obtainable in lifetimes of
searching.
 No advertising is displayed to a user of the search function. Nor does
Google receive payment by reason of the searcher's use of Google's link
to purchase the book.
 The search engine also makes possible new forms of research, known
as "text mining" and "data mining."
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 23
 → Google's "ngrams" research tool draws on the Google Library
Project corpus to furnish statistical information to Internet users
about the frequency of word and phrase usage over centuries.
→ This tool permits users to discern fluctuations of interest in a
particular subject over time and space by showing increases and
decreases in the frequency of reference and usage in different
periods and different linguistic regions. It also allows researchers
to comb over the tens of millions of books Google has scanned in
order to examine "word frequencies, syntactic patterns, and
thematic markers" and to derive information on how
nomenclature, linguistic usage, and literary style have changed
over time.
→ The Google Books search function also allows the user a limited
viewing of text.
→ In addition to telling the number of times the word or term selected
by the searcher appears in the book, the search function will
display a maximum of three "snippets" containing it.
→ A snippet is a horizontal segment comprising ordinarily an eighth
of a page.
→ Each page of a conventionally formatted book in the Google Books
database is divided into eight non-overlapping horizontal
segments, each such horizontal segment being a snippet.
→ Each search for a particular word or term within a book will reveal
the same three snippets, regardless of the number of computers
from which the search is launched.
→ Only the first usage of the term on a given page is displayed. Thus,
if the top snippet of a page contains two (or more) words for which
the user searches, and Google's program is fixed to reveal that
particular snippet in response to a search for either term, the
second search will duplicate the snippet already revealed by the
first search, rather than moving to reveal a different snippet
containing the word because the first snippet was already revealed.
 Google's program does not allow a searcher to increase the number of
snippets revealed by repeated entry of the same search term or by
entering searches from different computers.
→ A searcher can view more than three snippets of a book by entering
additional searches for different terms.
→ However, Google makes permanently unavailable for snippet view
one snippet on each page and one complete page out of every ten
— a process Google calls "blacklisting."
 Google also disables snippet view entirely for types of books for which
a single snippet is likely to satisfy the searcher's present need for the
book, such as dictionaries, cookbooks, and books of short poems.
 Since 2005, Google will exclude any book altogether from snippet view
at the request of the rights holder by the submission of an online form.
 Under its contracts with the participating libraries, Google allows each
library to download copies — of both the digital image and machine-
readable versions — of the books that library submitted to Google for
scanning (but not of books submitted by other libraries).
→ This is done by giving each participating library access to the Google
Return Interface ("GRIN").
→ The agreements between Google and the libraries, although not in
all respects uniform, require the libraries to abide by copyright law
in utilizing the digital copies they download and to take precautions
to prevent dissemination of their digital copies to the public at
large.
→ Through the GRIN facility, participant libraries have downloaded at
least 2.7 million digital copies of their own volumes.
The Search and Snippet View Functions
Factor One: the purpose and character of the use, including whether such
use is of a commercial nature or is for nonprofit educational purposes
(1) Transformative purpose.
→ Campbell's explanation of the first factor's inquiry into the
"purpose and character" of the secondary use focuses on whether
the new work, merely `supersedes the objects' of the original
creation, or instead adds something new, with a further purpose.
→ in other words, it asks, whether and to what extent the new work
is transformative
→ transformative uses tend to favor a fair use finding because a
transformative use is one that communicates something new and
different from the original or expands its utility, thus serving
copyright's overall objective of contributing to public knowledge
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 24
 → it does not mean that any and all changes made to an author's
original text will necessarily support a finding of fair use
The Supreme Court's discussion in Campbell gave important guidance on
assessing when a transformative use tends to support a conclusion of fair
use. The defendant in that case defended on the ground that its work was a
parody of the original and that parody is a time-honored category of fair use.
→ the would-be fair user of another's work must have justification for the
taking
→ A secondary author is not necessarily at liberty to make wholesale
takings of the original author's expression merely because of how well
the original author's expression would convey the secondary author's
different message.
Among the best recognized justifications for copying from another's work is
to provide comment on it or criticism of it.
 A taking from another author's work for the purpose of making points
that have no bearing on the original may well be fair use, but the taker
would need to show a justification.
 This part of the Supreme Court's discussion is significant in assessing
Google's claim of fair use because, as discussed extensively below,
Google's claim of transformative purpose for copying from the works of
others is to provide otherwise unavailable information about the
originals.
 A further complication that can result from oversimplified reliance on
whether the copying involves transformation is that the word
"transform" also plays a role in defining "derivative works," over which
the original rights holder retains exclusive control.
Section 106 of the Act specifies the "exclusive right" of the copyright owner
"(2) to prepare derivative works based upon the copyrighted work." See 17
U.S.C. § 106.
 The statute defines derivative works largely by example, rather than
explanation.
 The examples include "translation, musical arrangement,
dramatization, fictionalization, motion picture version, sound
recording, art reproduction, abridgement, condensation," to which list
the statute adds "any other form in which a work may be ...
transformed." 17 U.S.C. § 101
In Authors Guild, Inc. v. HathiTrust, "[p]aradigmatic examples
of derivative works include the translation of a novel into
another language, the adaptation of a novel into a movie or
play, or the recasting of a novel as an e-book or an
audiobook."
 While such changes can be described as transformations, they do not
involve the kind of transformative purpose that favors a fair use finding.
 The statutory definition suggests that derivative works generally involve
transformations in the nature of changes of form. 17 U.S.C. § 101.
 By contrast, copying from an original for the purpose of criticism or
commentary on the original or provision of information about it, tends
most clearly to satisfy Campbell's notion of the "transformative"
purpose involved in the analysis of Factor One.
 With these considerations in mind, we first consider whether Google's
search and snippet views functions satisfy the first fair use factor with
respect to Plaintiffs' rights in their books.
(2) Search Function.
→ making of a digital copy of Plaintiffs' books for the purpose of
enabling a search for identification of books containing a term of
interest to the searcher involves a highly transformative purpose,
in the sense intended by Campbell.
→ the purpose of Google's copying of the original copyrighted books
is to make available significant information about those books,
permitting a searcher to identify those that contain a word or
term of interest, as well as those that do not include reference to
it. In addition, through the ngrams tool, Google allows readers to
learn the frequency of usage of selected words in the aggregate
corpus of published books in different historical periods
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 25
 → the purpose of this copying is the sort of transformative purpose
described in Campbell as strongly favoring satisfaction of the first
factor
(3) Snippet View.
Plaintiffs correctly point out that this case is significantly different from
HathiTrust in that the Google Books search function allows searchers to read
snippets from the book searched, whereas HathiTrust did not allow
searchers to view any part of the book. Snippet view adds important value
to the basic transformative search function, which tells only whether and
how often the searched term appears in the book. Merely knowing that a
term of interest appears in a book does not necessarily tell the searcher
whether she needs to obtain the book, because it does not reveal whether
the *218 term is discussed in a manner or context falling within the scope
of the searcher's interest. For example, a searcher seeking books that
explore Einstein's theories, who finds that a particular book includes 39
usages of "Einstein," will nonetheless conclude she can skip that book if the
snippets reveal that the book speaks of "Einstein" because that is the name
of the author's cat. In contrast, the snippet will tell the searcher that this is
a book she needs to obtain if the snippet shows that the author is engaging
with Einstein's theories.
218
Google's division of the page into tiny snippets is designed to show the
searcher just enough context surrounding the searched term to help her
evaluate whether the book falls within the scope of her interest (without
revealing so much as to threaten the author's copyright interests). Snippet
view thus adds importantly to the highly transformative purpose of
identifying books of interest to the searcher. With respect to the first factor
test, it favors a finding of fair use (unless the value of its transformative
purpose is overcome by its providing text in a manner that offers a
competing substitute for Plaintiffs' books, which we discuss under factors
three and four below).
(9) Google's Commercial Motivation.
 Plaintiffs contend that Google's commercial motivation weighs in
their favor under the first factor.
 Google's commercial motivation distinguishes this case from
HathiTrust, as the defendant in that case was a non-profit
entity founded by, and acting as the representative of,
libraries.
 Although Google has no revenues flowing directly from its
operation of the Google Books functions, Plaintiffs stress that
Google is profit-motivated and seeks to use its dominance of
book search to fortify its overall dominance of the Internet
search market, and that thereby Google indirectly reaps profits
from the Google Books functions.
 Plaintiffs rely primarily on two sources:
 Congress's specification in spelling out the first fair use factor in the
text of § 107 that consideration of the "purpose and character of
the [secondary] use" should "include[e] whether such use is of a
commercial nature or is for nonprofit educational purposes."
 Supreme Court's assertion in dictum in Sony Corporation of
America v. Universal City Studios, Inc, that "every commercial use
of copyrighted material is presumptively ... unfair."
– If that were the extent of precedential authority on the relevance of
commercial motivation, Plaintiffs' arguments would muster impressive
support.
– However, while the commercial motivation of the secondary use can
undoubtedly weigh against a finding of fair use in some circumstances,
the Supreme Court have eventually recognized that the Sony dictum
was enormously overstated.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 26

The Sixth Circuit took the Sony dictum at its word in Acuff-
Rose Music, Inc. v. Campbell, concluding that, because the
defendant rap music group's spoof of the plaintiff's ballad
was done for profit, it could not be fair use. The Supreme
Court reversed on this very point, observing that "Congress
could not have intended" such a broad presumption against
commercial fair uses, as "nearly all of the illustrative uses
listed in the preamble paragraph of § 107 ... are generally
conducted for profit in this country." The Court emphasized
Congress's statement in the House Report to the effect that
the commercial or nonprofit character of a work is "not
conclusive" but merely "a fact to be `weighed along with
other[s] in fair use decisions.'" In explaining the first fair use
factor, the Court clarified that "the more transformative the
[secondary] work, the less will be the significance of other
factors, like commercialism, that may weigh against a
finding of fair use."
 The Court has since repeatedly rejected the contention that
commercial motivation should outweigh a convincing
transformative purpose and absence of significant substitutive
competition with the original.
 The commercial/nonprofit dichotomy concerns the unfairness that
arises when a secondary user makes unauthorized use of
copyrighted material to capture significant revenues as a direct
consequence of copying the original work.
 This factor must be applied with caution because, as the Supreme
Court has recognized, Congress could not have intended a rule that
commercial uses are presumptively unfair.
 Instead, the more transformative the new work, the less will be the
significance of other factors, like commercialism, that may weigh
against a finding of fair use
 While we recognize that in some circumstances, a commercial
motivation on the part of the secondary user will weigh against her,
especially, as the Supreme Court suggested, when a persuasive
transformative purpose is lacking, Campbell, we see no reason in
this case why Google's overall profit motivation should prevail as
a reason for denying fair use over its highly convincing
transformative purpose, together with the absence of significant
substitutive competition, as reasons for granting fair use.
Factor Two: the nature of the copyrighted work
 One cannot assess whether the copying work has an objective that
differs from the original without considering both works, and their
respective objectives.
 The second factor has rarely played a significant role in the
determination of a fair use dispute.
The Supreme Court in Harper & Row made a passing
observation in dictum that, "[t]he law generally recognizes
a greater need to disseminate factual works than works of
fiction or fantasy."
 Courts have sometimes speculated that this might mean that a finding
of fair use is more favored when the copying is of factual works than
when copying is from works of fiction.
 However, while the copyright does not protect facts or ideas set forth
in a work, it does protect that author's manner of expressing those facts
and ideas.
 At least unless a persuasive fair use justification is involved, authors of
factual works, like authors of fiction, should be entitled to copyright
protection of their protected expression.
 The mere fact that the original is a factual work therefore should not
imply that others may freely copy it.
 Those who report the news undoubtedly create factual works. It cannot
seriously be argued that, for that reason, others may freely copy and re-
disseminate news reports.
In considering the second factor in HathiTrust, we concluded
that it was "not dispositive,", commenting that courts have
hardly ever found that the second factor in isolation played
a large role in explaining a fair use decision.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 27
 While each of the three Plaintiffs' books in this case is factual, we do
not consider that as a boost to Google's claim of fair use.
 If one (or all) of the plaintiff works were fiction, we do not think that
would change in any way our appraisal.
 Nothing in this case influences us one way or the other with respect to
the second factor considered in isolation.
 To the extent that the "nature" of the original copyrighted work
necessarily combines with the "purpose and character" of the
secondary work to permit assessment of whether the secondary work
uses the original in a "transformative" manner, as the term is used in
Campbell, the second factor favors fair use not because Plaintiffs' works
are factual, but because the secondary use transformatively provides
valuable information about the original, rather than replicating
protected expression in a manner that provides a meaningful substitute
for the original.
Factor Three: the amount and substantiality of the portion used in relation
to the copyrighted work as a whole
 implication: a finding of fair use is more likely when small amounts, or
less important passages, are copied than when the copying is extensive,
or encompasses the most important parts of the original
 reason: The larger the amount, or the more important the part, of the
original that is copied, the greater the likelihood that the secondary
work might serve as an effectively competing substitute for the original,
and might therefore diminish the original rights holder's sales and
profits.
(1) Search Function.
 The Google Books program has made a digital copy of the entirety
of each of Plaintiffs' books.
 Complete unchanged copying has repeatedly been found justified
as fair use when the copying was reasonably appropriate to achieve
the copier's transformative purpose and was done in such a
manner that it did not offer a competing substitute for the original.
 While Google makes an unauthorized digital copy of the entire
book, it does not reveal that digital copy to the public.
 The copy is made to enable the search functions to reveal limited,
important information about the books.
 With respect to the search function, Google satisfies the third
factor test, as illuminated by the Supreme Court in Campbell.
The Supreme Court said in Campbell that "the extent of
permissible copying varies with the purpose and character
of the use" and characterized the relevant questions as
whether "the amount and substantiality of the portion used
... are reasonable in relation to the purpose of the
copying,"noting that the answer to that question will be
affected by "the degree to which the [copying work] may
serve as a market substitute for the original or potentially
licensed derivatives," (finding that, in the case of a parodic
song, "how much ... is reasonable will depend, say, on the
extent to which the song's overriding purpose and character
is to parody the original or, in contrast, the likelihood that the
parody may serve as a market substitute for the original").
In HathiTrust, our court concluded in its discussion of the
third factor that "[b]ecause it was reasonably necessary for
the [HathiTrust Digital Library] to make use of the entirety of
the works in order to enable the full-text search function, we
do not believe the copying was excessive." 755 F.3d at 98.
As with HathiTrust, not only is the copying of the totality of
the original reasonably appropriate to Google's
transformative purpose, it is literally necessary to achieve
that purpose. If Google copied less than the totality of the
originals, its search function could not advise searchers
reliably whether their searched term appears in a book (or
how many times).
(2) Snippet View.
 What matters in this case is not so much "the amount and
substantiality of the portion used" in making a copy, but rather the
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 28
 amount and substantiality of what is thereby made accessible to a
public for which it may serve as a competing substitute.
In HathiTrust, notwithstanding the defendant's full-text
copying, the search function revealed virtually nothing of the
text of the originals to the public. Here, through the snippet
view, more is revealed to searchers than in HathiTrust.
 enabling searchers to see portions of the copied texts could have
determinative effect on the fair use analysis
 The larger the quantity of the copyrighted text the searcher can see
and the more control the searcher can exercise over what part of
the text she sees, the greater the likelihood that those revelations
could serve her as an effective, free substitute for the purchase of
the plaintiff's book.
 Nonetheless, at least as presently structured by Google, the
snippet view does not reveal matter that offers the marketplace a
significantly competing substitute for the copyrighted work
 Google has constructed the snippet feature in a manner that
substantially protects against its serving as an effectively
competing substitute for Plaintiffs' books.
 a variety of limitations Google is imposed on the snippet function.
 These include the small size of the snippets (normally one eighth of
a page), the blacklisting of one snippet per page and of one page in
every ten, the fact that no more than three snippets are shown —
and no more than one per page — for each term searched, and the
fact that the same snippets are shown for a searched term no
matter how many times, or from how many different computers,
the term is searched.
 Google does not provide snippet view for types of books, such as
dictionaries and cookbooks, for which viewing a small segment is
likely to satisfy the searcher's need.
 The result of these restrictions is, so far as the record
demonstrates, that a searcher cannot succeed, even after long
extended effort to multiply what can be revealed, in revealing
through a snippet search what could usefully serve as a competing
substitute for the original.
 The blacklisting, which permanently blocks about 22% of a book's
text from snippet view, is by no means the most important of the
obstacles Google has designed.
 While the blacklisting of 22% leaves 78% of a book theoretically
accessible to a searcher, it does not follow that any large part of
that 78% is in fact accessible.
 The other restrictions built into the program work together to
ensure that, even after protracted effort over a substantial period
of time, only small and randomly scattered portions of a book will
be accessible.
 In an effort to show what large portions of text searchers can read
through persistently augmented snippet searches, Plaintiffs'
counsel employed researchers over a period of weeks to do
multiple word searches on Plaintiffs' books. In no case were they
able to access as much as 16% of the text, and the snippets
collected were usually not sequential but scattered randomly
throughout the book.
 Because Google's snippets are arbitrarily and uniformly divided by
lines of text, and not by complete sentences, paragraphs, or any
measure dictated by content, a searcher would have great difficulty
constructing a search so as to provide any extensive information
about the book's use of that term.
 As snippet view never reveals more than one snippet per page in
response to repeated searches for the same term, it is at least
difficult, and often impossible, for a searcher to gain access to more
than a single snippet's worth of an extended, continuous discussion
of the term.
 The fact that Plaintiffs' searchers managed to reveal nearly 16% of
the text of Plaintiffs' books overstates the degree to which snippet
view can provide a meaningful substitute.
 Even if the search function revealed 100% of the words of the
copyrighted book, this would be of little substitutive value if the
words were revealed in alphabetical order, or any order other than
the order they follow in the original book.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 29
  It cannot be said that a revelation is "substantial" in the sense
intended by the statute's third factor if the revelation is in a form
that communicates little of the sense of the original.
 The fragmentary and scattered nature of the snippets revealed,
even after a determined, assiduous, time-consuming search,
results in a revelation that is not "substantial," even if it includes an
aggregate 16% of the text of the book.
Factor Four: the effect of the use upon the potential market for or value of
the copyrighted work
 focuses on whether the copy brings to the marketplace a competing
substitute for the original, or its derivative, so as to deprive the rights
holder of significant revenues because of the likelihood that potential
purchasers may opt to acquire the copy in preference to the original
 copyright is a commercial doctrine whose objective is to stimulate
creativity among potential authors by enabling them to earn money
from their creations, the fourth factor is of great importance in making
a fair use assessment.
Campbell stressed the close linkage between the first and
fourth factors, in that the more the copying is done to achieve
a purpose that differs from the purpose of the original, the
less likely it is that the copy will serve as a satisfactory
substitute for the original.
HathiTrust court found that the fourth factor favored the
defendant and supported a finding of fair use because the
ability to search the text of the book to determine whether it
includes selected words "does not serve as a substitute for
the books that are being searched."
Even if the purpose of the copying is for a valuably transformative purpose,
such copying might nonetheless harm the value of the copyrighted original
if done in a manner that results in widespread revelation of sufficiently
significant portions of the original as to make available a significantly
competing substitute.
– The question is whether snippet view, notwithstanding its
transformative purpose, does that.
 at least as snippet view is presently constructed, it does not
 in view of the fact that the normal purchase price of a book is relatively
low in relation to the cost of manpower needed to secure an arbitrary
assortment of randomly scattered snippets
 the snippet function does not give searchers access to effectively
competing substitutes
 Snippet view, at best and after a large commitment of manpower,
produces discontinuous, tiny fragments, amounting in the
aggregate to no more than 16% of a book
 This does not threaten the rights holders with any significant harm
to the value of their copyrights or diminish their harvest of
copyright revenue
 It is recognized that the snippet function can cause some loss of
sales
 There are surely instances in which a searcher's need for access to
a text will be satisfied by the snippet view, resulting in either the
loss of a sale to that searcher, or reduction of demand on libraries
for that title, which might have resulted in libraries purchasing
additional copies
 But the possibility, or even the probability or certainty, of some loss
of sales does not suffice to make the copy an effectively competing
substitute that would tilt the weighty fourth factor in favor of the
rights holder in the original.
 There must be a meaningful or significant effect "upon the
potential market for or value of the copyrighted work." 17 U.S.C.
§ 107(4).
 the type of loss of sale envisioned above will generally occur in
relation to interests that are not protected by the copyright.
 A snippet's capacity to satisfy a searcher's need for access to a
copyrighted book will at times be because the snippet conveys a
historical fact that the searcher needs to ascertain.
 Even if the snippet reveals some authorial expression, because of
the brevity of a single snippet and the cumbersome, disjointed, and
incomplete nature of the aggregation of snippets made available
through snippet view, it would be a rare case in which the
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 30
 searcher's interest in the protected aspect of the author's work
would be satisfied by what is available from snippet view, and rarer
still — because of the cumbersome, disjointed, and incomplete
nature of the aggregation of snippets made available through
snippet view — that snippet view could provide a significant
substitute for the purchase of the author's book.
 considering the four fair use factors in light of the goals of copyright, we
conclude that Google's making of a complete digital copy of Plaintiffs'
works for the purpose of providing the public with its search and
snippet view functions is a fair use and does not infringe Plaintiffs'
copyrights in their books.
CONCLUSIONS:
(1) Google's unauthorized digitizing of copyright-protected works, creation
of a search functionality, and display of snippets from those works are non-
infringing fair uses. The purpose of the copying is highly transformative, the
public display of text is limited, and the revelations do not provide a
significant market substitute for the protected aspects of the originals.
Google's commercial nature and profit motivation do not justify denial of
fair use.
(2) Google's provision of digitized copies to the libraries that supplied the
books, on the understanding that the libraries will use the copies in a
manner consistent with the copyright law, also does not constitute
infringement. Nor, on this record, is Google a contributory infringer.
-----------------------------------------------------------------------------------
CASE BRIEF:
Second Circuit affirms district court's holding that Google's creation of
searchable, digital copies of tens of millions of books constitutes fair use
under Copyright Act, because Google's search service merely provides
information about books and displays only small "snippets" of books’ text,
and therefore serves transformative purpose that will not harm marketplace
for books.
The Authors Guild, individual authors and several publishers sued Google,
Inc., for digitizing and creating a searchable database of 20 million books,
including books protected by copyright, as part of its Google Books and
Library Project. The district court concluded that Google’s copying
constitutes fair use under the Copyright Act. On appeal to the Second
Circuit, the plaintiffs contended Google’s copying, digitization and display of
copyright-protected works did not constitute fair use. They also argued that
Google’s service infringes their right to prepare derivative works of their
copyrighted works, creates the risk that hackers will gain access to and
disseminate full digital copies of the books, and violates their copyrights by
distributing the digitized copies to participating libraries. The Second Circuit
affirmed, finding the project to be a highly transformative use within the
scope of the fair use doctrine.
As part of its Library Project, Google scans entire books found in the
collections of participating libraries, which include both works under
copyright and works in the public domain. After digitizing and indexing the
books, Google provides the participating libraries with digital copies of the
books. The libraries agree to make only noninfringing uses of the digital
copies, and to take precautions to prevent the dissemination of the digital
copies to the public at large. Google did not seek or obtain permission from
the rights holders to digitally copy or display their books.
As part of its Google Books project, Google then indexes all the words that
appear in the books it has digitized, so that users can search the books
database for specific words or terms. Google Books displays small “snippets”
of each book that contain the searched-for terms. Users are also directed to
an “About the Book” page, which includes links to sellers of the books and
libraries that have book in their collections.
In its de novo review, the Second Circuit analyzed the four fair use factors
under the Copyright Act: (1) the purpose and character of the use; (2) the
nature of the copyrighted work; (3) the amount and substantiality of the
portion used in relation to the copyrighted work as a whole; and (4) the
effect of the use upon the potential market for or value of the copyrighted
work.
Regarding the first factor, the Second Circuit found Google’s use of the
copyrighted works to be highly transformative. A transformative use, the
court explained, is “one that communicates something new and different
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 31
from the original or expands its utility, thus serving copyright’s overall
objective of contributing to public knowledge.” Transformative uses include
copying for the purpose of criticism or commentary, or to provide
information about the original work.
The court found that Google’s search features — which merely display small
“snippets” of the book containing the searched terms, and thereby helps
identify books that would be of interest to the searcher — merely provide
information about the copyrighted works, rather than serving as a substitute
for the expressive content in the books themselves. Google’s use of the
works was thus highly transformative. Although Google’s use was
commercial in nature, that did not automatically disqualify it from being a
fair use, according to the court, as many of the universally accepted forms
of transformative fair uses are motivated by profits.
The second factor — the nature of the copyrighted work — typically does
not play a significant role in the fair use analysis, but is helpful in deciding
whether the defendant’s use is transformative, according to the Second
Circuit. The court found that the second factor favors fair use in this case,
“because the secondary use transformatively provides valuable information
about the original, rather than replicating protected expression in a manner
that provides a meaningful substitute for the original.”
The third factor — the amount and substantiality of the portion of the
original work used in the secondary work — ostensibly weighed against fair
use, as Google copied the books in their entirety. The court noted, however,
that “courts have rejected any categorical rule that a copying of the entirety
cannot be a fair use.” The Second Circuit found that copying anything less
than the entirety of the copyrighted book would defeat the purpose of
creating a full-text searchable index, which, the court had already
concluded, is a highly transformative use. The Second Circuit also found that
while Google’s display of snippets allowed users to see portions of the book
itself, the portions were too small to serve as a substitute for the experience
of reading the book itself, and the security measures implemented by
Google helped ensure that full digital copies of the books did not become
publicly available.
The fourth fair use factor is the effect a secondary use will have on the
potential market for or value of the original. The court noted that in
Campbell v. Acuff-Rose, the Supreme Court drew a connection between the
fourth and the first factors, explaining that the more transformative a
secondary use is under the first factor, the less likely it is that the secondary
use will have an effect on the market of the original under the fourth factor.
The court found that the highly transformative nature of Google Books’
search functionality had no significant effect on the market for copyrighted
books, because a search for selected words does not serve as a substitute
for purchasing and reading the book itself. Although the snippet view
feature could conceivably result in lost sales when a user of Google Books is
searching for only a small piece of information contained in the book, that
type of information will often be factual in nature, which is not subject to
copyright protection. The fourth factor therefore weighed in favor of fair
use.
The court also rejected plaintiffs’ argument that Google’s book scanning
activities infringed their right to prepare derivative works. The Second
Circuit explained that an author’s exclusive right to prepare derivative works
does not encompass the right to provide information about the original
work in the transformative way that Google has devised. The Second Circuit
also rejected plaintiffs’ arguments that Google was impeding the authors’
ability to license their works to other searchable databases, finding that
those display a much larger portion of the book than does Google Books’
snippet view. Google Books is therefore not a substitute for those other
services.
Finally, the court rejected plaintiffs’ argument that Google’s distribution of
full digital copies of the books to participating libraries was not a fair use,
because of the possibility that these digital copies could become publicly
available, or be used by the libraries in infringing ways. The Second Circuit
noted that the libraries were merely using Google’s resources and technical
expertise to index books in their collections, in a way that would be fair use
if it were done by the libraries themselves. Furthermore, Google and the
participating libraries are operating under agreements that prohibit the
libraries from using the digital copies in infringing ways, the court noted.
-----------------------------------------------------------------------------------
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 32
AUTHORS GUILD vs GOOGLE (OTHER ISSUES)
Derivative Rights in Search and Snippet View
 Plaintiffs contend that, under Section 106(2), they have a derivative
right in the application of search and snippet view functions to their
works, and that Google has usurped their exclusive market for such
derivatives.
 There is no merit to this argument.
 Google does not infringe Plaintiffs' copyright in their works by making
digital copies of them, where the copies are used to enable the public
to get information about the works, such as whether, and how often
they use specified words or terms
 The copyright resulting from the Plaintiffs' authorship of their works
does not include an exclusive right to furnish the kind of information
about the works that Google's programs provide to the public
 For substantially the same reasons, the copyright that protects
Plaintiffs' works does not include an exclusive derivative right to supply
such information through query of a digitized copy.
 The extension of copyright protection beyond the copying of the work
in its original form to cover also the copying of a derivative reflects a
clear and logical policy choice.
 An author's right to control and profit from the dissemination of her
work ought not to be evaded by conversion of the work into a different
form.
 derivative works over which the author of the original enjoys exclusive
rights ordinarily are those that represent the protected aspects of the
original work, i.e., its expressive content, converted into an altered
form, such as the conversion of a novel into a film, the translation of a
writing into a different language, the reproduction of a painting in the
form of a poster or post card, recreation of a cartoon character in the
form of a three-dimensional plush toy, adaptation of a musical
composition for different instruments, or other similar conversions.
 If Plaintiffs' claim were based on Google's converting their books into a
digitized form and making that digitized version accessible to the public,
their claim would be strong.
 But Google safeguards from public view the digitized copies it makes
and allows access only to the extent of permitting the public to search
for the very limited information accessible through the search function
and snippet view.
 The program does not allow access in any substantial way to a book's
expressive content.
 Nothing in the statutory definition of a derivative work, or of the logic
that underlies it, suggests that the author of an original work enjoys an
exclusive derivative right to supply information about that work of the
sort communicated by Google's search functions.
 Plaintiffs seek to support their derivative claim by a showing that there
exist, or would have existed, paid licensing markets in digitized works,
such as those provided by the Copyright Clearance Center or the
previous, revenue-generating version of the Google Partners Program.
 Plaintiffs also point to the proposed settlement agreement rejected by
the district court in this case, according to which Google would have
paid authors for its use of digitized copies of their works.
 The existence or potential existence of such paid licensing schemes
does not support Plaintiffs' derivative argument.
 The access to the expressive content of the original that is or would
have been provided by the paid licensing arrangements Plaintiffs
cite is far more extensive than that which Google's search and
snippet view functions provide.
 Those arrangements allow or would have allowed public users to
read substantial portions of the book.
 Such access would most likely constitute copyright infringement if
not licensed by the rights holders.
 such arrangements have no bearing on Google's present programs,
which, in a non-infringing manner, allow the public to obtain
limited data about the contents of the book, without allowing any
substantial reading of its text
 Plaintiffs also seek to support their derivative claim by a showing that
there is a current unpaid market in licenses for partial viewing of
digitized books, such as the licenses that publishers currently grant to
the Google Partners program and Amazon's Search Inside the Book
program to display substantial portions of their books.
 Plaintiffs rely on Infinity Broadcast Corporation v. Kirkwood, and United
States v. American Society of Composers, Authors and Publishers
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 33
 (ASCAP) for the proposition that "a secondary use that replaces a  There is no reason to think the courts in the cited cases would have
comparable service licensed by the copyright holder, even without come to the same conclusion if the service being provided by the
charge, may cause market harm." secondary user had been simply to identify to a subscriber in what
 In the cases cited, however, the purpose of the challenged key a selected composition was written, the year it was written, or
secondary uses was not the dissemination of information about the the name of the composer.
original works, which falls outside the protection of the copyright,  These cases, and the existence of unpaid licensing schemes for
but was rather the re-transmission, or re-dissemination, of their substantial viewing of digitized works, do not support Plaintiffs'
expressive content. derivative works argument.
 Those precedents do not support the proposition Plaintiffs assert
— namely that the availability of licenses for providing unprotected
information about a copyrighted work, or supplying unprotected Plaintiffs' Exposure to Risks of Hacking of Google's Files
services related to it, gives the copyright holder the right to exclude  Plaintiffs argue that Google's storage of its digitized copies of Plaintiffs'
others from providing such information or services. books exposes them to the risk that hackers might gain access and make
the books widely available, thus destroying the value of their
 While the telephone ringtones at issue in the ASCAP case Plaintiffs cite copyrights.
are superficially comparable to Google's snippets in that both consist of  If, in the course of making an arguable fair use of a copyrighted
brief segments of the copyrighted work, in a more significant way they work, a secondary user unreasonably exposed the rights holder to
are fundamentally different. While it is true that Google's snippets destruction of the value of the copyright resulting from the public's
display a fragment of expressive content, the fragments it displays opportunity to employ the secondary use as a substitute for
result from the appearance of the term selected by the searcher in an purchase of the original (even though this was not the intent of the
otherwise arbitrarily selected snippet of text. secondary user), this might well furnish a substantial rebuttal to the
 Unlike the reading experience that the Google Partners program or the secondary user's claim of fair use.
Amazon Search Inside the Book program provides, the snippet function
does not provide searchers with any meaningful experience of the  While Plaintiffs' claim is theoretically sound, it is not supported by the
expressive content of the book. evidence.
 Its purpose is not to communicate copyrighted expression, but
rather, by revealing to the searcher a tiny segment surrounding the
searched term, to give some minimal contextual information to
help the searcher learn whether the book's use of that term will be
of interest to her.
 The segments taken from copyrighted music as ringtones, in
contrast, are selected precisely because they play the most famous,
beloved passages of the particular piece — the expressive content
that members of the public want to hear when their phone rings.
 The value of the ringtone to the purchaser is not that it provides
information but that it provides a mini-performance of the most
appealing segment of the author's expressive content.

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 34

 In HathiTrust, we faced substantially the same exposure-to-
piracy argument. The record in HathiTrust, however,
"document[ed] the extensive security measures [the
secondary user] ha[d] undertaken to safeguard against the
risk of a data breach," evidence which was unrebutted. The
HathiTrust court thus found "no basis ... on which to conclude
that a security breach is likely to occur, much less one that
would result in the public release of the specific copyrighted
works belonging to any of the plaintiffs in this case." (finding
that risk of future harm must be "certainly impending," rather
than merely "conjectural" or "hypothetical," to constitute a
cognizable injury-in-fact), and (concluding that time-shifting
using a Betamax is fair use because the copyright owners'
"prediction that live television or movie audiences will
decrease" was merely "speculative")).
 Google has documented that Google Books' digital scans are stored on
computers walled off from public Internet access and protected by the
same impressive security measures used by Google to guard its own
confidential information.
 Plaintiffs' own security expert praised these security systems,
remarking that "Google is fortunate to have ample resources and top-
notch technical talents" that enable it to protect its data.. Nor have
Plaintiffs identified any thefts from Google Books (or from the Google
Library Project).
 Google has made a sufficient showing of protection of its digitized
copies of Plaintiffs' works to carry its burden on this aspect of its claim
of fair use and thus to shift to Plaintiffs the burden of rebutting Google's
showing.
 Plaintiffs' effort to do so falls far short.
Google's Distribution of Digital Copies to Participant Libraries
 Plaintiffs contend that Google's distribution to a participating library of
a digital copy of Plaintiffs' books is not a fair use and exposes the
Plaintiffs to risks of loss if the library uses its digital copy in an infringing
manner, or if the library fails to maintain security over its digital copy
with the consequence that the book may become freely available as a
result of the incursions of hackers.
 The claim fails.
 Although Plaintiffs describe the arrangement between Google and the
libraries in more nefarious terms, those arrangements are essentially
that each participant library has contracted with Google that Google
will create for it a digital copy of each book the library submits to
Google, so as to permit the library to use its digital copy in a non-
infringing fair use manner.
 The libraries propose to use their digital copies to enable the very kinds
of searches that we here hold to be fair uses in connection with Google's
offer of such searches to the Internet public, and which we held in
HathiTrust to be fair uses when offered by HathiTrust to its users.
 The contract between Google and each of the participating libraries
commits the library to use its digital copy only in a manner consistent
with the copyright law, and to take precautions to prevent
dissemination of their digital copies to the public at large.
 In these circumstances, Google's creation for each library of a digital
copy of that library's already owned book in order to permit that library
to make fair use through provision of digital searches is not an
infringement.
 If the library had created its own digital copy to enable its provision
of fair use digital searches, the making of the digital copy would not
have been infringement.
 Nor does it become an infringement because, instead of making its
own digital copy, the library contracted with Google that Google
would use its expertise and resources to make the digital
conversion for the library's benefit.
 It is recognized the possibility that libraries may use the digital copies
Google created for them in an infringing manner.
 If they do, such libraries may be liable to Plaintiffs for their
infringement.
 It is also possible that, in such a suit, Plaintiffs might adduce evidence
that Google was aware of or encouraged such infringing practices, in
which case Google could be liable as a contributory infringer.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 35
  But on the present record, the possibility that libraries may misuse
their digital copies is sheer speculation.
 Nor is there any basis on the present record to hold Google liable
as a contributory infringer based on the mere speculative
possibility that libraries, in addition to, or instead of, using their
digital copies of Plaintiffs' books in a non-infringing manner, may
use them in an infringing manner.
 It is recognized that there is additional possibility that the libraries
might incur liability by negligent mishandling of, and failure to protect,
their digital copies, leaving them unreasonably vulnerable to hacking.
 That also, however, is nothing more than a speculative possibility.
 There is no basis in the record to impose liability on Google for
having lawfully made a digital copy for a participating library so as
to enable that library to make non-infringing use of its copy, merely
because of the speculative possibility that the library may fail to
guard sufficiently against the dangers of hacking, as it is
contractually obligated to do.
 Plaintiffs have failed to establish any basis for holding Google liable
for its creation of a digital copy of a book submitted to it by a
participating library so as to enable that library to make fair use of
it.

CONCLUSION: The judgment of the district court is AFFIRMED.

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 36

ASIA BREWERY, INC. vs. CA
FACTS:
 San Miguel Corporation (SMC) filed a complaint against Asia Brewery
Inc. (ABI) for infringement of trademark and unfair competition on
account of the latter's BEER PALE PILSEN or BEER NA BEER product
which has been competing with SMC's SAN MIGUEL PALE PILSEN for a
share of the local beer market.
RTC: dismissing SMC's complaint because ABI "has not committed
trademark infringement or unfair competition against" SMC
CA: reversed the trial court
 Asia Brewery Incorporated GUILTY of infringement of trademark and
unfair competition
 Asia Brewery Inc. is permanently enjoined and restrained from
manufacturing, putting up, selling, advertising, offering or announcing
for sale, or supplying Beer Pale Pilsen, or any similar preparation,
manufacture or beer in bottles and under labels substantially identical
with or like the said bottles and labels of plaintiff San Miguel
Corporation employed for that purpose, or substantially identical with
or like the bottles and labels now employed by the defendant for that
purpose, or in bottles or under labels which are calculated to deceive
purchasers and consumers into the belief that the beer is the product
of the plaintiff or which will enable others to substitute, sell or palm off
the said beer of the defendant as and for the beer of the plaintiff-
complainant
SC: Does ABI's BEER PALE PILSEN label or "design" infringe upon SMC's SAN
MIGUEL PALE PILSEN WITH RECTANGULAR MALT AND HOPS DESIGN? NO.
reversed and set aside the decision of CA
 Infringement is determined by the "test of dominancy" rather than by
differences or variations in the details of one trademark and of another.
 Similarity in size, form and color, while relevant, is not conclusive.
 If the competing trademark contains the main or essential or
dominant features of another, and confusion and deception is
likely to result, infringement takes place.
 Duplication or imitation is not necessary; nor it is necessary that
the infringing label should suggest an effort to imitate.
 The question at issue in cases of infringement of trademarks is
whether the use of the marks involved would be likely to cause
confusion or mistakes in the mind of the public or deceive
purchasers
 the test is "similarity in the dominant features of the trademarks."
What are the dominant features of the competing trademarks before us?
 that the dominant feature of SMC's trademark is the name of the
product: SAN MIGUEL PALE PILSEN, written in white Gothic letters with
elaborate serifs at the beginning and end of the letters "S" and "M" on
an amber background across the upper portion of the rectangular
design
 the dominant feature of ABI's trademark is the name: BEER PALE
PILSEN, with the word "Beer" written in large amber letters, larger than
any of the letters found in the SMC label.
 the word "BEER" does not appear in SMC's trademark, just as the words
"SAN MIGUEL" do not appear in ABI's trademark
 there is absolutely no similarity in the dominant features of both
trademarks
 Neither in sound, spelling or appearance can BEER PALE PILSEN be said
to be confusingly similar to SAN MIGUEL PALE PILSEN. No one who
purchases BEER PALE PILSEN can possibly be deceived that it is SAN
MIGUEL PALE PILSEN.
 Besides the dissimilarity in their names, the following other
dissimilarities in the trade dress or appearance of the competing
products abound:
1) The SAN MIGUEL PALE PILSEN bottle has a slender tapered neck.
The BEER PALE PILSEN bottle has a fat, bulging neck.
2) The words "pale pilsen" on SMC's label are printed in bold and
laced letters along a diagonal band, whereas the words "pale
pilsen" on ABI's bottle are half the size and printed in slender block
letters on a straight horizontal band.
3) The names of the manufacturers are prominently printed on their
respective bottles. SAN MIGUEL PALE PILSEN is "Bottled by the San
Miguel Brewery, Philippines," whereas BEER PALE PILSEN is
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 37
 "Especially brewed and bottled by Asia Brewery Incorporated,
Philippines."
4) On the back of ABI's bottle is printed in big, bold letters, under a
row of flower buds and leaves, its copyrighted slogan: "BEER NA
BEER!" Whereas SMC's bottle carries no slogan.
5) The back of the SAN MIGUEL PALE PILSEN bottle carries the SMC
logo, whereas the BEER PALE PILSEN bottle has no logo.
6) The SAN MIGUEL PALE PILSEN bottle cap is stamped with a coat of
arms and the words "San Miguel Brewery Philippines" encircling
the same. The BEER PALE PILSEN bottle cap is stamped with the
name "BEER" in the center, surrounded by the words "Asia Brewery
Incorporated Philippines."
7) Finally, there is a substantial price difference between BEER PALE
PILSEN (currently at P4.25 per bottle) and SAN MIGUEL PALE PILSEN
(currently at P7.00 per bottle). One who pays only P4.25 for a bottle
of beer cannot expect to receive San Miguel Pale Pilsen from the
storekeeper or bartender.
 The fact that the words pale pilsen are part of ABI's trademark does not
constitute an infringement of SMC's trademark: SAN MIGUEL PALE
PILSEN
 for "pale pilsen" are generic words descriptive of the color ("pale"),
of a type of beer ("pilsen"), which is a light bohemian beer with a
strong hops flavor that originated in the City of Pilsen in
Czechoslovakia and became famous in the Middle Ages. "Pilsen" is
a "primarily geographically descriptive word," (Sec. 4, subpar. [e]
Republic Act No. 166, as inserted by Sec. 2 of R.A. No. 638) hence,
non-registerable and not appropriable by any beer manufacturer.
The Trademark Law provides:
Sec. 4. . . .. The owner of trade-mark, trade-name or service-mark used to
distinguish his goods, business or services from the goods, business or
services of others shall have the right to register the same [on the principal
register], unless it:
xxx xxx xxx
(e) Consists of a mark or trade-name which, when applied to or used in
connection with the goods, business or services of the applicant is merely
descriptive or deceptively misdescriptive of them, or when applied to or used
in connection with the goods, business or services of the applicant is
primarily geographically descriptive or deceptively misdescriptive of them,
or is primarily merely a surname."
 The words "pale pilsen" may not be appropriated by SMC for its
exclusive use even if they are part of its registered trademark
 A word or a combination of words which is merely descriptive of an
article of trade, or of its composition, characteristics, or qualities,
cannot be appropriated and protected as a trademark to the exclusion
of its use by others inasmuch as all persons have an equal right to
produce and vend similar articles, they also have the right to describe
them properly and to use any appropriate language or words for that
purpose, and no person can appropriate to himself exclusively any word
or expression, properly descriptive of the article, its qualities,
ingredients or characteristics, and thus limit other persons in the use of
language appropriate to the description of their manufactures, the right
to the use of such language being common to all.
 The circumstance that the manufacturer of BEER PALE PILSEN, Asia
Brewery Incorporated, has printed its name all over the bottle of its
beer product: on the label, on the back of the bottle, as well as on the
bottle cap, disproves SMC's charge that ABI dishonestly and
fraudulently intends to palm off its BEER PALE PILSEN as SMC's product.
SMC claims: the "trade dress" of BEER PALE PILSEN is "confusingly similar"
to its SAN MIGUEL PALE PILSEN because both are bottled in 320 ml. steinie
type, amber-colored bottles with white rectangular labels.
 The use of ABI of the steinie bottle, similar but not identical to the SAN
MIGUEL PALE PILSEN bottle, is not unlawful.
 SMC did not invent but merely borrowed the steinie bottle from
abroad and it claims neither patent nor trademark protection for
that bottle shape and design
 it is a standard type of bottle called steinie
 the shape was never registered as a trademark. Exhibit "C" is not a
registration of a beer bottle design required under Rep. Act 165 but
the registration of the name and other marks of ownership
stamped on containers as required by Rep. Act 623
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 38
 the neck of defendant's bottle is much larger and has a distinct
bulge in its uppermost part
 SMC's being the first to use the steinie bottle does not give SMC a
vested right to use it to the exclusion of everyone else
 Being of functional or common use, and not the exclusive invention
of any one, it is available to all who might need to use it within the
industry.
 ABI does not use SMC's steinie bottle. Neither did ABI copy it.
 ABI makes its own steinie bottle which has a fat bulging neck to
differentiate it from SMC's bottle.
 The amber color is a functional feature of the beer bottle. As
pointed out by ABI, all bottled beer produced in the Philippines is
contained and sold in amber-colored bottles because amber is the
most effective color in preventing transmission of light and
provides the maximum protection to beer.
 the ABI bottle has a 320 ml. capacity is not due to a desire to imitate
SMC's bottle because that bottle capacity is the standard
prescribed under Metrication Circular No. 778, dated 4 December
1979, of the Department of Trade, Metric System Board.
 With regard to the white label of both beer bottles, ABI explained
that it used the color white for its label because white presents the
strongest contrast to the amber color of ABI's bottle; it is also the
most economical to use on labels, and the easiest to "bake" in the
furnace
 No one can have a monopoly of the color amber for bottles, nor of
white for labels, nor of the rectangular shape which is the usual
configuration of labels.
 the shape of the bottle and of the label is unimportant; what is all
important is the name of the product written on the label of the
bottle for that is how one beer may be distinguished form the
others

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 39

CANON KABUSHIKI KAISHA, petitioner, vs. COURT OF APPEALS and NSR
RUBBER CORPORATION, respondents.
 NSR Rubber Corporation (private respondent) filed an application for
registration of the mark CANON for sandals in the Bureau of Patents,
Trademarks, and Technology Transfer (BPTTT).
 A Verified Notice of Opposition was filed by Canon Kabushiki Kaisha
(petitioner)
- a foreign corporation duly organized and existing under the laws of
Japan,
- alleging that it will be damaged by the registration of the trademark
CANON in the name of private respondent
BPTTT: dismissed the opposition of petitioner and giving due course to
private respondents application for the registration of the trademark
CANON
 based on the records, the evidence presented by petitioner consisted
of its certificates of registration for the mark CANON in various
countries covering goods belonging to class 2 (paints, chemical
products, toner, and dye stuff)
 Petitioner also submitted in evidence its Philippine Trademark
Registration No. 39398, showing its ownership over the trademark
CANON also under class 2
 the trademark "CANON" as used by petitioner for its paints, chemical
products, toner, and dyestuff, can be used by private respondent for
its sandals because the products of these two parties are dissimilar
 petitioner appealed the decision of the BPTTT with Court of Appeals
CA: affirmed the decision of BPTTT
PETITIONER: IS ENTITLED TO EXCLUSIVE USE OF THE MARK CANON
BECAUSE IT IS ITS TRADEMARK AND IS USED ALSO FOR FOOTWEAR.
 the corporate name or tradename of petitioner is also used as its
trademark on diverse goods including footwear and other related
products like shoe polisher and polishing agent
 petitioner it has branched out in its business based on the various goods
carrying its trademark CANON, including footwear which petitioner
contends covers sandals, the goods for which private respondent
sought to register the mark CANON
SUPREME COURT: arguments of petitioner are unmeritorious
 Ordinarily, the ownership of a trademark or tradename is a property
right that the owner is entitled to protect as mandated by the
Trademark Law.
 However, when a trademark is used by a party for a product in which
the other party does not deal, the use of the same trademark on the
latter’s product cannot be validly objected to.
 petitioner had every opportunity to present ex-parte all of its evidence
to prove that its certificates of registration for the trademark CANON
cover footwear
 The certificates of registration for the trademark CANON in other
countries and in the Philippines as presented by petitioner, clearly
showed that said certificates of registration cover goods belonging to
class 2 (paints, chemical products, toner, dyestuff).
 BPTTT correctly ruled that since the certificate of registration of
petitioner for the trademark CANON covers class 2 (paints, chemical
products, toner, dyestuff), private respondent can use the trademark
CANON for its goods classified as class 25 (sandals
 there is a world of difference between the paints, chemical products,
toner, and dyestuff of petitioner and the sandals of private respondent
PETITIONER: TO ALLOW PRIVATE RESPONDENT TO REGISTER CANON FOR
FOOTWEAR IS TO PREVENT PETITIONER FROM USING CANON FOR VARIOUS
KINDS OF FOOTWEAR, WHEN IN FACT, PETITIONER HAS EARLIER USED SAID
MARK FOR SAID GOODS.
 notwithstanding the dissimilarity of the products of the parties, the
trademark owner is entitled to protection when the use of by the junior
user "forestalls the normal expansion of his business"
 claims that it is possible that the public could presume that petitioner
would also produce a wide variety of footwear considering the diversity
of its products marketed worldwide
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 40
SUPREME COURT: Court do not agree the junior user are so related as to likely cause confusion of business or
 Principle: the certificate of registration confers upon the trademark origin, and thereby render the trademark or tradenames confusingly
owner the exclusive right to use its own symbol only to those goods similar.
specified in the certificate, subject to the conditions and limitations  Goods are related when they belong to the same class or have the same
stated therein descriptive properties; when they possess the same physical attributes
 the exclusive right of petitioner in this case to use the trademark or essential characteristics with reference to their form, composition,
CANON is limited to the products covered by its certificate of texture or quality
registration  They may also be related because they serve the same purpose or are
sold in grocery stores.
 petitioner failed to attach evidence that would convince this Court that
petitioner has also embarked in the production of footwear products
 petitioner has not made known that it intends to venture into the
business of producing sandals
 This is clearly shown in its Trademark Principal Register where the
products of the said petitioner had been clearly and specifically
described as "Chemical products, dyestuffs, pigments, toner
developing preparation, shoe polisher, polishing agent
 It would be taxing ones credibility to aver at this point that the
production of sandals could be considered as a possible "natural or
normal expansion" of its business operation".

PETITIONER: IS ENTITLED TO THE RIGHT TO EXCLUSIVELY USE CANON TO

PREVENT CONFUSION OF BUSINESS.
 diversity of its products all over the world makes it plausible that the
public might be misled into thinking that there is some supposed
connection between private respondents goods and petitioner
 there could be confusion as to the origin of the goods, as well as
confusion of business, if private respondent is allowed to register the
mark CANON
 private respondent would be permitted to take "a free ride on, and reap
the advantages of, the goodwill and reputation of petitioner Canon"

SUPREME COURT: Court do not agree

 The likelihood of confusion of goods or business is a relative concept, to
be determined only according to the particular, and sometimes
peculiar, circumstances of each case.
 In cases of confusion of business or origin, the question that usually
arises is whether the respective goods or services of the senior user and

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 41

 in Esso Standard Eastern, Inc. vs. Court of Appeals, this Court ruled
that the petroleum products on which the petitioner therein used
the trademark ESSO, and the product of respondent, cigarettes
are "so foreign to each other as to make it unlikely that purchasers
would think that petitioner is the manufacturer of respondents
goods". Moreover, the fact that the goods involved therein flow
through different channels of trade highlighted their dissimilarity,
a factor explained in this wise:
"The products of each party move along and are disposed through
different channels of distribution. The (petitioners) products are
distributed principally through gasoline service and lubrication
stations, automotive shops and hardware stores. On the other
hand, the (respondents) cigarettes are sold in sari-sari stores,
grocery store, and other small distributor outlets. (Respondents)
cigarettes are even peddled in the streets while (petitioners) gasul
burners are not. Finally, there is a marked distinction between oil
and tobacco, as well as between petroleum and cigarettes.
Evidently, in kind and nature the products of (respondent) and of
(petitioner) are poles apart."
 the paints, chemical products, toner and dyestuff of petitioner that
carry the trademark CANON are unrelated to sandals, the product of
private respondent
 The products of petitioner are sold through special chemical stores or
distributors while the products of private respondent are sold in grocery
stores, sari-sari stores and department stores
 the evident disparity of the products of the parties in the case at bar
renders unfounded the apprehension of petitioner that confusion of
business or origin might occur if private respondent is allowed to use
the mark CANON
PETITIONER: IS ENTITLED TO THE EXCLUSIVE USE OF CANON BECAUSE IT
FORMS PART OF ITS CORPORATE NAME, PROTECTED BY THE PARIS
CONVENTION
 invokes the protective mantle of the Paris Convention. Petitioner
asserts that it has the exclusive right to the mark CANON because it
forms part of its corporate name or tradename, protected by Article 8
of the Paris Convention, to wit: s"A tradename shall be protected in all
the countries of the Union without the obligation of filing or registration,
whether or not it forms part of a trademark."
 questions the applicability of the guidelines embodied in the
Memorandum of then Minister of Trade and Industry Roberto Ongpin
(Ongpin) dated October 25, 1983 which according to petitioner
implements Article 6bis of the Paris Convention, the provision referring
to the protection of trademarks. The memorandum reads: "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 class of goods; d) the person claiming
must be the owner of the mark."
 The term "trademark" is defined by RA 166, the Trademark Law, as
including "any word, name, symbol, emblem, sign or device or any
combination thereof adopted and used by a manufacturer or merchant
to identify his goods and distinguish them for those manufactured, sold
or dealt in by others."
 Tradename is defined by the same law as including "individual names
and surnames, firm names, tradenames, 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."
**a trade name refers to the business and its goodwill; a trademark refers
to the good.
 The Convention of Paris for the Protection of Industrial Property,
otherwise known as the Paris Convention, of which both the Philippines
and Japan, the country of petitioner, are signatories, is a multilateral
treaty that seeks to protect industrial property consisting of patents,
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 42
 utility models, industrial designs, trademarks, service marks, trade
names and indications of source or appellations of origin, and at the
same time aims to repress unfair competition.
 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.
- 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

SUPREME COURT: denied the petition; upheld the decision of the CA and
BPTTT

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.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 43
This office is not unmindful that in the Treaty of Paris for the
Protection of Intellectual Property regarding well-known marks
and possible application thereof in this case. Petitioner, as this
COLUMBIA PICTURES, INC., ORION PICTURES CORPORATION, PARAMOUNT
PICTURES CORPORATION, TWENTIETH CENTURY FOX FILM CORPORATION,
UNITED ARTISTS CORPORATION, UNIVERSAL CITY STUDIOS, INC., THE WALT
DISNEY COMPANY, and WARNER BROTHERS, INC., petitioners,
vs.
COURT OF APPEALS, SUNSHINE HOME VIDEO, INC. and DANILO A.
PELINDARIO, respondents.
FACTS:
 Complainants thru counsel lodged a complaint with the National
Bureau of Investigation for violation of PD No. 49, as amended, and
sought its assistance in their anti-film piracy drive.
 Agents of the NBI and private researchers made discreet surveillance
on various video establishments in Metro Manila including Sunshine
Home Video Inc. (Sunshine for brevity), owned and operated by Danilo
A. Pelindario.
 NBI Senior Agent Lauro C. Reyes applied for a search warrant with the
court a quo against Sunshine seeking the seizure, among others, of
pirated video tapes of copyrighted films all of which were enumerated
in a list attached to the application; and, television sets, video cassettes
and/or laser disc recordings equipment and other machines and
paraphernalia used or intended to be used in the unlawful exhibition,
showing, reproduction, sale, lease or disposition of videograms tapes in
the premises above described.
 In the hearing of the application, NBI Senior Agent Lauro C. Reyes, upon
questions by the court a quo, reiterated in substance his averments in
his affidavit. His testimony was corroborated by another witness, Mr.
Rene C. Baltazar. Atty. Rico V. Domingo's deposition was also taken.
 On the basis of the affidavits and depositions a Search Warrant No. 87-
053 for violation of Section 56 of PD No. 49, as amended, was issued
by the court a quo.
 The search warrant was served to Sunshine and/or their
representatives.
 In the course of the search of the premises indicated in the search
warrant, the NBI Agents found and seized various video tapes of duly
copyrighted motion pictures/films owned or exclusively distributed by
private complainants, and machines, equipment, television sets,
paraphernalia, materials, accessories all of which were included in the
receipt for properties accomplished by the raiding team.
RTC:
 A "Motion To Lift the Order of Search Warrant" was filed but was later
denied for lack of merit = upheld the validity of the search warrants
 A Motion for Reconsideration of the Order of denial was filed.
 The court a quo granted the said motion for reconsideration.
 It is undisputed that the master tapes of the copyrighted films from
which the pirated films were allegedly copies, were never
presented in the proceedings for the issuance of the search
warrants in question. The orders of the Court granting the search
warrants and denying the urgent motion to lift order of search
warrants were, therefore, issued in error. Consequently, they must
be set aside.
 Petitioners appealed the order of the trial court granting private
respondents' motion for reconsideration, thus lifting the search
warrant which it had theretofore issued, to the Court of Appeals.
CA:
 The appeal was dismissed and the motion for reconsideration thereof
was denied.
 upheld the retroactive application of the 20th Century Fox ruling by the
trial court in resolving petitioners' motion for reconsideration in favor
of the quashal of the search warrant
 This petition was brought to this Court particularly challenging the
validity of respondent court's retroactive application of the ruling in
20th Century Fox Film Corporation vs. Court of Appeals, et al., in
dismissing petitioners' appeal and upholding the quashal of the search
warrant by the trial court.
WHETHER OR NOT THE RULING IN 20TH CENTURY FOX FILM CORPORATION
VS. COURT OF APPELS PROMULGATED ON AUGUST 19, 1998 MAY BE
APPLIED RETROACTIVELY FOR THE DETERMINATION OF PROBABLE CAUSE
TO SUPPORT THE ISSUANCE OF A SEARCH WARRANT IN COPYRIGHT
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 44
INFRINGEMENT CASES INVOLVING VIDEOGRAMS, THE PRODUCTION OF THE
MASTER TAPE FOR COMPARISON WITH THE ALLEGEDLY PIRATE COPIES IS
NECESSARY.
PETITIONERS
 the issuance of a search warrant is addressed to the discretion of the
court subject to the determination of probable cause in accordance
with the procedure prescribed therefore under Sections 3 and 4 of Rule
126.
As of the time of the application for the search warrant in
question, the controlling criterion for the finding of probable
cause was that enunciated in Burgos vs. Chief of Staff
stating that:
Probable cause for a search warrant is defined as 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 sought to be searched.
PRIVATE RESPONDENTS
 argue in support of the ruling of the Court of Appeals sustaining the
quashal of the search warrant by the lower court on the strength of that
20th Century Fox ruling which, they claim, goes into the very essence of
probable cause.
– At the time of the issuance of the search warrant involved here,
although the 20th Century Fox case had not yet been decided,
Section 2, Article III of the Constitution and Section 3, Rule 126 of
the 1985 Rules on Criminal Procedure embodied the prevailing and
governing law on the matter.
– The ruling in 20th Century Fox was merely an application of the law
on probable cause.
 they posit that there was no law that was retrospectively applied, since
the law had been there all along
 to refrain from applying the 20th Century Fox ruling, which had
supervened as a doctrine promulgated at the time of the resolution of
private respondents' motion for reconsideration seeking the quashal of
the search warrant for failure of the trial court to require presentation
of the master tapes prior to the issuance of the search warrant, would
have constituted grave abuse of discretion.

PETITIONERS
 after complying with what the law then required, the lower court
determined that there was probable cause for the issuance of a search
warrant, and which determination in fact led to the issuance and service
on December 14, 1987 of Search Warrant No. 87-053.
 argued that any search warrant so issued in accordance with all
applicable legal requirements is valid, for the lower court could not
possibly have been expected to apply, as the basis for a finding of
probable cause for the issuance of a search warrant in copyright
infringement cases involving videograms, a pronouncement which was
not existent at the time of such determination, on December 14, 1987,
that is, the doctrine in the 20th Century Fox case that was promulgated
only on August 19, 1988, or over eight months later
 it is unjust and unfair to require compliance with legal and/or doctrinal
requirements which are inexistent at the time they were supposed to
have been complied with.

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 45

 In the 20th Century Fox case, the lower court quashed the
earlier search warrant it issued. On certiorari, the Supreme
Court affirmed the quashal on the ground among others that
the master tapes or copyrighted films were not presented for
comparison with the purchased evidence of the video tapes
to determine whether the latter is an unauthorized
reproduction of the former.
If the lower court in the Century Fox case did not quash the
warrant, it is Our view that the Supreme Court would have
invalidated the warrant just the same considering the very
strict requirement set by the Supreme Court for the
determination of "probable cause" in copyright infringement
cases as enunciated in this 20th Century Fox case. This is
so because, as was stated by the Supreme Court in the said
case, the master tapes and the pirated tapes must be
presented for comparison to satisfy the requirement of
"probable cause." So it goes back to the very existence of
probable cause
SUPREME COURT
 the 20th Century Fox ruling cannot be retroactively applied to the
instant case to justify the quashal of Search Warrant No. 87-053.
 petitioners' consistent position that the order of the lower court of
September 5, 1988 denying therein defendants' motion to lift the order
of search warrant was properly issued, there having been satisfactory
compliance with the then prevailing standards under the law for
determination of probable cause, is indeed well taken.
 The lower court could not possibly have expected more evidence from
petitioners in their application for a search warrant other than what the
law and jurisprudence, then existing and judicially accepted, required
with respect to the finding of probable cause.
Article 4 of the Civil Code provides that "(l)aws shall have no
retroactive effect, unless the contrary is provided.
Correlatively, Article 8 of the same Code declares that
"(j)udicial decisions applying the laws or the Constitution shall
form part of the legal system of the Philippines."
 Jurisprudence, in our system of government, cannot be considered as
an independent source of law; it cannot create law. While it is true that
judicial decisions which apply or interpret the Constitution or the laws
are part of the legal system of the Philippines, still they are not laws.
Judicial decisions, though not laws, are nonetheless evidence of what
the laws mean, and it is for this reason that they are part of the legal
system of the Philippines. Judicial decisions of the Supreme Court
assume the same authority as the statute itself.
 Interpreting the aforequoted provisions of the Civil Code and in light of
the above disquisition, this Court emphatically declared in Co vs. Court
of Appeals, et al that the principle of prospectivity applies not only to
original or amendatory statutes and administrative rulings and
circulars, but also, and properly so, to judicial decisions.
 Our holding in the earlier case of People vs. Jabinal echoes the rationale
for this judicial declaration, viz.:
 Decisions of this Court, although in themselves not laws, are
nevertheless evidence of what the laws mean, and this is the
reason why under Article 8 of the New Civil Code, "Judicial
decisions applying or interpreting the laws or the Constitution shall
form part of the legal system." The interpretation upon a law by
this Court constitutes, in a way, a part of the law as of the date that
the law was originally passed, since this Court's construction
merely establishes the contemporaneous legislative intent that the
law thus construed intends to effectuate. The settled rule
supported by numerous authorities is a restatement of the legal
maxim "legis interpretatio legis vim obtinet" — the interpretation
placed upon the written law by a competent court has the force of
law but when a doctrine of this Court is overruled and a different
view is adopted, the new doctrine should be applied prospectively,
and should not apply to parties who had relied on the old doctrine
and acted on the faith thereof .
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 46
 It is consequently clear that a judicial interpretation becomes a part of
the law as of the date that law was originally passed, subject only to the
qualification that when a doctrine of this Court is overruled and a
different view is adopted, and more so when there is a reversal thereof,
the new doctrine should be applied prospectively and should not apply
to parties who relied on the old doctrine and acted in good faith. To
hold otherwise would be to deprive the law of its quality of fairness and
justice then, if there is no recognition of what had transpired prior to
such adjudication.
The amendment to Section 56 of Presidential Decree No. 49
by Presidential Decree No. 1987, which should here be
publicized judicially, brought about the revision of its penalty
structure and enumerated additional acts considered
violative of said decree on intellectual property, namely:
(1) directly or indirectly transferring or causing to be
transferred any sound recording or motion picture or other
audio-visual works so recorded with intent to sell, lease,
publicly exhibit or cause to be sold, leased or publicly
exhibited, or to use or cause to be used for profit such
articles on which sounds, motion pictures, or other audio-
visual works are so transferred without the written consent
of the owner or his assignee;
(2) selling, leasing, distributing, circulating, publicly
exhibiting, or offering for sale, lease, distribution, or
possessing for the purpose of sale, lease, distribution,
circulation or public exhibition any of the abovementioned
articles, without the written consent of the owner or his
assignee; and,
(3) directly or indirectly offering or making available for a fee,
rental, or any other form of compensation any equipment,
machinery, paraphernalia or any material with the
knowledge that such equipment, machinery, paraphernalia
or material will be used by another to reproduce, without the
consent of the owner, any phonograph record, disc, wire,
tape, film or other article on which sounds, motion pictures
or other audio-visual recordings may be transferred, and
which provide distinct bases for criminal prosecution, being
crimes independently punishable under Presidential Decree
No. 49, as amended, aside from the act of infringing or aiding
or abetting such infringement under Section 29.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 47
 TRIAL COURT’S FINDINGS: private respondents committed acts in
blatant transgression of Presidential Decree No. 49 = bolsters its
findings of probable cause, which determination can be reached even
in the absence of master tapes by the judge in the exercise of sound
discretion.
 The executive concern and resolve expressed in the foregoing
amendments to the decree for the protection of intellectual
property rights should be matched by corresponding judicial
vigilance and activism, instead of the apathy of submitting to
technicalities in the face of ample evidence of guilt.
 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.
 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 what works he was indirectly copying, or 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.
 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
a piracy.
 The question of whether there has been an actionable
infringement of a literary, musical, or artistic work in
motion pictures, radio or television being one of fact, it
should properly be determined during the trial.
 That is the stage calling for conclusive or preponderating
evidence, and not the summary proceeding for the
issuance of a search warrant wherein both lower courts
erroneously require the master tapes.
 In disregarding private respondent's argument that Search Warrant No.
87-053 is a general warrant, the lower court observed that "it was
worded in a manner that the enumerated seizable items bear direct
relation to the offense of violation of Sec. 56 of PD 49 as amended. It
authorized only the seizure of articles used or intended to be used in
the unlawful sale, lease and other unconcerted acts in violation of PD
49 as amended.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 48
 On private respondents' averment that the search warrant was made
applicable to more than one specific offense on the ground that there
are as many offenses of infringement as there are rights protected and,
therefore, to issue one search warrant for all the movie titles allegedly
pirated violates the rule that a search warrant must be issued only in
connection with one specific offense, the lower court said:
 As the face of the search warrant itself indicates, it was issued for
violation of Section 56, PD 49 as amended only. The specifications
therein (in Annex A) merely refer to the titles of the copyrighted
motion pictures/films belonging to private complainants which
defendants were in control/possession for sale, lease, distribution
or public exhibition in contravention of Sec. 56, PD 49 as amended.
 That there were several counts of the offense of copyright infringement
and the search warrant uncovered several contraband items in the form
of pirated video tapes is not to be confused with the number of offenses
charged. The search warrant herein issued does not violate the one-
specific-offense rule.
DEFENDANTS-MOVANTS”
 contend that PD 49 as amended covers only producers who have
complied with the requirements of deposit and notice (in other words
registration) under Sections 49 and 50 thereof. Absent such
registration, as in this case, there was no right created, hence, no
infringement under PD 49 as amended. This is not well-taken
PRIVATE COMPLAINANTS-OPPOSITORS argued that
 the Department of Justice has resolved this legal question as far back as
December 12, 1978 in its Opinion No. 191 of the then Secretary of
Justice Vicente Abad Santos which stated that Sections 26 and 50 do
not apply to cinematographic works and PD No. 49 "had done away with
the registration and deposit of cinematographic works" and that "even
without prior registration and deposit of a work which may be entitled
to protection under the Decree, the creator can file action for
infringement of its rights". He cannot demand, however, payment of
damages arising from infringement. The requirements of registration
and deposit are thus retained under the Decree, not as conditions for
the acquisition of copyright and other rights, but as prerequisites to a
suit for damages".
 It is pointless for private respondents to insist on compliance with the
registration and deposit requirements under Presidential Decree No. 49
as prerequisites for invoking the court's protective mantle in copyright
infringement cases.
 PD 49 as amended, does not require registration and deposit for a
creator to be able to file an action for infringement of his rights. These
conditions are merely pre-requisites to an action for damages. So, as
long as the proscribed acts are shown to exist, an action for
infringement may be initiated.
 Certifications from the Copyright Section of the National Library,
presented as evidence by private respondents to show non-registration
of some of the films of petitioners, assume no evidentiary weight or
significance whatsoever.
 A closer review of Presidential Decree No. 49 reveals that even with
respect to works which are required under Section 26 thereof to be
registered and with copies to deposited with the National Library, such
as books, including composite and cyclopedic works, manuscripts,
directories and gazetteers; and periodicals, including pamphlets and
newspapers; lectures, sermons, addresses, dissertations prepared for
oral delivery; and letters, the failure to comply with said requirements
does not deprive the copyright owner of the right to sue for
infringement. Such non-compliance merely limits the remedies
available to him and subjects him to the corresponding sanction.
 The reason for this is expressed in Section 2 of the decree which
prefaces its enumeration of copyrightable works with the explicit
statement that "the rights granted under this Decree shall, from the
moment of creation, subsist with respect to any of the following classes
of works." This means that under the present state of the law, the
copyright for a work is acquired by an intellectual creator from the
moment of creation even in the absence of registration and deposit.
 The registration and deposit of two complete copies or reproductions
of the work with the National Library within three weeks after the first
public dissemination or performance of the work, as provided for in
Section 26 (P.D. No. 49, as amended), is not for the purpose of securing
a copyright of the work, but rather to avoid the penalty for non-
compliance of the deposit of said two copies and in order to recover
damages in an infringement suit.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 49
 The fact that private respondents could not show proof of their
authority or that there was consent from the copyright owners for them
to sell, lease, distribute or circulate petitioners' copyrighted films
immeasurably bolsters the lower court's initial finding of probable
cause.
 That private respondents are licensed by the Videogram Regulatory
Board does not insulate them from criminal and civil liability for
their unlawful business practices.
The assailed judgment and resolution of respondent Court of Appeals are
hereby REVERSED and SET ASIDE.
The order of the RTC of upholding the validity of Search Warrant No. 87-053
is hereby REINSTATED, and said court is DIRECTED to take and expeditiously
proceed with such appropriate proceedings as may be called for in this case.
Treble costs are further assessed against private respondents.
-----------------------------------------------------------------------------------
*20th Century Fox Case
It will be recalled that the 20th Century Fox case arose from search warrant
proceedings in anticipation of the filing of a case for the unauthorized sale
or renting out of copyrighted films in videotape format in violation of
Presidential Decree No. 49. It revolved around the meaning of probable
cause within the context of the constitutional provision against illegal
searches and seizures, as applied to copyright infringement cases involving
videotapes.
Therein it was ruled that —
The presentation of 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.
For a closer and more perspicuous appreciation of the factual antecedents
of 20th Century Fox, the pertinent portions of the decision therein are
quoted hereunder, to wit:
In the instant case, the lower court lifted the three questioned search
warrants against the private respondents on the ground that it acted on the
application for the issuance of the said search warrants and granted it on
the misrepresentations of applicant NBI and its witnesses that infringement
of copyright or a piracy of a particular film have been committed. Thus the
lower court stated in its questioned order dated January 2, 1986:
According to the movant, all three witnesses during the proceedings in the
application for the three search warrants testified of their own personal
knowledge. Yet, Atty. Albino Reyes of the NBI stated that the counsel or
representative of the Twentieth Century Fox Corporation will testify on the
video cassettes that were pirated, so that he did not have personal
knowledge of the alleged piracy. The witness Bacani also said that the video
cassettes were pirated without stating the manner it was pirated and that it
was Atty. Domingo that has knowledge of that fact.
On the part of Atty. Domingo, he said that the re-taping of the allegedly
pirated tapes was from master tapes allegedly belonging to the Twentieth
Century Fox, because, according to him it is of his personal knowledge.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 50
At the hearing of the Motion for Reconsideration, Senior NBI Agent Atty.
Albino Reyes testified that when the complaint for infringement was
brought to the NBI, the master tapes of the allegedly pirated tapes were
shown to him and he made comparisons of the tapes with those purchased
by their man Bacani. Why the master tapes or at least the film reels of the
allegedly pirated tapes were not shown to the Court during the application
gives some misgivings as to the truth of that bare statement of the NBI agent
on the witness stand.

Again as the application and search proceedings is a prelude to the filing of

criminal cases under PD 49, the copyright infringement law, and although
what is required for the issuance thereof is merely the presence of probable
cause, that probable cause must be satisfactory to the Court, for it is a time-
honored precept that proceedings to put a man to task as an offender nder
our laws should be interpreted in strictissimi juris against the government
and liberally in favor of the alleged offender.

xxx xxx xxx

This doctrine has never been overturned, and as a matter of fact it had been
enshrined in the Bill of Rights in our 1973 Constitution.

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 51

DE LA RAMA STEAMSHIP CO. VS. NDC
 De la Rama Steamship Co. Inc. and the National Development Company
entered into an agreement whereby De la Rama undertook the
management of the three vessels known as "Doña Aurora," "Doña Nati"
and "Doña Alicia" which had been purchased by the Philippine
Government from Japan with the advise and technical supervision of De
la Rama.
 In the management contract it was provided that De la Rama had the
option to buy the vessels at the fifth year following the purchase and
delivery of each of the vessels at a price which is to consist of the cost
price of each vessel, plus such expenses as De la Rama may have
incurred in connection with the construction, outfitting, provisioning
and operation thereof; but should De la Rama fail to exercise the right
of option it should be reimbursed of the expenses it incurred in
manning, equipping, fueling, overhauling and repairing the vessels, and
the payment of loading commission discharging commission, overriding
commission sub-agent's commission, etc.
1. G.R. No. L-8784
– involved the principal question regarding the right granted by the
management contract to NDC to cancel upon one year's notice the
general agency granted Dela Rama.
– The NDC decided to cancel the contract but was opposed by De la
Rama, which alleged that it had been granted the option to
purchase the vessels and that in 1952 it exercised that right of
option.
– this Court upheld the right of NDC to cancel the management
contract, and the option of De la Rama to purchase the vessels was
declared ineffective.
 The right of NDC to cancel the management contract having been
upheld by the Court and De la Rama's right to exercise the option to
purchase the vessels could not thereby be exercised, De la Rama filed
on August 21, 1956 a "Supplemental Pleading" in Civil Case No. 25161
then pending in the Court of First Instance of Manila.
– This supplemental pleading, in the nature of a supplemental
complaint gave rise to the proceeding which later brought Civil
Case No. 25161 to this Court for the second time in G.R. No. L-
25659.
DE LA RAMA’ s CAUSES OF ACTION IN THE SUPPLEMENTAL PLEADING
1. De la Rama demanded that NDC refrain from using the names "Doña
Aurora," "Doña Nati" and "Doña Alicia" on the three vessels subject
of the original action, claiming that it had acquired exclusive property
right to the use of said names of the three vessels as trade names;
2. De la Rama sought the payment to it by the NDC of P1,505,603.82 as
reimbursement for various advances and expenses it had made in
behalf of, and commissions earned as agent of, NDC; and
3. la Rama sought the payment of P1,000,000.00 as damages on account
of NDC's continued use of the names "Doña Aurora," "Doña Nati" and
"Doña Alicia," on the vessels that De la Rama had turned over to it
(NDC), and P100,000.00 as expenses and attorney's fees.
NDC’s ANSWER TO DE LA RAMA’s SUPPLEMENTAL PLEADING:
1. NDC denied De la Rama's exclusive right to use the names "Doña
Aurora," "Doña Nati" and "Doña Alicia" on the vessels upon the
ground that said names (except Doña Nati) represented names of
wives of former Presidents of the Philippines and could not be
approriated by a private individual;
2. NDC averred that the alleged advances and commissions claimed in the
second cause of action were never alleged and claimed in the original
complaint and should be deemed barred and dismissed together with
the original principal action;
3. NDC also averred that the demands in the third cause of action were
unreasonable, and that De la Rama had tried to retain all the benefits
arising from the operation of the vessels and shifted to NDC the
liabilities and obligations.
DE LA RAMA’ s REPLY TO NDC’s ANSWER
1. De la Rama alleged that the names "Doña Aurora," "Doña Nati" and
"Doña Alicia" were its property, having used the name "Doña" on its
vessels in its shipping business even before the last war and had
acquired a vested right on that trade name
2. the claim for reimbursement and/or payment of advances and/or
expenses made, and commissions earned by virtue and pursuant to the
management contract matured after the filing of the amended
complaint
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 52
3. true and correct accounting of the operations of the vessels had always
been submitted to NDC
TRIAL COURT:
a) Approved the report and recommendations of Mr. Gregorio S. Licaros,
Chairman, Board of Governors, Development Bank of the Philippines,
dated April 13, 1959, and ordering defendant National Development
Company to pay to plaintiff the sum of P244,277.81, representing the
balance of the advances made by plaintiff's operation of the Doña Nati,
Doña Alicia and Doña Aurora, with legal interest thereof from January
24, 1955.
b) Enjoining and restraining defendant perpetually from using the 'Doña'
name or title on any of its vessels
c) Ordering defendant to pay plaintiff, nominal or temperate damages in
the sum of P20,000.00, and attorney's fees in the amount of
P20,000.00.
2. G.R. No. L-15659
– NDC interposed an appeal to this Court from the above-mentioned
decision docketed as G.R. No. L-15659.
– This is the second time that Civil Case No. 25161 of the Court of
First Instance of Manila came up to this Court.
SUPREME COURT: set aside the decision appealed from
- ordered the remand of the case to the court below "with instructions
to enroll the pleadings and papers starting with the "supplemental
pleading," registering the complaint, collecting the corresponding fee
based on the amount demanded in the complaint and entering the
complaint and all the papers in the dockets of the court."
 the case was before the trial court for the third proceedings
 The trial court complied with the instructions of this Court
 After the trial court had repeatedly given the NDC the opportunity to
file its objections, if any, to the report submitted by the Chairman of the
Board of Accountants, and the NDC failed so to do
TRIAL COURT:
 approved the conclusions and recommendations contained in the
Report of April 13, 1959
 Ordered defendant National Development Company to pay to the
plaintiff De la Rama Steamship Co., Inc., the sum of P244,227.81 with
legal interest thereon from January 24, 1955 until fully paid
 De la Rama filed a motion for the partial execution of the decision
regarding the damages and attorney's fees on the ground that those
portions of the decision had not been appealed from and had therefore
become the "law of the case" as far as the parties were concerned.
 NDC filed its opposition to the motion on the ground that the decision
was "set aside" by the Supreme Court, and consequently there was no
legal basis for execution.
TRIAL COURT’S AMENDATORY DECISION:
 plaintiff's motion for partial execution is hereby denied
 Enjoined and restrained the defendant perpetually from using the
"Doña" name or title on any of its vessels;
 NDC appealed directly to this Court, because of the amount involved,
stating that it would raise questions both of fact and of law.
– The present appeal is the third time that this case has come up to
this Court.
NDC’s assignment of errors:
1. "the net results of the operational expenses of the "Doña" vessels;"
2. "the inventory of equipment, supplies, materials, provisions, fuel, etc. on
board the vessels upon the delivery thereof;"
3. "the commission on cargos booked and loaded after delivery of the
vessels;" and
4. "the additional charges to NDC;"
5. "The lower court erred in holding that the plaintiff is entitled to the
preferential right to the use of the "Doña" names and enjoining and
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 53
 restraining the defendant-appellant perpetually from using the "Doña"
names or title on any of its vessels."
6. "The lower court, finally, erred in condemning defendant-appellant to
pay to the plaintiff-appellee the sum of P244,227.81 with legal interest
thereon from Jan. 24, 1955 until fully paid and also the sum of
P20,000.00 by way of damages and attorney's fees."
SC: lower court erred in holding that De la Rama is entitled to the
preferential right to the use of the "Doña" names and enjoining and
restraining NDC perpetually from using the "Doña" names on any of its
vessels
 NDC: as owner of the vessels it had registered the "Doña" names in the
Bureau of Customs with full knowledge and consent of De la Rama
which, therefore, is now estopped from questioning the right, or from
denying the ownership, of NDC over the "Doña" names (Art. 1431, Civil
Code)
 De la Rama: that the findings and conclusion of the lower court on this
matter, quoting the pertinent portion of the lower court's decision, are
well founded
AMENDATORY DECISION OF THE LOWER COURT, it found that:
– De la Rama had been in the shipping business since 1933 and had
adopted, prior to the war in 1941, the word "Doña" in designating its
vessel
– three ocean-going vessels that it operated under the management
contract were named "Doña Nati" after the wife of the late Don Esteban
de la Rama, who was founder of the steamship company; "Doña Alicia"
after the late wife of former President Elpidio Quirino; and "Doña
Aurora" after the late widow of President Manuel Quezon
– there is unrebutted testimony that in the shipping business, goodwill
and reputation are inevitably acquired by the names given to a vessel.
SUPREME COURT:
 NDC's contention, in its answer, that De la Rama, a private firm, could
not appropriate said names on the ground that those are names of
wives of former Presidents, does not have a legal basis.
 Under Section 4(c) of Rep. Act No. 166 as amended, which
apparently is the basis of the contention of NDC, what is prohibited
from being appropriated and being registered are trade-names
consisting of, or comprising, a name identifying a particular living
individual, or the name of a deceased President of the Philippines.
 The names of deceased wives of Presidents are not included in the
prohibition.
 Section 4(f) of said Act does not prohibit the registration, and hence
appropriation, of a trade-name that has become distinctive and the
substantial and exclusive use of a trade-name for five years
accepted as prima facie proof that the trade-name has become
distinctive.
 In Ang vs. Teodoro, the Court has held that even a name or phrase
not capable of appropriation as a trade name may, by long and
exclusive use by a business with reference thereto of to its
products, acquire a proprietary connotation, such that, to the
purchasing public, the name or phrase becomes associated with
the service or the products of the business, and so it is entitled to
protection against unfair competition.
 NDC’s contention of estoppel, based on acquiescence, in that NDC had
registered with full knowledge and/or consent of De la Rama the
"Doña" names in the Bureau of Customs is untenable.
 Sections 1166 to 1176 of the Revised Administrative Code, under
which the "Doña" vessels were presumably registered, would show
that the principally purpose of the registration is to determine the
ownership of the vessel, although for registration it is necessary
that the vessel should have a name as a prerequisite under the
provision of Section 1170.
 De la Rama could not, and had no right, to oppose the registration
of the vessels by NDC because the vessels were in fact owned by
NDC.
 Neither could De la Rama then oppose the registration of the
"Doña" names of the vessels for it was De la Rama itself that gave
those names when it operated the vessels, and it had also
expectant right to become owners of said vessels
 De la Rama's consent to the registration of the vessels as owned by
NDC did not necessarily imply that it also consented to NDC's
appropriation of the "Doña" names
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 54
  almost immediately after the right of NDC to cancel the
management contract had been upheld by this Court in G.R. No. L-
8784, De la Rama formally notified NDC or its agent to refrain from
using, announcing or in any manner referring to the three vessels
here in question as the 'Doña Aurora,' 'Doña Nati' or 'Doña Alicia'."
 From these facts if cannot reasonably be urged that De la Rama is
estopped from preventing NDC to use the "Doña" names on its
vessels.
 And even if it be assumed, gratia argumenti, that De la Rama
acquiesced to the registration of the "Doña" names of the vessels,
as NDC contends, that acquiescence could not necessarily estop De
la Rama to claim its right to said names, after the conditions had
changed, that is when the management contract had been
cancelled by NDC. Regarding this matter it has been held that:
Acquiescence in the past does not necessarily estop a party from
changing his course of conduct as to the future, especially where
there has been a change in conditions.
of goods. The modern trend is to give emphasis to the unfairness
of the acts and to treat the issue as a fraud.
 To permit NDC to continue using the "Doña" names would be to
countenance the unlawful appropriation of the benefit of a goodwill
which De la Rama has acquired as a result of continued usage and large
expense; it would be tantamount to permitting NDC to grab the
reputation or goodwill of the business of another.
 The decision of the trial court on this matter is in accordance with the
law on unfair competition
 the decision appealed from is affirmed, with cost against the
defendant-appellant National Development Company. It is so
ordered.

 NDC does not dispute the fact that the "Doña" names had been
originally used by De la Rama, and according to the lower court De la
Rama had been using the "Doña" names even before the war, and that
said names have acquired goodwill and reputation.
 Goodwill is protected by the law on unfair competition.
 When a person has established a trade or business in which he has
used a name or device to designate his goods, he will be protected
in the use of the name or device.
 “Such person has a right to complain when another adopts this
symbol or manner of making of his goods so as to mislead the
public into purchasing the same as and for the goods of the
complainant."
 Any trade-mark or name which has become of a pecuniary value or
a business advantage, becomes a property right, and, as such, is
entitled to the protection afforded by the courts (American
Agricultural Chemical Co. v. Moore, 17 F (2d) 196, 199.)
 In Ang v. Teodoro this Court said: The owner of a trade-mark or
trade-name has a property right in which he is entitled to
protection, since there is damage to him from confusion of
reputation or goodwill in the mind of the public as well as confusion

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 55

GSELL VS. YAP-JUE
PRINCIPAL CASE: an action to enjoin infringement of a patented process for
the manufacture of curved handles for canes, parasols, and umbrellas
 plaintiff established his title to a valid patent covering the process in
question, and obtained against this defendant a judgment, granting a
perpetual injunction restraining its infringement, which judgment was
affirmed by this court on appeal
 ORDER: It is ordered that the defendant abstain from manufacturing
canes and umbrellas with a curved handle by means of a lamp or
blowpipe fed with mineral oil or petroleum, which process was
protected by patent No. 19228, issued in favor of Henry Gsell, and by
him transferred to Carlos Gsell.
“After the canes have been cut for cane or umbrella handles, the
outsides are thoroughly cleaned. This operation having been
performed, they are then trimmed and the interior cleaned by
means of a gimlet of about 15 centimeters in length operated by a
wheel, by means of which the knots inside are broken. There is
then introduced to a depth of about 15 centimeters a piece of very
clean bamboo, which completely fills the hole made by the gimlet,
thereby giving to the cane the necessary strength to resist the heat
of the lamp or blowpipe without breaking or cracking.
This operation having been performed, the cane, the end of which
is attached to a fixed point, is given the shape of a hook or some
other form by means of fire and pressure. Once the cane has been
shaped as desired, it is allowed to cool, and is then cleaned,
varnished, and ornamented at will.
This industry requires skillful, handiwork, owing to the great risk
engendered by the treatment of such fragile material as a light
cane. On the other hand, however, it affords large profits to the
workman.
NOTE. — The patent applied for shall be for the industrial product
"cane handles for walking sticks and umbrellas, curved by means
of a small lamp or blowpipe, fed by petroleum or mineral fuel."
 Thereafter the defendant continued to manufacture curved cane
handled for walking sticks and umbrellas by a process in all respects
identical with that used by the plaintiff under his patent, except only
that he be substituted for a lamp fed with petroleum or mineral oil,
lamp fed with alcohol, as appears from a stipulation entered into
between plaintiff and defendant in the following terms:
The plaintiff and defendant agree upon the fact that the defendant
has used and is still using a process for curving handles of canes
and umbrellas identical with that described in the application for
the patent by the plaintiff with the exception that he has substituted
for the lamp fed with all other lamp fed with alcohol.
 Contempt proceedings were instituted against the defendant
 Plaintiff alleged:
- Defendant in disobedience of the judgment of the same was and is
now engaged in the unlawful manufacture of umbrella handles by
the identical process described in and protected said patent, No.
19228, or a process so like the patented process as to be
indistinguishable.
Trial Court: not guilty of the contempt charges
Supreme Court: the contempt with which the accused is charged has not
been fully and satisfactorily proved, and the order appealed from should
accordingly be affirmed in so far as it holds that the defendant is not guilty
of contempt
 The violation, if there has been any, was not of such a character that it
could be made patent by the mere annunciation of the acts performed
by the defendant, which are alleged to constitute the said violation
 These acts were not clearly and manifestly contrary to the precise
terms of the prohibition
 According to the express language of the judgment, the prohibition
is against the manufacture of canes and umbrellas with curved
handles by means of the use of a cool or mineral oil-burning lamp
or blowpipe and the parties have stipulated that the defendant did
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 56
 not use a coal or mineral oil-burning lamp but an alcohol-burning
lamp.
 Thereafter the plaintiff continued the use of the patented process, save
only for the substitutions of a lamp fed by alcohol for a lamp fed by
petroleum or mineral oil
 new proceedings were instituted under the provisions of section 172
for the purpose of enforcing the original injunction above cited
 Substantially the same question is submitted in these new proceedings
as that submitted in the former case
 Two fundamental facts which must be duly established:,
o first, that alcohol is an equivalent or substitute, well known as
such at the time when the patent was issued, for mineral oil or
petroleum, in connection with blast lamps or blowpipes such
as that which plaintiff uses in the patented process, and,
o second, that the use of a blast lamp or blowpipe fed with
petroleum or mineral oil, rather than one fed with alcohol, is
an unessential part of the patented process the use of which
was prohibited by the said judgment.
Issue: Whether or not the use of a patented process by a third person,
without license or authority therefor, constitutes an infringement when the
alleged infringer has substituted in lieu of some unessential part of the
patented process a well-known mechanical equivalent
 Proven at the trial:
 that kerosene and alcohol blast lamps are agencies for producing
and applying heat, well known throughout the world long prior to
1906, the date of the issue of the patent;
 it is and for many years has been known that one may for all
ordinary purposes be used in the place of the other, and especially
for the purpose of applying heat in the manner described in the
patent;
 that the only consideration which determines the employment of
one in place of the other is the convenience of the user and the
question of relative cost; and
 that the principle upon which both lamps work is substantially
identical, the only difference in construction being occasioned by
the application of this principle to oils of different physical and
chemical composition.
 The plaintiff does not and cannot claim a patent upon the particular
lamp used by him.
 The patent, however, gives him the exclusive right to the use of "la
lamparilla o soplete, alimentada de petroleo o esencia mineral"
(the small lamp or blowpipe fed with petroleum or mineral oil) in
manufacturing curved handles for umbrellas and canes, to which
reference is made in the above-cited descriptive statement and
annexed note.
 "The small lamp or blowpipe" mentioned in the descriptive
statement and annexed note which accompanied the application
for the patent, evidently referred to the design of a blast lamp
which was attached thereto;
 both plaintiff and defendant make use of a blast lamp substantially
similar, in principle and design, to that referred to in the descriptive
statement and the annexed note, for the exclusive use of which in
the manufacture of curved handles, plaintiff holds a patent
 defendant's blast lamp is fed with alcohol, and its shape varies in
unimportant details, for the purpose of accommodating the principle,
by which the flame is secured, to the different physical and chemical
composition of the fuel used therein; but the principle on which it
works, its mode of application, and its general design distinguish it in no
essential particular from that used by the plaintiff.
Plaintiff invokes the doctrine of "mechanical equivalents" in support of his
contention
SC: doctrine is applicable to the facts in this case
 This doctrine is founded upon sound rules of reason and logic, and
unless restrained or modified by law in particular jurisdiction, is of
universal application
 the doctrine may properly be invoked to protect the patentee from
colorable invasions of his patent under the guise of substitution of some
part of his invention by some well known mechanical equivalent
 a patent law which failed to recognize this doctrine would afford scant
protection to inventors, for it is difficult if not impossible to conceive an
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 57
 invention, which is incapable of alteration or change in some
unessential part, so as to bring that part outside of the express terms of
any form of language which might be used in granting a patent for the
invention; and has been well said by counsel for plaintiff, human
ingenuity would be taxed beyond its powers in preparing a grant of a
patent so comprehensive in its terms, "as to include within the express
terms of its detailed description every possible alternative of form, size,
shape, material, location, color, weight, etc., of every wheel, rod, bolt,
nut, screw, plate, and other component parts of an invention."
Defendant insists that,
- under Spanish law, none of the steps of the process described in the
descriptive statement, save those mentioned in the "note" thereto
attached are included in the patent
- the patent rights secured thereunder are strictly limited to the precise
language of the "note" attached to the descriptive statement;
o while counsel for plaintiff appears to think that the language of the
patent covers any process or device whereby wood or cane may be
bent or curved by the use of heat.
SC: for the purpose of this decision it is not necessary to consider these
questions, further than to hold, as we do, that:
 under the doctrine of equivalents, the language of the note in the
descriptive statement applies to the operation of applying heat for the
purpose of curving handles or canes and umbrellas by means of a blast
lamp fed with alcohol, as well as by means of a blast lamp fed with
petroleum or mineral oil;
 defendant having admitted the fact that he applied heat for the
purpose of curving handles for canes and umbrellas by means of a blast
lamp fed with alcohol, he must be deemed to have contempt of
violating the terms and the injunction issued in the principal case,
wherein plaintiff was declared the owner of the patent in question, and
defendant enjoined from its infringement
The judgment of the lower court should be and is hereby affirmed.
The following citations from various decisions of the Federal Courts
of the United States illustrate the application of the doctrine in that
jurisdiction, and clearly point the way to the proper solution of the questions
involved in the case at bar:
 Can the defendant have the right of infringement, by substituting in lieu
of some parts of the combination well-known mechanical equivalents?
 I am quite clear that be can not, both on principle and
authority.
 It is not to be disputed that the inventor of an ordinary
machine is, by his letters patent, protected against all mere
formal alterations and against the substitution of mere
mechanical equivalents.
 Why should not the inventor of a new combination receive the
same protection? If he can not, then will his patent not be
worth the parchment on which it is written.
If no one can be held to infringe a patent for a combination unless he uses
all the parts of the combination and the identical machinery as that of the
patentee, then will no patent for a combination be infringed; for certainly
no one capable of operating a machine can be incapable of adopting some
formal alteration in the machinery, or of substituting mechanical
equivalents. No one infringes a patent for a combination who does not
employ all of the ingredients of the combination; but if he employs all the
ingredients, or adopts mere formal alterations, or substitutes, for one
ingredient another which was well known at the date of the patent as a
proper substitute for the one withdrawn, and which performs substantially
the same function as the one withdrawn, he does infringe. (King vs.
Louisville Cement Co., Fed. Cas., 7798.)
Bona fide inventors of a combination are as much entitled to equivalents as
the inventors other patentable improvements; by which is meant that a
patentee in such a case may substitute another ingredient for any one of the
ingredients of his invention, if the ingredient substituted performs the same
function as the one omitted and as well known at the date of his patent as
a proper substitute for the one omitted in the patented combination. Apply
that rule and it is clear that an alteration in a patented combination which
merely substitutes another old ingredient for one of the ingredients in the
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 58
patented combination, is an infringement of the patent, if the substitute art will know how to comply. The reason for the qualification of the rule as
performs the same function and was well known at the date of the patent stated is, that such change — that is, the mere substitution of a well- known
as a proper substitute for the omitted ingredient. (Gould vs. Rees, 82 U.S., element for another — where it appears that the substituted element was
187, 194.) well known as a usual substitute for the element left out — is merely a
formal one, and nothing better than a colorable evasion of the patent.
Mere formal alterations in a combination in letters patent are no defense to (Union Sugar Refining Co. vs. Matthieson, Fed. Cas., 14399.)
the charge of infringement and the withdrawal of one ingredient from the
same and the substitution of another which was well known at the date of
the patent as a proper substitute for the one withdrawn is a mere formal
alteration of the combination if the ingredient substituted performs
substantially the same function as the one withdrawn.

Bona fide inventors of a combination are as much entitled to suppress every

other combination of the same ingredients to produce the same result, not
substantially different from what they have invented and caused to be
patented as to any other class of inventors. All alike have the right to
suppress every colorable invasion of that which is secured to them by letters
patent. (Seymour vs. Osborne, 78 U.S., 516, 556.)

A claim for the particular means and mode of operation described in the
specification extends, by operation of law, to the equivalent of such means
— not equivalent simply because the same result is thereby produced — but
equivalent as being substantially the same device in structure, arrangement
and mode of operation. (Burden vs. Corning, Fed. Cas., 2143. Gottfried vs.
Philip Best Brewing Co., Fed. Cas., 5633.)

An equivalent device is such as a mechanic of ordinary skill in construction

of similar machinery, having the forms, specifications and machine before
him, could substitute in the place of the mechanism described without the
exercise of the inventive faculty. (Burden vs. Corning, supra.)

All the elements of the invention in this case are old, and the rule in such
cases, as before explained, undoubtedly is that a purpose can not invoke the
doctrine of equivalents to suppress all other improvements of the old
machine, but he is entitled to treat everyone as an infringer who makes,
uses, or vends his patented improvement without any other change than
the employment of a substitute for one of its elements, well known as such
at the date of his invention, and which any constructor acquainted with the

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 59

LEVI STRAUSS (PHILS.), INC. vs. VOGUE TRADERS CLOTHING COMPANY
FACTS:
 Levi Strauss & Co. granted petitioner Levi Strauss (Phils.) a non-exclusive
license to use LEVIS trademark, design, and name in the manufacturing,
marketing, distribution, and sale of its clothing and other goods.
 Levi Strauss & Co. obtained certificates of registration from the BPTTT
for the following trademarks: LEVIS; 501; Two Horse Design; Two Horse
Label; Two Horse Patch; Two Horse Label with Patterned Arcuate
Design; Arcuate Design; and the composite trademarks, namely,
Arcuate, Tab, and Two Horse Patch.
 Petitioner discovered the existence of some trademark registrations
belonging to respondent which, in its view, were confusingly similar to
its trademarks.
 Petitioner instituted two cases before the BPTTT for the cancellation of
respondents’ trademark registrations: a petition for cancellation of
Certificate of Registration for LIVES and petition for cancellation of
Certificate of Registration for LIVES Label Mark.
 Petitioner then applied for the issuance of a search warrant on the
premises of respondent Vogue Traders Clothing Company, owned by
one Tony Lim, with the Regional Trial Court
 said trial court issued Search Warrants based on its finding of probable
cause that the respondent had violated Article 189 of the Revised Penal
Code in manufacturing, selling, and incorporating designs or marks in
its jeans which were confusingly similar to petitioners LEVIs jeans and
several goods belonging to respondent were seized.
 Meanwhile, it appears that criminal charges were filed against Tony Lim
of respondent company in the Department of Justice, but the same
were eventually dismissed and the search warrants were quashed.
 Respondent filed a complaint for damages in the Regional Trial Court
against petitioner.
 respondent, through Antonio Sevilla had been a lawful assignee
and authorized user of: (a) the trademark LIVES, (b) the trademark
LIVES LABEL MARK and (c) the copyright registrations of LIVES
ORIGINAL JEANS, its pocket design, and hand tag
 the goods, articles, and effects seized from respondents
establishment were manufactured and used in its legitimate
business of manufacturing and selling of the duly registered
trademark LIVES and LIVES ORIGINAL JEANS
 the trademarks of respondent did not have any deceptive
resemblance with the trademarks of petitioner
 Petitioner countered that respondents LIVES brand infringed upon its
licensed brand name LEVIS.
 It sought to cancel respondents Copyright Registration and enjoin
the respondent from further manufacturing, selling, offering for
sale, and advertising the denim jeans or slacks by using a design
substantially, if not exactly similar to, or a colorable imitation of the
trademarks of petitioner.
RTC: found that the respondent intended to appropriate, copy, and slavishly
imitate the genuine appearance of authentic LEVIs jeans and pass off its
LIVEs jeans as genuine LEVIs jeans. Thus,
 Respondent alleges that it has obtained Certificates of Registration for
the trademarks LIVE’S, LIVE’S LABEL MARK, LIVE’S ORIGINAL JEANS as
well as the patch pocket design and hand tag, however, it did not
present any evidence to support the same.
 Respondent’s backpocket design is not copyrightable, as it is neither an
original work nor a novel design.
 Also, it could not have been pure chance or coincidence that
respondent’s LIVES jeans use a trademark, symbol or design which is
substantially, if not exactly similar to, or a colorable imitation of LS &
CO./LSPI trademarks, since there is a practically limitless array of other
marks, words, numbers, devices, symbols and designs which plaintiff
could have used on its products to identify and distinguish them from
those of defendant and other manufacturers.
CA: rendered a decision in favor of the respondent, enjoining the trial court
from further proceeding with the case until the Bureau of Patents,
Trademarks and Technology Transfer has finally resolved the oppositions
SC: reversed and set aside the decision of CA; ordered RTC to proceed with
the hearing
 Petitioner is a holder of Certificate of Registration for its Levis
trademarks.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 60
  The registration gives rise to a presumption of its validity and the
right to the exclusive use of the same.
 As set forth in Section 17 of Republic Act (R.A.) No. 166 or The
Trademark Law, an entity having a duly registered trademark can
file a suit against another entity for the protection of its right:
Sec. 17. Grounds for cancellation. Any person, who believes that he is or will
be damaged by the registration of a mark or trade-name, may, upon the
payment of the prescribed fee, apply to cancel said registration upon any of
the following grounds:
(a) That the registered mark or trade-name becomes the common
descriptive name of an article or substance on which the patent has expired;
(b) That it has been abandoned;
(c) That the registration was obtained fraudulently or contrary to the
provisions of section four, Chapter II hereof;
(d) That the registered mark or trade-name has been assigned, and is being
used by, or with the permission of, the assignee, so as to misrepresent the
source of the goods, business or services in connection with which the mark
or trade-name is used; or
(e) That cancellation is authorized by other provisions of this Act.
 Section 27 thereof states that the proper Regional Trial Court shall have
jurisdiction over the damage suits.
 the Court clarified that while an administrative cancellation of a
registered trademark, on any of the grounds under Section 17 of R.A.
No. 166, is within the ambit of the BPTTT, an action for infringement or
any other incidental remedy sought is within the jurisdiction of the
ordinary courts.
 Surely, an application with BPTTT for an administrative cancellation
of a registered trade mark cannot per se have the effect of
restraining or preventing the courts from the exercise of their
lawfully conferred jurisdiction.
 A contrary rule would unduly expand the doctrine of primary
jurisdiction which, simply expressed, would merely behoove
regular courts, in controversies involving specialized disputes, to
defer to the findings or resolutions of administrative tribunals on
certain technical matters.
 The passage of Republic Act No. 8293, otherwise known as the
Intellectual Property Code of the Philippines, expanded the rights
accorded to an owner of a registered trademark. Sections 151 (2), 156,
and 161 thereof state:
Section 151.2. Notwithstanding the foregoing provisions, the court or the
administrative agency vested with jurisdiction to hear and adjudicate any
action to enforce the rights to a registered mark shall likewise exercise
jurisdiction to determine whether the registration of said mark may be
cancelled in accordance with this Act. The filing of a suit to enforce the
registered mark with the proper court or agency shall exclude any other
court or agency from assuming jurisdiction over a subsequently filed petition
to cancel the same mark. On the other hand, the earlier filing of petition to
cancel the mark with the Bureau of Legal Affairs {formerly BPTTT] shall not
constitute a prejudicial question that must be resolved before an action to
enforce the rights to same registered mark may be decided. (Sec. 17, R.A.
No. 166a)
Section 156. Actions, and Damages and Injunction for Infringement. 156.1
The owner of a registered mark may recover damages from any person who
infringes his rights, and the measure of the damages suffered shall be either
the reasonable profit which the complaining party would have made, had
the defendant not infringed his rights, or the profit which the defendant
actually made out of the infringement, or in the event such measure of
damages cannot be readily ascertained with reasonable certainty, then the
court may award as damages a reasonable percentage based upon the
amount of gross sales of the defendant or the value of the services in
connection with which the mark or trade name was used in the infringement
of the rights of the complaining party (Sec. 23, first par., R.A. No. 166a).
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 61
156.2 On application of the complainant, the court may impound during the
pendency of the action, sales invoices and other documents evidencing sales.
(n)
156.3. In cases where actual intent to mislead the public or to defraud the
complainant is shown, in the discretion of the court, the damages may be
doubled. (Sec. 23, first par., R.A. No. 166)
156.4 The complainant, upon proper showing, may also be granted
injunction. (Sec. 23, second par., R.A. No. 166a)
Section 161. Authority to Determine Right to Registration. In any action
involving a registered mark, the court may determine the right to
registration, order the cancellation of a registration, in whole or in part, and
otherwise rectify the register with respect to the registration of any party to
the action in the exercise of this. Judgment and orders shall be certified by
the court to the Director, who shall make appropriate entry upon the records
of the Bureau, and shall be controlled thereby (Sec. 25, R.A. No. 166a).
not constitute a prejudicial question that must be resolved before an action
to enforce the rights to same registered mark may be decided.
 an action for infringement or unfair competition, including the available
remedies of injunction and damages, in the regular courts can proceed
independently or simultaneously with an action for the administrative
cancellation of a registered trademark in the BPTTT
 As applied to the present case, petitioners prior filing of two inter
partes cases against the respondent before the BPTTT for the
cancellation of the latters trademark registrations, namely, LIVES
and LIVES Label Mark, does not preclude petitioners right (as a
defendant) to include in its answer (to respondents complaint for
damages in Civil Case a counterclaim for infringement with a prayer
for the issuance of a writ of preliminary injunction.

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

 Rule 8, Section 7 of the Regulations on Inter Partes Proceedings,

provides:

Section 7. Effect of filing of a suit before the Bureau or with the proper court.
The filing of a suit to enforce the registered mark with the proper court or
Bureau shall exclude any other court or agency from assuming jurisdiction
over a subsequently filed petition to cancel the same mark. On the other
hand, the earlier filing of petition to cancel the mark with the Bureau shall

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 62

JOAQUIN VS. DRILON, GR No. 108946, January 28, 1999
Facts:
 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, it submitted to
the National Library an addendum to its certificate of copyright
specifying the show's format and style of presentation.
 While watching television, 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).
 He wrote a letter to 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, Zosa apologized to Joaquin and requested a meeting to
discuss a possible settlement. IXL, however, continued airing It's a Date.
 Joaquin sent a second letter 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, 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 Zosa together with certain officers of RPN Channel
9, in the Regional Trial Court of Quezon City where it was docketed as
Criminal Case No. 92-27854 and assigned to Branch 104 thereof.
 Zosa sought a review of the resolution of the Assistant City Prosecutor
before the Department of Justice.
 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.
 Joaquin filed a motion for reconsideration, but his motion denied by
Secretary of Justice
 Petitioners filed a petition for certiorari with the Supreme Court
seeking 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 Joaquin's motion
for reconsideration.
PETITIONERS’ CONTENTIONS
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.
RESPONDENTS’ CONTENTIONS
1. petitioners failed to establish the existence of probable cause due to
their failure to present the copyrighted master videotape of Rhoda and
Me
2. 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
RULING:
 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.
COURT: A preliminary investigation falls under the authority of the state
prosecutor who is given by law the power to direct and control criminal
actions. He is, however, subject to the control of the Secretary of Justice as
provided in Rule 112, §4 of the Revised Rules of Criminal Procedure.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 63
 Rule 112, Section 4, Revised Rules of Criminal Procedure Moreover, his findings are not subject to review unless shown to have been
Sec. 4. Duty of investigating fiscal. — If the investigating fiscal finds cause made with grave abuse.
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  Petitioners contend, however, that the determination of the question
thereof, that the accused was informed of the complaint and of the whether the format or mechanics of a show is entitled to copyright
evidence submitted against him and that he was given an opportunity to protection is for the court, and not the Secretary of Justice, to make.
submit controverting evidence. Otherwise, he shall recommend dismissal They assail the following portion of the resolution of the respondent
of the complaint. Secretary of Justice:

In either case, he shall forward the records of the case to the provincial or [T]he essence of copyright infringement is the copying, in whole or in part,
city fiscal or chief state prosecutor within five (5) days from his resolution. of copyrightable materials as defined and enumerated in Section 2 of PD. No.
The latter shall take appropriate action thereon ten (10) days from receipt
49. Apart from the manner in which it is actually expressed, however, the
thereof, immediately informing the parties of said action.
idea of a dating game show is, in the opinion of this Office, a non-
No complaint or information may be filed or dismissed by an investigating copyrightable material. Ideas, concepts, formats, or schemes in their
fiscal without the prior written authority or approval of the provincial or city abstract form clearly do not fall within the class of works or materials
fiscal or chief state prosecutor. susceptible of copyright registration as provided in PD. No. 49.

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.
COURT: 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.

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.
COURT: 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.
Petitioners claim that respondent Secretary of Justice gravely abused
his discretion in ruling that the master videotape should have been
presented 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."

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 64

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:

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 COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 65
in all or similar copyright infringement cases.
COURT: In the case at bar during the preliminary investigation, petitioners way questions are answered, or
and private respondents presented written descriptions of the formats of similar methods.
their respective televisions shows, on the basis of which the investigating Set 2
prosecutor ruled: Same as above with the genders of same
the searcher and searchees
As may [be] gleaned from the evidence on record, the substance of the interchanged.
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  Petitioners assert that the format of Rhoda and Me is a product of
single, and the two couples are treated to a night or two of dining and/or ingenuity and skill and is thus entitled to copyright protection. It is their
dancing at the expense of the show. The major concepts of both shows is position that the presentation of a point-by-point comparison of the
the same. Any difference appear mere variations of the major concepts. formats of the two shows clearly demonstrates the nexus between the
shows and hence establishes the existence of probable cause for
That there is an infringement on the copyright of the show "RHODA AND copyright infringement. Such being the case, they did not have to
ME" both in content and in the execution of the video presentation are produce the master tape.
established because respondent's "IT'S A DATE" is practically an exact copy
of complainant's "RHODA AND ME" because of substantial similarities as COURT: The format of a show is not copyrightable.
follows, to wit:
RHODA AND ME “IT'S A DATE"
Set 1
a. Unmarried participant of one a. same
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.
b. Searcher asks a question to be b. same
answered by each of the searchees.
The purpose is to determine who
among the searchees is the most
compatible with the searcher.
c. Searcher speculates on the c. same
match to the searchee.
d. Selection is made by the use of d. Selection is based on the answer
compute (sic) methods, or by the of the Searchees.

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 66

Section 2 of P.D. No. 49, 10 otherwise known as the DECREE ON P. Dramatizations, translations, adaptations, abridgements,
INTELLECTUAL PROPERTY, enumerates the classes of work entitled to arrangements and other alterations of literary, musical or artistic
copyright protection, to wit: works or of works of the Philippine government as herein defined,
which shall be protected as provided in Section 8 of this Decree.
Sec. 2. The rights granted by this Decree shall, from the moment of Q. Collections of literary, scholarly, or artistic works or of works
creation, subsist with respect to any of the following classes of works: referred to in Section 9 of this Decree which by reason of the
selection and arrangement of their contents constitute intellectual
A. Books, including composite and cyclopedic works, manuscripts, creations, the same to be protected as such in accordance with
directories, and gazetteers: Section 8 of this Decree.
B. Periodicals, including pamphlets and newspapers; R. Other literary, scholarly, scientific and artistic works.
C. Lectures, sermons, addresses, dissertations prepared for oral
delivery;
D. Letters; COURT: This provision is substantially the same as §172 of the
E. Dramatic or dramatico-musical compositions; choreographic works INTELLECTUAL PROPERTY CODE OF PHILIPPINES (R.A. No. 8293). 11 The
and entertainments in dumb shows, the acting form of which is fixed format or mechanics of a television show is not included in the list of
in writing or otherwise; protected works in §2 of P.D. No. 49. For this reason, the protection afforded
F. Musical compositions, with or without words; by the law cannot be extended to cover them.
G. Works of drawing, painting, architecture, sculpture, engraving,
lithography, and other works of art; models or designs for works of Copyright, in the strict sense of the term, is purely a statutory right. It is a
art; new or independent right granted by the statute, and not simply a pre-
H. Reproductions of a work of art; existing right regulated by the statute. Being a statutory grant, the rights are
I. Original ornamental designs or models for articles of manufacture, only such as the statute confers, and may be obtained and enjoyed only with
whether or not patentable, and other works of applied art; respect to the subjects and by the persons and on terms and conditions
J. Maps, plans, sketches, and charts; specified in the statute.
K. Drawings or plastic works of a scientific or technical character;
L. Photographic works and works produced by a process analogous P.D. No. 49, §2, in enumerating what are subject to copyright, refers to
to photography lantern slides; finished works and not to concepts. The copyright does not extend to an
M. Cinematographic works and works produced by a process
idea, procedure, process, system, method of operation, concept, principle,
analogous to cinematography or any process for making
audio-visual recordings; or discovery, regardless of the form in which it is described, explained,
N. Computer programs; illustrated, or embodied in such work.
O. Prints, pictorial illustrations advertising copies, labels tags, and box
wraps;

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 67

 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.
COURT: 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:
Petition is DISMISSED.
JOAQUIN VS. DRILON, GR No. 108946, January 28, 1999
FACTS: BJ Productions Inc. (BJPI) was the holder of copyright over the show
Rhoda and Me. It holds rights over the show’s format and style of
presentation. In 1991, BJPI’s president Francisco Joaquin saw on TV – RPN
9’s show It’s a Date, a show which is basically the same as Rhoda and Me.
He eventually sued Gabriel Zosa, the manager of the show It’s a Date. The
investigating prosecutor found probable cause against Zosa. Zosa later
sought a review of the prosecutor’s resolution before the Secretary of Justice
(Franklin Drilon). Drilon reversed the findings of the fiscal and directed him
to dismiss the case against Zosa.
ISSUE: Whether or not the order of Drilon finding no probable cause is valid.
HELD: Yes. The 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 (Copyright Law). Apart from the manner in which it is actually
expressed, however, the idea of a dating game show is 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. What is covered by BJPI’s copyright is
the specific episodes of the show Rhoda and Me.
Further, BJPI should have presented the master videotape of the show in
order to show the linkage between the copyright show (Rhoda and Me) and
the infringing show (It’s a Date). This is based on the ruling in 20th Century
Fox vs CA (though this has been qualified by Columbia Pictures vs CA, this is
still good law). Though BJPI did provide a lot of written evidence and
description to show the linkage between the shows, the same were not
enough. 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.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 68
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 69
KALEM CO. VS. HARPER BROS
FACTS:
 Kalem Company is engaged in the production of moving-picture films.
 The defendant employed a man to read Ben Hur and to write out such
a description or scenario of certain portions that it could be followed in
action.
 It then caused the described action to be performed, and took negatives
for moving pictures of the scenes, from which it produced films suitable
for exhibition.
 It sold the films, and public exhibitions from them took place.
Lower court: restrained the infringement of the copyright upon the late
General Lew Wallace’s book “Ben Hur”
ISSUE: Whether the public exhibition of these moving pictures infringed any
rights under the copyright law?
COURT:
 By Rev. Stat., § 4952, as amended by the act of March 3, 1891, c. 565,
26 Stat. 1106, authors have the exclusive right to dramatize any of their
works.
 So, if the exhibition was or was founded on a dramatizing of Ben Hur
this copyright was infringed.
 We are of opinion that Ben Hur was dramatized by what was done.
 It is said that pictures of scenes in a novel may be made and exhibited
without infringing the copyright and that they may be copyrighted
themselves. Indeed it was conceded by the Circuit Court of Appeals that
these films could be copyrighted and, we may assume, could be
exhibited as photographs. Whether this concession is correct or not, in
view of the fact that they are photographs of an unlawful dramatization
of the novel, we need not decide. We will assume that it is. But it does
not follow that the use of them in motion does not infringe the author's
rights.
 It is said that the defendant did not produce the representations, but
merely sold the films to jobbers, and on that ground ought not to be
held. In some cases where an ordinary article of commerce is sold nice
questions may arise as to the point at which the seller becomes an
accomplice in a subsequent illegal use by the buyer. It has been held
that mere indifferent supposition or knowledge on the part of the
seller that the buyer of spirituous liquor is contemplating such
unlawful use is not enough to connect him with the possible unlawful
consequences, but that if the sale was made with a view to the illegal
resale the price could not be recovered. . But no such niceties are
involved here. The defendant not only expected but invoked by
advertisement the use of its films for dramatic reproduction of the
story. That was the most conspicuous purpose for which they could be
used, and the one for which especially they were made. If the
defendant did not contribute to the infringement it is impossible to do
so except by taking part in the final act. It is liable on principles
recognized in every part of the law.
 It is suggested that to extend the copyright to a case like this is to
extend it to the ideas as distinguished from the words in which those
ideas are clothed. But there is no attempt to make a monopoly of the
ideas expressed. The law confines itself to a particular, cognate and
well known form of reproduction.
Appellant made a moving picture film based on a book published by appellee
and distributed it. Appellee sought and obtained an injunction against
appellant for copyright infringement. Appellant challenged the injunction
and the appellate court affirmed. On further appeal, the court affirmed the
lower and appellate courts, holding that authors, for a limited time, had the
exclusive right to their writings, and the making of a motion picture based
on those writings infringed on the copyright of the author. The decree of the
appellate court enjoining the further use of the motion picture was affirmed.
FULL TEXT:
This is an appeal from a decree restraining an alleged infringement of the
copyright upon the late General Lew Wallace's book `Ben Hur.' 169 Fed. Rep.
61. 94 C.C.A. 429. The case was heard on the pleadings and an agreed
statement of facts, and the only issue is whether those facts constitute an
infringement of the copyright upon the book. So far as they need to be
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 70
stated here they are as follows. The appellant and defendant, the Kalem
Company, is engaged in the production of moving picture films, the
operation and effect of which are too well known to require description. By
means of them anything of general interest from a coronation to a prize fight
is presented to the public with almost the illusion of reality — latterly even
color being more or less reproduced. The defendant employed a man to
read Ben Hur and to write out such a description or scenario of certain
portions that it could be followed in action; these portions giving enough of
the story to be identified with ease. It then caused the described action to
be performed and took negatives for moving pictures of the scenes, from
which it produced films suitable for exhibition. These films it expected and
intended to sell for use as moving pictures in the way in which such pictures
commonly are used. It advertised them under the title Ben Hur. `Scenery
and Supers by Pain's Fireworks Co. Costumes from Metropolitan Opera
House. Chariot Race by 3d Battery, Brooklyn. Positively the Most Superb
Moving Picture Spectacle ever Produced in America in Sixteen Magnificent
Scenes,' etc., with taking titles, culminating in `Ben Hur Victor.' It sold the
films and public exhibitions from them took place.
The subdivision of the question that has the most general importance is
whether the public exhibition of these moving pictures infringed any rights
under the copyright law. By Rev. Stat., § 4952, as amended by the act of
March 3, 1891, c. 565, 26 Stat. 1106, authors have the exclusive right to
dramatize any of their works. So, if the exhibition was or was founded on a
dramatizing of Ben Hur this copyright was infringed. We are of opinion that
Ben Hur was dramatized by what was done. Whether we consider the
purpose of this clause of the statute, or the etymological history and present
usages of language, drama may be achieved by action as well as by speech.
Action can tell a story, display all the most vivid relations between men, and
depict every kind of human emotion, without the aid of a word. It would be
impossible to deny the title of drama to pantomime as played by masters of
the art. But if a pantomime of Ben Hur would be a dramatizing of Ben Hur,
it would be none the less so that it was exhibited to the audience by
reflection from a glass and not by direct vision of the figures — as sometimes
has been done in order to produce ghostly or inexplicable effects. The
essence of the matter in the case last supposed is not the mechanism
employed but that we see the event or story lived. The moving pictures are
only less vivid than reflections from a mirror. With the former as with the
latter our visual impression — what we see — is caused by the real
pantomime 62*62 of real men through the medium of natural forces,
although the machinery is different and more complex. How it would be if
the illusion of motion were produced from paintings instead of from
photographs of the real thing may be left open until the question shall arise.
It is said that pictures of scenes in a novel may be made and exhibited
without infringing the copyright and that they may be copyrighted
themselves. Indeed it was conceded by the Circuit Court of Appeals that
these films could be copyrighted and, we may assume, could be exhibited
as photographs. Whether this concession is correct or not, in view of the fact
that they are photographs of an unlawful dramatization of the novel, we
need not decide. We will assume that it is. But it does not follow that the
use of them in motion does not infringe the author's rights. The most
innocent objects, such as the mirror in the other case that we have
supposed, may be used for unlawful purposes. And if, as we have tried to
show, moving pictures may be used for dramatizing a novel, when the
photographs are used in that way they are used to infringe a right which the
statute reserves.
But again it is said that the defendant did not produce the representations,
but merely sold the films to jobbers, and on that ground ought not to be
held. In some cases where an ordinary article of commerce is sold nice
questions may arise as to the point at which the seller becomes an
accomplice in a subsequent illegal use by the buyer. It has been held that
mere indifferent supposition or knowledge on the part of the seller that the
buyer of spirituous liquor is contemplating such unlawful use is not enough
to connect him with the possible unlawful
consequences, Graves v. Johnson, 179 Massachusetts, 53, but that if the
sale was made with a view to the illegal resale the price could not be
recovered. Graves v. Johnson, 156 Massachusetts, 211. But no such niceties
are involved here. The defendant not only expected but invoked by
advertisement the use of its films for dramatic reproduction of the story.
That was the most conspicuous purpose for which they could be used, and
the one for which especially they were made. If the defendant did not
contribute to the infringement it is impossible to do so except by taking part
in the final act. It is liable on principles recognized in every part of the
law. Rupp & Wittgenfeld Co. v.Elliott, 131 Fed. Rep. 730,
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 71
732. Harper v. Shoppell, 28 Fed. Rep. 613. Morgan Envelope Co. v. Albany
Paper Co., 152 U.S. 425, 433.

It is argued that the law construed as we have construed it goes beyond the
power conferred upon Congress by the Constitution, to secure to authors
for a limited time the exclusive right to their writings. Art. I, § 8, cl. 8. It is
suggested that to extend the copyright to a case like this is to extend it to
the ideas as distinguished from the words in which those ideas are clothed.
But there is no attempt to make a monopoly of the ideas expressed. The law
confines itself to a particular, cognate and well known form of reproduction.
If to that extent a grant of monopoly is thought a proper way to secure the
right to the writings this court cannot say that Congress was wrong.

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 72

MCDONALDS VS. LC BIG MAK BURGER INC
Facts:
McDONALD’S CORPORATION
- corporation organized under the laws of Delaware, United States
- operates, by itself or through its franchisees, a global chain of fast-food
restaurants
- owns a family of marks including the Big Mac mark for its double-decker
hamburger sandwich
- registered this trademark with the United States Trademark Registry on
16 October 1979
 Based on this Home Registration, McDonalds applied for the
registration of the same mark in the Principal Register of the then
Philippine Bureau of Patents, Trademarks and Technology (PBPTT), now
the Intellectual Property Office (IPO).
 Pending approval of its application, McDonalds introduced its Big Mac
hamburger sandwiches in the Philippine market in September 1981.
 On 18 July 1985, the PBPTT allowed registration of the Big Mac mark in
the Principal Register based on its Home Registration in the United
States.
 McDonalds displays the Big Mac mark in items and paraphernalia in its
restaurants, and in its outdoor and indoor signages.
 From 1982 to 1990, McDonalds spent P10.5 million in advertisement
for Big Mac hamburger sandwiches alone.
MCGEORGE FOOD INDUSTRIES
- a domestic corporation; McDonalds Philippine franchisee
L.C. Big Mak Burger, Inc.
– is a domestic corporation which operates fast-food outlets and snack
vans in Metro Manila and nearby provinces
– menu includes hamburger sandwiches and other food items.
FRANCIS B. DY, EDNA A. DY, RENE B. DY, WILLIAM B. DY, JESUS AYCARDO,
ARACELI AYCARDO, AND GRACE HUERTO
- the incorporators, stockholders and directors of respondent
corporation
 On 21 October 1988, respondent applied with the PBPTT for the
registration of the Big Mak mark for its hamburger sandwiches.
 McDonalds opposed the application on the ground that Big Mak was a
colorable imitation of its registered Big Mac mark for the same food
products.
 also informed Francis Dy, the chairman of the Board of Directors of
respondent corporation, of its exclusive right to the Big Mac mark
and requested him to desist from using the Big Mac mark or any
similar mark.
 Having received no reply from respondent Dy, petitioners sued
respondents in the Regional Trial Court, for trademark infringement and
unfair competition.
RESPONDENT’S ANSWER:
- admitted that they have been using the name Big Mak Burger for their
fast-food business
- claimed, however, that McDonalds does not have an exclusive right to
the Big Mac mark or to any other similar mark
- points out that the Isaiyas Group of Corporations (Isaiyas Group)
registered the same mark for hamburger sandwiches with the PBPTT on
31 March 1979
- One Rodolfo Topacio (Topacio) similarly registered the same mark on
24 June 1983, prior to McDonalds registration on 18 July 1985
- claimed that they are not liable for trademark infringement or for
unfair competition, as the Big Mak mark they sought to register does
not constitute a colorable imitation of the Big Mac mark
- asserted that they did not fraudulently pass off their hamburger
sandwiches as those of petitioners Big Mac hamburgers
PETITIONER’S REPLY:
– denied respondents claim that McDonalds is not the exclusive owner of
the Big Mac mark
– asserted that while the Isaiyas Group and Topacio did register the Big
Mac mark ahead of McDonalds, the Isaiyas Group did so only in the
Supplemental Register of the PBPTT and such registration does not
provide any protection
– McDonalds disclosed that it had acquired Topacios rights to his
registration in a Deed of Assignment dated 18 May 1981
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 73

RTC: respondent corporation liable for trademark infringement and unfair
competition
 the mark Big Mac is a registered trademark for plaintiff McDonalds, and
as such, it is entitled to protection against infringement.
CA: reversed the ruling of the trial court; there is no likelihood of confusion
that could arise in the use of respondents Big Mak mark on hamburgers =
relied on the holistic test
 it is not sufficient that a similarity exists in both name(s), but that more
importantly, the overall presentation, or in their essential, substantive
and distinctive parts is such as would likely MISLEAD or CONFUSE
persons in the ordinary course of purchasing the genuine article
 The holistic test considers the two marks in their entirety, as they
appear on the goods with their labels and packaging.
 It is not enough to consider their words and compare the spelling and
pronunciation of the words.
Issue: Whether or not L.C. Big Mak Burger Inc. is liable for trademark
infringement and unfair competition?
Section 22 of Republic Act No. 166, as amended (RA 166), the law
applicable to this case, defines trademark infringement as follows:
Infringement, what constitutes. Any person who [1] 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 [2] 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.

Ruling: Yes.
To establish trademark infringement, the following elements must be
Petitioner’s cause of action: first part of Section 22, i.e. respondents
shown:
allegedly used, without petitioners consent, a colorable imitation of the Big
(1) the validity of plaintiffs mark;
Mac mark in advertising and selling respondents hamburger sandwiches.
(2) the plaintiffs ownership of the mark; and
This likely caused confusion in the mind of the purchasing public on the
(3) the use of the mark or its colorable imitation by the alleged infringer
source of the hamburgers or the identity of the business.
results in likelihood of confusion.
 Of these, it is the element of likelihood of confusion that is the
gravamen of trademark infringement.

Validity of the “Big Mac” Mark and McDonalds Ownership of such Mark

Respondents contention: that of the two words in the Big Mac mark, it is
only the word Mac that is valid because the word Big is generic and

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 74

descriptive (proscribed under Section 4[e]), and thus incapable of exclusive
appropriation.
The contention has no merit.
 A mark is valid if it is distinctive and thus not barred from registration
under Section 4 of RA 166 (Section 4). However, once registered, not
only the marks validity but also the registrants ownership of the mark
is prima facie presumed.
 The Big Mac mark, which should be treated in its entirety and not
dissected word for word, is neither generic nor descriptive.
 Generic marks are commonly used as the name or description of a
kind of goods,[40] such as Lite for beer or Chocolate Fudge for
chocolate soda drink.
 Descriptive marks, on the other hand, convey the characteristics,
functions, qualities or ingredients of a product to one who has
never seen it or does not know it exists, such as Arthriticare for
arthritis medication.
 On the contrary, Big Mac falls under the class of fanciful or arbitrary
marks as it bears no logical relation to the actual characteristics of the
product it represents.
 As such, it is highly distinctive and thus valid
 The Court also finds that petitioners have duly established McDonalds
exclusive ownership of the Big Mac mark.
Whether there is confusion
Types of Confusion
Section 22 covers two types of confusion arising from the use of
similar or colorable imitation marks, namely, confusion of goods
(product confusion) and confusion of business (source or origin
confusion).
 Confusion of goods: he ordinarily prudent purchaser would
be induced to purchase one product in the belief that he was
purchasing the other.
 Confusion of business: though the goods of the parties are
different, the defendants product is such as might reasonably
be assumed to originate with the plaintiff, and the public
would then be deceived either into that belief or into the
belief that there is some connection between the plaintiff and
defendant which, in fact, does not exist.
Thus, while there is confusion of goods when the products are
competing, confusion of business exists when the products are
non-competing but related enough to produce confusion of
affiliation.

Petitioner’s claim: respondents use of the Big Mak mark on respondents

hamburgers results in confusion of goods, particularly with respect to
petitioners hamburgers labeled Big Mac.

Respondent
- assert that their Big Mak hamburgers cater mainly to the low-income
group while petitioners Big Mac hamburgers cater to the middle and
upper income groups.

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 75

SC:  The Court has recognized that the registered trademark owner enjoys
 Even if this is true, the likelihood of confusion of business remains, since protection in product and market areas that are the normal potential
the low-income group might be led to believe that the Big Mak expansion of his business.
hamburgers are the low-end hamburgers marketed by petitioners.
 After all, petitioners have the exclusive right to use the Big Mac mark. Modern law recognizes that the protection to which the owner of
 On the other hand, respondents would benefit by associating their low-
a trademark is entitled is not limited to guarding his goods or
end hamburgers, through the use of the Big Mak mark, with petitioners
high-end Big Mac hamburgers, leading to likelihood of confusion in the
business from actual market competition with identical or similar
identity of business. products of the parties, but extends to all cases in which the use
by a junior appropriator of a trade-mark or trade-name is likely to
Respondent lead to a confusion of source, as where prospective purchasers
- claims that petitioners use the Big Mac mark only on petitioners double- would be misled into thinking that the complaining party has
decker hamburgers, while respondents use the Big Mak mark on extended his business into the field (see 148 ALR 56 et seq; 53 Am
hamburgers and other products like siopao, noodles and pizza Jur. 576) or is in any way connected with the activities of the
- points out that petitioners sell their Big Mac double-deckers in a infringer; or when it forestalls the normal potential expansion of
styrofoam box with the McDonalds logo and trademark in red, block his business
letters at a price more expensive than the hamburgers of respondents
- In contrast, respondents sell their Big Mak hamburgers in plastic  In determining likelihood of confusion, jurisprudence has
wrappers and plastic bags. Respondents further point out that developed two tests, the dominancy test and the holistic test.
petitioners restaurants are air-conditioned buildings with drive-thru  The dominancy test focuses on the similarity of the prevalent
service, compared to respondents mobile vans
features of the competing trademarks that might cause
SC:
confusion.
 These and other factors respondents cite cannot negate the undisputed  The holistic test requires the court to consider the entirety of
fact that respondents use their Big Mak mark on hamburgers, the same the marks as applied to the products, including the labels and
food product that petitioners sell with the use of their registered mark packaging, in determining confusing similarity.
Big Mac.
 Whether a hamburger is single, double or triple-decker, and whether
wrapped in plastic or styrofoam, it remains the same hamburger food
product.
 Even respondents use of the Big Mak mark on non-hamburger food
products cannot excuse their infringement of petitioners registered
mark, otherwise registered marks will lose their protection under the
law.
 The registered trademark owner may use his mark on the same or
similar products, in different segments of the market, and at different
price levels depending on variations of the products for specific
segments of the market.

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 76

 The dominancy test considers the dominant features in the
competing marks in determining whether they are confusingly
similar.
 courts give greater weight to the similarity of the appearance
of the product arising from the adoption of the dominant
features of the registered mark, disregarding minor
differences
 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
The test of dominancy is now explicitly incorporated into law in
Section 155.1 of the Intellectual Property Code which defines
infringement as the colorable imitation of a registered mark xxx or
a dominant feature thereof.
 Applying the dominancy test, the Court finds that respondents use of
the Big Mak mark results in likelihood of confusion.
 First, Big Mak sounds exactly the same as Big Mac.
 Second, the first word in Big Mak is exactly the same as the first
word in Big Mac.
 Third, the first two letters in Mak are the same as the first two
letters in Mac.
 Fourth, the last letter in Mak while a k sounds the same as c when
the word Mak is pronounced.
 Fifth, in Filipino, the letter k replaces c in spelling, thus Caloocan is
spelled Kalookan.
 In short, aurally the two marks are the same, with the first word of both
marks phonetically the same, and the second word of both marks also
phonetically the same.
 Visually, the two marks have both two words and six letters, with the
first word of both marks having the same letters and the second word
having the same first two letters.
 In spelling, considering the Filipino language, even the last letters of
both marks are the same.
 Clearly, respondents have adopted in Big Mak not only the dominant
but also almost all the features of Big Mac.
 Applied to the same food product of hamburgers, the two marks will
likely result in confusion in the public mind.
 Petitioners aggressive promotion of the Big Mac mark, as borne by their
advertisement expenses, has built goodwill and reputation for such
mark making it one of the easily recognizable marks in the market
today. This increases the likelihood that consumers will mistakenly
associate petitioners hamburgers and business with those of
respondents.
 Respondents inability to explain sufficiently how and why they came to
choose Big Mak for their hamburger sandwiches indicates their intent
to imitate petitioners Big Mac mark.
 Respondents claim that their Big Mak mark was inspired by the first
names of respondent Dys mother (Maxima) and father (Kimsoy) is not
credible.
 Absent proof that respondents adoption of the Big Mak mark was
due to honest mistake or was fortuitous, the inescapable
conclusion is that respondents adopted the Big Mak mark to ride
on the coattails of the more established Big Mac mark. This saves
respondents much of the expense in advertising to create market
recognition of their mark and hamburgers.
 On the Lack of Proof of Actual Confusion
 Petitioners failure to present proof of actual confusion does not
negate their claim of trademark infringement.
 Section 22 requires the less stringent standard of likelihood of
confusion only.
 While proof of actual confusion is the best evidence of
infringement, its absence is inconsequential
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 77
NICHOLS VS. UNIVERSAL PICTURES CORPORATION ET. AL.
FACTS:
 Plaintiff is the author of a play, "Abie's Irish Rose," which it may be
assumed was properly copyrighted under section five, subdivision (d),
of the Copyright Act, 17 USCA § 5(d).
 The defendant produced publicly a motion picture play, "The Cohens
and The Kellys," which the plaintiff alleges was taken from it.
"Abie's Irish Rose" presents a Jewish family living in prosperous circumstances in
New York. The father, a widower, is in business as a merchant, in which his son
and only child helps him. The boy has philandered with young women, who to his
father's great disgust have always been Gentiles, for he is obsessed with a passion
that his daughter-in-law shall be an orthodox Jewess. When the play opens the
son, who has been courting a young Irish Catholic girl, has already married her
secretly before a Protestant minister, and is concerned to soften the blow for his
father, by securing a favorable impression of his bride, while concealing her faith
and race. To accomplish this he introduces her to his father at his home as a
Jewess, and lets it appear that he is interested in her, though he conceals the
marriage. The girl somewhat reluctantly falls in with the plan; the father takes the
bait, becomes infatuated with the girl, concludes that they must marry, and
assumes that of course they will, if he so decides. He calls in a rabbi, and prepares
for the wedding according to the Jewish rite.
Meanwhile the girl's father, also a widower, who lives in California, and is as intense
in his own religious antagonism as the Jew, has been called to New York,
supposing that his daughter is to marry an Irishman and a Catholic. Accompanied
by a priest, he arrives at the house at the moment when the marriage is being
celebrated, but too late to prevent it, and the two fathers, each infuriated by the
proposed union of his child to a heretic, fall into unseemly and grotesque antics.
The priest and the rabbi become friendly, exchange trite sentiments about religion,
and agree that the match is good. Apparently out of abundant caution, the priest
celebrates the marriage for a third time, while the girl's father is inveigled away.
The second act closes with each father, still outraged, seeking to find some way by
which the union, thus trebly insured, may be dissolved.
The last act takes place about a year later, the young couple having meanwhile
been abjured by each father, and left to their own resources. They have had twins,
a boy and a girl, but their fathers know no more than that a child has been born. At
Christmas each, led by his craving to see his grandchild, goes separately to the
young folks' home, where they encounter each other, each laden with gifts, one for
a boy, the other for a girl. After some slapstick comedy, depending upon the
insistence of each that he is right about the sex of the grandchild, they become
reconciled when they learn the truth, and that each child is to bear the given name
of a grandparent. The curtain falls as the fathers are exchanging amenities, and
the Jew giving evidence of an abatement in the strictness of his orthodoxy.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 78
 "The Cohens and The Kellys" presents two families, Jewish and Irish, living side
by side in the poorer quarters of New York in a state of perpetual enmity. The wives
in both cases are still living, and share in the mutual animosity, as do two small
sons, and even the respective dogs. The Jews have a daughter, the Irish a son;
the Jewish father is in the clothing business; the Irishman is a policeman. The
children are in love with each other, and secretly marry, apparently after the play
opens. The Jew, being in great financial straits, learns from a lawyer that he has
fallen heir to a large fortune from a great-aunt, and moves into a great house, fitted
luxuriously. Here he and his family live in vulgar ostentation, and here the Irish boy
seeks out his Jewish bride, and is chased away by the angry father. The Jew then
abuses the Irishman over the telephone, and both become hysterically excited. The
extremity of his feelings makes the Jew sick, so that he must go to Florida for a
rest, just before which the daughter discloses her marriage to her mother.
On his return the Jew finds that his daughter has borne a child; at first he suspects
the lawyer, but eventually learns the truth and is overcome with anger at such a
low alliance. Meanwhile, the Irish family who have been forbidden to see the
grandchild, go to the Jew's house, and after a violent scene between the two
fathers in which the Jew disowns his daughter, who decides to go back with her
husband, the Irishman takes her back with her baby to his own poor lodgings.
121*121 The lawyer, who had hoped to marry the Jew's daughter, seeing his plan
foiled, tells the Jew that his fortune really belongs to the Irishman, who was also
related to the dead woman, but offers to conceal his knowledge, if the Jew will
share the loot. This the Jew repudiates, and, leaving the astonished lawyer, walks
through the rain to his enemy's house to surrender the property. He arrives in great
dejection, tells the truth, and abjectly turns to leave. A reconciliation ensues, the
Irishman agreeing to share with him equally. The Jew shows some interest in his
grandchild, though this is at most a minor motive in the reconciliation, and the
curtain falls while the two are in their cups, the Jew insisting that in the firm name
for the business, which they are to carry on jointly, his name shall stand first.
ISSUE: Whether the defendant’s fil infringed the plaintiff’s copyright in the
play by using similar elements? No. There is no infringement, as the ideas
that are copied are really universal concepts and stock characters.
COURT:
 When plays are concerned, the plagiarist may excise a separate scene
or he may appropriate part of the dialogue. Then the question is
whether the part so taken is "substantial," and therefore not a "fair use"
of the copyrighted work; it is the same question as arises in the case of
any other copyrighted work. But when the plagiarist does not take out
a block in its original form, but an abstract of the whole, decision is more
troublesome. Upon any work, and especially upon a play, a great
number of patterns of increasing generality will fit equally well, as more
and more of the incident is left out. The last may perhaps be no more
than the most general statement of what the play is about, and at times
might consist only of its title; but there is a point in this series of
abstractions where they are no longer protected, since otherwise the
playwright could prevent the use of his "ideas," to which, apart from
their expression, his property is never extended. Nobody has ever been
able to fix that boundary, and nobody ever can. In some cases the
question has been treated as though it were analogous to lifting a
portion out of the copyrighted work but the analogy is not a good one,
because, though the skeleton is a part of the body, it pervades and
supports the whole. In such cases we are rather concerned with the line
between expression and what is expressed. As respects plays, the
controversy chiefly centers upon the characters and sequence of
incident, these being the substance.
 In the two plays at bar we think both as to incident and character, the
defendant took no more than the law allowed.
 Granting that the plaintiff's play was wholly original, and assuming that
novelty is not essential to a copyright, there is no monopoly in such a
background. Though the plaintiff discovered the vein, she could not
keep it to herself; so defined, the theme was too generalized an
abstraction from what she wrote. It was only a part of her "ideas."
The stories are quite different. One is of a religious zealot who
insists upon his child's marrying no one outside his faith; opposed
by another who is in this respect just like him, and is his foil. Their
difference in race is merely an obbligato to the main theme,
religion. They sink their differences through grandparental pride
and affection. In the other, zealotry is wholly absent; religion does
not even appear. It is true that the parents are hostile to each
other in part because they differ in race; but the marriage of their
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 79
 son to a Jew does not apparently offend the Irish family at all, and
it exacerbates the existing animosity of the Jew, principally
because he has become rich, when he learns it. They are reconciled
through the honesty of the Jew and the generosity of the Irishman;
the grandchild has nothing whatever to do with it. The only matter
common to the two is a quarrel between a Jewish and an Irish
father, the marriage of their children, the birth of grandchildren
and a reconciliation.
There are but four characters common to both plays, the lovers and
the fathers. The lovers are so faintly indicated as to be no more than
stage properties. They are loving and fertile; that is really all that
can be said of them, and anyone else is quite within his rights if he
puts loving and fertile lovers in a play of his own, wherever he gets
the cue. The plaintiff's Jew is quite unlike the defendant's. His
obsession is his religion, on which depends such racial animosity as
he has. He is affectionate, warm and patriarchal. None of these fit
the defendant's Jew, who shows affection for his daughter only
once, and who has none but the most superficial interest in his
grandchild. He is tricky, ostentatious and vulgar, only by misfortune
redeemed into honesty. Both are grotesque, extravagant and
quarrelsome; both are fond of display; but these common qualities
make up only a small part of their simple pictures, no more than
any one might lift if he chose. The Irish fathers are even more unlike;
the plaintiff's a mere symbol for religious fanaticism and patriarchal
pride, scarcely a character at all. Neither quality appears in the
defendant's, for while he goes to get his grandchild, it is rather out
of a truculent determination not to be forbidden, than from pride in
his progeny. For the rest he is only a grotesque hobbledehoy, used
for low comedy of the most conventional sort, which any one might
borrow, if he chanced not to know the exemplar.
NICHOLS VS. UNIVERSAL PICTURES CORPORATION ET. AL.
Brief Fact Summary: Plaintiff, author of the play, “Abie’s Irish Rose,” sued
defendant, producer of the motion picture, “The Cohens and The
Kellys,”which Plaintiff claims was taken from his play.
Synopsis of Rule of Law: Two plays may be similar enough in plot for a finding
of infringement.
Facts: Plaintiff is the author of a play, “Abie’s Irish Rose.” Defendant
produced a motion picture, “The Cohens and The Kells,” which the plaintiff
claims was taken from it. Both plays portray stories of a Jewish and an Irish-
Catholic family in which the children fall in love and are married, their
parents are outraged, a grandchild is born, and there is a reconciliation that
follows.
Issue: May two plays may be similar enough in plot for a finding of
infringement?
Held: (Hand, J.) Yes. Two plays may be similar enough in plot for a finding of
infringement. It appears in this case that the defendant took no more of the
plaintiff’s work, assuming he took anything at all, than the law allowed. Both
stories were very different, the only similarity being an argument between
an Irish father and a Jewish father, the marriage of their children, the birth
of grandchildren, and a reconciliation. The plaintiff’s copyright did not cover
all that might be drawn from her play; its content went to some extent into
the public domain. The theme was basically an idea and the characters were
mainly stock figures, which have been used for many decades. Affirmed.
Discussion: This case involves the question of to what extent ideas may be
subject to copyright protection. As a general rule, the “idea/expression
dichotomy” holds that ideas are never copyrightable, though the expression
of those ideas may be subject to copyright protection. While a plot is more
of an idea, the court recognizes that in some cases the play may nonetheless
be copyrightable, though not in this case.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 80
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 81
MIGHTY CORPORATION and LA CAMPANA FABRICA DE TABACO, INC. vs.
E. & J. GALLO WINERY and THE ANDRESONS GROUP, INC
FACTS:
GALLO WINERY
- foreign corporation not doing business in the Philippines but organized
and existing under the laws of the State of California, United States of
America
- 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
THE ANDRESONS GROUP, INC
- domestic corporation
- has been Gallo Winerys exclusive wine importer and distributor in the
Philippines since 1991, selling these products in its own name and for
its own account
 Gallo Winerys GALLO wine trademark was registered in the principal
register of the Philippine Patent Office on November 16, 1971 which
was renewed on November 16, 1991 for another 20 years.
 Gallo Winery also applied for registration of its ERNEST & JULIO GALLO
wine trademark on October 11, 1990 but the records do not disclose if
it was ever approved by the Director of Patents.
MIGHTY CORPORATION AND LA CAMPANA AND THEIR SISTER COMPANY,
TOBACCO INDUSTRIES OF THE PHILIPPINES (TOBACCO INDUSTRIES)
- engaged in the cultivation, manufacture, distribution and sale of
tobacco products for which they have been using the GALLO cigarette
trademark since 1973
 Bureau of Internal Revenue (BIR) approved Tobacco Industries use of
GALLO 100s 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.
 February 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.
 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.
 July 17, 1985, the National Library issued Certificate of Copyright
Registration La Campana’s lifetime copyright claim over GALLO
cigarette labels
 La Campana authorized Mighty Corporation to manufacture and sell
cigarettes bearing the GALLO trademark
 BIR approved Mighty Corporations use of GALLO 100s cigarette brand,
under licensing agreement with Tobacco Industries and GALLO SPECIAL
MENTHOL 100s cigarette brand
 Respondents sued petitioners in the RTC for trademark and tradename
infringement and unfair competition
RESPONDENTS’ CLAIM
- GALLO wine trademark was registered in the Philippines in 1971;
- 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
- 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
- sent a demand letter to petitioners asking them to stop using the GALLO
trademark, to no avail
- petitioners with violated Article 6bis of the Paris Convention for the
Protection of Industrial Property (Paris Convention) and RA 166
(Trademark Law)
- petitioners adopted the GALLO trademark to ride on Gallo Winerys
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 Winerys wines
PETITIONER’S ANSWER:
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 82
- GALLO cigarettes have been sold in the Philippines since 1973, initially
by Tobacco Industries, then by La Campana and finally by Mighty
Corporation
- GALLO cigarettes and Gallo Winerys wines were totally unrelated
products; Gallo Winerys GALLO trademark registration certificate
covered wines only, not cigarettes;
- GALLO cigarettes and GALLO wines were sold through different
channels of trade;
- the target market of Gallo Winerys 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 manufacturers name clearly indicated as MIGHTY
CORPORATION while, in the case of Gallo Winerys wines, it was the full
names of the founders-owners ERNEST & JULIO GALLO or just their
surname GALLO
RTC: rendered in favor of the respondent and against the petitioner;
petitioner is liable for, and permanently enjoined them from, committing
trademark infringement and unfair competition with respect to the GALLO
trademark
CA: affirmed the RTC decision
THE TRADEMARK LAW AND THE PARIS CONVENTION ARE THE APPLICABLE
LAWS, NOT THE INTELLECTUAL PROPERTY CODE
 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.
 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, or about five years after the
filing of the complaint
 CA did not notice the error and affirmed the Makati RTC decision
SUPREME COURT: 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.
 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.
 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.
PERTINENT PROVISIONS ON TRADEMARK INFRINGEMENT UNDER THE
PARIS CONVENTION AND THE TRADEMARK LAW
 Article 6bis of the Paris Convention
- an international agreement binding on the Philippines and the
United States
- 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
- 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
 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 use[48] to be well-known in that country and is
already the mark of a person entitled to the benefits of the Paris
Convention, and
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 83
 (c) such trademark is used for identical or similar goods
 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.
- Trademark registration and actual use are material to the
complaining party’s cause of action.
 Section 20 of the Trademark Law 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 Patents and as specified in the certificate, subject to the
conditions and limitations stated therein. Sections 2 and 2-Aof the
Trademark Law emphasize the importance of the trademarks 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.
 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.
 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.
 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
 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 registrants
express or implied consent to anothers use of its trademark
or a colorable imitation thereof.
 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
 respondent’s judicial admission: 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,
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 84
 respondent never enjoyed the exclusive right to use the GALLO wine
trademark to the prejudice of Tobacco Industries and its successors-in-
interest, either under the Trademark Law or the Paris Convention.

SUPREME COURT: reversed and set aside the decision of the CA; dismissed
the complaint of the respondent

RESPONDENTS GALLO TRADEMARK REGISTRATION IS LIMITED TO WINES

ONLY
 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.
 by strict application of Section 20 of the Trademark Law, Gallo Winerys
exclusive right to use the GALLO trademark should be limited to wines,
the only product indicated in its registration certificates.

NO LIKELIHOOD OF CONFUSION, MISTAKE OR DECEIT AS TO THE IDENTITY

OR SOURCE OF PETITIONERS AND RESPONDENTS GOODS OR BUSINESS
 Petitioners and respondents both use GALLO in the labels of their
respective cigarette and wine products.
 But, as held in several cases, the use of an identical mark does not, by
itself, lead to a legal conclusion that there is trademark infringement

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 85

 545 U.S. 913 (2005)
METRO-GOLDWYN-MAYER STUDIOS INC. ET AL.
v.
GROKSTER, LTD., ET AL.
No. 04-480.
Supreme Court of United States.
Argued March 29, 2005.
Decided June 27, 2005.
916*916 Donald B. Verrilli, Jr., argued the cause for petitioners. With him on
the briefs for the motion picture studio and recording company petitioners
were Ian Heath Gershengorn, 917*917 William M. Hohengarten, Steven B.
Fabrizio, Thomas J. Perrelli, Matthew J. Oppenheim, David E. Kendall,
Thomas G. Hentoff, Kenneth W. Starr, Russell J. Frackman, George M.
Borkowski, Robert M. Schwartz, Gregory P. Goeckner, Dean C. Garfield,
Elaine J. Goldenberg, Matthew Hersh, Steven M. Marks, and Stanley Pierre-
Louis. Carey R. Ramos, Peter L. Felcher, Aidan Synnott, Theodore K. Cheng,
Kelli L. Sager, Andrew J. Thomas, Jeffrey H. Blum, and Jeffrey L. Fisher filed
briefs for the songwriter and music publisher petitioners.
Acting Solicitor General Clement argued the cause for the United States as
amicus curiae urging reversal. With him on the brief were Assistant Attorney
General Keisler, Deputy Solicitor General Hungar, Douglas H. Hallward-
Driemeier, Anthony A. Yang, David O. Carson, and John M. Whealan.
Richard G. Taranto argued the cause for respondents. With him on the brief
were H. Bartow Farr III, Cindy A. Cohn, Fred Von Lohmann, Michael H. Page,
Mark A. Lemley, Charles S. Baker, and Matthew A. Neco.[*]
918*918 JUSTICE SOUTER delivered the opinion of the Court.
The question is under what circumstances the distributor of a product
capable of both lawful and unlawful use is liable 919*919 for acts of
copyright infringement by third parties using the product. We hold that one
who distributes a device with the object of promoting its use to infringe
copyright, as shown by clear expression or other affirmative steps taken to
foster infringement, is liable for the resulting acts of infringement by third
parties.
I
A
Respondents, Grokster, Ltd., and StreamCast Networks, Inc., defendants in
the trial court, distribute free software products that allow computer users
to share electronic files through peer-to-peer networks, so called because
users' computers communicate directly with each other, not through
920*920 central servers. The advantage of peer-to-peer networks over
information networks of other types shows up in their substantial and
growing popularity. Because they need no central computer server to
mediate the exchange of information or files among users, the high-
bandwidth communications capacity for a server may be dispensed with,
and the need for costly server storage space is eliminated. Since copies of a
file (particularly a popular one) are available on many users' computers, file
requests and retrievals may be faster than on other types of networks, and
since file exchanges do not travel through a server, communications can
take place between any computers that remain connected to the network
without risk that a glitch in the server will disable the network in its entirety.
Given these benefits in security, cost, and efficiency, peer-to-peer networks
are employed to store and distribute electronic files by universities,
government agencies, corporations, and libraries, among others.[1]
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 86
Other users of peer-to-peer networks include individual recipients of
Grokster's and StreamCast's software, and although the networks that they
922*922 In the Gnutella network made available by Morpheus, the process
enjoy through using the software can be used to share any type of digital
is mostly the same, except that in some versions of the Gnutella protocol
file, they have prominently employed those networks in sharing copyrighted
there are no supernodes. In these versions, peer computers using the
music and video files without authorization. A group of copyright holders
protocol communicate directly with each other. When a user enters a search
(MGM for short, but including motion picture studios, recording companies,
request into the Morpheus software, it sends the request to computers
songwriters, and music publishers) sued Grokster and StreamCast for their
connected with it, which in turn pass the request along to other connected
users' copyright infringements, alleging that they 921*921 knowingly and
peers. The search results are communicated to the requesting computer,
intentionally distributed their software to enable users to reproduce and
and the user can download desired files directly from peers' computers. As
distribute the copyrighted works in violation of the Copyright Act, 17 U. S. C.
this description indicates, Grokster and StreamCast use no servers to
§ 101 et seq. (2000 ed. and Supp. II).[2] MGM sought damages and an
intercept the content of the search requests or to mediate the file transfers
injunction.
conducted by users of the software, there being no central point through
which the substance of the communications passes in either direction.[4]

Discovery during the litigation revealed the way the software worked, the
business aims of each defendant company, and the predilections of the
Although Grokster and StreamCast do not therefore know when particular
users. Grokster's eponymous software employs what is known as FastTrack
files are copied, a few searches using their software would show what is
technology, a protocol developed by others and licensed to Grokster.
available on the networks the software reaches. MGM commissioned a
StreamCast distributes a very similar product except that its software, called
statistician to conduct a systematic search, and his study showed that nearly
Morpheus, relies on what is known as Gnutella technology.[3] A user who
90% of the files available for download on the FastTrack system were
downloads and installs either software possesses the protocol to send
copyrighted works.[5] Grokster and StreamCast dispute this figure, raising
requests for files directly to the computers of others using software
methodological problems and arguing that free copying even of copyrighted
compatible with FastTrack or Gnutella. On the FastTrack network opened by
works may be authorized by the rightholders. They also argue that potential
the Grokster software, the user's request goes to a computer given an
noninfringing uses of their software are significant in kind, even if infrequent
indexing capacity by the software and designated a supernode, or to some
in practice. Some musical performers, for example, have gained new
other computer with comparable power and capacity to collect temporary
audiences by distributing 923*923 their copyrighted works for free across
indexes of the files available on the computers of users connected to it. The
peer-to-peer networks, and some distributors of unprotected content have
supernode (or indexing computer) searches its own index and may
used peer-to-peer networks to disseminate files, Shakespeare being an
communicate the search request to other supernodes. If the file is found,
example. Indeed, StreamCast has given Morpheus users the opportunity to
the supernode discloses its location to the computer requesting it, and the
download the briefs in this very case, though their popularity has not been
requesting user can download the file directly from the computer located.
quantified.
The copied file is placed in a designated sharing folder on the requesting
user's computer, where it is available for other users to download in turn,
along with any other file in that folder.

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 87

As for quantification, the parties' anecdotal and statistical evidence entered
thus far to show the content available on the FastTrack and Gnutella
networks does not say much about which files are actually downloaded by
users, and no one can say how often the software is used to obtain copies
of unprotected material. But MGM's evidence gives reason to think that the
vast majority of users' downloads are acts of infringement, and because well
over 100 million copies of the software in question are known to have been
downloaded, and billions of files are shared across the FastTrack and
Gnutella networks each month, the probable scope of copyright
infringement is staggering.
Grokster and StreamCast concede the infringement in most downloads,
Brief for Respondents 10, n. 6, and it is uncontested that they are aware that
users employ their software primarily to download copyrighted files, even if
the decentralized FastTrack and Gnutella networks fail to reveal which files
are being copied, and when. From time to time, moreover, the companies
have learned about their users' infringement directly, as from users who
have sent e-mail to each company with questions about playing copyrighted
movies they had downloaded, to whom the companies have responded with
guidance.[6] App. 559-563, 808-816, 939-954. And MGM notified the
companies of 8 million copyrighted files that could be obtained using their
software.
Grokster and StreamCast are not, however, merely passive recipients of
information about infringing use. The record is replete with evidence that
from the moment Grokster 924*924 and StreamCast began to distribute
their free software, each one clearly voiced the objective that recipients use
it to download copyrighted works, and each took active steps to encourage
infringement.
After the notorious file-sharing service, Napster, was sued by copyright
holders for facilitation of copyright infringement, A&M Records, Inc. v.
Napster, Inc., 114 F. Supp. 2d 896 (ND Cal. 2000), aff'd in part, rev'd in part,
239 F. 3d 1004 (CA9 2001), StreamCast gave away a software program of a
kind known as OpenNap, designed as compatible with the Napster program
and open to Napster users for downloading files from other Napster and
OpenNap users' computers. Evidence indicates that "[i]t was always
[StreamCast's] intent to use [its OpenNap network] to be able to capture
email addresses of [its] initial target market so that [it] could promote [its]
StreamCast Morpheus interface to them," App. 861; indeed, the OpenNap
program was engineered "`to leverage Napster's 50 million user base,'" id.,
at 746.
StreamCast monitored both the number of users downloading its OpenNap
program and the number of music files they downloaded. Id., at 859, 863,
866. It also used the resulting OpenNap network to distribute copies of the
Morpheus software and to encourage users to adopt it. Id., at 861, 867,
1039. Internal company documents indicate that StreamCast hoped to
attract large numbers of former Napster users if that company was shut
down by court order or otherwise, and that StreamCast planned to be the
next Napster. Id., at 861. A kit developed by StreamCast to be delivered to
advertisers, for example, contained press articles about StreamCast's
potential to capture former Napster users, id., at 568-572, and it introduced
itself to some potential advertisers as a company "which is similar to what
Napster was," id., at 884. It broadcast banner advertisements to users of
other Napster-compatible software, urging them to adopt its OpenNap. Id.,
at 586. An internal e-mail from a company executive stated: "`We have put
this network in 925*925 place so that when Napster pulls the plug on their
free service . . . or if the Court orders them shut down prior to that . . . we
will be positioned to capture the flood of their 32 million users that will be
actively looking for an alternative.'" Id., at 588-589, 861.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 88
Thus, StreamCast developed promotional materials to market its service as
the best Napster alternative. One proposed advertisement read: "Napster
In addition to this evidence of express promotion, marketing, and intent to
Inc. has announced that it will soon begin charging you a fee. That's if the
promote further, the business models employed by Grokster and
courts don't order it shut down first. What will you do to get around it?" Id.,
StreamCast confirm that their principal object was use of their software to
at 897. Another proposed ad touted StreamCast's software as the "#1
download copyrighted works. Grokster and StreamCast receive no revenue
alternative to Napster" and asked "[w]hen the lights went off at Napster . . .
from users, who obtain the software itself for nothing. Instead, both
where did the users go?" Id., at 836 (ellipsis in original).[7] StreamCast even
companies generate income by selling advertising space, and they stream
planned to flaunt the illegal uses of its software; when it launched the
the advertising to Grokster and Morpheus users while they are employing
OpenNap network, the chief technology officer of the company averred that
the programs. As the number of users of each program increases,
"[t]he goal is to get in trouble with the law and get sued. It's the best way to
advertising opportunities become worth more. Cf. App. 539, 804. While
get in the new[s]." Id., at 916.
there is doubtless some demand for free Shakespeare, the evidence shows
that substantive volume is a function of free access to copyrighted work.
Users seeking Top 40 songs, for example, or the latest release by Modest
The evidence that Grokster sought to capture the market of former Napster
Mouse, are certain to be far more numerous than those seeking a free
users is sparser but revealing, for Grokster launched its own OpenNap
Decameron, and Grokster and StreamCast translated that demand into
system called Swaptor and inserted digital codes into its Web site so that
dollars.
computer users using Web search engines to look for "Napster" or "[f]ree
file sharing" would be directed to the Grokster Web site, where they could
download the Grokster software. Id., at 992-993. And Grokster's name is an
Finally, there is no evidence that either company made an effort to filter
apparent derivative of Napster.
copyrighted material from users' downloads or otherwise impede the
sharing of copyrighted files. Although Grokster appears to have sent e-mails
warning users about infringing content when it received threatening notice
StreamCast's executives monitored the number of songs by certain
from the copyright holders, it never blocked anyone from continuing to use
commercial artists available on their networks, and an internal
its software to share copyrighted files. 927*927 Id., at 75-76. StreamCast
communication indicates they aimed to have a larger number of
not only rejected another company's offer of help to monitor infringement,
copyrighted songs available on their networks 926*926 than other file-
id., at 928-929, but blocked the Internet Protocol addresses of entities it
sharing networks. Id., at 868. The point, of course, would be to attract users
believed were trying to engage in such monitoring on its networks, id., at
of a mind to infringe, just as it would be with their promotional materials
917-922.
developed showing copyrighted songs as examples of the kinds of files
available through Morpheus. Id., at 848. Morpheus in fact allowed users to
search specifically for "Top 40" songs, id., at 735, which were inevitably
B
copyrighted. Similarly, Grokster sent users a newsletter promoting its ability
to provide particular, popular copyrighted materials. Brief for Motion After discovery, the parties on each side of the case crossmoved for
Picture Studio and Recording Company Petitioners 7-8. summary judgment. The District Court limited its consideration to the

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 89

asserted liability of Grokster and StreamCast for distributing the current
versions of their software, leaving aside whether either was liable "for
damages arising from past versions of their software, or from other past
activities." 259 F. Supp. 2d 1029, 1033 (CD Cal. 2003). The District Court held
that those who used the Grokster and Morpheus software to download
copyrighted media files directly infringed MGM's copyrights, a conclusion
not contested on appeal, but the court nonetheless granted summary
judgment in favor of Grokster and StreamCast as to any liability arising from
distribution of the then-current versions of their software. Distributing that
software gave rise to no liability in the court's view, because its use did not
provide the distributors with actual knowledge of specific acts of
infringement. Case No. CV 01 08541 SVW (PJWx) (CD Cal., June 18, 2003),
App. 1213.
The Court of Appeals affirmed. 380 F. 3d 1154 (CA9 2004). In the court's
analysis, a defendant was liable as a contributory infringer when it had
knowledge of direct infringement and materially contributed to the
infringement. But the court read Sony Corp. of America v. Universal City
Studios, Inc., 464 U. S. 417 (1984), as holding that distribution of a
commercial product capable of substantial noninfringing uses could not give
rise to contributory liability for infringement unless the distributor had
actual knowledge of specific instances of infringement and failed to act on
that knowledge. The fact that the software was capable of substantial
noninfringing uses in the Ninth Circuit's view meant 928*928 that Grokster
and StreamCast were not liable, because they had no such actual
knowledge, owing to the decentralized architecture of their software. The
court also held that Grokster and StreamCast did not materially contribute
to their users' infringement because it was the users themselves who
searched for, retrieved, and stored the infringing files, with no involvement
by the defendants beyond providing the software in the first place.
The Ninth Circuit also considered whether Grokster and StreamCast could
be liable under a theory of vicarious infringement. The court held against
liability because the defendants did not monitor or control the use of the
software, had no agreed-upon right or current ability to supervise its use,
and had no independent duty to police infringement. We granted certiorari.
543 U. S. 1032 (2004).
II
A
MGM and many of the amici fault the Court of Appeals's holding for
upsetting a sound balance between the respective values of supporting
creative pursuits through copyright protection and promoting innovation in
new communication technologies by limiting the incidence of liability for
copyright infringement. The more artistic protection is favored, the more
technological innovation may be discouraged; the administration of
copyright law is an exercise in managing the tradeoff. See Sony Corp. v.
Universal City Studios, supra, at 442; see generally Ginsburg, Copyright and
Control Over New Technologies of Dissemination, 101 Colum. L. Rev. 1613
(2001); Lichtman & Landes, Indirect Liability for Copyright Infringement: An
Economic Perspective, 16 Harv. J. L. & Tech. 395 (2003).
The tension between the two values is the subject of this case, with its claim
that digital distribution of copyrighted material threatens copyright holders
as never before, because every copy is identical to the original, copying is
easy, 929*929 and many people (especially the young) use file-sharing
software to download copyrighted works. This very breadth of the
software's use may well draw the public directly into the debate over
copyright policy, Peters, Brace Memorial Lecture: Copyright Enters the
Public Domain, 51 J. Copyright Soc. 701, 705-717 (2004) (address by Register
of Copyrights), and the indications are that the ease of copying songs or
movies using software like Grokster's and Napster's is fostering disdain for
copyright protection, Wu, When Code Isn't Law, 89 Va. L. Rev. 679, 724-726
(2003). As the case has been presented to us, these fears are said to be
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 90
offset by the different concern that imposing liability, not only on infringers B
but on distributors of software based on its potential for unlawful use, could
Despite the currency of these principles of secondary liability, this Court has
limit further development of beneficial technologies. See, e. g., Lemley &
dealt with secondary copyright infringement in only one recent case, and
Reese, Reducing Digital Copyright Infringement Without Restricting
because MGM has tailored its principal claim to our opinion there, a look at
Innovation, 56 Stan. L. Rev. 1345, 1386-1390 (2004); Brief for Innovation
our earlier holding is in order. In Sony Corp. v. Universal City Studios, supra,
Scholars and Economists as Amici Curiae 15-20; Brief for Emerging
this Court addressed a claim that secondary liability for infringement can
Technology Companies as Amici Curiae 19-25; Brief for Intel Corporation as
arise from the very distribution of a commercial product. There, the product,
Amicus Curiae 20-22.[8]
novel at the time, was what we know today as the videocassette recorder
or VCR. Copyright holders sued Sony as the manufacturer, claiming it was
contributorily liable for infringement that occurred when VCR owners taped
The argument for imposing indirect liability in this case is, however, a
copyrighted programs because it supplied the means used to infringe, and
powerful one, given the number of infringing downloads that occur every
it had constructive knowledge that infringement would occur. At the trial on
day using StreamCast's and Grokster's software. When a widely shared
the merits, the evidence showed that the principal use of the VCR was for
service or product is used to commit infringement, it may be impossible to
"`time-shifting,'" or taping a program for later viewing at a more convenient
930*930 enforce rights in the protected work effectively against all direct
time, which the Court found to be a fair, not an infringing, use. Id., at 423-
infringers, the only practical alternative being to go against the distributor
424. There was no evidence that Sony had expressed an object of bringing
of the copying device for secondary liability on a theory of contributory or
about taping in violation of copyright or had taken active steps to increase
vicarious infringement. See In re Aimster Copyright Litigation, 334 F. 3d 643,
its profits from unlawful taping. Id., at 438. Although Sony's advertisements
645-646 (CA7 2003).
urged consumers to buy the VCR to "`record favorite shows'" or "`build a
library'" of recorded programs, id., at 459 (Blackmun, J., dissenting), neither
of these uses was necessarily infringing, id., at 424, 454-455.
One infringes contributorily by intentionally inducing or encouraging direct
infringement, see Gershwin Pub. Corp. v. Columbia Artists Management,
Inc., 443 F. 2d 1159, 1162 (CA2 1971), and infringes vicariously by profiting
On those facts, with no evidence of stated or indicated intent to promote
from direct infringement while declining to exercise a right to stop or limit
infringing uses, the only conceivable basis for imposing liability was on a
it, Shapiro, Bernstein & Co. v. H. L. Green Co., 316 F. 2d 304, 307 (CA2
theory of contributory infringement arising from its sale of VCRs to
1963).[9] Although "[t]he Copyright Act does not expressly render anyone
consumers with knowledge that some would use them to infringe. Id., at
liable for infringement committed by another," Sony Corp. v. Universal City
439. But because the VCR was "capable of commercially significant
Studios, 464 U. S., at 434, these doctrines of secondary liability emerged
noninfringing uses," we held the manufacturer 932*932 could not be
from common law principles and are well established in the law, id., at 486
faulted solely on the basis of its distribution. Id., at 442.
(Blackmun, J., dissenting); Kalem Co. v. Harper Brothers, 222 U. S. 55, 62-63
(1911); Gershwin Pub. Corp. v. Columbia Artists Management, 931*931
supra, at 1162; 3 M. Nimmer & D. Nimmer, Copyright § 12.04[A] (2005).
This analysis reflected patent law's traditional staple article of commerce
doctrine, now codified, that distribution of a component of a patented

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 91

device will not violate the patent if it is suitable for use in other ways. 35 U.
S. C. § 271(c); Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U. S.
476, 485 (1964) (noting codification of cases); id., at 486, n. 6 (same). The
doctrine was devised to identify instances in which it may be presumed from
distribution of an article in commerce that the distributor intended the
article to be used to infringe another's patent, and so may justly be held
liable for that infringement. "One who makes and sells articles which are
only adapted to be used in a patented combination will be presumed to
intend the natural consequences of his acts; he will be presumed to intend
that they shall be used in the combination of the patent." New York
Scaffolding Co. v. Whitney, 224 F. 452, 459 (CA8 1915); see also James
Heekin Co. v. Baker, 138 F. 63, 66 (CA8 1905); Canda v. Michigan Malleable
Iron Co., 124 F. 486, 489 (CA6 1903); Thomson-Houston Electric Co. v. Ohio
Brass Co., 80 F. 712, 720-721 (CA6 1897); Red Jacket Mfg. Co. v. Davis, 82 F.
432, 439 (CA7 1897); Holly v. Vergennes Machine Co., 4 F. 74, 82 (CC Vt.
1880); Renwick v. Pond, 20 F. Cas. 536, 541 (No. 11,702) (CC SDNY 1872).
In sum, where an article is "good for nothing else" but infringement, Canda
v. Michigan Malleable Iron Co., supra, at 489, there is no legitimate public
interest in its unlicensed availability, and there is no injustice in presuming
or imputing an intent to infringe, see Henry v. A. B. Dick Co., 224 U. S. 1, 48
(1912), overruled on other grounds, Motion Picture Patents Co. v. Universal
Film Mfg. Co., 243 U. S. 502 (1917). Conversely, the doctrine absolves the
equivocal conduct of selling an item with substantial lawful as well as
unlawful uses, and limits liability to instances of more acute 933*933 fault
than the mere understanding that some of one's products will be misused.
It leaves breathing room for innovation and a vigorous commerce. See Sony
Corp. v. Universal City Studios, 464 U. S., at 442; Dawson Chemical Co. v.
Rohm & Haas Co., 448 U. S. 176, 221 (1980); Henry v. A. B. Dick Co., supra,
at 48.
The parties and many of the amici in this case think the key to resolving it is
the Sony rule and, in particular, what it means for a product to be "capable
of commercially significant noninfringing uses." Sony Corp. v. Universal City
Studios, supra, at 442. MGM advances the argument that granting summary
judgment to Grokster and StreamCast as to their current activities gave too
much weight to the value of innovative technology, and too little to the
copyrights infringed by users of their software, given that 90% of works
available on one of the networks was shown to be copyrighted. Assuming
the remaining 10% to be its noninfringing use, MGM says this should not
qualify as "substantial," and the Court should quantify Sony to the extent of
holding that a product used "principally" for infringement does not qualify.
See Brief for Motion Picture Studio and Recording Company Petitioners 31.
As mentioned before, Grokster and StreamCast reply by citing evidence that
their software can be used to reproduce public domain works, and they
point to copyright holders who actually encourage copying. Even if
infringement is the principal practice with their software today, they argue,
the noninfringing uses are significant and will grow.
We agree with MGM that the Court of Appeals misapplied Sony, which it
read as limiting secondary liability quite beyond the circumstances to which
the case applied. Sony barred secondary liability based on presuming or
imputing intent to cause infringement solely from the design or distribution
of a product capable of substantial lawful use, which the distributor knows
is in fact used for infringement. The 934*934 Ninth Circuit has read Sony's
limitation to mean that whenever a product is capable of substantial lawful
use, the producer can never be held contributorily liable for third parties'
infringing use of it; it read the rule as being this broad, even when an actual
purpose to cause infringing use is shown by evidence independent of design
and distribution of the product, unless the distributors had "specific
knowledge of infringement at a time at which they contributed to the
infringement, and failed to act upon that information." 380 F. 3d, at 1162
(internal quotation marks and brackets omitted). Because the Circuit found
the StreamCast and Grokster software capable of substantial lawful use, it
concluded on the basis of its reading of Sony that neither company could be
held liable, since there was no showing that their software, being without
any central server, afforded them knowledge of specific unlawful uses.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 92

This view of Sony, however, was error, converting the case from one about
liability resting on imputed intent to one about liability on any theory.
Because Sony did not displace other theories of secondary liability, and
because we find below that it was error to grant summary judgment to the
companies on MGM's inducement claim, we do not revisit Sony further, as
MGM requests, to add a more quantified description of the point of balance
between protection and commerce when liability rests solely on distribution
with knowledge that unlawful use will occur. It is enough to note that the
Ninth Circuit's judgment rested on an erroneous understanding of Sony and
to leave further consideration of the Sony rule for a day when that may be
required.
C
Sony's rule limits imputing culpable intent as a matter of law from the
characteristics or uses of a distributed product. But nothing in Sony requires
courts to ignore evidence of intent if there is such evidence, and the case
was never meant to foreclose rules of fault-based liability derived from
935*935 the common law.[10] Sony Corp. v. Universal City Studios, supra,
at 439 ("If vicarious liability is to be imposed on Sony in this case, it must
rest on the fact that it has sold equipment with constructive knowledge" of
the potential for infringement). Thus, where evidence goes beyond a
product's characteristics or the knowledge that it may be put to infringing
uses, and shows statements or actions directed to promoting infringement,
Sony's staple-article rule will not preclude liability.
The classic case of direct evidence of unlawful purpose occurs when one
induces commission of infringement by another, or "entic[es] or persuad[es]
another" to infringe, Black's Law Dictionary 790 (8th ed. 2004), as by
advertising. Thus at common law a copyright or patent defendant who "not
only expected but invoked [infringing use] by advertisement" was liable for
infringement "on principles recognized in every part of the law." Kalem Co.
v. Harper Brothers, 222 U. S., at 62-63 (copyright infringement). See also
Henry v. A. B. Dick Co., 224 U. S., at 48-49 (contributory liability for patent
infringement may be found where a good's "most conspicuous use is one
which will coöperate in an infringement when sale to such user is invoked
by advertisement" of the infringing use); Thomson-Houston Electric Co. v.
Kelsey Electric R. Specialty Co., 75 F. 1005, 1007-1008 (CA2 1896) (relying on
advertisements and displays to find defendant's "willingness . . . to aid other
persons in any attempts which they may be disposed to make towards
[patent] infringement"); Rumford Chemical Works v. Hecker, 20 F. Cas.
1342, 1346 (No. 12,133) (CC NJ 1876) (demonstrations of infringing activity
along with "avowals of the [infringing] purpose and use for which it was
made" supported liability for patent infringement).
936*936 The rule on inducement of infringement as developed in the early
cases is no different today.[11] Evidence of "active steps . . . taken to
encourage direct infringement," Oak Industries, Inc. v. Zenith Electronics
Corp., 697 F. Supp. 988, 992 (ND Ill. 1988), such as advertising an infringing
use or instructing how to engage in an infringing use, show an affirmative
intent that the product be used to infringe, and a showing that infringement
was encouraged overcomes the law's reluctance to find liability when a
defendant merely sells a commercial product suitable for some lawful use,
see, e. g., Water Technologies Corp. v. Calco, Ltd., 850 F. 2d 660, 668 (CA
Fed. 1988) (liability for inducement where one "actively and knowingly aid[s]
and abet[s] another's direct infringement" (emphasis deleted)); Fromberg,
Inc. v. Thornhill, 315 F. 2d 407, 412-413 (CA5 1963) (demonstrations by sales
staff of infringing uses supported liability for inducement); Haworth Inc. v.
Herman Miller Inc., 37 USPQ 2d 1080, 1090 (WD Mich. 1994) (evidence that
defendant "demonstrate[d] and recommend[ed] infringing configurations"
of its product could support inducement liability); Sims v. Mack Trucks, Inc.,
459 F. Supp. 1198, 1215 (ED Pa. 1978) (finding inducement where the use
"depicted by the defendant in its promotional film and brochures infringes
the . . . patent"), overruled on other grounds, 608 F. 2d 87 (CA3 1979). Cf.
W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on Law of
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 93
Torts 37 (5th ed. 1984) ("There is a definite tendency to impose greater
responsibility upon a defendant whose conduct was intended to do harm,
or was morally wrong").
For the same reasons that Sony took the staple-article doctrine of patent
law as a model for its copyright safe-harbor rule, the inducement rule, too,
is a sensible one for copyright. We adopt it here, holding that one who
distributes a device with the object of promoting its use to infringe
copyright, as 937*937 shown by clear expression or other affirmative steps
taken to foster infringement, is liable for the resulting acts of infringement
by third parties. We are, of course, mindful of the need to keep from
trenching on regular commerce or discouraging the development of
technologies with lawful and unlawful potential. Accordingly, just as Sony
did not find intentional inducement despite the knowledge of the VCR
manufacturer that its device could be used to infringe, 464 U. S., at 439, n.
19, mere knowledge of infringing potential or of actual infringing uses would
not be enough here to subject a distributor to liability. Nor would ordinary
acts incident to product distribution, such as offering customers technical
support or product updates, support liability in themselves. The inducement
rule, instead, premises liability on purposeful, culpable expression and
conduct, and thus does nothing to compromise legitimate commerce or
discourage innovation having a lawful promise.
III
A purpose disqualifies him from claiming protection (and incidentally to point
The only apparent question about treating MGM's evidence as sufficient to
withstand summary judgment under the theory of inducement goes to the
need on MGM's part to adduce evidence that StreamCast and Grokster
communicated an inducing message to their software users. The classic
instance of inducement is by advertisement or solicitation that broadcasts a
message designed to stimulate others to commit violations. MGM claims
that such a message is shown here. It is undisputed that StreamCast beamed
onto the computer screens of users of Napster-compatible programs ads
urging the adoption of its OpenNap program, which was designed, as its
name implied, to invite the custom of patrons of Napster, then under attack
in the courts for facilitating massive infringement. Those who accepted
StreamCast's OpenNap program were offered software to perform the same
services, which a factfinder could conclude 938*938 would readily have
been understood in the Napster market as the ability to download
copyrighted music files. Grokster distributed an electronic newsletter
containing links to articles promoting its software's ability to access popular
copyrighted music. And anyone whose Napster or free file-sharing searches
turned up a link to Grokster would have understood Grokster to be offering
the same file-sharing ability as Napster, and to the same people who
probably used Napster for infringing downloads; that would also have been
the understanding of anyone offered Grokster's suggestively named
Swaptor software, its version of OpenNap. And both companies
communicated a clear message by responding affirmatively to requests for
help in locating and playing copyrighted materials.
In StreamCast's case, of course, the evidence just described was
supplemented by other unequivocal indications of unlawful purpose in the
internal communications and advertising designs aimed at Napster users
("When the lights went off at Napster . . . where did the users go?" App. 836
(ellipsis in original)). Whether the messages were communicated is not to
the point on this record. The function of the message in the theory of
inducement is to prove by a defendant's own statements that his unlawful
to actual violators likely to be found among those who hear or read the
message). See supra, at 935-937. Proving that a message was sent out, then,
is the preeminent but not exclusive way of showing that active steps were
taken with the purpose of bringing about infringing acts, and of showing that
infringing acts took place by using the device distributed. Here, the summary
judgment record is replete with other evidence that Grokster and
StreamCast, unlike the manufacturer and distributor in Sony, acted with a
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 94
purpose to cause copyright violations by use of software suitable for illegal
use. See supra, at 924-927.
939*939 Three features of this evidence of intent are particularly notable.
First, each company showed itself to be aiming to satisfy a known source of
demand for copyright infringement, the market comprising former Napster
users. StreamCast's internal documents made constant reference to
Napster, it initially distributed its Morpheus software through an OpenNap
program compatible with Napster, it advertised its OpenNap program to
Napster users, and its Morpheus software functions as Napster did except
that it could be used to distribute more kinds of files, including copyrighted
movies and software programs. Grokster's name is apparently derived from
Napster, it too initially offered an OpenNap program, its software's function
is likewise comparable to Napster's, and it attempted to divert queries for
Napster onto its own Web site. Grokster and StreamCast's efforts to supply
services to former Napster users, deprived of a mechanism to copy and
distribute what were overwhelmingly infringing files, indicate a principal, if
not exclusive, intent on the part of each to bring about infringement.
Second, this evidence of unlawful objective is given added significance by
MGM's showing that neither company attempted to develop filtering tools
or other mechanisms to diminish the infringing activity using their software.
While the Ninth Circuit treated the defendants' failure to develop such tools
as irrelevant because they lacked an independent duty to monitor their
users' activity, we think this evidence underscores Grokster's and
StreamCast's intentional facilitation of their users' infringement.[12]
Third, there is a further complement to the direct evidence of unlawful
objective. It is useful to recall that StreamCast 940*940 and Grokster make
money by selling advertising space, by directing ads to the screens of
computers employing their software. As the record shows, the more the
software is used, the more ads are sent out and the greater the advertising
revenue becomes. Since the extent of the software's use determines the
gain to the distributors, the commercial sense of their enterprise turns on
high-volume use, which the record shows is infringing.[13] This evidence
alone would not justify an inference of unlawful intent, but viewed in the
context of the entire record its import is clear.
The unlawful objective is unmistakable.
B
In addition to intent to bring about infringement and distribution of a device
suitable for infringing use, the inducement theory of course requires
evidence of actual infringement by recipients of the device, the software in
this case. As the account of the facts indicates, there is evidence of
infringement on a gigantic scale, and there is no serious issue of the
adequacy of MGM's showing on this point in order to survive the companies'
summary judgment requests. Although 941*941 an exact calculation of
infringing use, as a basis for a claim of damages, is subject to dispute, there
is no question that the summary judgment evidence is at least adequate to
entitle MGM to go forward with claims for damages and equitable relief.
***
In sum, this case is significantly different from Sony and reliance on that case
to rule in favor of StreamCast and Grokster was error. Sony dealt with a
claim of liability based solely on distributing a product with alternative
lawful and unlawful uses, with knowledge that some users would follow the
unlawful course. The case struck a balance between the interests of
protection and innovation by holding that the product's capability of
substantial lawful employment should bar the imputation of fault and
consequent secondary liability for the unlawful acts of others.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 95

MGM's evidence in this case most obviously addresses a different basis of
liability for distributing a product open to alternative uses. Here, evidence
of the distributors' words and deeds going beyond distribution as such
shows a purpose to cause and profit from third-party acts of copyright
infringement. If liability for inducing infringement is ultimately found, it will
not be on the basis of presuming or imputing fault, but from inferring a
patently illegal objective from statements and actions showing what that
objective was.
There is substantial evidence in MGM's favor on all elements of inducement,
and summary judgment in favor of Grokster and StreamCast was error. On
remand, reconsideration of MGM's motion for summary judgment will be in
order.
The judgment of the Court of Appeals is vacated, and the case is remanded
for further proceedings consistent with this opinion.
It is so ordered.
942*942 JUSTICE GINSBURG, with whom THE CHIEF JUSTICE and JUSTICE
KENNEDY join, concurring.
I concur in the Court's decision, which vacates in full the judgment of the
Court of Appeals for the Ninth Circuit, ante, at 941, and write separately to
clarify why I conclude that the Court of Appeals misperceived, and hence
misapplied, our holding in Sony Corp. of America v. Universal City Studios,
Inc., 464 U. S. 417 (1984). There is here at least a "genuine issue as to [a]
material fact," Fed. Rule Civ. Proc. 56(c), on the liability of Grokster or
StreamCast, not only for actively inducing copyright infringement, but also,
or alternatively, based on the distribution of their software products, for
contributory copyright infringement. On neither score was summary
judgment for Grokster and StreamCast warranted.
At bottom, however labeled, the question in this case is whether Grokster
and StreamCast are liable for the direct infringing acts of others. Liability
under our jurisprudence may be predicated on actively encouraging (or
inducing) infringement through specific acts (as the Court's opinion
develops) or on distributing a product distributees use to infringe
copyrights, if the product is not capable of "substantial" or "commercially
significant" noninfringing uses. Sony, 464 U. S., at 442; see also 3 M. Nimmer
& D. Nimmer, Nimmer on Copyright § 12.04[A][2] (2005). While the two
categories overlap, they capture different culpable behavior. Long
coexisting, both are now codified in patent law. Compare 35 U. S. C. § 271(b)
(active inducement liability) with § 271(c) (contributory liability for
distribution of a product not "suitable for substantial noninfringing use").
In Sony, 464 U. S. 417, the Court considered Sony's liability for selling the
Betamax videocassette recorder. It did so enlightened by a full trial record.
Drawing an analogy to the staple article of commerce doctrine from patent
law, 943*943 the Sony Court observed that the "sale of an article . . .
adapted to [a patent] infringing use" does not suffice "to make the seller a
contributory infringer" if the article "is also adapted to other and lawful
uses." Id., at 441 (quoting Henry v. A. B. Dick Co., 224 U. S. 1, 48 (1912),
overruled on other grounds, Motion Picture Patents Co. v. Universal Film
Mfg. Co., 243 U. S. 502, 517 (1917)).
"The staple article of commerce doctrine" applied to copyright, the Court
stated, "must strike a balance between a copyright holder's legitimate
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 96
demand for effective—not merely symbolic—protection of the statutory
monopoly, and the rights of others freely to engage in substantially
unrelated areas of commerce." Sony, 464 U. S., at 442. "Accordingly," the
Court held, "the sale of copying equipment, like the sale of other articles of
commerce, does not constitute contributory infringement if the product is
widely used for legitimate, unobjectionable purposes. Indeed, it need
merely be capable of substantial noninfringing uses." Ibid. Thus, to resolve
the Sony case, the Court explained, it had to determine "whether the
Betamax is capable of commercially significant noninfringing uses." Ibid.
To answer that question, the Court considered whether "a significant
number of [potential uses of the Betamax were] noninfringing." Ibid. The
Court homed in on one potential use—private, noncommercial time-shifting
of television programs in the home (i. e., recording a broadcast TV program
for later personal viewing). Time-shifting was noninfringing, the Court
concluded, because in some cases trial testimony showed it was authorized
by the copyright holder, id., at 443-447, and in others it qualified as
legitimate fair use, id., at 447-455. Most purchasers used the Betamax
principally to engage in time-shifting, id., at 421, 423, a use that "plainly
satisfie[d]" the Court's standard, id., at 442. Thus, there was no need in Sony
to "give precise content to the question of how much [actual or potential]
use is commercially 944*944 significant." Ibid.[1] Further development was
left for later days and cases.
The Ninth Circuit went astray, I will endeavor to explain, when that court
granted summary judgment to Grokster and StreamCast on the charge of
contributory liability based on distribution of their software products.
Relying on its earlier opinion in A&M Records, Inc. v. Napster, Inc., 239 F. 3d
1004 (CA9 2001), the Court of Appeals held that "if substantial noninfringing
use was shown, the copyright owner would be required to show that the
defendant had reasonable knowledge of specific infringing files." 380 F. 3d
1154, 1161 (CA9 2004). "A careful examination of the record," the 945*945
court concluded, "indicates that there is no genuine issue of material fact as
to noninfringing use." Ibid. The appeals court pointed to the band Wilco,
which made one of its albums available for free downloading, to other
recording artists who may have authorized free distribution of their music
through the Internet, and to public domain literary works and films available
through Grokster's and StreamCast's software. Ibid. Although it
acknowledged petitioners' (hereinafter MGM) assertion that "the vast
majority of the software use is for copyright infringement," the court
concluded that Grokster's and StreamCast's proffered evidence met Sony's
requirement that "a product need only be capable of substantial
noninfringing uses." 380 F. 3d, at 1162.[2]
This case differs markedly from Sony. Cf. Peters, Brace Memorial Lecture:
Copyright Enters the Public Domain, 51 J. Copyright Soc. 701, 724 (2004)
("The Grokster panel's reading of Sony is the broadest that any court has
given it . . . ."). Here, there has been no finding of any fair use and little
beyond anecdotal evidence of noninfringing uses. In finding the Grokster
and StreamCast software products capable of substantial noninfringing
uses, the District Court and the Court of Appeals appear to have relied
largely on declarations submitted by the defendants. These declarations
include assertions (some of them hearsay) that a number of copyright
owners authorize distribution of their works on the Internet and that some
public domain material is available through peer-to-peer networks including
those accessed through Grokster's and StreamCast's software. 380 F. 3d, at
1161; 259 F. Supp. 2d 1029, 1035-1036 (CD Cal. 2003); App. 125-171.
946*946 The District Court declared it "undisputed that there are
substantial noninfringing uses for Defendants' software," thus obviating the
need for further proceedings. 259 F. Supp. 2d, at 1035. This conclusion
appears to rest almost entirely on the collection of declarations submitted
by Grokster and StreamCast. Ibid. Review of these declarations reveals
mostly anecdotal evidence, sometimes obtained secondhand, of authorized
copyrighted works or public domain works available online and shared
through peer-to-peer networks, and general statements about the benefits
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 97
of peer-to-peer technology. See, e. g., Decl. of Janis Ian ¶ 13, App. 128 ("P2P
technologies offer musicians an alternative channel for promotion and
distribution."); Decl. of Gregory Newby ¶ 12, id., at 136 ("Numerous
authorized and public domain Project Gutenberg eBooks are made available
on Morpheus, Kazaa, Gnutella, Grokster, and similar software products.");
Decl. of Aram Sinnreich ¶ 6, id., at 151 ("file sharing seems to have a net
positive impact on music sales"); Decl. of John Busher ¶ 8, id., at 166 ("I
estimate that Acoustica generates sales of between $1,000 and $10,000 per
month as a result of the distribution of its trialware software through the
Gnutella and FastTrack Networks."); Decl. of Patricia D. Hoekman ¶¶ 3-4, id.,
at 169-170 (search on Morpheus for "President Bush speeches" found
several video recordings, searches for "Declaration of Independence" and
"Bible" found various documents and declarant was able to download a
copy of the Declaration); Decl. of Sean L. Mayers ¶ 11, id., at 67 ("Existing
open, decentralized peer-to-peer file-sharing networks . . . offer content
owners distinct business advantages over alternate online distribution
technologies."). Compare Decl. of Brewster Kahle ¶ 20, id., at 142 ("Those
who download the Prelinger films . . . are entitled to redistribute those files,
and the Archive welcomes their redistribution by the Morpheus-Grokster-
KaZaa community of users."), with Deposition of Brewster Kahle (Sept. 18,
947*947 2002), id., at 396-403 (testifying that he has no knowledge of any
person downloading a Prelinger film using Morpheus, Grokster, or KaZaA).
Compare also Decl. of Richard Prelinger ¶ 17, id., at 147 ("[W]e welcome
further redistribution of the Prelinger films . . . by individuals using peer-to-
peer software products like Morpheus, KaZaA and Grokster."), with
Deposition of Richard Prelinger (Oct. 1, 2002), id., at 410-411 ("Q. What is
your understanding of Grokster? A. I have no understanding of Grokster. . .
. Q. Do you know whether any user of the Grokster software has made
available to share any Prelinger film? A. No."). See also Deposition of Aram
Sinnreich (Sept. 25, 2002), id., at 390 (testimony about the band Wilco based
on "[t]he press and industry news groups and scuttlebutt."). These
declarations do not support summary judgment in the face of evidence,
proffered by MGM, of overwhelming use of Grokster's and StreamCast's
software for infringement.[3]
948*948 Even if the absolute number of noninfringing files copied using the
Grokster and StreamCast software is large, it does not follow that the
products are therefore put to substantial noninfringing uses and are thus
immune from liability. The number of noninfringing copies may be reflective
of, and dwarfed by, the huge total volume of files shared. Further, the
District Court and the Court of Appeals did not sharply distinguish between
uses of Grokster's and StreamCast's software products (which this case is
about) and uses of peer-to-peer technology generally (which this case is not
about).
In sum, when the record in this case was developed, there was evidence that
Grokster's and StreamCast's products were, and had been for some time,
overwhelmingly used to infringe, ante, at 922-924; App. 434-439, 476-481,
and that this infringement was the overwhelming source of revenue from
the products, ante, at 925-926; 259 F. Supp. 2d, at 1043-1044. Fairly
appraised, the evidence was insufficient to demonstrate, beyond genuine
debate, a reasonable prospect that substantial or commercially significant
noninfringing uses were likely to develop over time. On this record, the
District Court should not have ruled dispositively on the contributory
infringement charge by granting summary judgment to Grokster and
StreamCast.[4]
If, on remand, the case is not resolved on summary judgment in favor of
MGM based on Grokster and StreamCast actively inducing infringement, the
Court of Appeals, I 949*949 would emphasize, should reconsider, on a fuller
record, its interpretation of Sony's product distribution holding.
JUSTICE BREYER, with whom JUSTICE STEVENS and JUSTICE O'CONNOR join,
concurring.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 98

I agree with the Court that the distributor of a dual-use technology may be
liable for the infringing activities of third parties where he or she actively
seeks to advance the infringement. Ante, at 919. I further agree that, in light
of our holding today, we need not now "revisit" Sony Corp. of America v.
Universal City Studios, Inc., 464 U. S. 417 (1984). Ante, at 934. Other
Members of the Court, however, take up the Sony question: whether
Grokster's product is "capable of `substantial' or `commercially significant'
noninfringing uses." Ante, at 942 (GINSBURG, J., concurring) (quoting Sony,
supra, at 442). And they answer that question by stating that the Court of
Appeals was wrong when it granted summary judgment on the issue in
Grokster's favor. Ante, at 944. I write to explain why I disagree with them on
this matter.
I
The Court's opinion in Sony and the record evidence (as described and
analyzed in the many briefs before us) together convince me that the Court
of Appeals' conclusion has adequate legal support.
A
I begin with Sony's standard. In Sony, the Court considered the potential
copyright liability of a company that did not itself illegally copy protected
material, but rather sold a machine—a videocassette recorder (VCR)—that
could be used to do so. A buyer could use that machine for non-infringing
purposes, such as recording for later viewing (sometimes called "`time-
shifting,'" Sony, 464 U. S., at 421) uncopyrighted television programs or
copyrighted programs with a copyright holder's permission. The buyer could
use 950*950 the machine for infringing purposes as well, such as building
libraries of taped copyrighted programs. Or, the buyer might use the
machine to record copyrighted programs under circumstances in which the
legal status of the act of recording was uncertain (i. e., where the copying
may, or may not, have constituted a "fair use," id., at 425-426). Sony knew
many customers would use its VCRs to engage in unauthorized copying and
"`library-building.'" Id., at 458-459 (Blackmun, J., dissenting). But that fact,
said the Court, was insufficient to make Sony itself an infringer. And the
Court ultimately held that Sony was not liable for its customers' acts of
infringement.
In reaching this conclusion, the Court recognized the need for the law, in
fixing secondary copyright liability, to "strike a balance between a copyright
holder's legitimate demand for effective—not merely symbolic—protection
of the statutory monopoly, and the rights of others freely to engage in
substantially unrelated areas of commerce." Id., at 442. It pointed to patent
law's "staple article of commerce" doctrine, ibid., under which a distributor
of a product is not liable for patent infringement by its customers unless that
product is "unsuited for any commercial noninfringing use." Dawson
Chemical Co. v. Rohm & Haas Co., 448 U. S. 176, 198 (1980). The Court wrote
that the sale of copying equipment, "like the sale of other articles of
commerce, does not constitute contributory infringement if the product is
widely used for legitimate, unobjectionable purposes. Indeed, it need
merely be capable of substantial noninfringing uses." Sony, 464 U. S., at 442
(emphasis added). The Court ultimately characterized the legal "question"
in the particular case as "whether [Sony's VCR] is capable of commercially
significant noninfringing uses" (while declining to give "precise content" to
these terms). Ibid. (emphasis added).
It then applied this standard. The Court had before it a survey
(commissioned by the District Court and then prepared by the respondents)
showing that roughly 9% of all 951*951 VCR recordings were of the type—
namely, religious, educational, and sports programming—owned by
producers and distributors testifying on Sony's behalf who did not object to
time-shifting. See Brief for Respondents, O. T. 1983, No. 81-1687, pp. 52-53;
see also Sony, supra, at 424 (7.3% of all Sony VCR use is to record sports
programs; representatives of the sports leagues do not object). A much
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 99
higher percentage of VCR users had at one point taped an authorized B
program, in addition to taping unauthorized programs. And the plaintiffs—
When measured against Sony's underlying evidence and analysis, the
not a large class of content providers as in this case—owned only a small
evidence now before us shows that Grokster passes Sony's test—that is,
percentage of the total available unauthorized programming. See ante, at
whether the company's product is capable of substantial or commercially
947, n. 3 (GINSBURG, J., concurring). But of all the taping actually done by
significant noninfringing uses. Id., at 442. For one thing, petitioners'
Sony's customers, only around 9% was of the sort the Court referred to as
(hereinafter MGM) own expert declared that 75% of current files available
authorized.
on Grokster are infringing and 15% are "likely infringing." See App. 436-439,
¶¶ 6-17 (Decl. of Dr. Ingram Olkin); cf. ante, at 922 (opinion of the Court).
That leaves some number of files near 10% that apparently are
The Court found that the magnitude of authorized programming was
noninfringing, a figure very similar to the 9% or so of authorized time-
"significant," and it also noted the "significant potential for future
shifting uses of the VCR that the Court faced in Sony.
authorized copying." 464 U. S., at 444. The Court supported this conclusion
by referencing the trial testimony of professional sports league officials and
a religious broadcasting representative. Id., at 444, and n. 24. It also
As in Sony, witnesses here explained the nature of the noninfringing files on
discussed (1) a Los Angeles educational station affiliated with the Public
Grokster's network without detailed quantification. Those files include:
Broadcasting Service that made many of its programs available for home
taping, and (2) Mr. Rogers' Neighborhood, a widely watched children's
program. Id., at 445. On the basis of this testimony and other similar
evidence, the Court determined that producers of this kind had authorized —Authorized copies of music by artists such as Wilco, Janis Ian, Pearl Jam,
duplication of their copyrighted programs "in significant enough numbers to Dave Matthews, John Mayer, and others. See App. 152-153, ¶¶ 9-13 (Decl.
create a substantial market for a noninfringing use of the" VCR. Id., at 447, of Aram Sinnreich) (Wilco's "lesson has already been adopted by artists still
n. 28 (emphasis added). signed to their major labels"); id., at 170, ¶¶ 5-7 (Decl. of Patricia D.
Hoekman) (locating "numerous audio recordings" that were authorized for
swapping); id., at 74, ¶ 10 (Decl. of Daniel B. Rung) (describing Grokster's
partnership with a company that hosts music from thousands of
The Court, in using the key word "substantial," indicated that these
independent artists)
circumstances alone constituted a sufficient basis for rejecting the
imposition of secondary liability. See id., at 456 ("Sony demonstrated a
significant likelihood that substantial numbers of copyright holders" would
not object 952*952 to time-shifting (emphasis added)). Nonetheless, the —Free electronic books and other works from various online publishers,
Court buttressed its conclusion by finding separately that, in any event, un- including Project Gutenberg. See id., at 136, ¶ 12 (Decl. of Gregory Newby)
authorized time-shifting often constituted not infringement, but "fair use." ("Numerous authorized and public domain Project Gutenberg eBooks are
Id., at 447-456. made available" on Grokster. Project Gutenberg "welcomes this widespread
953*953 sharing . . . using these software products[,] since they assist us in
meeting our objectives"); id., at 159-160, ¶ 32 (Decl. of Sinnreich)

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 100

—Public domain and authorized software, such as WinZip 8.1. Id., at 170, ¶
8 (Decl. of Hoekman); id., at 165, ¶¶ 4-7 (Decl. of John Busher)
—Licensed music videos and television and movie segments distributed via
digital video packaging with the permission of the copyright holder. Id., at
70, ¶ 24 (Decl. of Sean L. Mayers).
The nature of these and other lawfully swapped files is such that it is
reasonable to infer quantities of current lawful use roughly approximate to
those at issue in Sony. At least, MGM has offered no evidence sufficient to
survive summary judgment that could plausibly demonstrate a significant
quantitative difference. See ante, at 922 (opinion of the Court); see also
Brief for Motion Picture Studio and Recording Company Petitioners i
(referring to "at least 90% of the total use of the services"); but see ante, at
947, n. 3 (GINSBURG, J., concurring). To be sure, in quantitative terms these
uses account for only a small percentage of the total number of uses of
Grokster's product. But the same was true in Sony, which characterized the
relatively limited authorized copying market as "substantial." (The Court
made clear as well in Sony that the amount of material then presently
available for lawful copying—if not actually copied— was significant, see
464 U. S., at 444, and the same is certainly true in this case.)
Importantly, Sony also used the word "capable," asking whether the product
is "capable of" substantial noninfringing uses. Its language and analysis
suggest that a figure like 10%, if fixed for all time, might well prove
insufficient, but that such a figure serves as an adequate foundation where
there is a reasonable prospect of expanded legitimate uses over time. See
ibid. (noting a "significant potential for future authorized copying"). And its
language also indicates 954*954 the appropriateness of looking to potential
future uses of the product to determine its "capability."
Here the record reveals a significant future market for noninfringing uses of
Grokster-type peer-to-peer software. Such software permits the exchange
of any sort of digital file—whether that file does, or does not, contain
copyrighted material. As more and more uncopyrighted information is
stored in swappable form, it seems a likely inference that lawful peer-to-
peer sharing will become increasingly prevalent. See, e. g., App. 142, ¶ 20
(Decl. of Brewster Kahle) ("[T]he [Internet Archive] welcomes [the]
redistribution [of authorized films] by the Morpheus-Grokster-KaZaa
community of users"); id., at 166, ¶ 8 (Decl. of Busher) (sales figures of
$1,000 to $10,000 per month through peer-to-peer networks "will increase
in the future as Acoustica's trialware is more widely distributed through
these networks"); id., at 156-163, ¶¶ 21-40 (Decl. of Sinnreich).
And that is just what is happening. Such legitimate noninfringing uses are
coming to include the swapping of: research information (the initial purpose
of many peer-to-peer networks); public domain films (e. g., those owned by
the Prelinger Archive); historical recordings and digital educational
materials (e. g., those stored on the Internet Archive); digital photos
(OurPictures, for example, is starting a P2P photo-swapping service);
"shareware" and "freeware" (e. g., Linux and certain Windows software);
secure licensed music and movie files (Intent MediaWorks, for example,
protects licensed content sent across P2P networks); news broadcasts past
and present (the BBC Creative Archive lets users "rip, mix and share the
BBC"); user-created audio and video files (including "podcasts" that may be
distributed through P2P software); and all manner of free "open content"
works collected by Creative Commons (one can search for Creative
Commons material on StreamCast). See Brief for Distributed Computing
Industry Association as Amicus Curiae 15-26; Merges, A New Dynamism in
the Public Domain, 71 955*955 U. Chi. L. Rev. 183 (2004). I can find nothing
in the record that suggests that this course of events will not continue to
flow naturally as a consequence of the character of the software taken
together with the foreseeable development of the Internet and of
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 101
information technology. Cf. ante, at 920 (opinion of the Court) (discussing
the significant benefits of peer-to-peer technology).
There may be other now-unforeseen noninfringing uses that develop for
peer-to-peer software, just as the homevideo rental industry (unmentioned
in Sony) developed for the VCR. But the foreseeable development of such
uses, when taken together with an estimated 10% noninfringing material, is
sufficient to meet Sony's standard. And while Sony considered the record
following a trial, there are no facts asserted by MGM in its summary
judgment filings that lead me to believe the outcome after a trial here could
be any different. The lower courts reached the same conclusion.
Of course, Grokster itself may not want to develop these other noninfringing
uses. But Sony's standard seeks to protect not the Groksters of this world
(which in any event may well be liable under today's holding), but the
development of technology more generally. And Grokster's desires in this
respect are beside the point.
II
The real question here, I believe, is not whether the record evidence satisfies
Sony. As I have interpreted the standard set forth in that case, it does. And
of the Courts of Appeals that have considered the matter, only one has
proposed interpreting Sony more strictly than I would do—in a case where
the product might have failed under any standard. In re Aimster Copyright
Litigation, 334 F. 3d 643, 653 (CA7 2003) (defendant "failed to show that its
service is ever used for any purpose other than to infringe" copyrights
(emphasis added)); see Matthew Bender & Co. v. West Pub. Co., 158
956*956 F. 3d 693, 706-707 (CA2 1998) (court did not require that
noninfringing uses be "predominant," it merely found that they were
predominant, and therefore provided no analysis of Sony's boundaries); but
see ante, at 944, n. 1 (GINSBURG, J., concurring); see also A&M Records, Inc.
v. Napster, Inc., 239 F. 3d 1004, 1020 (CA9 2001) (discussing Sony);
Cable/Home Communication Corp. v. Network Productions, Inc., 902 F. 2d
829, 842-847 (CA11 1990) (same); Vault Corp. v. Quaid Software, Ltd., 847
F. 2d 255, 262 (CA5 1988) (same); cf. Dynacore Holdings Corp. v. U. S. Philips
Corp., 363 F. 3d 1263, 1275 (CA Fed. 2004) (same); see also Doe v. GTE Corp.,
347 F. 3d 655, 661 (CA7 2003) ("A person may be liable as a contributory
infringer if the product or service it sells has no (or only slight) legal use").
Instead, the real question is whether we should modify the Sony standard,
as MGM requests, or interpret Sony more strictly, as I believe JUSTICE
GINSBURG'S approach would do in practice. Compare ante, at 944-948
(concurring opinion) (insufficient evidence in this case of both present lawful
uses and of a reasonable prospect that substantial noninfringing uses would
develop over time), with Sony, 464 U. S., at 442-447 (basing conclusion as to
the likely existence of a substantial market for authorized copying upon
general declarations, some survey data, and common sense).
As I have said, Sony itself sought to "strike a balance between a copyright
holder's legitimate demand for effective— not merely symbolic—protection
of the statutory monopoly, and the rights of others freely to engage in
substantially unrelated areas of commerce." Id., at 442. Thus, to determine
whether modification, or a strict interpretation, of Sony is needed, I would
ask whether MGM has shown that Sony incorrectly balanced copyright and
new-technology interests. In particular: (1) Has Sony (as I interpret it)
worked to protect new technology? (2) If so, would modification or strict
interpretation significantly weaken that protection? (3) If 957*957 so, would
new or necessary copyright-related benefits outweigh any such weakening?
A
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 102
The first question is the easiest to answer. Sony's rule, as I interpret it, has
provided entrepreneurs with needed assurance that they will be shielded
from copyright liability as they bring valuable new technologies to market.
Sony's rule is clear. That clarity allows those who develop new products that
are capable of substantial noninfringing uses to know, ex ante, that
distribution of their product will not yield massive monetary liability. At the
same time, it helps deter them from distributing products that have no other
real function than—or that are specifically intended for—copyright
infringement, deterrence that the Court's holding today reinforces (by
adding a weapon to the copyright holder's legal arsenal).
Sony's rule is strongly technology protecting. The rule deliberately makes it
difficult for courts to find secondary liability where new technology is at
issue. It establishes that the law will not impose copyright liability upon the
distributors of dual-use technologies (who do not themselves engage in
unauthorized copying) unless the product in question will be used almost
exclusively to infringe copyrights (or unless they actively induce
infringements as we today describe). Sony thereby recognizes that the
copyright laws are not intended to discourage or to control the emergence
of new technologies, including (perhaps especially) those that help
disseminate information and ideas more broadly or more efficiently. Thus
Sony's rule shelters VCRs, typewriters, tape recorders, photocopiers,
computers, cassette players, compact disc burners, digital video recorders,
MP3 players, Internet search engines, and peer-to-peer software. But Sony's
rule does not shelter descramblers, even if one could theoretically use a
descrambler in a noninfringing way. 464 958*958 U. S., at 441-442. Compare
Cable/Home Communication Corp., supra, at 837-850 (developer liable for
advertising television signal descrambler), with Vault Corp., supra, at 262
(primary use infringing but a substantial noninfringing use).
Sony's rule is forward looking. It does not confine its scope to a static
snapshot of a product's current uses (thereby threatening technologies that
have undeveloped future markets). Rather, as the VCR example makes clear,
a product's market can evolve dramatically over time. And Sony—by
referring to a capacity for substantial noninfringing uses—recognizes that
fact. Sony's word "capable" refers to a plausible, not simply a theoretical,
likelihood that such uses will come to pass, and that fact anchors Sony in
practical reality. Cf. Aimster, 334 F. 3d, at 651.
Sony's rule is mindful of the limitations facing judges where matters of
technology are concerned. Judges have no specialized technical ability to
answer questions about present or future technological feasibilility or
commercial viability where technology professionals, engineers, and
venture capitalists themselves may radically disagree and where answers
may differ depending upon whether one focuses upon the time of product
development or the time of distribution. Consider, for example, the
question whether devices can be added to Grokster's software that will filter
out infringing files. MGM tells us this is easy enough to do, as do several
amici that produce and sell the filtering technology. See, e. g., Brief for
Motion Picture Studio and Recording Company Petitioners 11; Brief for
Audible Magic Corp. et al. as Amici Curiae 3-10. Grokster says it is not at all
easy to do, and not an efficient solution in any event, and several apparently
disinterested computer science professors agree. See Brief for Respondents
31; Brief for Computer Science Professor Harold Abelson et al. as Amici
Curiae 6-10, 14-18. Which account should a judge credit? Sony says that the
judge will not necessarily have to decide.
959*959 Given the nature of the Sony rule, it is not surprising that in the last
20 years, there have been relatively few contributory infringement suits—
based on a product distribution theory—brought against technology
providers (a small handful of federal appellate court cases and perhaps
fewer than two dozen District Court cases in the last 20 years). I have found
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 103
nothing in the briefs or the record that shows that Sony has failed to achieve
its innovation-protecting objective.
B C
The second, more difficult, question is whether a modified Sony rule (or a
strict interpretation) would significantly weaken the law's ability to protect
new technology. JUSTICE GINSBURG'S approach would require defendants
to produce considerably more concrete evidence—more than was
presented here—to earn Sony's shelter. That heavier evidentiary demand,
and especially the more dramatic (case-by-case balancing) modifications
that MGM and the Government seek, would, I believe, undercut the
protection that Sony now offers.
To require defendants to provide, for example, detailed evidence—say,
business plans, profitability estimates, projected technological
modifications, and so forth—would doubtless make life easier for copyright
holder plaintiffs. But it would simultaneously increase the legal uncertainty
that surrounds the creation or development of a new technology capable of
being put to infringing uses. Inventors and entrepreneurs (in the garage, the
dorm room, the corporate lab, or the boardroom) would have to fear (and
in many cases endure) costly and extensive trials when they create, produce,
or distribute the sort of information technology that can be used for
copyright infringement. They would often be left guessing as to how a court,
upon later review of the product and its uses, would decide when
necessarily rough estimates amounted to sufficient evidence. They would
have no way to predict how courts would weigh the respective 960*960
values of infringing and noninfringing uses; determine the efficiency and
advisability of technological changes; or assess a product's potential future
markets. The price of a wrong guess—even if it involves a good-faith effort
to assess technical and commercial viability—could be large statutory
damages (not less than $750 and up to $30,000 per infringed work). 17 U. S.
C. § 504(c)(1). The additional risk and uncertainty would mean a consequent
additional chill of technological development.
The third question—whether a positive copyright impact would outweigh
any technology-related loss—I find the most difficult of the three. I do not
doubt that a more intrusive Sony test would generally provide greater
revenue security for copyright holders. But it is harder to conclude that the
gains on the copyright swings would exceed the losses on the technology
roundabouts.
For one thing, the law disfavors equating the two different kinds of gain and
loss; rather, it leans in favor of protecting technology. As Sony itself makes
clear, the producer of a technology which permits unlawful copying does
not himself engage in unlawful copying—a fact that makes the attachment
of copyright liability to the creation, production, or distribution of the
technology an exceptional thing. See 464 U. S., at 431 (courts "must be
circumspect" in construing the copyright laws to preclude distribution of
new technologies). Moreover, Sony has been the law for some time. And
that fact imposes a serious burden upon copyright holders like MGM to
show a need for change in the current rules of the game, including a more
strict interpretation of the test. See, e. g., Brief for Motion Picture Studio
and Recording Company Petitioners 31 (Sony should not protect products
when the "primary or principal" use is infringing).
In any event, the evidence now available does not, in my view, make out a
sufficiently strong case for change. To say 961*961 this is not to doubt the
basic need to protect copyrighted material from infringement. The
Constitution itself stresses the vital role that copyright plays in advancing
the "useful Arts." Art. I, § 8, cl. 8. No one disputes that "reward to the author
or artist serves to induce release to the public of the products of his creative
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 104
genius." United States v. Paramount Pictures, Inc., 334 U. S. 131, 158 (1948).
And deliberate unlawful copying is no less an unlawful taking of property
than garden-variety theft. See, e. g., 18 U. S. C. § 2319 (2000 ed. and Supp.
II) (criminal copyright infringement); § 1961(1)(B) (2000 ed., Supp. II)
(copyright infringement can be a predicate act under the Racketeer
Influenced and Corrupt Organizations Act); § 1956(c)(7)(D) (2000 ed., Supp.
II) (money laundering includes the receipt of proceeds from copyright
infringement). But these highly general principles cannot by themselves tell
us how to balance the interests at issue in Sony or whether Sony's standard
needs modification. And at certain key points, information is lacking.
Will an unmodified Sony lead to a significant diminution in the amount or
quality of creative work produced? Since copyright's basic objective is
creation and its revenue objectives but a means to that end, this is the
underlying copyright question. See Twentieth Century Music Corp. v. Aiken,
422 U. S. 151, 156 (1975) ("Creative work is to be encouraged and rewarded,
but private motivation must ultimately serve the cause of promoting broad
public availability of literature, music, and the other arts"). And its answer is
far from clear.
Unauthorized copying likely diminishes industry revenue, though it is not
clear by how much. Compare S. Liebowitz, Will MP3 Downloads Annihilate
the Record Industry? The Evidence So Far 2 (June 2003),
http://www.utdallas.edu/ ~liebowit/intprop/records.pdf (all Internet
materials as visited June 24, 2005, and available in Clerk of Court's case file)
962*962 (file sharing has caused a decline in music sales), and Press Release,
Informa Telecoms & Media, Steady Download Growth Defies P2P (Dec. 6,
2004), http://www.informatm.com (citing Informa Media Group Report,
Music on the Internet (5th ed. 2004)) (estimating total lost sales to the music
industry in the range of $2 billion annually), with F. Oberholzer & K. Strumpf,
The Effect of File Sharing on Record Sales: An Empirical Analysis 24 (Mar.
2004), www.unc.edu/ñcigar/papers/FileSharing_March2004.pdf (academic
study concluding that "file sharing has no statistically significant effect on
purchases of the average album"), and D. McGuire, Study: File-Sharing No
Threat to Music Sales (Mar. 29, 2004),
http://www.washingtonpost.com/ac2/wp-dyn/A34300-
2004Mar29?language=printer (discussing mixed evidence).
The extent to which related production has actually and resultingly declined
remains uncertain, though there is good reason to believe that the decline,
if any, is not substantial. See, e. g., M. Madden, Pew Internet & American
Life Project, Artists, Musicians, and the Internet 21 (Dec. 5, 2004),
http://www.pewinternet.org/pdfs/PIP_Artists. Musicians_Report.pdf
(nearly 70% of musicians believe that file sharing is a minor threat or no
threat at all to creative industries); Benkler, Sharing Nicely: On Shareable
Goods and the Emergence of Sharing as a Modality of Economic Production,
114 Yale L. J. 273, 351-352 (2004) ("Much of the actual flow of revenue to
artists—from performances and other sources—is stable even assuming a
complete displacement of the CD market by peer-to-peer distribution . . . .
[I]t would be silly to think that music, a cultural form without which no
human society has existed, will cease to be in our world [because of illegal
file swapping]").
More importantly, copyright holders at least potentially have other tools
available to reduce piracy and to abate whatever threat it poses to creative
production. As today's opinion makes clear, a copyright holder may proceed
against 963*963 a technology provider where a provable specific intent to
infringe (of the kind the Court describes) is present. Ante, at 941. Services
like Grokster may well be liable under an inducement theory.
In addition, a copyright holder has always had the legal authority to bring a
traditional infringement suit against one who wrongfully copies. Indeed,
since September 2003, the Recording Industry Association of America (RIAA)
has filed "thousands of suits against people for sharing copyrighted
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 105
material." Walker, New Movement Hits Universities: Get Legal Music,
Washington Post, Mar. 17, 2005, p. E1. These suits have provided copyright
holders with damages; have served as a teaching tool, making clear that
much file sharing, if done without permission, is unlawful; and apparently
have had a real and significant deterrent effect. See, e. g., L. Rainie, M.
Madden, D. Hess, & G. Mudd, Pew Internet Project and comScore Media
Metrix Data Memo: The state of music downloading and file-sharing online
2, 4, 6, 10 (Apr. 2004),
http://www.pewinternet.org/pdfs/PIP_Filesharing_April_04.pdf (number
of people downloading files fell from a peak of roughly 35 million to roughly
23 million in the year following the first suits; 38% of current downloaders
report downloading fewer files because of the suits); M. Madden & L. Rainie,
Pew Internet Project Data Memo: Music and video downloading moves
beyond P2P, p. 7 (Mar. 2005), http://www.
pewinternet.org/pdfs/PIP_Filesharing_March05.pdf (number of
downloaders has "inched up" but "continues to rest well below the peak
level"); Note, Costs and Benefits of the Recording Industry's Litigation
Against Individuals, 20 Berkeley Tech. L. J. 571 (2005); but see Evangelista,
File Sharing; Downloading Music and Movie Files is as Popular as Ever, San
Francisco Chronicle, Mar. 28, 2005, p. E1 (referring to the continuing "tide
of rampant copyright infringement," while noting that the RIAA says it
believes the "campaign of lawsuits and public education has at least
contained the problem").
964*964 Further, copyright holders may develop new technological devices
that will help curb unlawful infringement. Some new technology, called
"digital `watermarking'" and "digital fingerprint[ing]," can encode within the
file information about the author and the copyright scope and date, which
"fingerprints" can help to expose infringers. RIAA Reveals Method to
Madness, Wired News (Aug. 28, 2003), http://
www.wired.com/news/digiwood/0,1412,60222,00.html; Besek, Anti-
Circumvention Laws and Copyright: A Report from the Kernochan Center for
Law, Media and the Arts, 27 Colum. J. L. & Arts 385, 391, 451 (2004). Other
technology can, through encryption, potentially restrict users' ability to
make a digital copy. See J. Borland, Tripping the Rippers, C/net News.com
(Sept. 28, 2001), http://news.com.com/ Tripping+the+rippers/XXXX-
XXXX_X-XXXXXX.html; but see Brief for Bridgemar Services, Ltd. d/b/a
iMesh.com as Amicus Curiae 5-8 (arguing that peer-to-peer service
providers can more easily block unlawful swapping).
At the same time, advances in technology have discouraged unlawful
copying by making lawful copying (e. g., downloading music with the
copyright holder's permission) cheaper and easier to achieve. Several
services now sell music for less than $1 per song. (Walmart.com, for
example, charges $0.88 each.) Consequently, many consumers initially
attracted to the convenience and flexibility of services like Grokster are now
migrating to lawful paid services (services with copying permission) where
they can enjoy at little cost even greater convenience and flexibility without
engaging in unlawful swapping. See Wu, When Code Isn't Law, 89 Va. L. Rev.
679, 731-735 (2003) (noting the prevalence of technological problems on
unpaid swapping sites); K. Dean, P2P Tilts Toward Legitimacy, Wired News
(Nov. 24, 2004), http://www.wired.com/news/
digiwood/0,1412,65836,00.html; Madden & Rainie, March 2005 Data
Memo, supra, at 6-8 (percentage of current downloaders who have used
paid services rose from 24% to 43% in a year; number using free services fell
from 58% to 41%).
965*965 Thus, lawful music downloading services—those that charge the
customer for downloading music and pay royalties to the copyright holder—
have continued to grow and to produce substantial revenue. See Brief for
Internet Law Faculty as Amicus Curiae 5-20; Bruno, Digital Entertainment:
Piracy Fight Shows Encouraging Signs (Mar. 5, 2005), available at LEXIS,
News Library, Billboard File (in 2004, consumers worldwide purchased more
than 10 times the number of digital tracks purchased in 2003; global digital
music market of $330 million in 2004 expected to double in 2005); Press
Release, Informa Telecoms & Media, Steady Download Growth Defies P2P
(global digital revenues will likely exceed $3 billion in 2010); Ashton,
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 106
[International Federation of the Phonographic Industry] Predicts Downloads
Will Hit the Mainstream, Music Week, Jan. 29, 2005, p. 6 (legal music sites
and portable MP3 players "are helping to transform the digital music
market" into "an everyday consumer experience"). And more advanced
types of non-music-oriented peer-to-peer networks have also started to
develop, drawing in part on the lessons of Grokster.
Finally, as Sony recognized, the legislative option remains available. Courts
are less well suited than Congress to the task of "accommodat[ing] fully the
varied permutations of competing interests that are inevitably implicated by
such new technology." Sony, 464 U. S., at 431; see, e. g., Audio Home
Recording Act of 1992, 106 Stat. 4237 (adding 17 U. S. C., ch. 10); Protecting
Innovation and Art While Preventing Piracy: Hearing before the Senate
Committee on the Judiciary, 108th Cong., 2d Sess. (2004).
I do not know whether these developments and similar alternatives will
prove sufficient, but I am reasonably certain that, given their existence, a
strong demonstrated need for modifying Sony (or for interpreting Sony's
standard more strictly) has not yet been shown. That fact, along with the
added risks that modification (or strict interpretation) would impose upon
technological innovation, leads me to the conclusion that we should
maintain Sony, reading its standard as I 966*966 have read it. As so read, it
requires affirmance of the Ninth Circuit's determination of the relevant
aspects of the Sony question.
***
For these reasons, I disagree with JUSTICE GINSBURG, but I agree with the
Court and join its opinion.
[*] Briefs of amici curiae urging reversal were filed for the State of Utah et
al. by Mark Shurtleff, Attorney General of Utah, and by the Attorneys
General for their respective jurisdictions as follows: Troy King of Alabama,
Gregg Renkes of Alaska, Terry Goddard of Arizona, Mike Beebe of Arkansas,
M. Jane Brady of Delaware, Charles J. Crist, Jr., of Florida, Thurbert E. Baker
of Georgia, Douglas B. Moylan of Guam, Mark J. Bennett of Hawaii,
Lawrence G. Wasden of Idaho, Lisa Madigan of Illinois, Steve Carter of
Indiana, Phill Kline of Kansas, Gregory D. Stumbo of Kentucky, Charles C.
Foti, Jr., of Louisiana, Thomas F. Reilly of Massachusetts, Michael A. Cox of
Michigan, Mike Hatch of Minnesota, Jim Hood of Mississippi, Jeremiah W.
(Jay) Nixon of Missouri, Mike McGrath of Montana, Jon Bruning of Nebraska,
Brian Sandoval of Nevada, Peter C. Harvey of New Jersey, Patricia A. Madrid
of New Mexico, Roy Cooper of North Carolina, Wayne Stenehjem of North
Dakota, Jim Petro of Ohio, W. A. Drew Edmondson of Oklahoma, Thomas W.
Corbett, Jr., of Pennsylvania, Patrick Lynch of Rhode Island, Henry McMaster
of South Carolina, Lawrence E. Long of South Dakota, Paul G. Summers of
Tennessee, Greg Abbott of Texas, William H. Sorrell of Vermont, Jerry
Kilgore of Virginia, Darrell V. McGraw, Jr., of West Virginia, and Peg
Lautenschlager of Wisconsin; for the American Federation of Musicians of
the United States and Canada et al. by George H. Cohen, Patricia Polach, and
Laurence Gold; for the American Society of Composers, Authors and
Publishers et al. by I. Fred Koenigsberg, Michael E. Salzman, and Marvin L.
Berenson; for Americans for Tax Reform by Carter G. Phillips, Alan Charles
Raul, Jay T. Jorgensen, and Eric A. Shumsky; for the Commissioner of
Baseball et al. by Robert Alan Garrett and Hadrian R. Katz; for Defenders of
Property Rights by Theodore B. Olson, Thomas H. Dupree, Jr., Matthew D.
McGill, Nancie G. Marzulla, and Roger Marzulla; for International Rights
Owners by Christopher Wolf; for Kids First Coalition et al. by Viet D. Dinh;
for Law Professors et al. by James Gibson; for Macrovision Corp. by Geoffrey
L. Beauchamp, Kelly G. Huller, and James H. Salter; for Napster, LLC, et al. by
Barry I. Slotnick; for the National Academy of Recording Arts & Sciences, Inc.,
et al. by Jon A. Baumgarten and Jay L. Cooper; for the National Association
of Broadcasters by Marsha J. MacBride, Jane E. Mago, Benjamin F. P. Ivins,
and Jerianne Timmerman; for the National Association of Recording
Merchandisers by Alan R. Malasky and Melanie Martin-Jones; for the
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 107
Progress & Freedom Foundation by James V. DeLong; for the Video Software
Dealers Association by John T. Mitchell; and for Professor Peter S. Menell et
al. by Mr. Menell, pro se.
Briefs of amici curiae urging affirmance were filed for Altnet, Inc., by
Roderick G. Dorman; for the American Civil Liberties Union et al. by
Christopher A. Hansen, Steven R. Shapiro, Sharon M. McGowan, Ann Brick,
and Jordan C. Budd; for the American Conservative Union et al. by David
Post; for the Cellular Telecommunications & Internet Association et al. by
Andrew G. McBride, Joshua S. Turner, Michael Altschul, James W. Olson,
Frank L. Politano, Laura Kaster, Jeffrey A. Rackow, Grier C. Raclin, Michael
Standard, John Thorne, Sarah B. Deutsch, and Paul J. Larkin, Jr.; for the
Consumer Electronics Association et al. by Bruce G. Joseph and Scott E. Bain;
for the Consumer Federation of America et al. by Peter Jaszi; for the
Distributed Computing Industry Association by Mr. Dorman; for the Eagle
Forum Education & Legal Defense Fund by Andrew L. Schlafly and Karen B.
Tripp; for the Free Software Foundation et al. by Eben Moglen; for Intel
Corp. by James M. Burger and Jonathan D. Hart; for Internet Law Faculty by
William W. Fisher III and Jonathan Zittrain; for Law Professors by J. Glynn
Lunney, Jr.; for the National Association of Shareholder and Consumer
Attorneys by Kevin P. Roddy and Matthew E. Van Tine; for Sixty Intellectual
Property and Technology Law Professors et al. by Deirdre K. Mulligan and
Pamela Samuelson; for Sovereign Artists et al. by James R. Wheaton; for
Computer Science Professor Harold Abelson et al. by James S. Tyre; for
Professor Edward Lee et al. by Mr. Lee, pro se; for Charles Nesson by Mr.
Nesson, pro se; and for Malla Pollack et al. by Ms. Pollack, pro se.
Briefs of amici curiae were filed for the American Intellectual Property Law
Association by Rick D. Nydegger and Melvin C. Garner; for Audible Magic
Corp. et al. by Bruce V. Spiva and Jeremy H. Stern; for Bridgemar Services,
Ltd. d/b/a iMesh.com by Jeffrey A. Kimmel; for the Business Software
Alliance by E. Edward Bruce and Robert A. Long, Jr.; for Creative Commons
by Lawrence Lessig; for the Digital Media Association et al. by Lawrence
Robbins, Alan Untereiner, Markham C. Erickson, and Jerry Berman; for
Emerging Technology Companies by Michael Traynor and Matthew D.
Brown; for IEEE-USA by Matthew J. Conigliaro, Andrew C. Greenberg, Joseph
H. Lang, Jr., and Daniel E. Fisher; for Innovation Scholars and Economists by
Laurence F. Pulgram; for the Intellectual Property Owners Association by
James H. Pooley; for Media Studies Professors by Roy I. Liebman; for the
National Venture Capital Association by Michael K. Kellogg, Mark L. Evans,
and David L. Schwarz; for Sharman Networks Limited by Mr. Dorman; for
SNOCAP, Inc., by Joel W. Nomkin; for Kenneth J. Arrow et al. by David A.
Strauss; for Lee A. Hollaar by Lloyd W. Sadler; for U. S. Senator Patrick Leahy
et al. by Mr. Leahy, pro se, and Senator Orrin G. Hatch, pro se; and for Felix
Oberholzer-Gee et al. by Carl H. Settlemyer III and Arnold P. Lutzker.
[1] Peer-to-peer networks have disadvantages as well. Searches on peer-to-
peer networks may not reach and uncover all available files because search
requests may not be transmitted to every computer on the network. There
may be redundant copies of popular files. The creator of the software has
no incentive to minimize storage or bandwidth consumption, the costs of
which are borne by every user of the network. Most relevant here, it is more
difficult to control the content of files available for retrieval and the
behavior of users.
[2] The studios and recording companies and the songwriters and music
publishers filed separate suits against the defendants that were
consolidated by the District Court.
[3] Subsequent versions of Morpheus, released after the record was made
in this case, apparently rely not on Gnutella but on a technology called
Neonet. These developments are not before us.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 108
[4] There is some evidence that both Grokster and StreamCast previously
operated supernodes, which compiled indexes of files available on all of the
[9] We stated in Sony Corp. of America v. Universal City Studios, Inc., 464 U.
nodes connected to them. This evidence, pertaining to previous versions of
S. 417 (1984), that "`the lines between direct infringement, contributory
the defendants' software, is not before us and would not affect our
infringement and vicarious liability are not clearly drawn' . . . . [R]easoned
conclusions in any event.
analysis of [the Sony plaintiffs' contributory infringement claim] necessarily
entails consideration of arguments and case law which may also be
forwarded under the other labels, and indeed the parties . . . rely upon such
[5] By comparison, evidence introduced by the plaintiffs in A&M Records,
arguments and authority in support of their respective positions on the issue
Inc. v. Napster, Inc., 239 F. 3d 1004 (CA9 2001), showed that 87% of files
of contributory infringement," id., at 435, n. 17 (quoting Universal City
available on the Napster file-sharing network were copyrighted, id., at 1013.
Studios, Inc. v. Sony Corp. of America, 480 F. Supp. 429, 457-458 (CD Cal.
1979)). In the present case MGM has argued a vicarious liability theory,
which allows imposition of liability when the defendant profits directly from
[6] The Grokster founder contends that in answering these e-mails he often the infringement and has a right and ability to supervise the direct infringer,
did not read them fully. App. 77, 769. even if the defendant initially lacks knowledge of the infringement. See, e.
g., Shapiro, Bernstein & Co. v. H. L. Green Co., 316 F. 2d 304, 308 (CA2 1963);
Dreamland Ball Room, Inc. v. Shapiro, Bernstein & Co., 36 F. 2d 354, 355
[7] The record makes clear that StreamCast developed these promotional (CA7 1929). Because we resolve the case based on an inducement theory,
materials but not whether it released them to the public. Even if these there is no need to analyze separately MGM's vicarious liability theory.
advertisements were not released to the public and do not show
encouragement to infringe, they illuminate StreamCast's purposes.
[10] Nor does the Patent Act's exemption from liability for those who
distribute a staple article of commerce, 35 U. S. C. § 271(c), extend to those
[8] The mutual exclusivity of these values should not be overstated, who induce patent infringement, § 271(b).
however. On the one hand technological innovators, including those writing
file-sharing computer programs, may wish for effective copyright
protections for their work. See, e. g., Wu, When Code Isn't Law, 89 Va. L. [11] Inducement has been codified in patent law. Ibid.
Rev. 679, 750 (2003). (StreamCast itself was urged by an associate to "get
[its] technology written down and [its intellectual property] protected."
App. 866.) On the other hand the widespread distribution of creative works
[12] Of course, in the absence of other evidence of intent, a court would be
through improved technologies may enable the synthesis of new works or
unable to find contributory infringement liability merely based on a failure
generate audiences for emerging artists. See Eldred v. Ashcroft, 537 U. S.
to take affirmative steps to prevent infringement, if the device otherwise
186, 223-226 (2003) (Stevens, J., dissenting); Van Houweling, Distributive
was capable of substantial noninfringing uses. Such a holding would tread
Values in Copyright, 83 Texas L. Rev. 1535, 1539-1540, 1562-1564 (2005);
too close to the Sony safe harbor.
Brief for Sovereign Artists et al. as Amici Curiae 11.

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 109

 balancing of costs and benefits is necessary only in a case in which
substantial noninfringing uses, present or prospective, are demonstrated.").
[13] Grokster and StreamCast contend that any theory of liability based on
See also Matthew Bender & Co. v. West Pub. Co., 158 F. 3d 693, 707 (CA2
their conduct is not properly before this Court because the rulings in the trial
1998) ("The Supreme Court applied [the Sony] test to prevent copyright
and appellate courts dealt only with the present versions of their software,
holders from leveraging the copyrights in their original work to control
not "past acts . . . that allegedly encouraged infringement or assisted . . .
distribution of . . . products that might be used incidentally for infringement,
known acts of infringement." Brief for Respondents 14; see also id., at 34.
but that had substantial noninfringing uses. . . . The same rationale applies
This contention misapprehends the basis for their potential liability. It is not
here [to products] that have substantial, predominant and noninfringing
only that encouraging a particular consumer to infringe a copyright can give
uses as tools for research and citation."). All Members of the Court agree,
rise to secondary liability for the infringement that results. Inducement
moreover, that "the Court of Appeals misapplied Sony," at least to the
liability goes beyond that, and the distribution of a product can itself give
extent it read that decision to limit "secondary liability" to a hardly ever
rise to liability where evidence shows that the distributor intended and
category, "quite beyond the circumstances to which the case applied." Ante,
encouraged the product to be used to infringe. In such a case, the culpable
at 933.
act is not merely the encouragement of infringement but also the
distribution of the tool intended for infringing use. See Kalem Co. v. Harper
Brothers, 222 U. S. 55, 62-63 (1911); Cable/Home Communication Corp. v.
[2] Grokster and StreamCast, in the Court of Appeals' view, would be
Network Productions, Inc., 902 F. 2d 829, 846 (CA11 1990); A&M Records,
entitled to summary judgment unless MGM could show that the software
Inc. v. Abdallah, 948 F. Supp. 1449, 1456 (CD Cal. 1996).
companies had knowledge of specific acts of infringement and failed to act
on that knowledge—a standard the court held MGM could not meet. 380 F.
3d, at 1162-1163.
[1] JUSTICE BREYER finds in Sony Corp. of America v. Universal City Studios,
Inc., 464 U. S. 417 (1984), a "clear" rule permitting contributory liability for
copyright infringement based on distribution of a product only when the
[3] JUSTICE BREYER finds support for summary judgment in this motley
product "will be used almost exclusively to infringe copyrights." Post, at 957.
collection of declarations and in a survey conducted by an expert retained
But cf. Sony, 464 U. S., at 442 (recognizing "copyright holder's legitimate
by MGM. Post, at 952-955. That survey identified 75% of the files available
demand for effective—not merely symbolic—protection"). Sony, as I read it,
through Grokster as copyrighted works owned or controlled by the
contains no clear, near-exclusivity test. Nor have Courts of Appeals
plaintiffs, and 15% of the files as works likely copyrighted. App. 439. As to
unanimously recognized JUSTICE BREYER'S clear rule. Compare A&M
the remaining 10% of the files, "there was not enough information to form
Records, Inc. v. Napster, Inc., 239 F. 3d 1004, 1021 (CA9 2001) ("[E]vidence
reasonable conclusions either as to what those files even consisted of,
of actual knowledge of specific acts of infringement is required to hold a
and/or whether they were infringing or non-infringing." Id., at 479. Even
computer system operator liable for contributory copyright infringement."),
assuming, as JUSTICE BREYER does, that the Sony Court would have
with In re Aimster Copyright Litigation, 334 F. 3d 643, 649-650 (CA7 2003)
absolved Sony of contributory liability solely on the basis of the use of the
("[W]hen a supplier is offering a product or service that has noninfringing as
Betamax for authorized time-shifting, post, at 950-951, summary judgment
well as infringing uses, some estimate of the respective magnitudes of these
is not inevitably appropriate here. Sony stressed that the plaintiffs there
uses is necessary for a finding of contributory infringement. . . . But the
owned "well below 10%" of copyrighted television programming, 464 U. S.,

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 110

at 443, and found, based on trial testimony from representatives of the four
major sports leagues and other individuals authorized to consent to home
recording of their copyrighted broadcasts, that a similar percentage of
program copying was authorized, id., at 424. Here, the plaintiffs allegedly
control copyrights for 70% or 75% of the material exchanged through the
Grokster and StreamCast software, 380 F. 3d 1154, 1158 (CA9 2004); App.
439, and the District Court does not appear to have relied on comparable
testimony about authorized copying from copyright holders.
[4] The District Court's conclusion that "[p]laintiffs do not dispute that
[d]efendants' software is being used, and could be used, for substantial
noninfringing purposes," 259 F. Supp. 2d 1029, 1036 (CD Cal. 2003); accord
380 F. 3d, at 1161, is, to say the least, dubious. In the courts below and in
this Court, MGM has continuously disputed any such conclusion. Brief for
Motion Picture Studio and Recording Company Petitioners 30-38; Brief for
MGM Plaintiffs-Appellants in No. 03-55894 etc. (CA9), p. 41; App. 356-357,
361-365.
Respondent companies distribute free software that allows computer users
to share electronic files through peer-to-peer networks, so called because
the computers communicate directly with each other, not through central
servers. Although such networks can be used to share any type of digital file,
recipients of respondents’ software have mostly used them to share
copyrighted music and video files without authorization. Seeking
damages and an injunction, a group of movie studios and other copyright
holders (hereinafter MGM) sued respondents for their users’ copyright
infringements, alleging that respondents knowingly and intentionally
distributed their software to enable users to infringe copyrighted works in
violation of the Copyright Act.
Discovery revealed that billions of files are shared across peer-to-peer
networks each month. Respondents are aware that users employ their
software primarily to download copyrighted files, although the
decentralized networks do not reveal which files are copied, and when.
Respondents have sometimes learned about the infringement directly when
users have e-mailed questions regarding copyrighted works, and
respondents have replied with guidance. Respondents are not merely
passive recipients of information about infringement. The record is replete
with evidence that when they began to distribute their free software, each
of them clearly voiced the objective that recipients use the software to
download copyrighted works and took active steps to encourage
infringement. After the notorious file-sharing service, Napster, was sued by
copyright holders for facilitating copyright infringement, both respondents
promoted and marketed themselves as Napster alternatives. They receive
no revenue from users, but, instead, generate income by selling advertising
space, then streaming the advertising to their users. As the number of users
increases, advertising opportunities are worth more. There is no evidence
that either respondent made an effort to filter copyrighted material from
users’ downloads or otherwise to impede the sharing of copyrighted files.
While acknowledging that respondents’ users had directly infringed
MGM’s copyrights, the District Court nonetheless granted respondents
summary judgment as to liability arising from distribution of their software.
The Ninth Circuit affirmed. It read Sony Corp. of America v. Universal City
Studios, Inc., 464 U.S. 417, as holding that the distribution of a commercial
product capable of substantial noninfringing uses could not give rise to
contributory liability for infringement unless the distributor had actual
knowledge of specific instances of infringement and failed to act on that
knowledge. Because the appeals court found respondents’ software to be
capable of substantial noninfringing uses and because respondents had no
actual knowledge of infringement owing to the software’s decentralized
architecture, the court held that they were not liable. It also held that they
did not materially contribute to their users’ infringement because the users
themselves searched for, retrieved, and stored the infringing files, with no
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 111
involvement by respondents beyond providing the software in the first
place. Finally, the court held that respondents could not be held liable under
a vicarious infringement theory because they did not monitor or control the
software’s use, had no agreed-upon right or current ability to supervise its
use, and had no independent duty to police infringement.
Held: One who distributes a device with the object of promoting its use to
infringe copyright, as shown by clear expression or other affirmative steps
taken to foster infringement, going beyond mere distribution with
knowledge of third-party action, is liable for the resulting acts of
infringement by third parties using the device, regardless of the device’s
lawful uses. Pp. 10—24.
(a) The tension between the competing values of supporting creativity
through copyright protection and promoting technological innovation by
limiting infringement liability is the subject of this case. Despite offsetting
considerations, the argument for imposing indirect liability here is powerful,
given the number of infringing downloads that occur daily using
respondents’ software. When a widely shared product is used to commit
infringement, it may be impossible to enforce rights in the protected work
effectively against all direct infringers, so that the only practical alternative
is to go against the device’s distributor for secondary liability on a theory of
contributory or vicarious infringement. One infringes contributorily by
intentionally inducing or encouraging direct infringement, and infringes
vicariously by profiting from direct infringement while declining to exercise
the right to stop or limit it. Although “[t]he Copyright Act does not expressly
render anyone liable for [another’s] infringement,” Sony, 464 U.S., at 434,
these secondary liability doctrines emerged from common law principles
and are well established in the law, e.g., id., at 486. Pp. 10—13.
(b) Sony addressed a claim that secondary liability for infringement can
arise from the very distribution of a commercial product. There, copyright
holders sued Sony, the manufacturer of videocassette recorders, claiming
that it was contributorily liable for the infringement that occurred when VCR
owners taped copyrighted programs. The evidence showed that the VCR’s
principal use was “time-shifting,” i.e., taping a program for later viewing at
a more convenient time, which the Court found to be a fair, noninfringing
use. 464 U.S., at 423—424. Moreover, there was no evidence that Sony had
desired to bring about taping in violation of copyright or taken active steps
to increase its profits from unlawful taping. Id., at 438. On those facts, the
only conceivable basis for liability was on a theory of contributory
infringement through distribution of a product. Id., at 439. Because the VCR
was “capable of commercially significant noninfringing uses,” the Court held
that Sony was not liable. Id., at 442. This theory reflected patent law’s
traditional staple article of commerce doctrine that distribution of a
component of a patented device will not violate the patent if it is suitable
for use in other ways. 35 U.S. C §271(c). The doctrine absolves the equivocal
conduct of selling an item with lawful and unlawful uses and limits liability
to instances of more acute fault. In this case, the Ninth Circuit misread Sony
to mean that when a product is capable of substantial lawful use, the
producer cannot be held contributorily liable for third parties’ infringing use
of it, even when an actual purpose to cause infringing use is shown, unless
the distributors had specific knowledge of infringement at a time when they
contributed to the infringement and failed to act upon that information.
Sony did not displace other secondary liability theories. Pp. 13—17.
(c) Nothing in Sony requires courts to ignore evidence of intent to
promote infringement if such evidence exists. It was never meant to
foreclose rules of fault-based liability derived from the common law. 464
U.S., at 439. Where evidence goes beyond a product’s characteristics or the
knowledge that it may be put to infringing uses, and shows statements or
actions directed to promoting infringement, Sony’s staple-article rule will
not preclude liability. At common law a copyright or patent defendant who
“not only expected but invoked [infringing use] by advertisement” was liable
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 112
for infringement. Kalem Co. v. Harper Brothers, 222 U.S. 55, 62—63. The
rule on inducement of infringement as developed in the early cases is no
different today. Evidence of active steps taken to encourage direct
infringement, such as advertising an infringing use or instructing how to
engage in an infringing use, shows an affirmative intent that the product be
used to infringe, and overcomes the law’s reluctance to find liability when a
defendant merely sells a commercial product suitable for some lawful use.
A rule that premises liability on purposeful, culpable expression and conduct
does nothing to compromise legitimate commerce or discourage innovation
having a lawful promise. Pp. 17—20.
(d) On the record presented, respondents’ unlawful objective is
unmistakable. The classic instance of inducement is by advertisement or
solicitation that broadcasts a message designed to stimulate others to
commit violations. MGM argues persuasively that such a message is shown
here. Three features of the evidence of intent are particularly notable. First,
each of the respondents showed itself to be aiming to satisfy a known source
of demand for copyright infringement, the market comprising former
Napster users. Respondents’ efforts to supply services to former Napster
users indicate a principal, if not exclusive, intent to bring about
infringement. Second, neither respondent attempted to develop filtering
tools or other mechanisms to diminish the infringing activity using their
software. While the Ninth Circuit treated that failure as irrelevant because
respondents lacked an independent duty to monitor their users’ activity,
this evidence underscores their intentional facilitation of their users’
infringement. Third, respondents make money by selling advertising space,
then by directing ads to the screens of computers employing their software.
The more their software is used, the more ads are sent out and the greater
the advertising revenue. Since the extent of the software’s use determines
the gain to the distributors, the commercial sense of their enterprise turns
on high-volume use, which the record shows is infringing. This evidence
alone would not justify an inference of unlawful intent, but its import is clear
in the entire record’s context. Pp. 20—23.
(e) In addition to intent to bring about infringement and distribution of a
device suitable for infringing use, the inducement theory requires evidence
of actual infringement by recipients of the device, the software in this case.
There is evidence of such infringement on a gigantic scale. Because
substantial evidence supports MGM on all elements, summary judgment for
respondents was error. On remand, reconsideration of MGM’s summary
judgment motion will be in order. Pp. 23—24.
380 F.3d 1154, vacated and remanded.
Brief Fact Summary. The defendant’s distributed free software that allowed
private individuals to share copyrighted electronic files without
authorization. Some of those files shared are movies and songs that MGM
hold copyrights to.
-----------------------------------------------------------------------------------
Synopsis of Rule of Law. When a distributor takes affirmative steps to foster
infringement through the use of its product, the distributor will be liable for
that infringement conducted by 3rd parties.
Facts.
Grokster, LTD and StreamCast Network distributed fee software that
allowed the sharing of files in a peer to peer network. This avoided the need
for central servers and costly server storage and works faster. Since files can
go from computer to computer and not through the server it is safer and
cost efficient. This program was used by universities, government agencies,
corporations, libraries and then private users. Private users began sharing
copyrighted music and video files without authorization. Grokster used
technology called FastTrack and Stream Cast used Gnutella. The files shared
do not go to a central location so Grokster and StreamCast did not know
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 113
when the files were being copied but if they had searched there software watch later). The court did not find Sony responsible there. Also there is such
they would see the type of files being shared. It was shown that StreamCast a major market for non-infringement uses for this software that they
gave software called OpenNap labeled the best alternative to Napster in the shouldn’t be stopped from distributing the software. The standard in Sony
hopes to take all the Napster users that had to stop using that software after should not be adapted as we did it here to add inducement.
Napster was sued. Grokster had a program called OpenNap that allowed
users to search for Napster files. Grokster and StreamCast received
revenues from posting advertising all over its program software. MGM was
able to show that some 90 percent of the files being shared where Discussion. When a distributor takes affirmative steps to foster
copyrighted files. Also there is no evidence that either company tried to infringement through the use of its product, the distributor will be liable for
filter or stop copyright infringement. The district court granted summary that infringement.
judgment in favor of Grokster and Stream Case because although users of
the software did infringe MGM’s property there was no proof there the
distributors had actual knowledge of specific acts of infringement. MGM
appealed.

Issue. Whether a distributor of a product that is capable of lawful and

unlawful use is liable for copyright infringement by a 3rd party using that
product.

Held. Yes. The appeals court stated that since these distributors did not have
actual knowledge, did not partake in, or monitor the file sharing they are
not directly liable for the infringement. However the court erred in finding
they were not secondarily liable for the actions of the users of its products.
There is a balance between growing technologies and copyright protection,
but to not make distributors liable will make copyright protections
meaningless. The lower court looked to the commerce doctrine now
codified which states that a product must be capable of commercially
significant noninfridging uses and if so, no secondary liability would follow.
This court finds that interpretation too narrow. Here this court considers the
doctrine of inducement to also be relevant. When a distributor promotes
using its device to infringe copyright material, shown by affirmative steps to
foster infringement this is inducement and the distributor will be liable for
3rd party infringement. All the actions of the companies is enough to show
a genuine issue of material fact, thus the court reversed the summary
judgment ruling and remanded the case upon those findings.

Dissent. Justice Breyer states this case is no different from Sony where time-
shifting was the main purpose of users copying shows by VCRS (so they could

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 114

MGM Studios Inc. vs. Grokster, Ltd.
FACTS:
 Grokster, Ltd., and StreamCast Networks, Inc. distribute free software
products that allow computer users to share electronic files through
peer-to-peer networks (users' computers communicate directly with
each other, not through central servers).
- The advantage of peer-to-peer networks over information
networks of other types shows up in their substantial and
growing popularity.
- Because they need no central computer server to mediate the
exchange of information or files among users, the high-
bandwidth communications capacity for a server may be
dispensed with, and the need for costly server storage space is
eliminated. Since copies of a file (particularly a popular one)
are available on many users' computers, file requests and
retrievals may be faster than on other types of networks, and
since file exchanges do not travel through a server,
communications can take place between any computers that
remain connected to the network without risk that a glitch in
the server will disable the network in its entirety. Given these
benefits in security, cost, and efficiency, peer-to-peer
networks are employed to store and distribute electronic files
by universities, government agencies, corporations, and
libraries, among others.
 Other users of peer-to-peer networks include individual recipients of
Grokster's and StreamCast's software, and although the networks that
they enjoy through using the software can be used to share any type of
digital file, they have prominently employed those networks in sharing
copyrighted music and video files without authorization.
 A group of copyright holders (MGM for short, but including motion
picture studios, recording companies, songwriters, and music
publishers) sued Grokster and StreamCast for their users' copyright
infringements
- alleging that they knowingly and intentionally distributed
their software to enable users to reproduce and distribute the
copyrighted works in violation of the Copyright Act, 17 U. S. C.
§ 101 et seq.
- sought damages and an injunction
Discovery during the litigation:
 Grokster's eponymous software employs what is known as
FastTrack technology, a protocol developed by others and licensed
to Grokster.
 StreamCast distributes a very similar product except that its
software, called Morpheus, relies on what is known as Gnutella
technology.
 A user who downloads and installs either software possesses the
protocol to send requests for files directly to the computers of
others using software compatible with FastTrack or Gnutella.
 On the FastTrack network opened by the Grokster software, the
user's request goes to a computer given an indexing capacity by the
software and designated a supernode, or to some other computer
with comparable power and capacity to collect temporary indexes
of the files available on the computers of users connected to it.
 The supernode (or indexing computer) searches its own index and
may communicate the search request to other supernodes. If the
file is found, the supernode discloses its location to the computer
requesting it, and the requesting user can download the file directly
from the computer located.
 The copied file is placed in a designated sharing folder on the
requesting user's computer, where it is available for other users to
download in turn, along with any other file in that folder.
 In the Gnutella network made available by Morpheus, the process
is mostly the same, except that in some versions of the Gnutella
protocol there are no supernodes.
 In these versions, peer computers using the protocol communicate
directly with each other.
 When a user enters a search request into the Morpheus software,
it sends the request to computers connected with it, which in turn
pass the request along to other connected peers.
 The search results are communicated to the requesting computer,
and the user can download desired files directly from peers'
computers.
 As this description indicates, Grokster and StreamCast use no
servers to intercept the content of the search requests or to
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 115
 mediate the file transfers conducted by users of the software, there
being no central point through which the substance of the
communications passes in either direction.
→ Although Grokster and StreamCast do not therefore know when
particular files are copied, a few searches using their software would
show what is available on the networks the software reaches.
→ MGM – commissioned a statistician to conduct a systematic search, and
his study showed that nearly 90% of the files available for download on
the FastTrack system were copyrighted works
→ Grokster and StreamCast
- dispute this figure raising methodological problems and
arguing that free copying even of copyrighted works may be
authorized by the rightholders
- they also argue that potential non-infringing uses of their
software are significant in kind, even if infrequent in practice
- Some musical performers, for example, have gained new
audiences by distributing their copyrighted works for free
across peer-to-peer networks, and some distributors of
unprotected content have used peer-to-peer networks to
disseminate files, Shakespeare being an example. Indeed,
StreamCast has given Morpheus users the opportunity to
download the briefs in this very case, though their popularity
has not been quantified.
The parties' evidence shows: the content available on the FastTrack and
Gnutella networks does not say much about which files are actually
downloaded by users, and no one can say how often the software is used
to obtain copies of unprotected material.
→ But MGM's evidence gives reason to think that the vast majority of
users' downloads are acts of infringement, and because well over 100
million copies of the software in question are known to have been
downloaded, and billions of files are shared across the FastTrack and
Gnutella networks each month, the probable scope of copyright
infringement is staggering
 Grokster and StreamCast concede the infringement in most downloads,
and it is uncontested that they are aware that users employ their
software primarily to download copyrighted files, even if the
decentralized FastTrack and Gnutella networks fail to reveal which files
are being copied, and when.
 Grokster and StreamCast are not merely passive recipients of
information about infringing use.
 The record is replete with evidence that from the moment Grokster
and StreamCast began to distribute their free software, each one
clearly voiced the objective that recipients use it to download
copyrighted works, and each took active steps to encourage
infringement.
→ After the notorious file-sharing service, Napster, was sued by
copyright holders for facilitation of copyright infringement,
StreamCast gave away a software program of a kind known as
OpenNap, designed as compatible with the Napster program and
open to Napster users for downloading files from other Napster
and OpenNap users' computers.
→ Evidence indicates that "[i]t was always StreamCast's intent to use
its OpenNap network to be able to capture email addresses of its
initial target market so that it could promote its StreamCast
Morpheus interface to them.
→ StreamCast monitored both the number of users downloading its
OpenNap program and the number of music files they downloaded.
It also used the resulting OpenNap network to distribute copies of
the Morpheus software and to encourage users to adopt it
→ Internal company documents indicate that StreamCast hoped to
attract large numbers of former Napster users if that company was
shut down by court order or otherwise, and that StreamCast
planned to be the next Napster
→ A kit developed by StreamCast to be delivered to advertisers, for
example, contained press articles about StreamCast's potential to
capture former Napster users, and it introduced itself to some
potential advertisers as a company "which is similar to what
Napster was"
→ It broadcast banner advertisements to users of other Napster-
compatible software, urging them to adopt its OpenNap.
→ An internal e-mail from a company executive stated: "`We have put
this network in place so that when Napster pulls the plug on their
free service . . . or if the Court orders them shut down prior to that
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 116
 . . . we will be positioned to capture the flood of their 32 million
users that will be actively looking for an alternative.'
→ Thus, StreamCast developed promotional materials to market its
service as the best Napster alternative.
→ The evidence that Grokster sought to capture the market of former
Napster users is sparser but revealing, for Grokster launched its
own OpenNap system called Swaptor and inserted digital codes
into its Web site so that computer users using Web search engines
to look for "Napster" or "[f]ree file sharing" would be directed to
the Grokster Web site, where they could download the Grokster
software. And Grokster's name is an apparent derivative of
Napster.
→ StreamCast's executives monitored the number of songs by certain
commercial artists available on their networks, and an internal
communication indicates they aimed to have a larger number of
copyrighted songs available on their networks *926 than other file-
sharing networks.
→ The point, of course, would be to attract users of a mind to infringe,
just as it would be with their promotional materials developed
showing copyrighted songs as examples of the kinds of files
available through Morpheus.
→ Morpheus in fact allowed users to search specifically for "Top 40"
songs, id., at 735, which were inevitably copyrighted.
→ Similarly, Grokster sent users a newsletter promoting its ability to
provide particular, popular copyrighted materials.
 In addition to this evidence of express promotion, marketing, and intent
to promote further, the business models employed by Grokster and
StreamCast confirm that their principal object was use of their software
to download copyrighted works.
→ Grokster and StreamCast receive no revenue from users, who
obtain the software itself for nothing.
→ both companies generate income by selling advertising space, and
they stream the advertising to Grokster and Morpheus users while
they are employing the programs.
→ As the number of users of each program increases, advertising
opportunities become worth more
 there is no evidence that either company made an effort to filter
copyrighted material from users' downloads or otherwise impede the
sharing of copyrighted files
→ Although Grokster appears to have sent emails warning users
about infringing content when it received threatening notice from
the copyright holders, it never blocked anyone from continuing to
use its software to share copyrighted files.
→ StreamCast not only rejected another company's offer of help to
monitor infringement, but blocked the Internet Protocol addresses
of entities it believed were trying to engage in such monitoring on
its networks.
DISTRICT COURT:
 the parties on each side of the case crossmoved for summary judgment
 limited its consideration to the asserted liability of Grokster and
StreamCast for distributing the current versions of their software,
leaving aside whether either was liable "for damages arising from past
versions of their software, or from other past activities."
 held that those who used the Grokster and Morpheus software to
download copyrighted media files directly infringed MGM's
copyrights
 but the court nonetheless granted summary judgment in favor of
Grokster and StreamCast as to any liability arising from distribution of
the then-current versions of their software
→ Distributing that software gave rise to no liability in the court's
view, because its use did not provide the distributors with
actual knowledge of specific acts of infringement
COURT OF APPEALS: affirmed
 a defendant was liable as a contributory infringer when it had
knowledge of direct infringement and materially contributed to the
infringement
 but the court read Sony Corp. of America v. Universal City Studios, Inc.,
464 U. S. 417 (1984), as holding that distribution of a commercial
product capable of substantial non-infringing uses could not give rise to
contributory liability for infringement unless the distributor had actual
knowledge of specific instances of infringement and failed to act on that
knowledge
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 117
 The fact that the software was capable of substantial non-infringing Grokster's and Napster's is fostering disdain for copyright
uses meant that Grokster and StreamCast were not liable protection.
→ they had no such actual knowledge, owing to the decentralized
architecture of their software.  The argument for imposing indirect liability in this case is a powerful
 Grokster and StreamCast did not materially contribute to their users' one, given the number of infringing downloads that occur every day
infringement using StreamCast's and Grokster's software.
→ it was the users themselves who searched for, retrieved, and → When a widely shared service or product is used to commit
stored the infringing files, with no involvement by the infringement, it may be impossible to enforce rights in the
defendants beyond providing the software in the first place protected work effectively against all direct infringers, the only
practical alternative being to go against the distributor of the
The Ninth Circuit also considered whether Grokster and StreamCast could copying device for secondary liability on a theory of contributory
be liable under a theory of vicarious infringement. or vicarious infringement.
 The court held against liability because the defendants did not monitor → One infringes contributorily by intentionally inducing or
or control the use of the software, had no agreed-upon right or current encouraging direct infringement, and infringes vicariously by
ability to supervise its use, and had no independent duty to police profiting from direct infringement while declining to exercise a
infringement. We granted certiorari. right to stop or limit it.
 Although "[t]he Copyright Act does not expressly render anyone liable
for infringement committed by another, these doctrines of secondary
liability emerged from common law principles and are well established
SUPREME COURT: in the law.
MGM  Despite the currency of these principles of secondary liability, this Court
- fault the Court of Appeals' holding for upsetting a sound balance has dealt with secondary copyright infringement in only one recent case
between the respective values of supporting creative pursuits through
copyright protection and promoting innovation in new communication
technologies by limiting the incidence of liability for copyright
infringement
→ The more artistic protection is favored, the more technological
innovation may be discouraged; the administration of copyright
law is an exercise in managing the tradeoff
→ The tension between the two values is the subject of this case,
with its claim that digital distribution of copyrighted material
threatens copyright holders as never before, because every copy
is identical to the original, copying is easy, and many people
(especially the young) use file-sharing software to download
copyrighted works.
→ This very breadth of the software's use may well draw the public
directly into the debate over copyright policy, and the indications
are that the ease of copying songs or movies using software like

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 118

In Sony Corp. v. Universal City Studios, this Court addressed a claim that This analysis reflected patent law's traditional staple article of
secondary liability for infringement can arise from the very distribution commerce doctrine, now codified, that distribution of a component of a
of a commercial product. There, the product, novel at the time, was patented device will not violate the patent if it is suitable for use in other
what we know today as the videocassette recorder or VCR. Copyright ways. The doctrine was devised to identify instances in which it may be
holders sued Sony as the manufacturer, claiming it was contributorily presumed from distribution of an article in commerce that the
liable for infringement that occurred when VCR owners taped distributor intended the article to be used to infringe another's patent,
copyrighted programs because it supplied the means used to infringe, and so may justly be held liable for that infringement. "One who makes
and it had constructive knowledge that infringement would occur. At and sells articles which are only adapted to be used in a patented
the trial on the merits, the evidence showed that the principal use of the combination will be presumed to intend the natural consequences of his
VCR was for "`time-shifting,'" or taping a program for later viewing at a acts; he will be presumed to intend that they shall be used in the
more convenient time, which the Court found to be a fair, not an combination of the patent.
infringing, use.. There was no evidence that Sony had expressed an
object of bringing about taping in violation of copyright or had taken In sum, where an article is "good for nothing else" but infringement,
active steps to increase its profits from unlawful taping.. Although Sony's there is no legitimate public interest in its unlicensed availability, and
advertisements urged consumers to buy the VCR to "`record favorite there is no injustice in presuming or imputing an intent to infringe.
shows'" or "`build a library'" of recorded programs, neither of these uses Conversely, the doctrine absolves the equivocal conduct of selling an
was necessarily infringing. item with substantial lawful as well as unlawful uses, and limits liability
to instances of more acute fault than the mere understanding that some
On those facts, with no evidence of stated or indicated intent to of one's products will be misused. It leaves breathing room for
promote infringing uses, the only conceivable basis for imposing liability innovation and a vigorous commerce.
was on a theory of contributory infringement arising from its sale of
VCRs to consumers with knowledge that some would use them to
 MGM argument - granting summary judgment to Grokster and
infringe. But because the VCR was "capable of commercially significant
StreamCast as to their current activities gave too much weight to the
noninfringing uses," we held the manufacturer could not be faulted
value of innovative technology, and too little to the copyrights infringed
solely on the basis of its distribution.
by users of their software, given that 90% of works available on one of
the networks was shown to be copyrighted.
This analysis reflected patent law's traditional staple article of
→ Assuming the remaining 10% to be its noninfringing use, MGM says
commerce doctrine, now codified, that distribution of a component of a
this should not qualify as "substantial," and the Court should
patented device will not violate the patent if it is suitable for use in other
quantify Sony to the extent of holding that a product used
ways. The doctrine was devised to identify instances in which it may be
"principally" for infringement does not qualify. See Brief for Motion
presumed from distribution of an article in commerce that the
Picture Studio and Recording Company Petitioners 31.
distributor intended the article to be used to infringe another's patent,
 Grokster and StreamCast reply - citing evidence that their software can
and so may justly be held liable for that infringement. "One who makes
be used to reproduce public domain works, and they point to copyright
and sells articles which are only adapted to be used in a patented
holders who actually encourage copying.
combination will be presumed to intend the natural consequences of his
→ Even if infringement is the principal practice with their software
acts; he will be presumed to intend that they shall be used in the
today, the noninfringing uses are significant and will grow
combination of the patent." New York Scaffolding Co. v. Whitney, 224 F.
452, 459 (CA8 1915); see also James Heekin Co. v. Baker, 138 F. 63, 66
(CA8 1905); Canda v. Michigan Malleable Iron Co., 124 F. 486, 489 (CA6
1903); Thomson-Houston Electric Co. v. Ohio Brass Co., 80 F. 712, 720-
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 119
721 (CA6 1897); Red Jacket Mfg. Co. v. Davis, 82 F. 432, 439 (CA7 1897);
Holly v. Vergennes Machine Co., 4 F. 74, 82 (CC Vt. 1880); Renwick v.
Pond, 20 F. Cas. 536, 541 (No. 11,702) (CC SDNY 1872).
In sum, where an article is "good for nothing else" but infringement,
 We agree with MGM: the Court of Appeals misapplied Sony, which it
read as limiting secondary liability quite beyond the circumstances to
which the case applied
o Sony barred secondary liability based on presuming or
imputing intent to cause infringement solely from the design
or distribution of a product capable of substantial lawful use,
which the distributor knows is in fact used for infringement.
o The Ninth Circuit has read Sony's limitation to mean that
whenever a product is capable of substantial lawful use, the
producer can never be held contributorily liable for third
parties' infringing use of it; it read the rule as being this broad,
even when an actual purpose to cause infringing use is shown
by evidence independent of design and distribution of the
product, unless the distributors had "specific knowledge of
infringement at a time at which they contributed to the
infringement, and failed to act upon that information."
o Because the Circuit found the StreamCast and Grokster
software capable of substantial lawful use, it concluded on the
basis of its reading of Sony that neither company could be held
liable, since there was no showing that their software, being
without any central server, afforded them knowledge of
specific unlawful uses.
 This view of Sony, was error, converting the case from one about
liability resting on imputed intent to one about liability on any theory.
Because Sony did not displace other theories of secondary liability, and
because we find below that it was error to grant summary judgment to
the companies on MGM's inducement claim, we do not revisit Sony
further, as MGM requests, to add a more quantified description of the
point of balance between protection and commerce when liability rests
solely on distribution with knowledge that unlawful use will occur. It is
enough to note that the Ninth Circuit's judgment rested on an
erroneous understanding of Sony and to leave further consideration of
the Sony rule for a day when that may be required.
 Sony's rule limits imputing culpable intent as a matter of law from the
characteristics or uses of a distributed product. But nothing in Sony
requires courts to ignore evidence of intent if there is such evidence,
and the case was never meant to foreclose rules of fault-based liability
derived from the common law. Thus, where evidence goes beyond a
product's characteristics or the knowledge that it may be put to
infringing uses, and shows statements or actions directed to promoting
infringement, Sony's staple-article rule will not preclude liability.
→ The classic case of direct evidence of unlawful purpose occurs
when one induces commission of infringement by another, or
"entic[es] or persuad[es] another" to infringe, as by advertising.
→ at common law a copyright or patent defendant who "not only
expected but invoked [infringing use] by advertisement" was liable
for infringement "on principles recognized in every part of the law."
→ Evidence of "active steps taken to encourage direct infringement,"
such as advertising an infringing use or instructing how to engage
in an infringing use, show an affirmative intent that the product be
used to infringe, and a showing that infringement was encouraged
overcomes the law's reluctance to find liability when a defendant
merely sells a commercial product suitable for some lawful use
 For the same reasons that Sony took the staple-article doctrine of
patent law as a model for its copyright safe-harbor rule, the inducement
rule, too, is a sensible one for copyright. We adopt it here, holding that
one who distributes a device with the object of promoting its use to
infringe copyright, as shown by clear expression or other affirmative
steps taken to foster infringement, is liable for the resulting acts of
infringement by third parties.
 Accordingly, just as Sony did not find intentional inducement despite
the knowledge of the VCR manufacturer that its device could be used
to infringe, mere knowledge of infringing potential or of actual
infringing uses would not be enough here to subject a distributor to
liability. Nor would ordinary acts incident to product distribution, such
as offering customers technical support or product updates, support
liability in themselves. The inducement rule, instead, premises liability
on purposeful, culpable expression and conduct, and thus does nothing
to compromise legitimate commerce or discourage innovation having a
lawful promise.
 The only apparent question about treating MGM's evidence as
sufficient to withstand summary judgment under the theory of
inducement goes to the need on MGM's part to adduce evidence that
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 120
 StreamCast and Grokster communicated an inducing message to their
software users.
→ The classic instance of inducement is by advertisement or
solicitation that broadcasts a message designed to stimulate others
to commit violations.
MGM claims that such a message is shown here.
 It is undisputed that StreamCast beamed onto the computer screens of
users of Napster-compatible programs ads urging the adoption of its
OpenNap program, which was designed to invite the custom of patrons
of Napster, then under attack in the courts for facilitating massive
infringement.
→ Those who accepted StreamCast's OpenNap program were offered
software to perform the same services = the ability to download
copyrighted music files
 Grokster distributed an electronic newsletter containing links to articles
promoting its software's ability to access popular copyrighted music.
→ anyone whose Napster or free file-sharing searches turned up a link
to Grokster would have understood Grokster to be offering the
same file-sharing ability as Napster, and to the same people who
probably used Napster for infringing downloads; that would also
have been the understanding of anyone offered Grokster's
suggestively named Swaptor software, its version of OpenNap
 both companies communicated a clear message by responding
affirmatively to requests for help in locating and playing copyrighted
materials
 In StreamCast's case, the evidence just described was supplemented by
other unequivocal indications of unlawful purpose in the internal
communications and advertising designs aimed at Napster users
→ The function of the message in the theory of inducement is to
prove by a defendant's own statements that his unlawful purpose
disqualifies him from claiming protection (and incidentally to point
to actual violators likely to be found among those who hear or read
the message). See supra, at 935-937.
→ Proving that a message was sent out, then, is the preeminent but
not exclusive way of showing that active steps were taken with the
purpose of bringing about infringing acts, and of showing that
infringing acts took place by using the device distributed.
 Here, the summary judgment record is replete with other evidence that
Grokster and StreamCast, unlike the manufacturer and distributor in
Sony, acted with a purpose to cause copyright violations by use of
software suitable for illegal use.
Three features of this evidence of intent are particularly notable. First,
each company showed itself to be aiming to satisfy a known source of
demand for copyright infringement, the market comprising former Napster
users.
→ StreamCast's internal documents made constant reference to Napster,
it initially distributed its Morpheus software through an OpenNap
program compatible with Napster, it advertised its OpenNap program
to Napster users, and its Morpheus software functions as Napster did
except that it could be used to distribute more kinds of files, including
copyrighted movies and software programs.
→ Grokster's name is apparently derived from Napster, it too initially
offered an OpenNap program, its software's function is likewise
comparable to Napster's, and it attempted to divert queries for Napster
onto its own Web site. Grokster and StreamCast's efforts to supply
services to former Napster users, deprived of a mechanism to copy and
distribute what were overwhelmingly infringing files, indicate a
principal, if not exclusive, intent on the part of each to bring about
infringement.
Second, this evidence of unlawful objective is given added significance by
MGM's showing that neither company attempted to develop filtering tools
or other mechanisms to diminish the infringing activity using their software.
→ While the Ninth Circuit treated the defendants' failure to develop such
tools as irrelevant because they lacked an independent duty to monitor
their users' activity, we think this evidence underscores Grokster's and
StreamCast's intentional facilitation of their users' infringement.
Third, there is a further complement to the direct evidence of unlawful
objective.
→ StreamCast and Grokster make money by selling advertising space, by
directing ads to the screens of computers employing their software.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 121
→ the more the software is used, the more ads are sent out and the → If liability for inducing infringement is ultimately found, it will not
greater the advertising revenue becomes be on the basis of presuming or imputing fault, but from inferring
→ Since the extent of the software's use determines the gain to the a patently illegal objective from statements and actions showing
distributors, the commercial sense of their enterprise turns on high- what that objective was.
volume use, which the record shows is infringing.
 There is substantial evidence in MGM's favor on all elements of
 This evidence alone would not justify an inference of unlawful intent, inducement, and summary judgment in favor of Grokster and
but viewed in the context of the entire record its import is clear. StreamCast was error.
 The judgment of the Court of Appeals is vacated, and the case is
The unlawful objective is unmistakable. remanded for further proceedings consistent with this opinion.
 In addition to intent to bring about infringement and distribution of a
device suitable for infringing use, the inducement theory requires
evidence of actual infringement by recipients of the device, the
software in this case.
 As the account of the facts indicates, there is evidence of infringement
on a gigantic scale, and there is no serious issue of the adequacy of
MGM's showing on this point in order to survive the companies'
summary judgment requests.
 Although an exact calculation of infringing use, as a basis for a claim of
damages, is subject to dispute, there is no question that the summary
judgment evidence is at least adequate to entitle MGM to go forward
with claims for damages and equitable relief.

 this case is significantly different from Sony and reliance on that case
to rule in favor of StreamCast and Grokster was error
→ Sony dealt with a claim of liability based solely on distributing a
product with alternative lawful and unlawful uses, with knowledge
that some users would follow the unlawful course.
→ The case struck a balance between the interests of protection and
innovation by holding that the product's capability of substantial
lawful employment should bar the imputation of fault and
consequent secondary liability for the unlawful acts of others.
MGM's evidence in this case addresses a different basis of liability for
distributing a product open to alternative uses.
→ The evidence of the distributors' words and deeds going beyond
distribution as such shows a purpose to cause and profit from
third-party acts of copyright infringement.

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 122

McDONALDS CORPORATION vs. MACJOY FASTFOOD CORPORATION
FACTS:
 March 1991: MACJOY FASTFOOD CORPORATION (a domestic
corporation engaged in the sale of fast food products in Cebu City)
- filed with the then Bureau of Patents, Trademarks and Technology
Transfer (BPTT) an application for the registration of the trademark
MACJOY & DEVICE for fried chicken, chicken barbeque, burgers,
fries, spaghetti, palabok, tacos, sandwiches, halo-halo and steaks
under classes 29 and 30 of the International Classification of Goods.
 MCDONALDS CORPORATION (a corporation duly organized and
existing under the laws of the State of Delaware, USA) filed a verified
Notice of Opposition against the respondent’s application claiming that
: application,
 the trademark MACJOY & DEVICE so resembles its corporate logo,
otherwise known as the Golden Arches or M design, and its marks
McDonalds, McChicken, MacFries, BigMac, McDo, McSpaghetti,
McSnack, and Mc, (hereinafter collectively known as the
MCDONALDS marks)
 when used on identical or related goods, the trademark applied for
would confuse or deceive purchasers into believing that the goods
originate from the same source or origin
 the respondents use and adoption in bad faith of the MACJOY &
DEVICE mark would falsely tend to suggest a connection or
affiliation with petitioners restaurant services and food products,
thus, constituting a fraud upon the general public and further cause
the dilution of the distinctiveness of petitioners registered and
internationally recognized MCDONALDS marks to its prejudice and
irreparable damage
 MACJOY:
 denied the aforementioned allegations of the petitioner and
 averred that it has used the mark MACJOY for the past many years
in good faith and has spent considerable sums of money for said
marks extensive promotion in tri-media, especially in Cebu City
where it has been doing business long before the petitioner
opened its outlet thereat sometime in 1992
 its use of said mark would not confuse affiliation with the
petitioners restaurant services and food products because of the
differences in the design and detail of the two (2) marks
IPO: rejected the application of Macjoy Corp; sustained the opposition of
McDonalds
 the predominance of the letter M, and the prefixes Mac/Mc in both the
MACJOY and the MCDONALDS marks lead to the conclusion that there
is confusing similarity between them especially since both are used on
almost the same products falling under classes 29 and 30 of the
International Classification of Goods, i.e., food and ingredients of food,
sustained the petitioners opposition and rejected the respondents
CA: reversed and set aside the appealed IPO decision; ordered the IPO to
give due course to respondent’s Application
 no confusing similarity between the marks MACJOY and MCDONALDS
 IPO brushed aside and rendered useless the glaring and drastic
differences and variations in style of the two trademarks and even
decreed that these pronounced differences are miniscule and
considered them to have been overshadowed by the appearance of the
predominant features such as M, Mc, and Mac appearing in both
MCDONALDS and MACJOY marks instead of taking into account these
differences, the IPO unreasonably shrugged off these differences in the
device, letters and marks in the trademark sought to be registered
 The articles and trademarks employed and used by the Macjoy Fastfood
Corporation are so different and distinct as to preclude any probability
or likelihood of confusion or deception on the part of the public to the
injury of the trade or business of the McDonalds Corporation
DIFFERENCES OF THE 2 TRADEMARKS ACCORDING TO THE CA:
1. The word MacJoy is written in round script while the word McDonalds
is written in single stroke gothic;
2. The word MacJoy comes with the picture of a chicken head with cap
and bowtie and wings sprouting on both sides, while the word
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 123
 McDonalds comes with an arches M in gold colors, and absolutely
without any picture of a chicken;
3. The word MacJoy is set in deep pink and white color scheme while
McDonalds is written in red, yellow and black color combination;
4. The facade of the respective stores of the parties are entirely different.
ISSUE: whether or not there is a confusing similarity between the
MCDONALDS marks of the petitioner and the respondents MACJOY &
DEVICE trademark when applied to Classes 29 and 30 of the International
Classification of Goods, i.e., food and ingredients of food
SUPREME COURT: reversed and set aside the decision of the CA; reinstated
the decision of the IPO
The old Trademark Law, Republic Act (R.A.) No. 166, as
amended, defines a trademark as 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 in by others.
Under the same law, the registration of a trademark is subject
to the provisions of Section 4 thereof, paragraph (d) of which is
pertinent to this case. The provision reads:
Section 4. Registration of trademarks, trade-names and service-
marks on the principal register. There is hereby established a
register of trademarks, tradenames and service-marks which
shall be known as the principal register. The owner of the trade-
mark, trade-name or service-mark used to distinguish his
goods, business or services of others shall have the right to
register the same on the principal register, unless it:
xxx xxx xxx
(d) Consists of or comprises a mark or trade-name which so
resembles a mark or trade-name registered in the Philippines
or a mark or trade-name previously used in the Philippines by
another and not abandoned, as to be likely, when applied to or
used in connection with the goods, business or services of the
applicant, to cause confusion or mistake or to deceive
purchasers;
xxx xxx xxx
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 124
  In determining similarity and likelihood of confusion,
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 or deception.
 In contrast, the holistic test requires the court to consider
the entirety of the marks as applied to the products,
including the labels and packaging, in determining confusing
similarity
 the IPO used the dominancy test in concluding that there was confusing
similarity between the two (2) trademarks in question as it took note of
the appearance of the predominant features M, Mc and/or Mac in both
the marks.
 the CA, while seemingly applying the dominancy test, in fact actually
applied the holistic test.
- Applying the Dominancy test to the present case, the IPO should
have taken into consideration the entirety of the two marks instead
of simply fixing its gaze on the single letter M or on the
combinations Mc or Mac.
- A mere cursory look of the subject marks will reveal that, save for
the letters M and c, no other similarity exists in the subject marks.
 Applying the dominancy test to the instant case, the Court finds that
herein petitioners MCDONALDS and respondents MACJOY marks are
confusingly similar with each other such that an ordinary purchaser can
conclude an association or relation between the marks.
 both marks use the corporate M design logo and the prefixes Mc
and/or Mac as dominant features. The first letter M in both marks
puts emphasis on the prefixes Mc and/or Mac by the similar way in
which they are depicted i.e. in an arch-like, capitalized and stylized
manner
 it is the prefix Mc, an abbreviation of Mac, which visually and
aurally catches the attention of the consuming public
 the word MACJOY attracts attention the same way as did
McDonalds, MacFries, McSpaghetti, McDo, Big Mac and the rest of
the MCDONALDS marks which all use the prefixes Mc and/or Mac
 both trademarks are used in the sale of fastfood products
 respondent’s trademark application for the MACJOY & DEVICE
trademark covers goods under Classes 29 and 30 of the
International Classification of Goods, namely, fried chicken,
chicken barbeque, burgers, fries, spaghetti, etc.
 petitioner’s trademark registration for the MCDONALDS marks in
the Philippines covers goods which are similar if not identical to
those covered by the respondents application.
FINDINGS OF THE IPO; CONCURRED BY SC:
- the predominant features such as the M, Mc, and Mac appearing in
both McDonalds marks and the MACJOY & DEVICE easily attract the
attention of would-be customers
- even non-regular customers of their fastfood restaurants would readily
notice the predominance of the M design, Mc/Mac prefixes shown in
both marks
- the common awareness or perception of customers that the
trademarks McDonalds mark and MACJOY & DEVICE are one and the
same, or an affiliate, or under the sponsorship of the other is not far-
fetched
- The differences and variations in styles as the device depicting a head
of chicken with cap and bowtie and wings sprouting on both sides of
the chicken head, the heart-shaped M, and the stylistic letters in
MACJOY & DEVICE; in contrast to the arch-like M and the one-styled
gothic letters in McDonalds marks are of no moment. These minuscule
variations are overshadowed by the appearance of the predominant
features mentioned hereinabove.
- with the predominance of the letter M, and prefixes Mac/Mc found in
both marks, the inevitable conclusion is there is confusing similarity
between the trademarks Mc Donalds marks and MACJOY AND DEVICE
especially considering the fact that both marks are being used on almost
the same products falling under Classes 29 and 30 of the International
Classification of Goods i.e. Food and ingredients of food.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 125
*who, as between the parties, has the rightful claim of ownership over the
said marks?
SC: Petitioner

 A mark is valid if it is distinctive and hence not barred from registration

under the Trademark Law.
 Once registered, not only the marks validity but also the registrants
ownership thereof is prima facie presumed.
 Pursuant to Section 37[27] of R.A. No. 166, as amended, as well as the
provision regarding the protection of industrial property of foreign
nationals in this country as embodied in the Paris Convention under
which the Philippines and the petitioners domicile, the United States,
are adherent-members, the petitioner was able to register its
MCDONALDS marks successively, i.e., McDonalds in 04 October,
1971[29]; the corporate logo which is the M or the golden arches design
and the McDonalds with the M or golden arches design both in 30 June
1977; and so on and so forth.
 it is not disputed that the respondents application for registration of its
trademark MACJOY & DEVICE was filed only on March 14, 1991 albeit
the date of first use in the Philippines was December 7, 1987.
 from the evidence on record, it is clear that the petitioner has duly
established its ownership of the mark/s

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 126

SHANGRI-LA INTERNATIONAL HOTEL MANAGEMENT, LTD., SHANGRI-LA
PROPERTIES, INC., MAKATI SHANGRI-LA HOTEL & RESORT, INC., AND
KUOK PHILIPPINES PROPERTIES, INC. vs. DEVELOPERS GROUP OF
COMPANIES, INC.
FACTS:
 core of the controversy: "Shangri-La" mark and "S" logo
DEVELOPERS GROUP OF COMPANIES, INC (DGCI) (respondent) claims
ownership of said mark and logo in the Philippines on the strength of its
prior use thereof within the country
 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.
 May 31, 1983, the BPTTT issued in favor of DGCI the corresponding
certificate of registration therefor
 Since then, DGCI started using the "Shangri-La" mark and "S" logo in its
restaurant business.
KUOK PHILIPPINES PROPERTIES, INC (petitioner)
 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).
 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.
 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.
 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.
 June 1988: Petitioners filed with the BPTTT a petition, praying for the
cancellation of the registration of the "Shangri-La" mark and "S" logo
issued to respondent DGCI
 the same were illegally and fraudulently obtained and
appropriated for the latter's restaurant business
 filed in the same office Inter Partes Case No. 3529, praying for the
registration of the same mark and logo in their own names
 DGCI filed a complaint for Infringement and Damages with the RTC
SLIHM, Shangri-La Properties, Inc., Makati Shangri-La Hotel & Resort,
Inc., and Kuok Philippine Properties, Inc.
 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.
 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.
 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.
PETITIONERS’ ANSWER:
 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
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 127
 Convention for the Protection of Industrial Property as affording
security and protection to SLIHM's exclusive right to said mark and
RTC: rendered a decision in favor of DGCI and against SLIHM
 SLIHM's, use of the mark and logo in dispute constitutes an
infringement of DGCI's right thereto
 Upheld the validity of the registration of the service mark "Shangri-la"
and "S-Logo" in the name of respondent
CA: affirmed the decision of the lower court
 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.
 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.
 While the Paris Convention protects internationally known marks, R.A.
No. 166 still requires use in commerce in the Philippines.
ISSUE: Whether or not the petitioners' use of the mark and logo constitutes
actionable infringement?
SUPREME COURT: reversed and set aside the decision of the CA; dismissed
the complaint of the respondent
 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
PETITIONERS' FIRST ARGUMENT: 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
 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.
 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.
 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.
 While the present law on trademarks 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.
 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.
 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.
 Respondent's own witness testified that a jeepney signboard artist
allegedly commissioned to create the mark and logo submitted his
designs only in December 1982.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 128
 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.
 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.
 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 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.
 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.
 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.
 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.
 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.
 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.
 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.
 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.
x----------------------------------------------------------------------------------------x
Whether that prior use entitles the petitioners to use the mark and logo in
the Philippines
R.A. No. 166, as amended, 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
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 129
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.
 while Section 2 provides for what is registrable, Section 2-A, on the
other hand, sets out how ownership is acquired.
 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.
 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.
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 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.
 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, 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.
 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.
 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
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 130
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.
 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
 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

 petitioners cannot claim protection under the Paris Convention

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 131

PAGASA INDUSTRIAL CORPORATION vs. CA, TIBURCIO S. EVALLE Director
of Patents, and YOSHIDA KOGYO KABUSHIKI KAISHA
 November 1961: the Philippines Patent Office issued Certificate of
Registration No. 9331 in favor of respondent Kaisha covering the
trademark "YKK" for slide fasteners and zippers in class 41
 On April 1967 or 5 years after respondent's registration was issued by
the Philippines Patent Office, Pagasa (petitioner) filed an application for
registration of exactly the same or Identical trademark of "YKK" for
zippers under class 41 which was allowed on April 4, 1968 with
Certificate of Registration No. 13756.
YOSHIDA KOGYO KABUSHIKI KAISHA (respondent)
 filed with the Director of Patents a petition for cancellation of
petitioner's registration of exactly the same trademark "YKK"
 alleged that both trademark ("YKK") are confusingly similar, being used
on similar products (slide fasteners or zippers) under the same
classification of goods
DIRECTOR OF PATENTS
 found the trademark in question "YKK" brand to be confusingly similar,
and regretting the negligence of his office in allowing the registration of
the trademark "YKK" in favor of petitioner notwithstanding the fact that
the same trademark had long been previously registered in the name of
respondent Kaisha
 explained that the duplicitous registration was attributable to the fact
that his examiner "miserably overlooked" the anterior registration by
Yoshida. Had it not been for such costly oversight, Pagasa's application
would have been rejected.
 cancelled Registration No. 13756 in the name of Pagasa
BASIS OF CANCELLATION:
Section 4 (d) of Republic Act No. 166, as amended (An Act to
Provide for the Registration and Protection of Trade-Marks, Trade
Names and Service-Marks; etc.):
Sec. 4. Registration of trade-marks, tradenames, and service
marks on the principal register.-There is hereby established a
register of trademarks, tradenames and service marks which shall
be known as the principal register. The owner of a trademark,
tradename or service mark used to distinguish his goods, business
or services from the goods, business or services of others shall
have the right to register the same on the principal register unless
it:
xxx xxx xxx
(d) Consists of or comprises a mark or trade name which so
resembles a mark or trade name registered in the Philippines or
a mark trade name previously used in the Philippines by another
and not abandoned as to be likely, when applied to or used in
connection with the goods, business or services of the applicant,
to cause confusion or mistake or to deceive purchasers; or
xxx xxx xxx
 Pagasa appealed to the CA.
PAGASA INDUSTRIAL CORPORATION (petitioner)
 argued that there was laches on the part of Kaisha considering the fact
that the trademark was registered for the use of petitioner, it was not
until January 23, 1975, that Kaisha filed a petition for cancellation after
a lapse of almost seven (7) years
CA: affirmed the decision of the Director of Patents
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 132
 the equitable principles of laches, estoppel and acquiescence would not
apply in this case for it has not been shown that Kaisha abandoned the
use of the trademark
 found that prior to 1968 Pagasa knew that Yoshida was the registered
owner and user of the YKK trademark which is an acronym of its
corporate name
 Pagasa's knowledge that Yoshida was using the YKK trademark
precludes the application of the equitable principle of laches, estoppel
and acquiescence
 Registration gibes the registrant a vested right in the trademark
PAGASA INDUSTRIAL CORPORATION (petitioner)
 considering respondent Kaisha's failure or neglect to assert its
trademark rights for more than five (5) years, respondent should now
be barred from filing the petitioner for cancellation of trademark "YKK"
of petitioner under the equitable principles of laches, estoppel and
acquiescence
 that respondent has not presented any reliable and competent
evidence to show that the sample zippers sent to this country were
actually sold here and sample products are not for sale
YOSHIDA KOGYO KABUSHIKI KAISHA (respondent)
 argued that the mark applied for by petitioner not only resembles the
mark which it previously registered but is exactly the same or is Identical
to respondent's trademark
 since its organization in 1948 has endeavoured to popularize its
trademark and spent tremendous sum of money for this purpose, thus,
it is unbelievable that it will just abandon its product after spending so
many years in developing the same
 argued that it adopted and first used the trademark in commerce in the
Philippines on December 27, 1958 and has continuously used the same
up to the present and that respondent's exportation in the Philippines
of YKK brand zippers in 1957 were by its own official records designated
as merely "samples" and "of no commercial value
SC [Second Division]: reversed the decision of the CA; petitioner should be
allowed to continue the use of the subject mark and the mark which was
supposedly registered under the name of respondent be deemed cancelled
 to grant the application for cancellation would greatly prejudice
petitioner since respondent would be taking advantage of the goodwill
already established by petitioner in selling its product, without the
respondent having incurred in any expense to gain this priceless asset
 The Trademark Law is very clear. It requires actual commercial use of
the mark prior to its registration.
 respondent 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
 It appears that it was only after more than seven (7) years when
respondent sought the cancellation of the trademark.
 An unreasonable length of time had already passed before
respondent asserted its right to the trademark. .
 A perusal of the pleadings showed no explanation why
respondent allowed the use by petitioner of the trademark
under a duly approved application of registration thereof for
as long as almost eight (8) years before filing the instant
petition for cancellation.
Section 9-A of the Trademark Law as amended provides:
Equitable principles to govern proceedings: In opposition
proceedings and all other inter parties proceedings in the Patent
Office under this Act, equitable principle of laches, estoppel and
acquiescence where applicable, may be considered applied.
 Respondent by its silence, must be aware that its "title" to the subject
mark is defective since it failed to conform with the provision of the law
regarding prior use of the mark; and it must have been afraid that it
cannot fully substantiate its claim that the mark was commercially used
in the Philippines.
 Yoshida filed a MR but was denied. It was granted leave of court to file
a send MR.
SC [En Banc]: the decisions of the Director of Patents and CA are affirmed
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 133
 Pagasa contended originally that the Appellate Court erred in holding
that Pagasa cannot invoke the equitable principles of laches, estoppel
and acquiescence because Yoshida had not abandoned the YKK
trademark and Pagasa was aware of its prior existence and registration.
It allegedly erred further in ruling that registration gives the registrant
a vested right in the trademark.
 These contentions are devoid of merit.
 The appeal should not have been given due course.
 The Director of Patents sensibly and correctly cancelled the
registration in favor of Pagasa which has not shown any semblance
of justification for usurping the trademark YKK.
 The registration in favor of Pagasa was admitted by the Director to
be a mistake.
 He said that Pagasa's application should have been denied outright.
 Pagasa cannot rely on equity because he who comes into equity must
come with clean hands.
 Equity refuses to lend its aid in any manner to one seeking its active
interposition who has been guilty of unlawful or inequitable
conduct in the matter with relation to which he seeks relief
 "Registration is sufficient prima-facie proof that all acts necessary to
entitle the mark to registration were duly performed"
 Yoshida's prior registration is superior and must prevail

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 134

SAMSON VS. DAWAY
FACTS:
 informations for unfair competition under Section 168.3 (a), in relation
to Section 170, of the Intellectual Property Code (Republic Act No. 8293)
were filed against Manolo P. Samson, the registered owner of ITTI
Shoes. The accusatory portion of said informations read:
 Samson filed a motion to suspend arraignment and other proceedings
in view of the existence of an alleged prejudicial question involved in
Civil Case for unfair competition pending with the same branch; and
also in view of the pendency of a petition for review filed with the
Secretary of Justice assailing the Chief State Prosecutors resolution
finding probable cause to charge petitioner with unfair competition
 RTC: denied the motion to suspend arraignment and other proceedings.
 Samson filed a twin motion to quash the informations and motion for
reconsideration of the order denying motion to suspend, this time
challenging the jurisdiction of the trial court over the offense charged.
 since under Section 170 of R.A. No. 8293, the penalty of
imprisonment for unfair competition does not exceed six years, the
offense is cognizable by the Municipal Trial Courts and not by the
Regional Trial Court, per R.A. No. 7691
 RTC: denied petitioners twin motions
 Samson appealed to the SC
ISSUE: Which court has jurisdiction over criminal and civil cases for violation
of intellectual property rights? RTC
 Under Section 170 of R.A. No. 8293, which took effect on January 1,
1998, the criminal penalty for infringement of registered marks, unfair
competition, false designation of origin and false description or
representation, is imprisonment from 2 to 5 years and a fine ranging
from Fifty Thousand Pesos to Two Hundred Thousand Pesos, to wit: SEC.
170. Penalties. Independent of the civil and administrative sanctions
imposed by law, a criminal penalty of imprisonment from two (2) years
to five (5) years and a fine ranging from Fifty thousand pesos
(P50,000.00) to Two hundred thousand pesos (P200,000.00), shall be
imposed on any person who is found guilty of committing any of the acts
mentioned in Section 155 [Infringement], Section 168 [Unfair
Competition] and Section 169.1 [False Designation of Origin and False
Description or Representation].
 Section 163 of the same Code states that actions (including criminal and
civil) under Sections 150, 155, 164, 166, 167, 168 and 169 shall be
brought before the proper courts with appropriate jurisdiction under
existing laws, thus: SEC. 163. Jurisdiction of Court. All actions under
Sections 150, 155, 164 and 166 to 169 shall be brought before the
proper courts with appropriate jurisdiction under existing laws.
 The existing law referred to in the foregoing provision is Section 27 of
R.A. No. 166 (The Trademark Law) which provides that jurisdiction over
cases for infringement of registered marks, unfair competition, false
designation of origin and false description or representation, is lodged
with the Regional Trial Court: SEC. 27. Jurisdiction of Court of First
Instance. All actions under this Chapter [V Infringement] and Chapters
VI [Unfair Competition] and VII [False Designation of Origin and False
Description or Representation], hereof shall be brought before the Court
of First Instance.
Petitioner: R.A. No. 166 was expressly repealed by R.A. No. 8293. The
repealing clause of R.A. No. 8293, reads: SEC. 239. Repeals. 239.1. All Acts
and parts of Acts inconsistent herewith, more particularly Republic Act No.
165, as amended; Republic Act No. 166, as amended; and Articles 188 and
189 of the Revised Penal Code; Presidential Decree No. 49, including
Presidential Decree No. 285, as amended, are hereby repealed.
 the aforequoted clause did not expressly repeal R.A. No. 166 in its
entirety, otherwise, it would not have used the phrases parts of Acts
and inconsistent herewith; and it would have simply stated Republic Act
No. 165, as amended; Republic Act No. 166, as amended; and Articles
188 and 189 of the Revised Penal Code; Presidential Decree No. 49,
including Presidential Decree No. 285, as amended are hereby
repealed.
 The use of the phrases parts of Acts and inconsistent herewith only
means that the repeal pertains only to provisions which are
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 135
 repugnant or not susceptible of harmonization with R.A. No. 8293.7
Section 27 of R.A. No. 166, however, is consistent and in harmony
with Section 163 of R.A. No. 8293.
 Had R.A. No. 8293 intended to vest jurisdiction over violations of
intellectual property rights with the Metropolitan Trial Courts, it
would have expressly stated so under Section 163 thereof.
 rule in statutory construction: in case of conflict between a general law
and a special law, the latter must prevail
 Jurisdiction conferred by a special law to Regional Trial Courts must
prevail over that granted by a general law to Municipal Trial Courts.
 R.A. No. 8293 and R.A. No. 166 are special laws conferring
jurisdiction over violations of intellectual property rights to the
Regional Trial Court.
 They should therefore prevail over R.A. No. 7691, which is a general
law.
 Hence, jurisdiction over the instant criminal case for unfair competition
is properly lodged with the Regional Trial Court even if the penalty
therefor is imprisonment of less than 6 years, or from 2 to 5 years and
a fine ranging from P50,000.00 to P200,000.00.
 to implement and ensure the speedy disposition of cases involving
violations of intellectual property rights under R.A. No. 8293, the
Court issued A.M. No. 02-1-11-SC dated February 19, 2002
designating certain Regional Trial Courts as Intellectual Property
Courts.
 the Court further issued a Resolution consolidating jurisdiction to
hear and decide Intellectual Property Code and Securities and
Exchange Commission cases in specific Regional Trial Courts
designated as Special Commercial Courts

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 136

SERI SOMBOONSAKDIKUL vs. ORLANE S.A.
Facts
 Sept 2003: Seri Somboonsakdikul (petitioner) filed an application for
registration of the mark LOLANE with the IPO for goods classified under
Class 3 (personal care products) of the International Classification of
Goods and Services for the Purposes of the Registration of Marks
 Orlane S.A. (respondent) filed an opposition to petitioner's application
ALLEGATIONS OF THE RESPONDENT’S
 the mark LOLANE was similar to ORLANE in presentation, general
appearance and pronunciation, and thus would amount to an
infringement of its mark
 by promotion, worldwide registration, widespread and high standard
use, the mark had acquired distinction, goodwill, superior quality image
and reputation and was now well-known
 LOLANE' s first usage was only on August 19, 2003
 it was the rightful owner of the ORLANE mark which was first used in
1948;
 the mark was earlier registered in the Philippines under for the
following goods: perfumes, toilet water, face powders, lotions,
essential oils, cosmetics, lotions for the hair, dentrifices, eyebrow
pencils, make-up creams, cosmetics & toilet preparations
PETITIONER’S ANSWER:
 denied that the LOLANE mark was confusingly similar to the mark
ORLANE
 he was the lawful owner of the mark LOLANE which he has used for
various personal care products sold worldwide
 first worldwide use of the mark was in Vietnam on July 4, 1995
 he had continuously marketed and advertised Class 3 products bearing
LOLANE mark in the Philippines and in different parts of the world and
that as a result, the public had come to associate the mark with him as
provider of quality personal care products
 The mark ORLANE was in plain block upper case letters while the mark
LOLANE was printed in stylized word with the second letter L and the
letter A co-joined
 the similarity in one syllable would not automatically result in confusion
even if used in the same class of goods since his products always appear
with Thai characters while those of ORLANE always had the name Paris
on it
 The two marks are also pronounced differently
 even if the two marks contained the word LANE it would not make them
confusingly similar since the IPO had previously allowed the co-
existence of trademarks containing the syllable "joy" or "book" and that
he also had existing registrations and pending applications for
registration in other countries
Bureau of Legal Affairs (BLA): rejected petitioner's application
 respondent's application was filed, and its mark registered, much
earlier than the petitioner’s
 there was likelihood of confusion based on the following observations:
(1) ORLANE and LOLANE both consisted of six letters with the same last
four letters - LANE; (2) both were used as label for similar products; (3)
both marks were in two syllables and that there was only a slight
difference in the first syllable; and (4) both marks had the same last
syllable so that if these marks were read aloud, a sound of strong
similarity would be produced and such would likely deceive or cause
confusion to the public as to the two trademarks
 the dominant feature in both marks was the word LANE; and that the
marks had a strong visual and aural resemblance that could cause
confusion to the buying public
 The resemblance was amplified by the relatedness of the goods
Director General of the IPO: affirmed the Decision of the BLA
 despite the difference in the first syllable, there was a strong visual and
aural resemblance since the marks had the same last four letters, i.e.,
LANE, and such word is pronounced in this jurisdiction as in "pedestrian
lane
 the mark ORLANE is a fanciful mark invented by the owner for the sole
purpose of functioning as a trademark and is highly distinctive
 the fact that two or more entities would accidentally adopt an identical
or similar fanciful mark was too good to be true especially when they
dealt with the same goods or services.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 137

CA: there exists colorable imitation of respondent's mark by LOLANE
 Applying the dominancy test: LOLANE' s mark is confusingly or
deceptively similar to ORLANE
- There are predominantly striking similarities in the two marks
including LANE, with only a slight difference in the first letters, thus
the two marks would likely cause confusion to the eyes of the
public.
- The similarity is highlighted when the two marks are pronounced
considering that both are one word consisting of two syllables =
when pronounced, the two marks produce similar
 upheld the applicability of the dominancy test in this case
- the dominancy test is already recognized and incorporated in
Section 155.1 of Republic Act No. 8293 (RA 8293), otherwise known
as the Intellectual Property Code of the Philippines
- McDonald's Corporation v. MacJoy Fastfood Corporation: that the
dominancy test is also preferred over the holistic test.
- This is because the latter relies only on the visual comparison
between two trademarks, whereas the dominancy test relies not
only on the visual, but also on their aural and connotative
comparisons, and their overall impressions created.34
SERI SOMBOONSAKDIKUL
 CA erred in its interpretation of the dominancy test, when it ruled that
the dominant feature of the contending marks is the suffix "LANE."
 CA failed to consider that in determining the dominant portion of a
mark, significant weight must be given to whether the buyer would be
more likely to remember and use one part of a mark as indicating the
origin of the goods
 both LOLANE and ORLANE are plain word marks which are devoid of
features that will likely make the most impression on the ordinary
viewer
 the suffix LANE is a weak mark, being "in common use by many other
sellers in the market. "
 the two marks are aurally different since respondent's products
originate from France and is read as "OR-LAN" and not "OR-LEYN"
 CA completely disregarded the holistic test, thus ignoring the
dissimilarity of context between LOLANE and ORLANE.
 Assuming that the two marks produce similar sounds when
pronounced, the differences in marks in their entirety as they appear in
their respective product labels should still be the controlling factor in
determining confusing similarity.
ORLANE S.A.
 that ORLANE is entitled to protection under RA 8293 since it is
registered with the IPO with proof of actual use
 it has established in the world and in the Philippines an image and
reputation for manufacturing and selling quality beauty products
 its products have been sold in the market for 61 years and have been
used in the Philippines since 1972
 to allow petitioner's application would unduly prejudice respondent's
right over its registered trademark
ISSUE: whether or not there is confusing similarity between ORLANE and
LOLANE which would bar the registration of LOLANE before the IPO
SC: Decision of the Court of Appeals is REVERSED and SET ASIDE; Petitioner's
application of the mark LOLANE for goods classified under Class 3 of the
International Classification of Goods is GRANTED
 There is no colorable imitation between the marks LOLANE and ORLANE
which would lead to any likelihood of confusion to the ordinary
purchasers.
 LOLANE is not a colorable imitation of ORLANE due to distinct visual and
aural differences using the dominancy test.
 Based on the distinct visual and aural differences between LOLANE and
ORLANE, there is no confusing similarity between the two marks.
 The suffix LANE is not the dominant feature of petitioner's mark.
 Neither can it be considered as the dominant feature of ORLANE
which would make the two marks confusingly similar.
 an examination of the appearance of the marks would show that
there are noticeable differences in the way they are written or
printed
 there are visual differences between LOLANE and ORLANE since
the mark ORLANE is in plain block upper case letters while the mark
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 138
 LOLANE was rendered in stylized word with the second letter L and
the letter A co-joined
 as to the aural aspect of the marks: LOLANE and ORLANE do not
sound alike
 first syllables of each mark, i.e., OR and LO do not sound alike, while
the proper pronunciation of the last syllable LANE-"LEYN" for
LOLANE and "LAN" for ORLANE, being of French origin, also differ
 Respondent failed to show proof that the suffix LANE has registered in
the mind of consumers that such suffix is exclusively or even
predominantly associated with ORLANE products.
 Resemblance between the marks is a separate requirement from, and
must not be confused with, the requirement of a similarity of the goods
to which the trademarks are attached.
A trademark is defined under Section 121.1 of RA 8293 as any
visible sign capable of distinguishing the goods. It is susceptible to
registration if it is crafted fancifully or arbitrarily and is capable of
identifying and distinguishing the goods of one manufacturer or
seller from those of another
The registrability of a trademark is governed by Section 123 of RA
8293. Section 123.1 provides:
Section 123. Registrability. -
123 .1. A mark cannot be registered if it:
xxx
d. Is identical with a registered mark belonging to a different
proprietor or a mark with an earlier filing or priority date, in
respect of:
i. The same goods or services, or
ii. Closely related goods or services, or
iii. If it nearly resembles such a mark as to be likely to deceive or
cause confusion;
e. Is identical with, or confusingly similar to, or constitutes a
translation of a mark which is considered by the competent
authority of the Philippines to be well-known internationally and
in the Philippines, whether or not it is registered here, as being
already the mark of a person other than the applicant for
registration, and used for identical or similar goods or services:
Provided, That in determining whether a mark is well-known,
account shall be taken of the knowledge of the relevant sector of
the public, rather than of the public at large, including knowledge
in the Philippines which has been obtained as a result of the
promotion of the mark;
xxx
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 139
In Mighty Corporation v. E. & J Gallo Winery,we laid down the
requirements for a finding of likelihood of confusion, thus:
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 plaintiffs and its poor quality
reflects badly on the plaintiffs 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.
 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.
 the most essential requirement for the determination of
likelihood of confusion is the existence of resemblance
between the trademarks, i.e., colorable imitation.
 Absent any finding of its existence, there can be no likelihood
of confusion.
 Whether a trademark causes confusion and is likely to
deceive the public hinges on "colorable imitation" which has
been defined as "such similarity in form, content, words,
sound, meaning, special arrangement or general appearance
of the trademark or trade name 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."
Emerald Garment Manufacturing Corporation v. Court of Appeals,
the Court stated:
 the essential element of infringement is colorable imitation
 This term has been defined as "such a close or ingenious
imitation as to be calculated to deceive ordinary purchasers,
or such resemblance of the infringing mark to the original as
to deceive an ordinary purchaser giving such attention as a
purchaser usually gives, and to cause him to purchase the one
supposing it to be the other."
 Colorable imitation does not mean such similitude as amounts
to identity. Nor does it require that all the details be literally
copied.
 In determining colorable imitation, we have used either the
dominancy test or the holistic or totality test.
 The dominancy test considers the similarity of the prevalent
or dominant features of the competing trademarks that might
cause confusion, mistake, and deception in the mind of the
purchasing public. More consideration is given on the aural
and visual impressions created by the marks on the buyers of
goods, giving little weight to factors like process, quality, sales
outlets, and market segments.
 On the other hand, the holistic test considers the entirety of
the marks as applied to the products, including the labels and
packaging, in determining confusing similarity. The focus is
not only on the predominant words but also on the other
features appearing on the labels.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 140
 Dominancy test is more in line with the basic rule in
trademarks that confusing similarity is determined by the
aural, visual and connotative and overall impressions created
by the marks
 While there are no set rules as what constitutes a dominant
feature with respect to trademarks applied for registration,
usually, what are taken into account are signs, color, design,
peculiar shape or name, or some special, easily remembered
earmarks of the brand that readily attracts and catches the
attention of the ordinary consumer.

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 141

SHANG PROPERTIES REALTY CORPORATION (formerly THE SHANG GRAND
TOWER CORPORATION) and SHANG PROPERTIES, INC. (formerly EDSA
PROPERTIES HOLDINGS, INC.) vs. ST. FRANCIS DEVELOPMENT
CORPORATION
FACTS:
ST. FRANCIS DEVELOPMENT CORPORATION
- a domestic corporation engaged in the real estate business and the
developer of the St. Francis Square Commercial Center built sometime
in 1992, located at Ortigas Center
 filed separate complaints against petitioners before the IPO - Bureau of
Legal Affairs (BLA), namely:
a) an intellectual property violation case for unfair competition, and
damages arising from petitioners’ use and filing of applications for
the registration of the marks "THE ST. FRANCIS TOWERS" and "THE
ST. FRANCIS SHANGRI-LA PLACE (IPV Case); and
b) an opposition to the petitioners’ application for registration of the
mark "THE ST. FRANCIS TOWERS" for use relative to the latter’s
business (St. Francis Towers IP Case); and
c) an opposition to the petitioners’ application for registration of the
mark "THE ST. FRANCIS SHANGRI-LA PLACE (St. Francis Shangri-La
IP Case)
ALLEGATIONS OF ST. FRANCIS DEVELOPMENT CORPORATION
- it has used the mark "ST. FRANCIS" to identify its numerous property
development projects located at Ortigas Center, such as the
aforementioned St. Francis Square Commercial Center, a shopping mall
called the "St. Francis Square," and a mixed-use realty project plan that
includes the St. Francis Towers
- as a result of its continuous use of the mark "ST. FRANCIS" in its real
estate business, it has gained substantial goodwill with the public that
consumers and traders closely identify the said mark with its property
development projects
- petitioners could not have the mark "THE ST. FRANCIS TOWERS"
registered in their names, and that petitioners’ use of the marks "THE
ST. FRANCIS TOWERS" and "THE ST. FRANCIS SHANGRI-LA PLACE" in
their own real estate development projects constitutes unfair
competition as well as false or fraudulent declaration
SHANG PROPERTIES REALTY CORPORATION’S CONTENTIONS
- denied committing unfair competition and false or fraudulent
declaration, maintaining that they could register the mark "THE ST.
FRANCIS TOWERS" and "THE ST. FRANCIS SHANGRI-LA PLACE" under
their names
- respondent is barred from claiming ownership and exclusive use of
the mark "ST. FRANCIS" because the same is geographically
descriptive of the goods or services for which it is intended to be used
 respondent’s as well as petitioners’ real estate development
projects are located along the streets bearing the name "St.
Francis," particularly, St. Francis Avenue and St. Francis Street (now
known as Bank Drive), both within the vicinity of the Ortigas Center
BLA RULINGS:
 IPV Case: petitioners committed acts of unfair competition against
respondent by its use of the mark "THE ST. FRANCIS TOWERS" but not
with its use of the mark "THE ST. FRANCIS SHANGRI-LA PLACE."
 "ST. FRANCIS," being a name of a Catholic saint, may be considered
as an arbitrary mark capable of registration when used in real
estate development projects as the name has no direct connection
or significance when used in association with real estate
 not deemed "ST. FRANCIS" as a geographically descriptive mark =
there is no specific lifestyle, aura, quality or characteristic that the
real estate projects possess except for the fact that they are located
along St. Francis Avenue and St. Francis Street (now known as Bank
Drive), Ortigas Center
 while respondent’s use of the mark "ST. FRANCIS" has not attained
exclusivity considering that there are other real estate
development projects bearing the name "St. Francis" in other
areas, it must nevertheless be pointed out that respondent has
been known to be the only real estate firm to transact business
using such name within the Ortigas Center vicinity
 considered respondent to have gained goodwill and reputation
for its mark, which therefore entitles it to protection against the
use by other persons, at least, to those doing business within the
Ortigas Center
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 142
 St. Francis Towers IP Case: denied petitioners’ application for
registration of the mark "THE ST. FRANCIS TOWERS."
 that petitioners cannot register the mark "THE ST. FRANCIS" since
it is confusingly similar to respondent’s "ST. FRANCIS" marks which
are registered with the Department of Trade and Industry (DTI)
 respondent had a better right over the use of the mark "ST.
FRANCIS" because of the latter’s appropriation and continuous
usage thereof for a long period of time
 St. Francis Shangri-La IP Case: allowed petitioners’ application for
registration of the mark "THE ST. FRANCIS SHANGRI-LA PLACE"
 respondent cannot preclude petitioners from using the mark "ST.
FRANCIS" as the records show that the former’s use thereof had
not been attended with exclusivity
 petitioners had adequately appended the word "Shangri-La" to its
composite mark to distinguish it from that of respondent, in which
case, the former had removed any likelihood of confusion that may
arise from the contemporaneous use by both parties of the mark
"ST. FRANCIS"
 Both parties appealed the decision in the IPV Case
 Petitioners appealed the decision in the St. Francis Towers IP Case
 St. Francis Shangri-La IP Case is deemed to have lapsed into finality.
IPO DIRECTOR-GENERAL RULING
 IPV Case: affirmed the ruling of the BLA that petitioners are not guilty
of unfair competition in its use of the mark "THE ST. FRANCIS SHANGRI-
LA PLACE"; reversed the ruling of the BLA petitioners committed unfair
competition through their use of the mark "THE ST. FRANCIS TOWERS"
 dismissed the charge
 respondent could not be entitled to the exclusive use of the mark
"ST. FRANCIS," even at least to the locality where it conducts its
business, because it is a geographically descriptive mark,
considering that it was petitioners’ as well as respondent’s
intention to use the mark "ST. FRANCIS" in order to identify, or at
least associate, their real estate development
projects/businesses with the place or location where they are
situated/conducted, particularly, St. Francis Avenue and St.
Francis Street (now known as Bank Drive), Ortigas Center
 since the parties are both engaged in the real estate business, it
would be "hard to imagine that a prospective buyer will be enticed
to buy, rent or purchase petitioners’ goods or services believing
that this is owned by respondent simply because of the name ‘ST.
FRANCIS’
 St. Francis Towers IP Case: affirmed the ruling of the BLA that
petitioners cannot register the mark "THE ST. FRANCIS TOWERS”
 Respondent appealed the decision in IPV Case
 St. Francis Towers IP Case lapsed into finality
CA: petitioners are guilty of unfair competition not only with respect to their
use of the mark "THE ST. FRANCIS TOWERS" but also of the mark "THE ST.
FRANCIS SHANGRI-LA PLACE”
 the mark "ST. FRANCIS" is not a geographically descriptive
 even on the assumption that "ST. FRANCIS" was indeed a geographically
descriptive mark, adequate protection must still be given to respondent
pursuant to the Doctrine of Secondary Meaning
ISSUE: whether or not petitioners are guilty of unfair competition in using
the marks "THE ST. FRANCIS TOWERS" and "THE ST. FRANCIS SHANGRI-LA
PLACE" = issue in the case; but topic in the outline is secondary meaning
SC: No. The Court finds the element of fraud to be wanting; hence, there can
be no unfair competition; reversed and set aside the ruling of the CA.
 The CA’s contrary conclusion was faultily premised on its impression
that respondent had the right to the exclusive use of the mark "ST.
FRANCIS," for which the latter had purportedly established
considerable goodwill.
 CA appears to have disregarded or been mistaken in its disquisition,
however, is the geographically descriptive nature of the mark "ST.
FRANCIS" which thus bars its exclusive appropriability, unless a
secondary meaning is acquired.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 143
 U.S. case of Great Southern Bank v. First Southern Bank:
- descriptive geographical terms are in the ‘public domain’ in the
sense that every seller should have the right to inform customers of
the geographical origin of his goods
- A ‘geographically descriptive term’ is any noun or adjective that
designates geographical location and would tend to be regarded by
buyers as descriptive of the geographic location of origin of the
goods or services.
- A geographically descriptive term can indicate any geographic
location on earth, such as continents, nations, regions, states, cities,
streets and addresses, areas of cities, rivers, and any other location
referred to by a recognized name.
- In order to determine whether or not the geographic term in
question is descriptively used, the following question is relevant: (1)
Is the mark the name of the place or region from which the goods
actually come? If the answer is yes, then the geographic term is
probably used in a descriptive sense, and secondary meaning is
required for protection."
In Burke-Parsons-Bowlby Corporation v. Appalachian Log Homes, Inc. it
was held that secondary meaning is established when a descriptive
mark no longer causes the public to associate the goods with a particular
place, but to associate the goods with a particular source.
 it is not enough that a geographically-descriptive mark partakes of the
name of a place known generally to the public to be denied registration
 it is also necessary to show that the public would make a goods/place
association – that is, to believe that the goods for which the mark is
sought to be registered originate in that place
 To hold such belief, it is necessary, of course, that the purchasers
perceive the mark as a place name, from which the question of
obscurity or remoteness then comes to the fore
 The more a geographical area is obscure and remote, it becomes less
likely that the public shall have a goods/place association with such area
and thus, the mark may not be deemed as geographically descriptive
 where there is no genuine issue that the geographical significance of a
term is its primary significance and where the geographical place is
neither obscure nor remote, a public association of the goods with the
place may ordinarily be presumed from the fact that the applicant’s
own goods come from the geographical place named in the mark
 Under Section 123.2 of the IP Code, specific requirements have to be
met in order to conclude that a geographically-descriptive mark has
acquired secondary meaning, to wit:
a) the secondary meaning must have arisen as a result of substantial
commercial use of a mark in the Philippines;
b) such use must result in the distinctiveness of the mark insofar as
the goods or the products are concerned; and
c) proof of substantially exclusive and continuous commercial use in
the Philippines for five (5) years before the date on which the claim
of distinctiveness is made
 Unless secondary meaning has been established, a geographically-
descriptive mark, due to its general public domain classification, is
perceptibly disqualified from trademark registration.
 absent any showing that there exists a clear goods/service-association
between the realty projects located in the aforesaid area and herein
respondent as the developer thereof, the latter cannot be said to have
acquired a secondary meaning as to its use of the "ST. FRANCIS" mark
 the parties are business competitors engaged in real estate or
property development, providing goods and services directly
connected thereto
 The "goods" or "products" or "services" are real estate and the
goods and the services attached to it or directly related to it, like sale
or lease of condominium units, offices, and commercial spaces, such
as restaurants, and other businesses. For these kinds of goods or
services there can be no description of its geographical origin as
precise and accurate as that of the name of the place where they are
situated.
WHEREFORE, the petition is GRANTED. The Decision dated December 18,
2009 of the Court of Appeals in CA-G.R. SP No. 105425 is hereby REVERSED
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 144
and SET ASIDE. Accordingly, the Decision dated September 3, 2008 of the
Intellectual Property Office-Director General is REINSTATED.

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 145

WILTON DY and/or PHILITES ELECTRONIC & LIGHTING PRODUCTS vs.
KONINKLIJKE PHILIPS ELECTRONICS, N.V.
FACTS:
 PHILITES (petitioner) filed a trademark application covering its
fluorescent bulb, incandescent light, starter and ballast
 Koninklijke Philips Electronics, N .V. ("PHILIPS") (respondent) filed a
Verified Notice of Opposition, after publication, alleging the following:
 approval of application is contrary to the provisions of Republic Act
No. 8293 or the Intellectual Property Code of the Philippines (IP
Code)
 The use and registration of the applied for mark by petitioner will
mislead the public as to the origin, nature, quality, and
characteristic of the goods on which it is affixed;
 The registration of the trademark PHILITES & LETTER P DEVICE in
the name of the petitioner will violate the proprietary rights and
interests, business reputation and goodwill of the respondent over
its trademark, considering that the distinctiveness of the trademark
PHILIPS will be diluted.
 PHILITES filed a Verified Answer stating that:
 its PHILITES & LETTER P DEVICE trademark and respondent's
PHILIPS have vast dissimilarities in terms of spelling, sound and
meaning
IPP-BLA (Intellectual Property Philippines Bureau of Legal Affairs) Director:
denied the opposition filed by PHILIPS (respondent); Application filed by
Wilton Dy and/or Philites Electronic & Lighting Products (petitioner) is
granted
 assuming respondent's mark was well-known in the Philippines, there
should have been prior determination of whether or not the mark
under application for registration was "identical with, or confusingly
similar to, or constitutes a translation of such well-known mark in order
that the owner of the well-known mark can prevent its registration
 concluded that the PHILIPS and PHILITES marks were so unlike, both
visually and aurally. It held that no confusion was likely to occur, despite
their contemporaneous use
IPP-DG (IPP Office of the Director General): affirmed the ruling of the IPP-
BLA
 the dominant feature of the respondent's trademark is 'PHILIPS' while
that of the petitioner's trademark is 'PHILITES.'
 While the first syllables of the marks are identical - 'PHI' - the second
syllables are not.
 The differences in the last syllable accounted for the variance of the
trademarks visually and aurally
 there were "glaring differences and dissimilarities in the design and
general appearance of the Philips shield emblem mark and the letter 'P'
of Philites mark
CA: reversed and set aside the decision of IPP-DG; application for trademark
registration Wilton Dy and/or Philites Electronic & Lighting Products is
dismissed
 drawing of the trademark submitted by petitioner has a different
appearance from that of its actual wrapper or packaging that contain
the light bulbs confusingly similar with that of respondent's registered
trademark and packaging
 petitioner's asseveration that the mark 'PHILITES' is a coined or
arbitrary mark from the words 'Philippines' and 'lights’ is self-serving
 concluded that petitioner had intended to ride on the long-established
reputation and goodwill of respondent's trademark
ISSUE: Whether or not the mark applied for by petitioner is identical or
confusingly similar with that of respondent.
KONINKLIJKE PHILIPS ELECTRONICS, N.V.
 opposes petitioner's application on the ground that PHILITES'
registration will mislead the public over an identical or confusingly
similar mark of PHILIPS, which is registered and internationally well-
known mark
 respondent invokes the provisions of Section 123
SUPREME COURT: affirmed the decision of the CA
 Respondent's mark is a registered and well-known mark in the
Philippines
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 146
  Respondent’s trademark is already registered and in use in the similitude and likeness between the two trademarks that will
Philippines likely cause deception or confusion to the purchasing public
 It also appears that respondent has thousands of trademark - the parties' wrapper or packaging reflects negligible
registrations in various countries. differences considering the use of a slightly different font and
 PHILIPS is a trademark or trade name which was registered as far hue of the yellow is of no moment because taken in their
back as 1922, and has acquired the status of a well-known mark in entirety, respondent's trademark "PHILITES" will likely cause
the Philippines and internationally as well. confusion or deception to the ordinary purchaser with a
modicum of intelligence
 Petitioner seeks to register a mark nearly resembling that of
respondent, which may likely to deceive or cause confusion among
consumers.
 Applying the dominancy test: the mark "PHILITES" bears an
uncanny resemblance or confusing similarity with respondent's
mark "PHILIPS"
– their dominant or prevalent feature is the five-letter "PHILI", -
"PHILIPS" for petitioner, and "PHILITES" for respondent
– The marks are confusingly similar with each other such that an
ordinary purchaser can conclude an association or relation
between the marks.
– The consuming public does not have the luxury of time to
ruminate the phonetic sounds of the trademarks, to find out
which one has a short or long vowel sound.
– At bottom, the letters "PHILI'' visually catch the attention of
the consuming public and the use of respondent's trademark
will likely deceive or cause confusion.
– both trademarks are used in the sale of the same goods, which
are light bulbs

 Applying the holistic test: there is a confusing similarity between

the registered marks PHILIPS and PHILITES, and note that the mark
petitioner seeks to register is vastly different from that which it
actually uses in the packaging of its products
- comparison between petitioner's registered trademark
"PHILIPS'' as used in the wrapper or packaging of its light bulbs
and that of respondent's applied for trademark "PHILITES" as
depicted in the container or actual wrapper/packaging of the
latter's light bulbs will readily show that there is a strong

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 147

Section 123 provides which marks cannot be registered
123 .1. A mark cannot be registered if it:
xxx
(d) Is identical with a registered mark belonging to a different
proprietor or a mark with an earlier filing or priority date, in respect
of:
(i) The same goods or services, or
(ii) Closely related goods or services, or
(iii) If it nearly resembles such a mark as to be likely to deceive or
cause confusion;
(e) Is identical with, or confusingly similar to, or constitutes a
translation of a mark which is considered by the competent
authority of the Philippines to be well-known internationally and
in the Philippines, whether or not it is registered here, as being
already the mark of a person other than the applicant for
registration, and used for identical or similar goods or services:
Provided, That in determining whether a mark is well-known,
account shall be taken of the knowledge of the relevant sector of
the public, rather than of the public at large, including knowledge
in the Philippines which has been obtained as a result of the
promotion of the mark
trademark
- 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
- intellectual property deserving protection by law
- susceptible to registration if it is crafted fancifully or
arbitrarily and is capable of identifying and distinguishing the
goods of one manufacturer or seller from those of another
Section 122 of the Intellectual Property Code of the Philippines
(IPC)
- rights to a mark shall be acquired through registration validly
done in accordance with the provisions of this law
Fredco Manufacturing Corporation v. Harvard University,29
"[i]ndeed, Section 123.l(e) of R.A. No. 8293 now categorically
states that 'a mark which is considered by the competent
authority of the Philippines to be well-known internationally and
in the Philippines, whether or not it is registered here,' cannot be
registered by another in the Philippines”
Rule 100 (a) of the Rules and Regulations on Trademarks, Service
Marks, Tradenames and Marked or Stamped Containers defines
"competent authority" in the following manner:
(c) "Competent authority" for purposes of determining whether
a mark is well-known, means the Court, the Director General, the
Director of the Bureau of Legal Affairs, or any administrative
agency or office vested with quasi-judicial or judicial jurisdiction
to hear and adjudicate any action to enforce the rights to a mark.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 148
In determining similarity and likelihood of confusion,
jurisprudence has developed two tests: the dominancy test, and
the holistic or totality test.

Dominancy test
- focuses on "the similarity of the prevalent or dominant
features of the competing trademarks that might cause
confusion, mistake, and deception in the mind of the
purchasing public.
- Duplication or imitation is not necessary; neither is it
required that the mark sought to be registered suggests an
effort to imitate.
- Given more consideration are the aural and visual
impressions created by the marks on the buyers of goods,
giving little weight to factors like prices, quality, sales outlets,
and market segments.

Holistic or totality test

- necessitates a "consideration of the entirety of the marks as
applied to the products, including the labels and packaging,
in determining confusing similarity.
- The discerning eye of the observer must focus not only on the
predominant words, but also on the other features appearing
on both labels so that the observer may draw conclusion on
whether one is confusingly similar to the other

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 149

SMITH KLINE & FRENCH LABORATORIES, LTD. vs. CA
SMITH KLINE & FRENCH LABORATORIES, LTD. (petitioner)
- petitioner is a foreign corporation with principal office at Welwyn
Garden City, England. It owns Philippine Letters Patent No. 12207
issued by the BPTTT for the patent of the drug Cimetidine.
DOCTORS PHARMACEUTICALS, INC. (private respondent)
- private respondent is a domestic corporation engaged in the business
of manufacturing and distributing pharmaceutical products
 DOCTORS PHARMACEUTICALS, INC. filed a petition for compulsory
licensing with the BPTTT for authorization to manufacture its own brand
of medicine from the drug Cimetidine and to market the resulting
product in the Philippines
 petition was filed pursuant to the provisions of Section 34 of
Republic Act No. 165 (An Act Creating a Patent Office Prescribing Its
Powers and Duties, Regulating the Issuance of Patents, and
Appropriating Funds Therefor), which provides for the compulsory
licensing of a particular patent after the expiration of two years
from the grant of the latter if the patented invention relates to,
inter alia, medicine or that which is necessary for public health or
public safety
Private respondent’s allegations:
- the grant of Philippine Letters Patent No. 12207 was issued on 29
November 1978;
- the petition was filed beyond the two-year protective period provided
in Section 34 of R.A. No. 165; and
- it had the capability to work the patented product or make use of it in
its manufacture of medicine
Petitioner’s opposition:
- private respondent had no cause of action and lacked the capability to
work the patented product;
- petition failed to specifically divulge how private respondent would use
or improve the patented product; and
- private respondent was motivated by the pecuniary gain attendant to
the grant of a compulsory license
- it was capable of satisfying the demand of the local market in the
manufacture and marketing of the medicines covered by the patented
product
- challenged the constitutionality of Sections 34 and 35 of R.A. No. 165
for violating the due process and equal protection clauses of the
Constitution
BUREAU OF PATENTS, TRADEMARKS AND TECHNOLOGY TRANSFER
- issued a license in favor of the private respondent, United Laboratories,
Inc., under Letters Patent No. 12207 issued on November 29, 1978,
subject to certain conditions
-------------------------------------------------------------------------------------------
1. That [private respondent] be hereby granted a non-exclusive and
non-transferable license to manufacture, use and sell in the Philippines its
own brands of pharmaceutical products containing [petitioner's] patented
invention which is disclosed and claimed in Letters Patent No. 12207;
2. That the license granted herein shall be for the remaining life of
said Letters Patent No. 12207 unless this license is terminated in the manner
hereinafter provided and that no right or license is hereby granted to
[private respondent] under any patent to [petitioner] or [sic] other than
recited herein;
3. By virtue of this license, [private respondent] shall pay [petitioner]
a royalty on all license products containing the patented substance made
and sold by [private respondent] in the amount equivalent to TWO AND ONE
HALF PERCENT (2.5%) of the net sales in Philippine currency. The term "net
scale" [sic] means the gross amount billed for the product pertaining to
Letters Patent No. 12207, less —
(a) Transportation charges or allowances, if any, included in such
amount;
(b) Trade, quantity or cash discounts and broker's or agent's or
distributor's commissions, if any, allowed or paid;
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 150
(c) Credits or allowances, if any, given or made on account of rejection
or return of the patented product previously delivered; and
(d) Any tax, excise or government charge included in such amount, or
measured by the production sale, transportation, use of delivery of the
products.
In case [private respondent's] product containing the patented substance
shall contain one or more active ingredients admixed therewith, said
product hereinafter identified as admixed product, the royalty to be paid
shall be determined in accordance with the following formula:
Net Sales on Value of Patented
ROYALTY = Admixed Product x 0.025 xSubstance
—————————— ————————
Value of Patented Value of Other
Substance Active Ingredients
4. The royalties shall be computed after the end of each calendar
quarter to all goods containing the patented substance herein involved,
made and sold during the precedent quarter and to be paid by [private
respondent] at its place of business on or before the thirtieth day of the
month following the end of each calendar quarter. Payments should be
made to [petitioner's] authorized representative in the Philippines;
5. [Private respondent] shall keep records in sufficient detail to
enable [petitioner] to determine the royalties payable and shall further
permit its books and records to be examined from time to time at [private
respondent's] premises during office hours, to the extent necessary to be
made at the expense of [petitioner] by a certified public accountant
appointed by [petitioner] and acceptable to [private respondent].
6. [Private respondent] shall adopt and use its own trademark or
labels on all its products containing the patented substance herein involved;
7. [Private respondent] shall comply with the laws on drugs and
medicine requiring previous clinical tests and approval of proper
government authorities before selling to the public its own products
manufactured under the license;
8. [Petitioner] shall have the right to terminate the license granted to
[private respondent] by giving the latter thirty (30) days notice in writing to
that effect, in the event that [private respondent] default [sic] in the
payment of royalty provided herein or if [private respondent] shall default
in the performance of other convenants or conditions of this agreement
which are to be performed by [private respondent]:
(a) [Private respondent] shall have the right provided it is not in default
to payment or royalties or other obligations under this agreement, to
terminate the license granted to its, [sic] giving [petitioner] thirty (30) days-
notice in writing to that effect;
(b) Any termination of this license as provided for above shall not in
any way operate to deny [petitioner] its rights or remedies, either at laws
[sic] or equity, or relieve [private respondent] of the payment of royalties or
satisfaction of other obligations incurred prior to the effective date of such
termination; and
(c) Notice of termination of this license shall be filed with the Bureau
of Patents, Trademarks and Technology Transfer.
9. In case of dispute as to the enforcement of the provisions of this
license, the matter shall be submitted for arbitration before the Director of
Bureau of Patents, Trademarks and Technology Transfer or any ranking
official of the Bureau of Patents, Trademarks and Technology Transfer duly
delegated by him.
10. This License shall inure to the benefit of each of the parties herein,
to the subsidiaries and assigns of [petitioner] and to the successors and
assigns of [private respondent]; and
11. This license take [sic] effect immediately.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 151
-------------------------------------------------------------------------------------------
Petitioner appealed to the Court of Appeals by way of a petition for review
Petitioner claimed that the appealed decision was erroneous because:
- It violates international law as embodied in the Paris Convention for the
Protection of Industrial Property and must accordingly be set aside and
modified
- It is an invalid exercise of police power
- Conceding arguendo the questioned decision's validity, the BPTTT's
pronouncement fixing the royalty at 2.5% of the net wholesale price in
Philippine currency was rendered without any factual basis and
amounts to expropriation of private property without just
compensation which is violate of the Constitution
- It should not have proceeded to decide the case below for failure of
private respondent to affirmatively prove the jurisdictional fact of
publication
Court of Appeals: affirmed in toto the challenged decision
- at the time of the filing of the petition for compulsory license on March
24, 1987, the subject letters Patent No. 12207 issued on November 29,
1978 has been in effect for more than two (2) years
- the patented invention relates to compound and compositions used in
inhibiting certain actions of the histamine, hence, it relates to medicine
- the Director of Patents ruled that — "there is ample evidence to show
that [private respondent] possesses such capability, having competent
personnel, machines and equipment as well as permit to manufacture
different drugs containing patented active ingredients such as
ethambutol of American Cyanamid and Ampicillin and Amoxicillin of
Beecham Groups, Ltd."
- the reason for granting compulsory license "is intended not only to give
a chance to others to supply the public with the quantity of the
patented article but especially to prevent the building up of patent
monopolities"
- the granting of compulsory license is not simply because Sec. 34 (1) e,
RA 165 allows it in cases where the invention relates to food and
medicine, the Director of Patents also considered in determining that
the applicant has the capability to work or make use of the patented
product in the manufacture of a useful product
 In this case, the applicant was able to show that Cimetidine,
(subject matter of latters Patent No. 12207) is necessary for the
manufacture of an anti-ulcer drug/medicine, which is necessary for
the promotion of public health
 the award of compulsory license is a valid exercise of police power.
- do not agree to petitioner's contention that the fixing of the royalty at
2.5% of the net wholesale price amounted to expropriation of private
property without just compensation
 petitioner will be paid royalties on the sales of any products the
licensee may manufacture using any or all of the patented
compounds, the petitioner cannot complain of a deprivation of
property rights without just compensation
- The legal presumption is that official duty has been performed. And it
is particularly strong as regards administrative agencies vested with
powers said to be quasi-judicial in nature, in connection with the
enforcement of laws affecting particular fields of activity, the proper
regulation and/or promotion of which requires a technical or special
training, aside from a good knowledge and grasp of the overall
conditions, relevant to said field, obtaining in the nations.
 The policy and practice underlying our Administrative Law is that
courts of justice should respect the findings of fact of said
administrative agencies, unless there is absolutely no evidence in
support thereof or such evidence is clearly, manifestly and patently
insubstantial.
Petitioner filed a petition for review on certiorari with the following
assignment of errors:
Supreme Court: petition is without merit
THE HON. COURT OF APPEALS ERRED IN NOT HOLDING THAT THE BPTTT'S
DECISION VIOLATES INTERNATIONAL LAW AS EMBODIED IN THE PARIS
CONVENTION FOR THE PROTECTION OF INDUSTRIAL PROPERTY AND MUST
ACCORDINGLY
BE SET ASIDE AND MODIFIED.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 152
- Petitioner invokes Article 5 of the Paris Convention for the Protection
of Industrial Property, or "Paris Convention," for short, of which the
Philippines became a party thereto only in 1965
Pertinent portions of said Article 5, Section A, provide:
A. . . .
(2) Each country of the union shall have the right to take legislative
measures providing for the grant of compulsory licenses to
prevent the abuses which might result from the exercise of the
exclusive rights conferred by the patent, for example, failure to
work.
xxx xxx xxx
(4) A compulsory license may not be applied for on the ground of
failure to work or insufficient working before the expiration of a
period of four years from the date of filing of the patent application
or three years from the date of the grant of the patent, whichever
period expires last; it shall be refused if the patentee justifies his
inaction by legitimate reasons. Such a compulsory license shall be
non-exclusive and shall not be transferable, even in the form of
the grant of a sub-license, except with that part of the enterprise
or goodwill which exploits such license.
 Section A (2) of Article 5 above unequivocally and explicitly
respects the right of member countries to adopt legislative
measures to provide for the grant of compulsory licenses to
prevent abuses which might result from the exercise of the
exclusive rights conferred by the patent.
 Section 34 of R.A. No. 165, even if the Act was enacted prior to
the Philippines' adhesion to the Convention, fits well within
the aforequoted provisions of Article 5 of the Paris Convention
 In the explanatory note of Bill No. 1156 which eventually became R.A.
No. 165, the legislative intent in the grant of a compulsory license was
not only to afford others an opportunity to provide the public with the
quantity of the patented product, but also to prevent the growth of
monopolies.
 Certainly, the growth of monopolies was among the abuses which
Section A, Article 5 of the Convention foresaw, and which the Congress
likewise wished to prevent in enacting R.A. No. 165.
----------------------------------------------------------------------------------------
R.A. No. 165, as amended by Presidential Decree No. 1263, promulgated on
14 December 1977, provides for a system of compulsory licensing under a
particular patent. Sections 34 and 35, Article Two, of Chapter VIII read as
follows:
Sec. 34. Grounds for Compulsory Licensing — (1) Any person may apply to
the Director for the grant of a license under a particular patent at any time
after the expiration of two years from the date of the grant of the patent,
under any of the following circumstances:
(a) If the patented invention is not being worked within the Philippines
on a commercial scale, although capable of being so worked, without
satisfactory reason;
(b) If the demand for the patented article in the Philippines is not being
met to an adequate extent and on reasonable terms;
(c) If, by reason of refusal of the patentee to grant a license or licenses
on reasonable terms, or by reason of the conditions attached by the
patentee to licensee or to the purchase, lease or use of the patented article
or working of the patented process or machine for production, the
establishment of any new trade or industry in the Philippines is prevented,
or the trade or industry therein is unduly restrained;
(d) If the working of the invention within the country is being
prevented or hindered by the importation of the patented article; or
(e) If the patented invention or article relates to food or medicine or
manufactured products or substances which can be used as food or
medicine, or is necessary for public health or public safety.
(2) In any of the above cases, a compulsory license shall be granted to
the petitioner provided that he has proved his capability to work the
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 153
patented product or to make use of the patented product in the
manufacture of a useful product, or to employ the patented process.
(3) The term "worked" or "working" as used in this section means the
manufacture and sale of the patented article, of the patented machine, or
the application of the patented process for production, in or by means of a
definite and substantial establishment or organization in the Philippines and
on a scale which is reasonable and adequate under the circumstances.
Importation shall not constitute "working."
xxx xxx xxx
Sec. 35. Grant of License. — (1) If the Director finds that a case for the grant
is a license under Section 34 hereof has been made out, he shall, within one
hundred eighty days from the date the petition was filed, order the grant of
an appropriate license. The order shall state the terms and conditions of the
license which he himself must fix in default of an agreement on the matter
manifested or submitted by the parties during the hearing.
(2) A compulsory license sought under Section 34-B shall be issued
within one hundred twenty days from the filing of the proponent's
application or receipt of the Board of Investment's endorsement.
-------------------------------------------------------------------------------------------
 The case at bar refers more particularly to subparagraph (e) of
paragraph 1 of Section 34 — the patented invention or article relates to
food or medicine or manufactured products or substances which can be
used as food or medicine, or is necessary for public health or public
safety.
 provisions of R.A. No. 165, as amended, are not in derogation of, but
are consistent with, the recognized right of treaty signatories under
Article 5, Section A (2) of the Paris Convention
 it must be noted that paragraph (4) of Section A, Article 5 of the Paris
Convention setting time limitations in the application for a compulsory
license refers only to an instance where the ground therefor is "failure
to work or insufficient working," and not to any ground or circumstance
as the treaty signatories may reasonably determine.
II. THE HON. COURT OF APPEALS ERRED IN NOT HOLDING THAT THE BPTTT'S
DECISION IS AN INVALID EXERCISE OF POLICE POWER, ABSENT ANY
SHOWING BY EVIDENCE OF AN OVERWHELMING PUBLIC NEED FOR A
COMPULSORY LICENSE OVER CIMETIDINE IN FAVOR OF PRIVATE
RESPONDENT.
III. THE HON. COURT OF APPEALS ERRED IN NOT HOLDING THAT THE BPTTT'S
PRONOUNCEMENT FIXING THE ROYALTY FOR AN INVOLUNTARY LICENSE AT
2.5% OF THE NET WHOLESALE PRICE IN PHILIPPINE CURRENCY WAS
RENDERED WITHOUT ANY FACTUAL BASIS AND AMOUNTS TO
EXPORTATION OF PRIVATE PROPERTY WITHOUT JUST COMPENSATION AND
IS IN VIOLATION OF THE CONSTITUTIONAL RIGHT TO DUE PROCESS.
Supreme Court: the second and third assigned errors relate more to the
factual findings of the Court of Appeals
- Well-established is the principle that the findings of facts of the latter
are conclusive
- the findings of fact and conclusions of the Court of Appeals and that of
the BPTTT are fully supported by the evidence and the applicable law
and jurisprudence on the matter
- Petitioner's claim of violations of the due process and eminent domain
clauses of the Bill of Rights are mere conclusions which it failed to
convincingly support.
- As to due the process argument = full-blown adversarial proceedings
were conducted before the BPTTT pursuant to the Patent Law
 BPTTT exhaustively studied the facts and its findings were fully
supported by substantial evidence
- It cannot likewise be claimed that petitioner was unduly deprived of its
property rights
 R.A. No. 165 not only grants the patent holder a protective
period of two years to enjoy his exclusive rights thereto; but
subsequently, the law recognizes just compensation in the
form of royalties
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 154
 In Parke, Davis & Co. v. Doctors' Pharmaceuticals, Inc.:

The right to exclude others from the manufacturing, using, or vending an

invention relating to, food or medicine should be conditioned to allowing
any person to manufacture, use, or vend the same after a period of three
[now two] years from the date of the grant of the letters patent. After all,
the patentee is not entirely deprived of any proprietary right. In fact, he
has been given the period of three years [now two years] of complete
monopoly over the patent. Compulsory licensing of a patent on food or
medicine without regard to the other conditions imposed in Section 34
[now Section 35] is not an undue deprivation of proprietary interests over
a patent right because the law sees to it that even after three years of
complete monopoly something is awarded to the inventor in the form of
bilateral and workable licensing agreement and a reasonable royalty to be
agreed upon by the parties and in default of such an agreement, the
Director of Patents may fix the terms and conditions of the license.

IV. THE HON. COURT OF APPEALS ERRED IN NOT HOLDING THE BPTTT'S
ACTION WAS RENDERED NULL AND VOID FOR FAILURE OF PRIVATE
RESPONDENT TO AFFIRMATIVELY PROVE THE JURISDICTIONAL FACT OF
PUBLICATION AS REQUIRED BY LAW.

Supreme Court: petitioner can no longer assail the jurisdiction of the BPTTT
as it was raised only for the first time on appeal
- where the issue of jurisdiction is raised for the first time on appeal, the
party invoking it is so barred on the ground of laches or estoppel under
the circumstances therein stated. It is now settled that this rule applies
with equal force to quasi-judicial bodies such as the BPTTT. Here,
petitioner have not furnished any cogent reason to depart from this
rule.

WHEREFORE, the petition is hereby DENIED and the challenged decision of

the Court of Appeals in CA-G.R. SP No. 33520 is AFFIRMED in toto.

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 155

SMITH KLINE & FRENCH LABORATORIES, LTD. vs. CA and DANLEX
RESEARCH LABORATORIES, INC. (2001)
SMITH KLINE & FRENCH LABORATORIES, LTD. (Petitioner)
 assignee of Letters Patent No. 12207 covering the pharmaceutical
product Cimetidine, which relates to derivatives of heterocyclicthio or
lower alkoxy or amino lower alkyl thiourea, ureas or guanadines
 said patent was issued by the BPTTT to Graham John Durant, John Collin
Emmett and Robin Genellin on November 29, 1978
August 21, 1989: DANLEX RESEARCH LABORATORIES, INC. (private
respondent) filed with the BPTTT a petition for compulsory license to
manufacture and produce its own brand of medicines using Cimetidine
- invoked Section 34 (1) (e) of Republic Act No. 165,3 (the Patent Law)
the law then governing patents, which states that an application for the
grant of a compulsory license under a particular patent may be filed
with the BPTTT at any time after the lapse of two (2) years from the
date of grant of such patent, if the patented invention or article
relates to food or medicine, or manufactured substances which can be
used as food or medicine, or is necessary for public health or public
safety
Allegations:
- Cimetidine is useful as an antihistamine and in the treatment of ulcers,
and
- private respondent is capable of using the patented product in the
manufacture of a useful product
Petitioner opposed the petition for compulsory license arguing that:
- the private respondent had no cause of action and failed to allege how
it intended to work the patented product.
- its manufacture, use and sales of Cimetidine satisfied the needs of the
Philippine market, hence, there was no need to grant a compulsory
license to private respondent to manufacture, use and sell the same.
- the grant of a compulsory license to private respondent would not
promote public safety and that the latter was only motivated by
pecuniary gain.
BPTTT: directed the issuance of a compulsory license to private respondent
to use, manufacture and sell in the Philippines its own brand of
pharmaceutical products containing Cimetidine and ordered the payment
by private respondent to petitioner of royalties at the rate of 2.5% of net
sales in Philippine currency
Petitioner filed with the Court of Appeals a petition for review of the
decision of the BPTTT, raising the following arguments:
(1) the BPTTT's decision is violative of the Paris Convention for the
Protection of Industrial Property;
(2) said decision is an invalid exercise of police power;
(3) the rate of royalties payable to petitioner as fixed by the BPTTT was
rendered without factual basis and amounts to an expropriation of
private property without just compensation;
(4) the petition for compulsory license should have been dismissed by the
BPTTT for failure to prove the jurisdictional requirement of publication
Court of Appeals: denied petition; affirmed the decision of the Bureau of
Patents, Trademarks and Technology Transfer
– the grant of a compulsory license to private respondent for the
manufacture and use of Cimetidine is in accord with the Patent Law
since the patented product is medicinal in nature, and therefore
necessary for the promotion of public health and safety
– the provisions of the Patent Law permitting the grant of a compulsory
license are intended not only to give a chance to others to supply the
public with the quantity of the patented article but especially to prevent
the building up of patent monopolies
– the royalty rate of 2.5% of net sales fixed by the BPTTT was reasonable,
considering that what was granted under the compulsory license is only
the right to manufacture Cimetidine, without any technical assistance
from petitioner, and royalty rates identical to that fixed by the BPTTT
have been prescribed for the grant of compulsory license in a good
number of patent cases
– private respondent complied with the requirement of publication under
the Patent Law and had submitted proof of such compliance
Petitioner filed a petition for review on certiorari before the Supreme Court.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 156
 Petitioner concedes that the State in the exercise of police power may
regulate the manufacture and use of medicines through the enactment
and implementation of pertinent laws
 it states that such exercise is valid only if the means employed are
reasonably necessary for the accomplishment of the purpose and
if not unduly oppressive
Petitioner’s claims:
– the grant of a compulsory license to private respondent is an invalid
exercise of police power since it was not shown that there is an
overwhelming public necessity for such grant, considering that
petitioner is able to provide an adequate supply to satisfy the needs
of the Philippine market
– the grant of a compulsory license to private respondent unjustly
deprives it of a reasonable return on its investment
– the provisions of the Patent Law on compulsory licensing
contravene the Convention of Paris for the Protection of Industrial
Property (Paris Convention), which allegedly permits the granting
of a compulsory license over a patented product only to prevent
abuses which might result from the exercise of the exclusive rights
conferred by the patent, or on the ground of failure to work or
insufficient working of the patented product, within four years
from the date of filing of the patent application or three years from
the date of grant of the patent, whichever expires last
– the inclusion of grounds for the grant of a compulsory license in
Section 34 of the Patent Law other than those provided under the
Paris Convention constitutes a violation of the Philippines'
obligation to adhere to the provisions of said treaty
– the grant of a compulsory license to private respondent will allow
the latter to liberally manufacture and sell medicinal products
containing Cimetidine without even extending to petitioner due
recognition for pioneering the development and worldwide
acceptance of said invention, and will unreasonably dilute
petitioner's right over the patent
– the rate of royalty fixed by the BPTTT at 2.5% of net sales is grossly
inadequate, taking into consideration its huge investments of
money, time and other resources in the research and development,
as well as marketing of Cimetidine
 such rate has no factual basis since the appellate court and the
BPTTT relied solely on analogous cases and did not explain how
such rate was arrived at
– the appellate court erred in ruling that private respondent had
complied with the requirement of publication of the notice of the
filing of the petition for compulsory license because private
respondent failed to formally offer in evidence copies of the notice
of filing of the petition and notice of the date of hearing thereof as
published and the affidavits of publication thereof
 the BPTTT did not properly acquire jurisdiction over the
petition for compulsory license
Private respondent:
– adopted the reasoning of the Court of Appeals in the assailed decision
Supreme Court: petition has no merit.
 The Court of Appeals did not err in affirming the validity of the grant by
the BPTTT of a compulsory license to private respondent for the use,
manufacture and sale of Cimetidine. The said grant is in accord with
Section 34 of the Patent Law.
-------------------------------------------------------------------------------------------
Section 34 of the Patent Law:
Grounds for Compulsory Licensing.— (1) Any person may apply to the
Director for the grant of a license under a particular patent at any time after
the expiration of two years from the date of the grant of the patent, under
any of the following circumstances:
(a) If the patented invention is not being worked within the Philippines on a
commercial scale, although capable of being so worked, without satisfactory
reason;
(b) If the demand of the patented article in the Philippines is not being met
to an adequate extent and on reasonable terms;
(c) If, by reason of refusal of the patentee to grant a license or licenses on
reasonable terms, or by reason of the conditions attached by the patentee
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 157
to licensee or to the purchase, lease or use of the patented article or working
of the patented process or machine for production, the establishment of any
new trade or industry in the Philippines is prevented, or the trade or industry
therein is unduly restrained;
(d) If the working of the invention within the country is being prevented or
hindered by the importation of the patented article;
(e) If the patented invention or article relates to food or medicine or
manufactured substances which can be used as food or medicine, or is
necessary for public health or public safety.
(2) In any of the above cases, a compulsory license shall be granted to the
petitioner provided that he has proved his capability to work the patented
product or to make use of the patented product in the manufacture of a
useful product, or to employ the patented process.
(3) The term "worked" or "working" as used in this section means the
manufacture and sale of the patented article, of patented machine, or the
application of the patented process for production, in or by means of a
definite and substantial establishment or organization in the Philippines and
on a scale which is reasonable and adequate under the circumstances.
Importation shall not constitute "working".
-------------------------------------------------------------------------------------------
 The grant of the compulsory license satisfies the requirements of the
foregoing provision
 more than ten years have passed since the patent for Cimetidine
was issued to petitioner and its predecessors-in-interest, and the
compulsory license applied for by private respondent is for the use,
manufacture and sale of a medicinal product
 private respondent had the capability to work Cimetidine or to
make use thereof in the manufacture of a useful product
 Petitioner's contention that Section 34 of the Patent Law contravenes
the Paris Convention because the former provides for grounds for the
grant of a compulsory license in addition to those found in the latter, is
likewise incorrect.
-------------------------------------------------------------------------------------------
Article 5, Section A(2) of the Paris Convention states:
Each country of the union shall have the right to take legislative measures
providing for the grant of compulsory licenses to prevent the abuses which
might result from the exercise of the exclusive rights conferred by the
patent, for example, failure to work.
-------------------------------------------------------------------------------------------
 This issue has already been resolved by this Court in the case of
Smith Kline & French Laboratories, Ltd. vs. Court of Appeals, where
petitioner herein questioned the BPTTT's grant of a compulsory
license to Doctors Pharmaceuticals, Inc. also for the manufacture,
use and sale of Cimetidine
We found no inconsistency between Section 34 and the Paris
Convention and held that:
It is thus clear that Section A(2) of Article 5 [of the Paris Convention]
unequivocally and explicitly respects the right of member countries to
adopt legislative measures to provide for the grant of compulsory
licenses to prevent abuses which might result from the exercise of the
exclusive rights conferred by the patent. An example provided of
possible abuses is "failure to work;" however, as such, is merely
supplied by way of an example, it is plain that the treaty does not
preclude the inclusion of other forms of categories of abuses.
Section 34 of R.A. No. 165, even if the Act was enacted prior to the
Philippines' adhesion to the Convention, fits well within the
aforequoted provisions of Article 5 of the Paris Convention. In the
explanatory note of Bill No. 1156 which eventually became R.A. No. 165,
the legislative intent in the grant of a compulsory license was not only
to afford others an opportunity to provide the public with the quantity
of the patented product, but also to prevent the growth of monopolies
[Congressional Record, House of Representatives, 12 May 957, 998].
Certainly, the growth of monopolies was among the abuses which
Section A, Article 5 of the Convention foresaw, and which our Congress
likewise wished to prevent in enacting R.A. No. 165.
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 158
 Neither does the Court agree with petitioner that the grant of the
compulsory license to private respondent was erroneous because the
same would lead the public to think that the Cimetidine is the invention
of private respondent and not of petitioner
 Such fears are unfounded since by the grant of the compulsory
license, private respondent as licensee explicitly acknowledges that
petitioner is the source of the patented product Cimetidine
 Even assuming arguendo that such confusion may indeed occur,
the disadvantage is far outweighed by the benefits resulting from
the grant of the compulsory license, such as an increased supply of
pharmaceutical products containing Cimetidine, and the
consequent reduction in the prices thereof
 There is likewise no basis for the allegation that the grant of a
compulsory license to private respondent results in the deprivation of
petitioner's property without just compensation.
 It must be pointed out that as owner of Letters Patent No. 12207,
petitioner had already enjoyed exclusive rights to manufacture, use
and sell Cimetidine for at least two years from its grant in
November, 1978
 Even if other entities like private respondent are subsequently
allowed to manufacture, use and sell the patented invention by
virtue of a compulsory license, petitioner as owner of the patent
would still receive remuneration for the use of such product in the
form of royalties.
 Perceived inadequacy of the royalty awarded to petitioner, the Court of
Appeals correctly held that the rate of 2.5% of net wholesale price fixed
by the Director of the BPTTT is in accord with the Patent Law.
-------------------------------------------------------------------------------------------
Sec. 35. Grant of License.—(1) If the Director finds that a case for the grant
of a license under Section 34 hereof has been made out, he shall, within one
hundred eighty days from the date the petition was filed, order the grant of
an appropriate license. The order shall state the terms and conditions of the
license which he himself must fix in default of an agreement on the matter
manifested or submitted by the parties during the hearing.
xxx
Section 35-B. Terms and Conditions of Compulsory License. – (1) A
compulsory license shall be non-exclusive, but this shall be without
prejudice to the licensee's right to oppose an application for such a new
license.
(2) The terms and conditions of a compulsory license, fixed in accordance
with Section 35, may contain obligations and restrictions both for the
licensee and for the registered owner of the patent.
(3) A compulsory license shall only be granted subject to the payment of
adequate royalties commensurate with the extent to which the invention is
worked. However, royalty payments shall not exceed five percent (5%) of
the net wholesale price (as defined in Section 33-A) of the products
manufactured under the license. If the product, substance, or process
subject of the compulsory license is involved in an industrial project
approved by the Board of Investments, the royalty payable to the patentee
or patentees shall not exceed three percent (3%) of the net wholesale price
(as defined in Section 33-A) of the patented commodity/and or commodity
manufactured under the patented process; the same rate of royalty shall be
paid whenever two or more patents are involved; which royalty shall be
distributed to the patentees in rates proportional to the extent of
commercial use by the licensee giving preferential values to the holder of
the oldest subsisting product patent.
xxx
-------------------------------------------------------------------------------------------
 in the absence of any agreement between the parties with respect
to a compulsory license, the Director of the BPTTT may fix the terms
thereof, including the rate of the royalty payable to the licensor
 the law explicitly provides that the rate of royalty shall not exceed
five percent (5%) of the net wholesale price
 The Court agrees with the appellate court's ruling that the rate of
royalty payments fixed by the Director of the BPTTT is reasonable
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 159
 Price vs. United Laboratories, ruled as such, considering that the
compulsory license awarded to private respondent consists only of
the bare right to use the patented invention in the manufacture of
another product, without any technical assistance from the
licensor.32 Furthermore, this Court had earlier noted in the Price
case that identical royalty rates have been prescribed by the
Director of the BPTTT in numerous patent cases.
 There was no error on the part of the Court of Appeals in affirming
the royalty rate fixed by the Director of the BPTTT, since it was not
shown that the latter erred or abused his discretion in prescribing
said rate
 The rule is that factual findings of administrative bodies, which are
considered as experts in their respective fields, are accorded not
only respect but even finality if the same are supported by
substantial evidence

 as to the alleged lack of jurisdiction of the BPTTT over the petition filed
by private respondent for failure to comply with the publication
requirement under Section 35-F of R.A. No. 165
 the petitioner is estopped from questioning the same since it did
not raise the issue of lack of jurisdiction at the earliest possible
opportunity, i.e., during the hearings before the BPTTT
 petitioner raised this contention for the first time when it appealed
the case to the appellate court.

WHEREFORE, the petition is hereby DENIED for lack of merit and the
Decision of the Court of Appeals is hereby AFFIRMED.

COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 160

SMITH KLINE BECKMAN CORPORATION vs. CA and TRYCO PHARMA
CORPORATION (2003)
SMITH KLINE BECKMAN CORPORATION (petitioner)
 a corporation existing by virtue of the laws of the state of Pennsylvania,
United States of America (U.S.)
 licensed to do business in the Philippines
 filed on October 8, 1976, as assignee, before the Philippine Patent
Office (now Bureau of Patents, Trademarks and Technology Transfer)
an application for patent over an invention entitled "Methods and
Compositions for Producing Biphasic Parasiticide Activity Using
Methyl 5 Propylthio-2-Benzimidazole Carbamate"
 Serial No. 18989
 On September 24, 1981, Letters Patent No. 145611 for the aforesaid
invention was issued to petitioner for a term of 17 years
 patented invention consisted of a new compound named methyl 5
propylthio-2-benzimidazole carbamate and the methods or
compositions utilizing the compound as an active ingredient in
fighting infections caused by gastrointestinal parasites and
lungworms in animals such as swine, sheep, cattle, goats, horses,
and even pet animals
TRYCO PHARMA CORPORATION (private respondent)
- a domestic corporation that manufactures, distributes and sells
veterinary products including Impregon
 a drug that has Albendazole for its active ingredient
 claimed to be effective against gastro-intestinal roundworms,
lungworms, tapeworms and fluke infestation in carabaos, cattle
and goats
 Petitioner sued private respondent for infringement of patent and
unfair competition before the Regional Trial Court (RTC)
Petitioner’s claims:
– its patent covers or includes the substance Albendazole such that
private respondent, by manufacturing, selling, using, and causing to be
sold and used the drug Impregon without its authorization, infringed
Claims 2, 3, 4, 7, 8 and 9 of Letters Patent No. 145614
– committed unfair competition under Article 189, paragraph 1 of the
Revised Penal Code and Section 29 of Republic Act No. 166 (The
Trademark Law) for advertising and selling as its own the drug Impregon
although the same contained petitioner’s patented Albendazole
 RTC issued a temporary restraining order against private respondent
enjoining it from committing acts of patent infringement and unfair
competition. A writ of preliminary injunction was subsequently issued.
Private respondent’s defense:
- Letters Patent No. 14561 does not cover the substance Albendazole for
nowhere in it does that word appear;
- even if the patent were to include Albendazole, such substance is
unpatentable
- Bureau of Food and Drugs allowed it to manufacture and market
Impregon with Albendazole as its known ingredient
- there is no proof that it passed off in any way its veterinary products as
those of petitioner
- Letters Patent No. 14561 is null and void
 the application for the issuance thereof having been filed beyond
the one year period from the filing of an application abroad for the
same invention covered thereby, in violation of Section 15 of
Republic Act No. 165 (The Patent Law)
- petitioner is not the registered patent holder.
RTC:
 dismissed the complaint of the petitioner
 dissolved the Writ of Injunction
 declared that he Letters Patent No. 14561 issued by the Philippine
Patents Office is null and void for being in violation of Sections 7, 9 and
15 of the Patents Law
 directed the Director of Bureau of Patents to cancel Letters Patent
No. 14561 issued to the plaintiff and to publish such cancellation in
the Official Gazette
COURT OF APPEALS:
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 161
 upheld the trial court’s finding that private respondent was not liable
for any infringement of the patent of petitioner
 petitioner failed to show that Albendazole is the same as the
compound subject of Letters Patent No. 14561
 noted petitioner’s admission of the issuance by the U.S. of a patent
for Albendazole in the name of Smith Kline and French Laboratories
which was petitioner’s former corporate name, the appellate court
considered the U.S. patent as implying that Albendazole is different
from methyl 5 propylthio-2-benzimidazole carbamate
 private respondent was not guilty of deceiving the public by
misrepresenting that Impregon is its product
 declared that Letters Patent No. 14561 was not void
 sustained petitioner’s explanation that Patent Application Serial
No. 18989 which was filed on October 8, 1976 was a divisional
application of Patent Application Serial No. 17280 filed on June 17,
1975 with the Philippine Patent Office, well within one year from
petitioner’s filing on June 19, 1974 of its Foreign Application
Priority Data No. 480,646 in the U.S. covering the same compound
subject of Patent Application Serial No. 17280
 applied Section 17 of the Patent Law = Patent Application Serial No.
18989 was deemed filed on June 17, 1995 or still within one year
from the filing of a patent application abroad in compliance with
the one-year rule under Section 15 of the Patent Law
 rejected the submission that the compound in Letters Patent No. 14561
was not patentable
 established presumption that the Patent Office’s determination of
patentability is correct
 petitioner established itself to be the one and the same assignee of the
patent notwithstanding changes in its corporate name
 Petitioner filed a petition for review on certiorari.
Whether or not Albendazole, the active ingredient in Tryco’s "Impregon"
drug, is included in petitioner’s Letters Patent No. 14561, and that
consequently Tryco is answerable for patent infringement.
Petitioner’s arguments:
– under the doctrine of equivalents for determining patent infringement,
Albendazole, the active ingredient it alleges was appropriated by
private respondent for its drug Impregon, is substantially the same as
methyl 5 propylthio-2-benzimidazole carbamate covered by its patent
since both of them are meant to combat worm or parasite infestation
in animals
 cited the "unrebutted" testimony of its witness Dr. Godofredo C.
Orinion (Dr. Orinion) that the chemical formula in Letters Patent
No. 14561 refers to the compound Albendazole.
 the two substances substantially do the same function in
substantially the same way to achieve the same results, thereby
making them truly identical
 the appellate court should have gone beyond the literal wordings
used in Letters Patent No. 14561, beyond merely applying the
literal infringement test, for in spite of the fact that the word
Albendazole does not appear in petitioner’s letters patent, it has
ably shown by evidence its sameness with methyl 5 propylthio-2-
benzimidazole carbamate
– its application with the Philippine Patent Office on account of which it
was granted Letters Patent No. 14561 was merely a divisional
application of a prior application in the U. S. which granted a patent for
Albendazole
 both methyl 5 propylthio-2-benzimidazole carbamate and the
U.S.-patented Albendazole are dependent on each other and
mutually contribute to produce a single result, thereby making
Albendazole as much a part of Letters Patent No. 14561 as the
other substance is
– concedes that although methyl 5 propylthio-2-benzimidazole
carbamate is not identical with Albendazole, the former is an
improvement or improved version of the latter thereby making both
substances still substantially the same
Private respondent’s contentions:
– application of the doctrine of equivalents would not alter the outcome
of the case, Albendazole and methyl 5 propylthio-2-benzimidazole
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 162
 carbamate being two different compounds with different chemical and
physical properties
– the existence of a separate U.S. patent for Albendazole indicates that
the same and the compound in Letters Patent No. 14561 are different
from each other
 since it was on account of a divisional application that the patent
for methyl 5 propylthio-2-benzimidazole carbamate was issued,
then, by definition of a divisional application, such a compound is
just one of several independent inventions alongside Albendazole
under petitioner’s original patent application
SUPREME COURT:
 this Court finds nothing infirm in the appellate court’s conclusions with
respect to the principal issue of whether private respondent committed
patent infringement to the prejudice of petitioner
 the burden of proof to substantiate a charge for patent infringement
rests on the plaintiff
 In the case at bar, petitioner’s evidence consists primarily of its
Letters Patent No. 14561, and the testimony of Dr. Orinion, its
general manager in the Philippines for its Animal Health Products
Division, by which it sought to show that its patent for the
compound methyl 5 propylthio-2-benzimidazole carbamate also
covers the substance Albendazole
 From a reading of the claims of Letters Patent No. 14561 in relation
to the other portions thereof, no mention is made of the compound
Albendazole.
 All that the claims disclose are: the covered invention, that is, the
compound methyl 5 propylthio-2-benzimidazole carbamate; the
compound’s being anthelmintic but nontoxic for animals or its
ability to destroy parasites without harming the host animals; and
the patented methods, compositions or preparations involving the
compound to maximize its efficacy against certain kinds of
parasites infecting specified animals
 When the language of its claims is clear and distinct, the patentee is
bound thereby and may not claim anything beyond them.
 so are the courts bound which may not add to or detract from the
claims matters not expressed or necessarily implied, nor may they
enlarge the patent beyond the scope of that which the inventor
claimed and the patent office allowed, even if the patentee may
have been entitled to something more than the words it had
chosen would include
 mere absence of the word Albendazole in Letters Patent No. 14561 is
not determinative of Albendazole’s non-inclusion in the claims of the
patent
 While Albendazole is admittedly a chemical compound that exists
by a name different from that covered in petitioner’s letters patent,
the language of Letter Patent No. 14561 fails to yield anything at all
regarding Albendazole
 no extrinsic evidence had been adduced to prove that Albendazole
inheres in petitioner’s patent in spite of its omission therefrom or
that the meaning of the claims of the patent embraces the same
 The doctrine of equivalents provides that an infringement also takes
place when a device appropriates a prior invention by incorporating its
innovative concept and, although with some modification and change,
performs substantially the same function in substantially the same way
to achieve substantially the same result
 a scrutiny of petitioner’s evidence fails to convince this Court of the
substantial sameness of petitioner’s patented compound and
Albendazole
 While both compounds have the effect of neutralizing parasites in
animals, identity of result does not amount to infringement of
patent unless Albendazole operates in substantially the same way
or by substantially the same means as the patented compound,
even though it performs the same function and achieves the same
result
 the principle or mode of operation must be the same or substantially
the same
 The doctrine of equivalents requires satisfaction of the function-
means-and-result test, the patentee having the burden to show
that all three components of such equivalency test are met
 petitioner’s evidence fails to explain how Albendazole is in every
essential detail identical to methyl 5 propylthio-2-benzimidazole
carbamate
 apart from the fact that Albendazole is an anthelmintic agent like
methyl 5 propylthio-2-benzimidazole carbamate, nothing more is
COPYRIGHT AND INTELLECTUAL PROPERTY CASES (ATTY. JAY-R IPAC) | 163
 asserted and accordingly substantiated regarding the method or
means by which Albendazole weeds out parasites in animals, thus
giving no information on whether that method is substantially the
same as the manner by which petitioner’s compound works
 The testimony of Dr. Orinion lends no support to petitioner’s cause,
he not having been presented or qualified as an expert witness who
has the knowledge or expertise on the matter of chemical
compounds.
 As for the concept of divisional applications by petitioner, it comes into
play when two or more inventions are claimed in a single application
but are of such a nature that a single patent may not be issued for them
 The applicant thus is required "to divide," that is, to limit the claims
to whichever invention he may elect, whereas those inventions not
elected may be made the subject of separate applications which
are called "divisional applications."
 What this only means is that petitioner’s methyl 5 propylthio-2-
benzimidazole carbamate is an invention distinct from the other
inventions claimed in the original application divided out,
Albendazole being one of those other inventions.
 methyl 5 propylthio-2-benzimidazole carbamate would not have
been the subject of a divisional application if a single patent could
have been issued for it as well as Albendazole

WHEREFORE, the assailed decision of the Court of Appeals is hereby

AFFIRMED with MODIFICATION. The award of actual or compensatory
damages and attorney’s fees to private respondent, Tryco Pharma
Corporation, is DELETED; instead, it is hereby awarded the amount of
P20,000.00 as temperate or moderate damages.

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