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SPECIAL COMMERCIAL LAW

CASE DIGESTS

OVERVIEW .............................................................. 1
COCA-COLA BOTTLERS INC. VS. GOMEZ................... 1
PEARL & DEAN V. SHOEMART, INC. .......................... 2
PATENTS ................................................................. 5
AGUAS VS. DE LEON................................................ 5
MANZANO VS. CA .................................................... 6
CRESER PRECISION SYSTEMS VS. CA ...................... 8
SMITH KLINE BECKMAN CORP VS. CA .................... 10
PHIL PHARMAWEALTH INC. VS. PFRIZER ................. 12
GODINES VS. CA ................................................... 14
MAGUAN VS CA..................................................... 15
TRADEMARKS ...................................................... 17
TAIWAN KOLIN CORP. VS. KOLIN ELECTRONICS CO. 17
UFC PHILS. INC. VS. FIESTA BARRIO
MANUFACTURING CORP......................................... 21
MIRPURI VS. CA .................................................... 24
KHO VS. CA .......................................................... 29
EY INDUSTRIAL VS. SHEN DAR ............................... 30
SUPERIOR COMM. ENT. VS. KUNNAN ENT. AND
SPORTS CONCEPT & DISTRIBUTOR INC. ................. 32
BIRKENSTOCK ORTHOPAEDIE GMBH AND CO. KG
VS. PHIL. SHOE EXPO MKTG. CORP. ...................... 36
BERRIS AGRICULTURAL CO. INC. VS. NORVY
ABYADANG ............................................................ 38
AMIGO MANUFACTURING VS. CLUETT PEABODY CO.
............................................................................ 40
PROSOURCE INT'L INC. VS. HORPHAG RESEARCH ... 43
DERMALINE INC. VS MYRA PHARMACEUTICAL ......... 44
SOCIETE DES PRODUITS VS DY JR. ........................ 45
SKETCHERS USA VS. INTER PACIFIC INDUSTRIAL
TRADING CORP. .................................................... 45
VICTORIO DIAZ VS. PEOPLE AND LEVI STRAUSS PHILS.
............................................................................ 46
MIGHTY CORP VS E & J GALLO W INERY ................. 48
SEHWANI INC VS IN-N-OUT BURGER INC ................ 54
FREDCO MFG CORP. VS PRESIDENT AND FELLOWS OF
HARVARD COL. ..................................................... 56
SASOT VS. PEOPLE ............................................... 59
LEVI STRAUSS & CO. VS. CLINTON APPARELLE INC. 61
TANDUAY DISTILLERS, INC. VS GINEBRA SAN MIGUEL
............................................................................ 63
DEL MONTE CORP AND PHIL. PACKING CORP. VS CA
AND SUNSHINE SAUCE ........................................... 66
ASIA BREWERY INC. VS CA & SMC ........................ 68
PEARL & DEAN (PHIL.), INC VS. SHOEMART, INC,
AND NORTH EDSA MKTG, INC................................ 70

CANON KABUSHIKI KAISHA VS. CA AND NSR RUBBER

CORPORATION ..................................................... 72
W ILLIAN YAO, ET. AL. VS. PEOPLE AND PILIPINAS
SHELL .................................................................. 74
GEMMA ONG VS. PEOPLE ..................................... 75
REPUBLIC GAS CORP. VS PETRON CORP, PILIPINAS
SHELL AND SHELL INT. .......................................... 77
COPYRIGHT .......................................................... 80
SECURITIES REGULATION CODE ..................... 80
ABACUS SECURITIES CORP V. AMPIL ..................... 80
TAN VS. CA .......................................................... 85
SEC VS. PROSPERITY.COM. INC. ........................... 87
SEC VS. SANTOS ................................................. 89
SEC VS. INTERPORT RESOURCES CORP ............... 91
PHILIPPINE VETERANS BANK VS. CALLANGAN ........ 96
CITIBANK NA V. TANCO-GABALDON ....................... 98
TIMESHARE REALTY CORPORATION VS. LAO AND
CORTEZ ............................................................. 100
PEOPLE VS. TIBAYAN AND PUERTO ...................... 101
SEC VS. UNIVERSAL RIGHTFIELD PROPERTY
HOLDINGS .......................................................... 102

Section 168.3 (c) of the IP Code provides:

Overview

Coca-Cola Bottlers Inc. vs.

Gomez
(G.R. NO. 154491 - NOVEMBER 14, 2008)

FACTS:
Coca-Cola applied for a search warrant against Pepsi
for hoarding Coke empty bottles in Pepsi's yard in
Naga City, an act allegedly penalized as unfair
competition under the IP Code. MTC of Naga City
issued the warrant.
The local police seized and brought to the MTC's
custody several empty Coke bottles and shells, and
later filed with the Office of the City Prosecutor of
Naga a complaint against two Pepsi officers for
violation of Section 168.3 (c) in relation to Section 170
of the IP Code. The respondents are Pepsi regional
sales manager Danilo E. Galicia (Galicia) and its
Naga general manager Quintin J. Gomez, Jr.
In their counter-affidavits, Galicia and Gomez
contended, among others, that there is no mention in
the IP Code of the crime of possession of empty
bottles, and that the ambiguity of the law, which has
a penal nature, must be construed strictly against the
State and liberally in their favor.
The respondents also filed motions for the return of
their shells and to quash the search warrant. The twin
motions were denied by the MTC. On appeal, the
RTC voided the warrant for lack of probable cause
and the non-commission of the crime of unfair
competition.
ISSUE:
Whether the application for search warrant effectively
charged an offense, i.e., a violation of Section 168.3
(c) of the IP Code.

Page

Restatement: Whether the hoarding of a competitor's

product containers punishable as unfair competition
under the Intellectual Property Code (IP Code,
Republic Act No. 8293).
HELD:
No.

(c) Any person who shall make any false

statement in the course of trade or who shall
commit any other act contrary to good faith of a
nature calculated to discredit the goods, business
or services of another.

The petitioner theorizes that Section 168.3 (c) of the

IP Code does not limit the scope of protection on the
particular acts enumerated as it expands the meaning
of unfair competition to include "other acts contrary to
good faith of a nature calculated to discredit the
goods, business or services of another." Allegedly,
the respondents' hoarding of Coca Cola empty bottles
is one such act.
SC do not agree with the petitioner's expansive
interpretation of Section 168.3 (c).
From jurisprudence, unfair competition has been
defined as the passing off (or palming off) or
attempting to pass off upon the public the goods or
business of one person as the goods or business of
another with the end and probable effect of deceiving
the public. It formulated the "true test" of unfair
competition: whether the acts of defendant are
such as are calculated to deceive the ordinary
buyer making his purchases under the ordinary
conditions which prevail in the particular trade to
which the controversy relates. One of the essential
requisites in an action to restrain unfair competition is
proof of fraud; the intent to deceive must be shown
before the right to recover can exist. The advent of
the IP Code has not significantly changed these
rulings as they are fully in accord with what Section
168 of the Code in its entirety provides. Deception,
passing off and fraud upon the public are still the
key elements that must be present for unfair
competition to exist.
The act alleged to violate the petitioner's rights under
Section 168.3 (c) is hoarding which involves the
collection of the petitioner's empty bottles so that they
can be withdrawn from circulation and thus impede
the circulation of the petitioner's bottled products.
This, according to the petitioner, is an act contrary to
good faith - a conclusion that, if true, is indeed an
unfair act on the part of the respondents. The critical
question, however, is not the intrinsic unfairness of
the act of hoarding; what is critical for purposes of

Section 168.3 (c) is to determine if the hoarding, as

charged, "is of a nature calculated to discredit the
goods, business or services" of the petitioner.
SC hold that it is not. Hoarding as defined by the
petitioner is not even an act within the contemplation
of the IP Code.
The coverage and intent of the Code is expressly
reflected in its "Declaration of State Policy" which
states:
Section 2. Declaration of State Policy. - The State
recognizes that an effective intellectual and industrial
property system is vital to the development of domestic and
creative activity, facilitates transfer of technology, attracts
foreign investments, and ensures market access for our
products. It shall protect and secure the exclusive rights of
scientists, inventors, artists and other gifted citizens to their
intellectual property and creations, particularly when
beneficial to the people, for such periods as provided in this
Act.

Given the IP Code's specific focus, a first test that

should be made when a question arises on whether
a matter is covered by the Code is to ask if it refers
to an intellectual property as defined in the Code.
If it does not, then coverage by the Code may be
negated.

Page

A second test, if a disputed matter does not expressly

refer to an intellectual property right as defined above,
is whether it falls under the general "unfair
competition" concept and definition under
Sections 168.1 and 168.2 of the Code. The question
then is whether there is "deception" or any other
similar act in "passing off" of goods or services to be
those of another who enjoys established goodwill.
Under all the above approaches, we conclude that the
"hoarding" - as defined and charged by the petitioner
- does not fall within the coverage of the IP Code and
of Section 168 in particular. It does not relate to any
patent, trademark, trade name or service mark that
the respondents have invaded, intruded into or used
without proper authority from the petitioner. Nor are
the respondents alleged to be fraudulently
"passing off" their products or services as those
of the petitioner. The respondents are not also
alleged to be undertaking any representation or
misrepresentation that would confuse or tend to

confuse the goods of the petitioner with those of

the respondents, or vice versa.
In this light, hoarding for purposes of destruction is
closer to what another law - R.A. No. 623 - covers, to
wit:
SECTION 1. Persons engaged or licensed to engage in the
manufacture, bottling or selling of soda water, mineral or
aerated waters, cider, milk, cream, or other lawful
beverages in bottles, boxes, casks, kegs, or barrels, and
other similar containers, with their names or the names of
their principals or products, or other marks of ownership
stamped or marked thereon, may register with the
Philippine Patent Office a description of the names or are
used by them, under the same conditions, rules, and
regulations, made applicable by law or regulation to the
issuance of trademarks.
SECTION 2. It shall be unlawful for any person, without the
written consent of the manufacturer, bottler or seller who
has successfully registered the marks of ownership in
accordance with the provisions of the next preceding
section, to fill such bottles, boxes, kegs, barrels, or
other similar containers so marked or stamped, for the
purpose of sale, or to sell, dispose of, buy, or traffic in,
or wantonly destroy the same, whether filled or not, or
to use the same for drinking vessels or glasses or for
any other purpose than that registered by the
manufacturer, bottler or seller. Any violation of this
section shall be punished by a fine or not more than one
hundred pesos or imprisonment of not more than thirty days
or both.

Pearl & Dean v. Shoemart,

Inc.
G.R. NO. 148222, AUGUST 15, 2003

FACTS:
Pearl and Dean (Phil.), Inc. is a corporation engaged
in the manufacture of advertising display units simply
referred to as light boxes. These units utilize specially
printed posters sandwiched between plastic sheets
and illuminated with back lights.
It was able to secure registration over these
illuminated display units. The advertising light boxes
were marketed under the trademark Poster Ads.

In 1985, P&D negotiated with defendant Shoemart,

Inc. (SMI) for the lease and installation of the light
boxes in SM North Edsa. However, since SM North
Edsa was under construction, SMI offered as
alternative SM Makati and Cubao. During the signing
of the Contract, SMI only returned the Contract with
SM Makati. Manager of petitioner reminded SMI that
their agreement includes SM Cubao. However, SMI
did not bother to reply. Instead, respondent informed
petitioner that they are rescinding the contract for SM
Makati due to non-performance.
Two years later, SMI engaged the services of EYD
Rainbow Advertising to make the light boxes. These
were delivered in a staggered basis and installed at
SM Megamall and SM City. In 1989, petitioner
received reports that exact copy of its light boxes was
installed by SMI. It further discovered that North
EDSA Marketing Inc. (NEMI), sister company of SMI,
was set up primarily to sell advertising space in
lighted display units located in SMIs different
branches. Petitioner sent letters to respondents
asking them to cease using the light boxes and the
discontinued use of the trademark Poster Ads.

Page

Claiming that SMI and NEMI failed to meet its

demand, petitioner filed a case for infringement of
trademark and copyright, unfair competition and
damages. SMI maintained that it independently
developed its poster panels using commonly known
techniques and available technology without notice of
or reference to P&Ds copyright. In addition, it said
that registration of Poster Ads obtained by petitioner
was only for stationeries such as letterheads,
envelopes and the like. Poster Ads is a generic term
which cannot be appropriated as trademark, and, as
such, registration of such mark is invalid. It also
stressed that P&D is not entitled to the reliefs sought
because the advertising display units contained no
copyright notice as provided for by law.
RTC found SMI and NEMI jointly and severally liable
for infringement of copyright and trademark. CA
reversed saying that it agreed with SMI that what was
copyrighted was the technical drawings only and not
the light boxes. Light boxes cannot be considered as
either prints, pictorial illustrations, advertising copies,
labels, tags or box wraps, to be properly classified as
copyrightable class O work.

When a drawing is technical and depicts a utilitarian object,

a copyright over the drawings like plaintiff-appellants will
not extend to the actual object. It has so been held under
jurisprudence, of which the leading case is Baker vs.
Selden (101 U.S. 841 (1879). In that case, Selden had
obtained a copyright protection for a book entitled "Seldens
Condensed Ledger or Bookkeeping Simplified" which
purported to explain a new system of bookkeeping.
Included as part of the book were blank forms and
illustrations consisting of ruled lines and headings, specially
designed for use in connection with the system explained in
the work. These forms showed the entire operation of a day
or a week or a month on a single page, or on two pages
following each other. The defendant Baker then produced
forms which were similar to the forms illustrated in Seldens
copyrighted books. The Court held that exclusivity to the
actual forms is not extended by a copyright. The reason was
that "to grant a monopoly in the underlying art when no
examination of its novelty has ever been made would be a
surprise and a fraud upon the public; that is the province of
letters patent, not of copyright." And that is precisely the
point. No doubt aware that its alleged original design would
never pass the rigorous examination of a patent application,
plaintiff-appellant fought to foist a fraudulent monopoly on
the public by conveniently resorting to a copyright
registration which merely employs a recordal system
without the benefit of an in-depth examination of novelty.

In addition, CA stressed that the protective mantle of

the Trademark Law extends only to the goods used
by the first user as specified in its certificate of
registration. The registration of the trademark Poster
Ads covers only stationeries such as letterheads,
envelopes and calling cards and newsletter.
ISSUE:
1. If the engineering or technical drawings of an
advertising display unit (light box) are granted
copyright protection (copyright certificate of
registration) by the National Library, whether the light
box depicted in such engineering drawings ipso facto
also protected by such copyright.
2. Whether private respondents should be held legally
liable for infringement of patent.
3. Whether the owner of a registered trademark
legally prevent others from using such trademark if it
is a mere abbreviation of a term descriptive of his
goods, services or business.
4. Whether private respondents is liable for unfair
competition.

HELD:
1. No. Petitioner P & Ds complaint was that SMI
infringed on its copyright over the light boxes when
SMI had the units manufactured by Metro and EYD
Rainbow Advertising for its own account. Obviously,
petitioners position was premised on its belief that its
copyright over the engineering drawings extended
ipso facto to the light boxes depicted or illustrated in
said drawings.
Petitioners application for a copyright certificate
clearly stated that it was for a class "O" work under
Section 2 (O) of PD 49 (The Intellectual Property
Decree) which was the statute then prevailing. Said
Section 2 expressly enumerated the works subject to
copyright:
SEC. 2. The rights granted by this Decree shall, from the
moment of creation, subsist with respect to any of the
following works:
xxx
xxx
xxx
(O) Prints, pictorial illustrations, advertising copies, labels,
tags, and box wraps;
xxx
xxx
xxx

Although petitioners copyright certificate was entitled

"Advertising Display Units" (which depicted the boxtype electrical devices), its claim of copyright
infringement cannot be sustained.

Page

Copyright, in the strict sense of the term, is purely a

statutory right. Being a mere statutory grant, the rights
are limited to what the statute confers. It may be
obtained and enjoyed only with respect to the
subjects and by the persons, and on terms and
conditions specified in the statute. Accordingly, it can
cover only the works falling within the statutory
enumeration or description.
P & D secured its copyright under the classification
class "O" work. This being so, petitioners copyright
protection extended only to the technical
drawings and not to the light box itself because
the latter was not at all in the category of "prints,
pictorial illustrations, advertising copies, labels,
tags and box wraps." Stated otherwise, even as we
find that P & D indeed owned a valid copyright, the
same could have referred only to the technical
drawings within the category of "pictorial illustrations."
It could not have possibly stretched out to include the
underlying light box.

During the trial, the president of P & D himself

admitted that the light box was neither a literary not
an artistic work but an "engineering or marketing
invention." Obviously, there appeared to be some
confusion regarding what ought or ought not to be the
proper subjects of copyrights, patents and
trademarks. In the leading case of Kho vs. Court of
Appeals, we ruled that these three legal rights are
completely distinct and separate from one another,
and the protection afforded by one cannot be used
interchangeably to cover items or works that
exclusively pertain to the others:
Trademark, copyright and patents are different intellectual
property rights that cannot be interchanged with one
another. A trademark is any visible sign capable of
distinguishing the goods (trademark) or services (service
mark) of an enterprise and shall include a stamped or
marked container of goods. In relation thereto, a trade
name means the name or designation identifying or
distinguishing an enterprise. Meanwhile, the scope of a
copyright is confined to literary and artistic works which are
original intellectual creations in the literary and artistic
domain protected from the moment of their creation.
Patentable inventions, on the other hand, refer to any
technical solution of a problem in any field of human activity
which is new, involves an inventive step and is industrially
applicable.

2. No. Petitioner never secured a patent for the light

boxes. It therefore acquired no patent rights which
could have protected its invention, if in fact it really
was. And because it had no patent, petitioner could
not legally prevent anyone from manufacturing or
commercially using the contraption.
To be able to effectively and legally preclude others
from copying and profiting from the invention, a patent
is a primordial requirement. No patent, no
protection. The ultimate goal of a patent system is to
bring new designs and technologies into the public
domain through disclosure. Ideas, once disclosed to
the public without the protection of a valid patent, are
subject to appropriation without significant restraint.
The law attempts to strike an ideal balance between
the two interests:
"The patent system thus embodies a carefully crafted
bargain for encouraging the creation and disclosure
of new useful and non-obvious advances in
technology and design, in return for the exclusive

right to practice the invention for a number of years.

The inventor may keep his invention secret and reap
its fruits indefinitely. In consideration of its disclosure
and the consequent benefit to the community, the
patent is granted. An exclusive enjoyment is
guaranteed him for 17 years, but upon the expiration
of that period, the knowledge of the invention inures
to the people, who are thus enabled to practice it and
profit by its use."
The patent law has a three-fold purpose: "first,
patent law seeks to foster and reward invention;
second, it promotes disclosures of inventions to
stimulate further innovation and to permit the public to
practice the invention once the patent expires; third,
the stringent requirements for patent protection seek
to ensure that ideas in the public domain remain there
for the free use of the public."
Therefore, not having gone through the arduous
examination for patents, the petitioner cannot exclude
others from the manufacture, sale or commercial use
of the light boxes on the sole basis of its copyright
certificate over the technical drawings.
3. No. The certificate of registration issued by the
Director of Patents can confer (upon petitioner) the
exclusive right to use its own symbol only to those
goods specified in the certificate, subject to any
conditions and limitations specified in the certificate.
One who has adopted and used a trademark on
his goods does not prevent the adoption and use
of the same trademark by others for products
which are of a different description.
Assuming arguendo that "Poster Ads" could validly
qualify as a trademark, the failure of P & D to secure
a trademark registration for specific use on the light
boxes meant that there could not have been any
trademark infringement since registration was an
essential element thereof.

Page

4. No. If at all, the cause of action should have been

for unfair competition, a situation which was possible
even if P & D had no registration. But even
disregarding procedural issues, SC nevertheless
cannot hold respondents guilty of unfair competition.
By the nature of things, there can be no unfair
competition under the law on copyrights although
it is applicable to disputes over the use of

trademarks. Even a name or phrase incapable of

appropriation as a trademark or tradename may, by
long and exclusive use by a business (such that the
name or phrase becomes associated with the
business or product in the mind of the purchasing
public), be entitled to protection against unfair
competition.
In this case, there was no evidence that P & Ds use
of "Poster Ads" was distinctive or well-known. As
noted by the Court of Appeals, petitioners expert
witnesses himself had testified that "Poster Ads was
too generic a name. So it was difficult to identify it with
any company, honestly speaking." This crucial
admission by its own expert witness that "Poster Ads"
could not be associated with P & D showed that, in
the mind of the public, the goods and services
carrying the trademark "Poster Ads" could not be
distinguished from the goods and services of other
entities.
This fact also prevented the application of the
doctrine of secondary meaning. "Poster Ads" was
generic and incapable of being used as a trademark
because it was used in the field of poster advertising,
the very business engaged in by petitioner.
"Secondary meaning" means that a word or phrase
originally incapable of exclusive appropriation with
reference to an article in the market (because it is
geographically or otherwise descriptive) might
nevertheless have been used for so long and so
exclusively by one producer with reference to his
article that, in the trade and to that branch of the
purchasing public, the word or phrase has come to
mean that the article was his property.

Patents

Aguas vs. De Leon

G.R. NO. L-32160, JANUARY 30, 1982

FACTS:
Conrado G. de Leon filed in the CFI of Rizal at
Quezon City a complaint for infringement of patent

against Domiciano A. Aguas and F. H. Aquino and

Sons alleging that being the original first and sole
inventor of certain new and useful improvements in
the process of making mosaic pre-cast tiles, he was
lawfully granted a patent (Patent No. 658). The said
invention was new, useful, not known or used by
others in the country.
He alleged that Aguas infringed the patent by making,
using and selling tiles embodying said patent
invention and F. H. Aquino & Sons is guilty of
infringement by making and furnishing to the
defendant Domiciano A. Aguas the engravings,
castings and devices designed and intended of tiles
embodying his patented invention.
He has given notice to the defendants of their said
acts of infringement and requested them to desist,
but, defendants have refused and neglected to desist
and have disregarded such request.
He sought for the issuance of a preliminary injunction,
which was subsequently granted.
Aguas filed his answer denying the allegations of the
plaintiff and alleging that: the plaintiff is neither the
original first nor sole inventor of the improvements in
the process of making mosaic pre-cast tiles, the same
having been used by several tile-making factories in
the Philippines and abroad years before the alleged
invention by de Leon. He further alleged that that (a)
the invention of plaintiff is neither inventive nor new,
hence, it is not patentable, (b) defendant has been
granted valid patents on designs for concrete
decorative wall tiles; and (c) that he cannot be guilty
of infringement because his products are different
from those of the plaintiff.
RTC ruled in favor of de Leon. On appeal, CA
affirmed the RTC decision.

Page

ISSUE:
Whether the alleged invention or discovery of
respondent is patentable.
HELD:
Yes. The petitioner questioned the validity of the
patent of the private respondent, Conrado G. de
Leon, on the ground that the process, subject of said
patent, is not an invention or discovery, or an
improvement of the old system of making tiles. It

should be noted that the private respondent does not

claim to be the discoverer or inventor of the old
process of tile-making. He only claims to have
introduced an improvement of said process. In fact,
Letters Patent No. 658 was issued by the Philippine
Patent Office to the private respondent, Conrado G.
de Leon, to protect his rights as the inventor of "an
alleged new and useful improvement in the process
of making mosaic pre-cast tiles."
Indeed, Section 7, Republic Act No. 165, as amended
provides: "Any invention of a new and useful
machine, manufactured product or substance,
process, or an improvement of the foregoing, shall be
patentable.
CA found that private respondent has introduced an
improvement in the process of tile-making because:
... we find that plaintiff-appellee has introduced an
improvement in the process of tile-making, which proceeds
not merely from mechanical skill, said improvement
consisting among other things, in the new critical depth,
lip width, easement and field of designs of the new tiles.
The improved lip width of appellee's tiles ensures the
durability of the finished product preventing the flaking
off of the edges. The easement caused by the inclination
of the protrusions of the patented moulds is for the purpose
of facilitating the removal of the newly processed tile from
the female die. Evidently, appellee's improvement consists
in the solution to the old critical problem by making the
protrusions on his moulds attain an optimum height, so that
the engraving thereon would be deep enough to produce
tiles for sculptured and decorative purposes, strong
optimum thickness of appellee's new tiles of only 1/8 of an
inch at the deepest easement (Exhs. "D" and "D-1") is a
most critical feature, suggestive of discovery and
inventiveness, especially considering that, despite said
thinness, the freshly formed tile remains strong enough for
its intended purpose.

Manzano vs. CA
G.R. NO. 113388, SEPTEMBER 05, 1997

FACTS:
Petitioner Angelita Manzano filed with the Philippine
Patent Office an action for the cancellation of Letters
Patent No. UM-4609 for a gas burner registered in the

name of respondent Melecia Madolaria who

subsequently assigned the letters patent to New
United Foundry and Manufacturing Corporation.
Petitioner alleged that (a) the utility model covered by
the letters patent, in this case, an LPG gas burner,
was not inventive, new or useful; (b) the specification
of the letters patent did not comply with the
requirements of Sec. 14, RA No. 165, as amended;
(c) respondent Melecia Madolaria was not the
original, true and actual inventor nor did she derive
her rights from the original, true and actual inventor of
the utility model covered by the letters patent; and, (d)
the letters patent was secured by means of fraud or
misrepresentation.
In support of her petition for cancellation petitioner
further alleged that (a) the utility model covered by the
letters patent of respondent had been known or used
by others in the Philippines for more than one (1) year
before she filed her application for letters patent on 9
December 1979; (b) the products which were
produced in accordance with the utility model covered
by the letters patent had been in public use or on sale
in the Philippines for more than one (1) year before
the application for patent therefor was filed.

Page

Testifying for herself petitioner narrated that her

husband Ong Bun Tua worked as a helper in the
UNITED FOUNDRY where respondent Melecia
Madolaria used to be affiliated with from 1965 to
1970; that Ong helped in the casting of an LPG burner
which was the same utility model of a burner for which
Letters Patent No. UM-4609 was issued, and that
after her husband's separation from the shop she
organized Besco Metal Manufacturing (BESCO
METAL, for brevity) for the casting of LPG burners
one of which had the configuration, form and
component parts similar to those being manufactured
by UNITED FOUNDRY.
Private respondent, on the other hand, presented
only one witness, Rolando Madolaria, who testified,
among others, that he was the General Supervisor of
the UNITED FOUNDRY in the foundry, machine and
buffing section; that in his early years with the
company, UNITED FOUNDRY was engaged in the
manufacture of different kinds of gas stoves as well
as burners based on sketches and specifications
furnished by customers. The company manufactured

early models of single-piece types of burners where

the mouth and throat were not detachable. In the
latter part of 1978 respondent Melecia Madolaria
confided in him that complaints were being brought to
her attention concerning the early models being
manufactured. He was then instructed by private
respondent to cast several experimental models
based on revised sketches and specifications. After a
few months, private respondent discovered the
solution to all the defects of the earlier models and,
based on her latest sketches and specifications, he
was able to cast several models incorporating the
additions to the innovations introduced in the models.
Private respondent decided to file her application for
utility model patent in December 1979.
The Director of Patents Cesar C. Sandiego issued a
decision denying the petition for cancellation and
holding that the evidence of petitioner was not able to
establish convincingly that the patented utility model
of private respondent was anticipated. Not one of the
various pictorial representations of business
clearly and convincingly showed that the devices
presented by petitioner was identical or
substantially identical with the utility model of the
respondent. The decision also stated that even
assuming that the brochures depicted clearly each
and every element of the patented gas burner device
so that the prior art and patented device became
identical although in truth they were not, they could
not serve as anticipatory bars for the reason that they
were undated. The dates when they were
distributed to the public were not indicated and,
therefore, were useless prior art references. The
records and evidence also do not support the
petitioner's contention that Letters Patent No. UM4609 was obtained by means of fraud and/or
misrepresentation. No evidence whatsoever was
presented by petitioner to show that the then
applicant Melecia Madolaria withheld with intent
to deceive material facts which, if disclosed, would
have resulted in the refusal by the Philippine Patent
Office to issue the Letters Patent under inquiry.
On appeal, CA affirmed the decision of the Director of
Patents.
ISSUE:
Whether the dismissal of the petition of cancellation
of patent is proper where the patent applied for has

no substantial difference between the model to be

patented and those sold by petitioner.
HELD:
Yes. Section 7 of RA No. 165, as amended, which is
the law on patents, expressly provides
Sec. 7. Inventians patentable. Any invention of a new and
useful machine, manufactured product or substance,
process or an improvement of any of the foregoing, shall be
patentable.

Further, Sec. 55 of the same law provides

Sec. 55. Design patents and patents for utility models.
(a) Any new, original and ornamental design for an article
of manufacture and (b) any new model of implements or
tools or of any industrial product or of part of the same,
which does not possess the quality of invention, but which
is of practical utility by reason of its form, configuration,
construction or composition, may be protected by the
author thereof, the former by a patent for a design and the
latter by a patent for a utility model, in the same manner and
subject to the same provisions and requirements as relate
to patents for inventions insofar as they are applicable
except as otherwise herein provided.

Page

The element of novelty is an essential requisite of the

patentability of an invention or discovery. If a device
or process has been known or used by others prior to
its invention or discovery by the applicant, an
application for a patent therefor should be denied;
and if the application has been granted, the court, in
a judicial proceeding in which the validity of the patent
is drawn in question, will hold it void and ineffective.
It has been repeatedly held that an invention must
possess the essential elements of novelty, originality
and precedence, and for the patentee to be entitled to
the protection the invention must be new to the world.
In issuing Letters Patent No. UM-4609 to Melecia
Madolaria for an "LPG Burner" on 22 July 1981, the
Philippine Patent Office found her invention novel and
patentable. The issuance of such patent creates a
presumption which yields only to clear and cogent
evidence that the patentee was the original and first
inventor. The burden of proving want of novelty is on
him who avers it and the burden is a heavy one which
is met only by clear and satisfactory proof which
overcomes every reasonable doubt.
The validity of the patent issued by the Philippine
Patent Office in favor of private respondent and the

question over the inventiveness, novelty and

usefulness of the improved model of the LPG burner
are matters which are better determined by the Patent
Office. The technical staff of the Philippine Patent
Office composed of experts in their field has by the
issuance of the patent in question accepted private
respondent's model of gas burner as a discovery.
There is a presumption that the Office has correctly
determined the patentability of the model and such
action must not be interfered with in the absence of
competent evidence to the contrary.
The rule is settled that the findings of fact of the
Director of Patents, especially when affirmed by the
Court of Appeals, are conclusive on this Court when
supported by substantial evidence. Petitioner has
failed to show compelling grounds for a reversal of the
findings and conclusions of the Patent Office and the
Court of Appeals.

Creser Precision Systems

vs. CA
G.R. NO. 118708, FEBRUARY 02, 1998

FACTS:
Private respondent (Floro International Corp.) is a
domestic corporation engaged in the manufacture,
production, distribution and sale of military
armaments, munitions, ammunitions and other similar
materials.
Private respondent was granted by the Bureau of
Patents, Trademarks and Technology Transfer
(BPTTT), a Letters Patent No. UM-6938 covering an
aerial fuze.
Subsequently, private respondent, through its
president, Mr. Gregory Floro, Jr., discovered that
petitioner submitted samples of its patented aerial
fuze to the Armed Forces of the Philippines (AFP) for
testing. He learned that petitioner was claiming the
aforesaid aerial fuze as its own and planning to bid
and manufacture the same commercially without
license or authority from private respondent. To
protect its right, private respondent sent a letter to
petitioner advising it of its existing patent and its rights

thereunder, warning petitioner of a possible court

action and/or application for injunction, should it
proceed with the scheduled testing by the military.
In response to private respondent's demand,
petitioner filed a complaint for injunction and
damages arising from the alleged infringement before
the RTC of Quezon City. The complaint alleged,
among others: that petitioner is the first, true and
actual inventor of an aerial fuze denominated as
"Fuze, PDR 77 CB4" which it developed as early as
December 1981 under the Self-Reliance Defense
Posture Program (SRDP) of the AFP; that sometime
in 1986, petitioner began supplying the AFP with the
said aerial fuze; that private respondent's aerial fuze
is identical in every respect to the petitioner's fuze;
and that the only difference between the two fuzes are
miniscule and merely cosmetic in nature.
RTC issued a TRO. RTC ruled in favor of petitioner
and dismissed subsequent MR filed by private
respondent.
On appeal, CA reversed the RTC decision.
It is petitioner's contention that it can file, under
Section 42 of the Patent Law (R.A. 165), an action for
infringement not as a patentee but as an entity in
possession of a right, title or interest in and to the
patented invention. It advances the theory that while
the absence of a patent may prevent one from lawfully
suing another for infringement of said patent, such
absence does not bar the first true and actual inventor
of the patented invention from suing another who was
granted a patent in a suit for declaratory or injunctive
relief recognized under American patent laws. This
remedy, petitioner points out, may be likened to a civil
action for infringement under Section 42 of the
Philippine Patent Law.

Page

ISSUE:
Whether the first true and actual inventor of the
patented invention can sue another who was granted
a patent in a suit for declaratory or injunctive relief
recognized under American patent laws.
HELD:
No. Section 42 of R.A. 165, otherwise known as the
Patent Law, explicitly provides:

Under the aforequoted law, only the patentee or his

successors-in-interest may file an action for
infringement. The phrase "anyone possessing any
right, title or interest in and to the patented invention"
upon which petitioner maintains its present suit, refers
only to the patentee's successors-in-interest,
assignees or grantees since actions for infringement
of patent may be brought in the name of the person
or persons interested, whether as patentee,
assignees, or as grantees, of the exclusive right.
Moreover, there can be no infringement of a
patent until a patent has been issued, since
whatever right one has to the invention covered
by the patent arises alone from the grant of
patent. In short, a person or entity who has not been
granted letters patent over an invention and has not
acquired any light or title thereto either as assignee or
as licensee, has no cause of action for infringement
because the right to maintain an infringement suit
depends on the existence of the patent.
Petitioner admits it has no patent over its aerial fuze.
Therefore, it has no legal basis or cause of action to
institute the petition for injunction and damages
arising from the alleged infringement by private
respondent. While petitioner claims to be the first
inventor of the aerial fuze, still it has no right of
property over the same upon which it can maintain a
suit unless it obtains a patent therefor. Under
American jurisprudence, an inventor has no
common-law right to a monopoly of his invention.
He has the right to make, use and vend his own
invention, but if he voluntarily discloses it, such
as by offering it for sale, the world is free to copy
and use it with impunity. A patent, however, gives
the inventor the right to exclude all others. As a
patentee, he has the exclusive right of making, using
or selling the invention.
Further, the remedy of declaratory judgment or
injunctive suit on patent invalidity relied upon by
petitioner cannot be likened to the civil action for
infringement under Section 42 of the Patent Law.

Sec. 42. Civil action for infringement. Any patentee, or

anyone possessing any right, title or interest in and to the

patented invention, whose rights have been infringed, may

bring a civil action before the proper Court of First Instance
(now Regional Trial court), to recover from the infringer
damages sustained by reason of the infringement and to
secure an injunction for the protection of his right.

own the drug Impregon although the same contained

petitioners patented Albendazole.

Smith Kline Beckman Corp

vs. CA
G. R. NO. 126627 - AUGUST 14, 2003

FACTS:
Smith Kline Beckman Corporation (petitioner), a
corporation existing by virtue of the laws of the state
of Pennsylvania, USA and licensed to do business in
the Philippines, filed, 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," 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.
Subsequently, Letters Patent No. 145611 for the
aforesaid invention was issued to petitioner for a term
of seventeen (17) years.

Petitioner sued private respondent for infringement

of patent and unfair competition before the
Caloocan City RTC. It claimed that 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. 14561 as well as
committed unfair competition under Article 189,
paragraph 1 of the RPC and Section 29 of RA No. 166
(The Trademark Law) for advertising and selling as its

RTC ruled in favor of private respondent. CA affirmed

the RTC decision, finding that private respondent was
not liable for any infringement of the patent of
petitioner in light of the latters failure to show that
Albendazole is the same as the compound subject of
Letters Patent No. 14561.
ISSUE:
Whether respondent is guilty of patent infringement.
HELD:
No.
1. Petitioner argues that 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. It cites 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. Petitioner adds that the two
substances substantially do the same function in
substantially the same way to achieve the same
results, thereby making them truly identical.
Petitioner thus submits that 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 petitioners letters
patent, it has ably shown by evidence its sameness
with methyl 5 propylthio-2-benzimidazole carbamate.
In its Comment, private respondent contends that
application of the doctrine of equivalents would not

10

Page

10

Tryco Pharma Corporation (private respondent) is a

domestic corporation that manufactures, distributes
and sells veterinary products including Impregon, a
drug that has Albendazole for its active ingredient and
is claimed to be effective against gastro-intestinal
roundworms, lungworms, tapeworms and fluke
infestation in carabaos, cattle and goats.

Private respondent in its Answer averred that 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, and that the 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.

alter the outcome of the case, Albendazole and

methyl 5 propylthio-2-benzimidazole carbamate
being two different compounds with different chemical
and physical properties. It stresses that 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; and that 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 petitioners original patent
application.
From an examination of the evidence on record, 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.
When the language of its claims is clear and
distinct, the patentee is bound thereby and may
not claim anything beyond them. And 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.

While petitioner concedes that the mere literal

wordings of its patent cannot establish private
respondents infringement, it urges this Court to apply
the doctrine of equivalents.

The doctrine of equivalents thus 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.
As stated early on, petitioners 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-2benzimidazole carbamate, nothing more is 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 petitioners compound works.
2. Petitioner likewise points out that 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. Hence,
petitioner concludes that 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.

11

Page

11

It bears stressing that the mere absence of the word

Albendazole in Letters Patent No. 14561 is not
determinative of Albendazoles 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 petitioners letters patent, the
language of Letter Patent No. 14561 fails to yield
anything at all regarding Albendazole. And no
extrinsic evidence had been adduced to prove that
Albendazole inheres in petitioners 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. Yet
again, a scrutiny of petitioners evidence fails to
convince this Court of the substantial sameness of
petitioners 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. In
other words, the principle or mode of operation
must be the same or substantially the same.

As for the concept of divisional applications

proffered 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
petitioners 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.
Otherwise, 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.

Phil Pharmawealth Inc. vs.

Pfrizer
G.R. NO. 167715 - NOVEMBER 17, 2010

Sometime in January and February 2003, Pfizer

discovered that Pharmawealth submitted bids for the
supply of Sulbactam Ampicillin to several hospitals
without the Pfizers consent. Pfizer then demanded
that the hospitals cease and desist from accepting
such bids. Pfizer also demanded that Pharmawealth
immediately withdraw its bids to supply Sulbactam
Ampicillin. Pharmawealth and the hospitals ignored
the demands.

12

Pharmawealth filed a motion to dismiss the case in

the CA, on the ground of forum shopping.
Nevertheless, the CA issued a temporary restraining
order. Pharmawealth again filed a motion to dismiss,
alleging that the patent, the main basis of the case,
had already lapsed, thus making the case moot, and
that the CA had no jurisdiction to review the order of
the IPO-BLA because this was granted to the Director
General. The CA denied all the motions.
Pharmawealth filed a petition for review on Certiorari
with the Supreme Court.
ISSUES:
1. Whether an injunctive relief be issued based on an
action of patent infringement when the patent
allegedly infringed has already lapsed.

FACTS:
Pfizer is the registered owner of a patent pertaining to
Sulbactam Ampicillin. It is marketed under the brand
name Unasyn.

Pfizer then filed a complaint for patent infringement

with a prayer for permanent injunction and forfeiture
of the infringing products. A preliminary injunction
effective for 90 days was granted by the IPOs Bureau
of Legal Affairs (IPO-BLA). Upon expiration, a motion
for extension filed by Pfizer was denied. Pfizer filed a
Special Civil Action for Certiorari in the Court of
Appeals (CA) assailing the denial.

2. Whether CA has jurisdiction to review the decisions

of the Director of Legal Affairs of the Intellectual
Property Office.
3. Whether there is forum shopping when a party files
two actions with two seemingly different causes of
action and yet pray for the same relief.
HELD:
1. No. Section 37 of Republic Act No. (RA) 165, which
was the governing law at the time of the issuance of
respondents' patent, provides:
Section 37. Rights of patentees. A patentee shall have the
exclusive right to make, use and sell the patented machine,
article or product, and to use the patented process for the
purpose of industry or commerce, throughout the territory of
the Philippines for the term of the patent; and such
making, using, or selling by any person without the
authorization of the patentee constitutes infringement of the
patent.

It is clear from the above-quoted provision of law that

the exclusive right of a patentee to make, use and sell
a patented product, article or process exists only
during the term of the patent. In the instant case,
Philippine Letters Patent No. 21116, which was the
basis of respondents in filing their complaint with the

12

Page

While the case was pending in the CA, Pfizer filed

with the Regional Trial Court of Makati (RTC) a
complaint for infringement and unfair competition,
with a prayer for injunction. The RTC issued a
temporary restraining order, and then a preliminary
injunction.

BLA-IPO, was issued on July 16, 1987. This fact

was admitted by respondents themselves in their
complaint. They also admitted that the validity of the
said patent is until July 16, 2004, which is in
conformity with Section 21 of RA 165, providing that
the term of a patent shall be seventeen (17) years
from the date of issuance thereof.
Thus, after 16 July 2004, Pfizer no longer possessed
the exclusive right to make, use, and sell the products
covered by their patent. The CA was wrong in issuing
a temporary restraining order after the cut-off date.
2. Yes. SC is not persuaded by petitioner's argument
that, pursuant to the doctrine of primary jurisdiction,
the Director General of the IPO and not the CA has
jurisdiction to review the questioned Orders of the
Director of the BLA-IPO.

RA 8293 is silent with respect to any remedy available

to litigants who intend to question an interlocutory
order issued by the BLA-IPO. Moreover, Section 1(c),
Rule 14 of the Rules and Regulations on
Administrative Complaints for Violation of Laws
Involving Intellectual Property Rights simply provides
that interlocutory orders shall not be appealable. The
said Rules and Regulations do not prescribe a
procedure within the administrative machinery to
be followed in assailing orders issued by the BLAIPO pending final resolution of a case filed with
them. Hence, in the absence of such a remedy, the
provisions of the Rules of Court shall apply in a
suppletory manner, as provided under Section 3,
Rule 1 of the same Rules and Regulations. Hence,
in the present case, respondents correctly resorted to
the filing of a special civil action for certiorari with the
CA to question the assailed Orders of the BLA-IPO,
as they cannot appeal therefrom and they have no
other plain, speedy and adequate remedy in the

3. Yes. Forum shopping is defined as the act of a

party against whom an adverse judgment has been
rendered in one forum, of seeking another (and
possibly favorable) opinion in another forum (other
than by appeal or the special civil action of certiorari),
or the institution of two (2) or more actions or
proceedings grounded on the same cause on the
supposition that one or the other court would make a
favorable disposition.
The elements of forum shopping are: (a) identity of
parties, or at least such parties that represent the
same interests in both actions; (b) identity of rights
asserted and reliefs prayed for, the reliefs being
founded on the same facts; (c) identity of the two
preceding particulars, such that any judgment
rendered in the other action will, regardless of which
party is successful, amount to res judicata in the
action under consideration.
There is no question as to the identity of parties in the
complaints filed with the IPO and the RTC.
Respondents argue that they cannot be held guilty of
forum shopping because their complaints are based
on different causes of action as shown by the fact that
the said complaints are founded on violations of
different patents.
SC is not persuaded.
Section 2, Rule 2 of the Rules of Court defines a
cause of action as the act or omission by which a
party violates a right of another. In the instant case,
respondents' cause of action in their complaint filed
with the IPO is the alleged act of petitioner in
importing, distributing, selling or offering for sale
Sulbactam Ampicillin products, acts that are
supposedly violative of respondents' right to the
exclusive sale of the said products which are covered
by the latter's patent. However, a careful reading of
the complaint filed with the RTC of Makati City would
show that respondents have the same cause of action
as in their complaint filed with the IPO. They claim that
they have the exclusive right to make, use and sell
Sulbactam Ampicillin products and that petitioner
violated this right. Thus, it does not matter that the

13

Page

13

It is true that under Section 7(b) of RA 8293,

otherwise known as the Intellectual Property Code of
the Philippines, which is the presently prevailing law,
the Director General of the IPO exercises exclusive
appellate jurisdiction over all decisions rendered by
the Director of the BLA-IPO. However, what is being
questioned before the CA is not a decision, but an
interlocutory order of the BLA-IPO denying
respondents' motion to extend the life of the
preliminary injunction issued in their favor.

ordinary course of law. This is consistent with

Sections 1 and 4, Rule 65 of the Rules of Court, as
amended.

patents upon which the complaints were based are

different. The fact remains that in both complaints the
rights violated and the acts violative of such rights are
identical.
In fact, respondents seek substantially the same
reliefs in their separate complaints with the IPO and
the RTC for the purpose of accomplishing the same
objective.
It is settled by this Court in several cases that the filing
by a party of two apparently different actions but with
the same objective constitutes forum shopping.

Godines vs. CA
G.R. NO. 97343 - SEPTEMBER 13, 1993

FACTS:
SV-Agro Industries Enterprises, Inc., herein private
respondent, from Magdalena Villaruz, its chairman
and president, acquired Letters Patent No. UM-2236.
It covers a utility model for a hand tractor or power
tiller.

After trial, the court held Pascual Godines liable for

infringement of patent and unfair competition. CA
affirmed the RTC decision.
Petitioner maintains the defenses which he raised
before the trial and appellate courts, to wit: that he
was not engaged in the manufacture and sale of the

ISSUE:
Whether petitioner is liable for patent infringement.
HELD:
Yes. Tests have been established to determine
infringement. These are (a) literal infringement; and
(b) the doctrine of equivalents.
1. In using literal infringement as a test, ". . . resort
must be had, in the first instance, to the words of the
claim. If accused matter clearly falls within the claim,
infringement is made out and that is the end of it." To
determine whether the particular item falls within the
literal meaning of the patent claims, the court must
juxtapose the claims of the patent and the accused
product within the overall context of the claims and
specifications, to determine whether there is exact
identity of all material elements.
The trial court made the following observation:
Samples of the defendant's floating power tiller have been
produced and inspected by the court and compared with
that of the turtle power tiller of the plaintiff. In appearance
and form, both the floating power tillers of the defendant and
the turtle power tiller of the plaintiff are virtually the same.
The three power tillers were placed alongside with each
other. Witness Rodrigo took photographs of the same
power tillers (front, side, top and back views for purposes of
comparison. Viewed from any perspective or angle, the
power tiller of the defendant is identical and similar to that
of the turtle power tiller of plaintiff in form, configuration,
design and appearance. The parts or components thereof
are virtually the same.
In operation, the floating power tiller of the defendant
operates also in similar manner as the turtle power tiller of
plaintiff. This was admitted by the defendant himself in court
that they are operating on the same principles.

Moreover, it is also observed that petitioner also

called his power tiller as a floating power tiller. The
patent issued by the Patent Office referred to a "farm
implement but more particularly to a turtle hand
tractor having a vacuumatic housing float on which

14

Page

14

In accordance with the patent, private respondent

manufactured and sold the patented power tillers with
the patent imprinted on them. In 1979, SV-Agro
Industries suffered a decline of more than 50% in
sales in its Molave, Zamboanga del Sur branch. Upon
investigation, it discovered that power tillers similar to
those patented by private respondent were being
manufactured and sold by petitioner herein.
Consequently, private respondent notified Pascual
Godines about the existing patent and demanded that
the latter stop selling and manufacturing similar
power tillers. Upon petitioner's failure to comply with
the demand, SV-Agro Industries filed before the
Regional Trial Court a complaint for infringement of
patent and unfair competition.

power tillers as he made them only upon the special

order of his customers who gave their own
specifications; hence, he could not be liable for
infringement of patent and unfair competition; and
that those made by him were different from those
being manufactured and sold by private respondent.

the engine drive is held in place, the operating handle,

the harrow housing with its operating handle and the
paddy wheel protective covering." It appears from the
foregoing observation of the trial court that these
claims of the patent and the features of the patented
utility model were copied by petitioner.
2. Recognizing that the logical fallback position of one
in the place of defendant is to aver that his product is
different from the patented one, courts have adopted
the doctrine of equivalents which recognizes that
minor modifications in a patented invention are
sufficient to put the item beyond the scope of literal
infringement. Thus, according to this doctrine, "an
infringement also occurs when a device
appropriates a prior invention by incorporating its
innovative concept and, albeit with some
modification and change, performs substantially
the same function in substantially the same way
to achieve substantially the same result." The
reason for the doctrine of equivalents is that to permit
the imitation of a patented invention which does not
copy any literal detail would be to convert the
protection of the patent grant into a hollow and
useless thing. Such imitation would leave room for
indeed encourage the unscrupulous copyist to
make unimportant and insubstantial changes and
substitutions in the patent which, though adding
nothing, would be enough to take the copied matter
outside the claim, and hence outside the reach of the
law.

Defendant's witness Eduardo Caete, employed for 11

years as welder of the Ozamis Engineering, and therefore
actually involved in the making of the floating power tillers
of defendant tried to explain the difference between the
floating power tillers made by the defendant. But a careful
examination between the two power tillers will show
that they will operate on the same fundamental
principles. And, according to establish jurisprudence, in
infringement of patent, similarities or differences are to be
determined, not by the names of things, but in the light of
what elements do, and substantial, rather than technical,
identity in the test. More specifically, it is necessary and
sufficient to constitute equivalency that the same function
can be performed in substantially the same way or manner,
or by the same or substantially the same, principle or mode
of operation; but where these tests are satisfied, mere
differences of form or name are immaterial. . . .

To establish an infringement, it is not essential to show that

the defendant adopted the device or process in every
particular; Proof of an adoption of the substance of the thing
will be sufficient. "In one sense," said Justice Brown, "it may
be said that no device can be adjudged an infringement that
does not substantially correspond with the patent. But
another construction, which would limit these words to
exact mechanism described in the patent, would be so
obviously unjust that no court could be expected to adopt it.
...
The law will protect a patentee against imitation of his
patent by other forms and proportions. If two devices do the
same work in substantially the same way, and accomplish
substantially the same result, they are the same, even
though they differ in name, form, or shape.

Maguan vs CA
G.R. NO. L-45101, NOVEMBER 28, 1986

FACTS:
Petitioner is doing business under the
firm name and style of SWAN MANUFACTURING"
while private respondent is likewise doing business
under the firm name and style of "SUSANA LUCHAN
POWDER PUFF MANUFACTURING."
Petitioner is a patent holder of powder puff.
Petitioner informed private respondent that the
powder puffs the latter is manufacturing and selling to
various enterprises particularly those in the cosmetics
industry, resemble Identical or substantially Identical
powder puffs of which the former is a patent holder.
Petitioner explained such production and sale
constitute infringement of said patents and therefore
its immediate discontinuance is demanded, otherwise
it will be compelled to take judicial action.
Private respondent replied stating that her products
are different and countered that petitioner's patents
are void because the utility models applied for were
not new and patentable and the person to whom the
patents were issued was not the true and actual
author nor were her rights derived from such author.
Private respondent assailed the validity of the patents

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In this case, the trial court observed:

It also stated:

involved and filed with the Philippine Patent Office

petitions for cancellation of patents.
Petitioner filed a complaint for damages with
injunction and preliminary injunction against private
respondent with CFI of Rizal.
Trial court granted the preliminary injunction.
Private respondent questioned the propriety of the
trial court's issuance of the Writ of Preliminary
Injunction arguing that since there is still a pending
cancellation proceedings before the Philippine Patent
Office concerning petitioner's patents.
Trial court denied the MR.
Private respondent filed a petition for certiorari with
the CA reiterating among other things the invalidity of
petitioner's patents and prayed that the trial court be
restrained from enforcing or continuing to enforce the
previously issued writ.
CA issued a writ of injunction to restrain the
enforcement of the orders issued by the trial court.
Subsequently, CA dismissed respondents petition
and lifter the injunction.
On a MR, CA reversed its initial decision and the writ
of preliminary injunction is reinstated.
ISSUE:
1. Whether in an action for infringement the court a
quo had jurisdiction to determine the invalidity of the
patents at issue which invalidity was still pending
consideration in the patent office.
2. Whether court a quo committed grave abuse of
discretion in the issuance of a writ of preliminary
injunction.

HELD:
1. Yes. The first issue has been laid to rest in a
number of cases where the Court ruled that "When a
patent is sought to be enforced, the questions of
invention, novelty or prior use, and each of them, are
open to judicial examination."
Under the present Patent Law, there is even less
reason to doubt that the trial court has jurisdiction to
declare the patents in question invalid. A patentee

2. Yes. The burden of proof to substantiate a charge

of infringement is with the plaintiff. But where the
plaintiff introduces the patent in evidence, and the
same is in due form, there is created a prima facie
presumption of its correctness and validity. The
decision of the Commissioner (now Director) of
Patent in granting the patent is presumed to be
correct. The burden of going forward with the
evidence (burden of evidence) then shifts to the
defendant to overcome by competent evidence this
legal presumption.
The question then in the instant case is whether or
not the evidence introduced by private respondent
herein is sufficient to overcome said presumption.
After a careful review of the evidence consisting of 64
exhibits and oral testimonies of five witnesses
presented by private respondents before the CFI
before the Order of preliminary injunction was issued
as well as those presented by the petitioner,
respondent CA was satisfied that there is a prima
facie showing of a fair question of invalidity of
petitioner's patents on the ground of lack of novelty.
As pointed out by said appellate court said evidence
appeared not to have been considered at all by the
court a quo for alleged lack of jurisdiction, on the
mistaken notion that such question is within the
exclusive jurisdiction of the patent office.

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3. Whether certiorari is the proper remedy.

shall have the exclusive right to make, use and sell

the patented article or product and the making, using,
or selling by any person without the authorization of
the patentee constitutes infringement of the patent
(Sec. 37, R.A. 165). Any patentee whose rights have
been infringed upon may bring an action before the
proper CFI now (RTC) and to secure an injunction for
the protection of his rights (Sec. 42, R.A. 165).
Defenses in an action for infringement are provided
for in Section 45 of the same law which in fact were
availed of by private respondent in this case. Then,
as correctly stated by respondent Court of Appeals,
this conclusion is reinforced by Sec. 46 of the same
law which provides that if the Court shall find the
patent or any claim thereof invalid, the Director shall
on certification of the final judgment ... issue an order
cancelling the patent or the claims found invalid and
shall publish a notice thereof in the Official Gazette."
Upon such certification, it is ministerial on the part of
the patent office to execute the judgment.

It has been repeatedly held that an invention must

possess the essential elements of novelty, originality
and precedence and for the patentee to be entitled to
protection, the invention must be new to the world.
Accordingly, a single instance of public use of the
invention by a patentee for more than two years (now
for more than one year only under Sec. 9 of the Patent
Law) before the date of his application for his patent,
will be fatal to, the validity of the patent when issued.
It is generally held that in patent cases a preliminary
injunction will not issue for patent infringement unless
the validity of the patent is clear and beyond question.
The issuance of letters patent, standing alone, is not
sufficient to support such drastic relief. In cases of
infringement of patent no preliminary injunction will be
granted unless the patent is valid and infringed
beyond question and the record conclusively proves
the defense is sham.
As a general rule because of the injurious
consequences a writ of injunction may bring, the right
to the relief demanded must be clear and
unmistakable and the dissolution of the writ is proper
where applicant has doubtful title to the disputed
property.
3. Yes. It will be noted that the validity of petitioner's
patents is in question for want of novelty. Private
respondent contends that powder puffs Identical in
appearance with that covered by petitioner's patents
existed and were publicly known and used as early as
1963 long before petitioner was issued the patents in
question. As correctly observed by respondent Court
of Appeals, "since sufficient proofs have been
introduced in evidence showing a fair question of the
invalidity of the patents issued for such models, it is
but right that the evidence be looked into, evaluated
and determined on the merits so that the matter of
whether the patents issued were in fact valid or not
may be resolved."

For failure to determine first the validity of the patents

before aforesaid issuance of the writ, the trial court
failed to satisfy the two requisites necessary if an
injunction is to issue, namely: the existence of the

Under the above established principles, it appears

obvious that the trial court committed a grave abuse
of discretion which makes certiorari the appropriate
remedy.
As found by respondent Court of Appeals, the
injunctive order of the trial court is of so general
a tenor that petitioner may be totally barred from
the sale of any kind of powder puff. Under the
circumstances, respondent appellate court is of the
view that ordinary appeal is obviously inadequate.

Trademarks

Taiwan

Kolin

Corp.

vs.

Kolin Electronics Co.

G.R. NO. 209843 - MARCH 25, 2015

FACTS:
Taiwan Kolin filed with the IPO a
trademark application for the use of KOLIN on a
combination of goods, including colored televisions,
refrigerators, window-type and split-type air
conditioners, electric fans and water dispensers. Said
goods allegedly fall under Classes 9, 11, and 21 of
the Nice Classification (NCL).
The application would eventually be considered
abandoned for Taiwan Kolins failure to respond to
IPOs Paper No. 5 requiring it to elect one class of
good for its coverage. However, the same application
was subsequently revived with petitioner electing
Class 9 as the subject of its application, particularly:
television sets, cassette recorder, VCD Amplifiers,
camcorders and other audio/video electronic
equipment, flat iron, vacuum cleaners, cordless
handsets,
videophones,
facsimile
machines,
teleprinters, cellular phones and automatic goods
vending machine. The application would in time be
duly published.
Respondent Kolin Electronics Co., Inc. (Kolin
Electronics) opposed petitioners revived application.
As argued, the mark Taiwan Kolin seeks to register is

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17

All these notwithstanding, the trial court nonetheless

issued the writ of preliminary injunction which under
the circumstances should be denied.

right to be protected and the violation of said

right.

identical, if not confusingly similar, with its KOLIN

mark registered, covering the following products
under Class 9 of the NCL: automatic voltage
regulator, converter, recharger, stereo booster, ACDC regulated power supply, step-down transformer,
and PA amplified AC-DC.
To digress a bit, Kolin Electronics KOLIN
registration was, as it turns out, the subject of a prior
legal dispute between the parties before the IPO. In
the said case, Kolin Electronics own application was
opposed by Taiwan Kolin, being, as Taiwan Kolin
claimed, the prior registrant and user of the KOLIN
trademark, having registered the same in Taipei,
Taiwan. The Bureau of Legal Affairs of the IPO (BLAIPO), however, did not accord priority right to Taiwan
Kolins Taipei registration absent evidence to prove
that it has already used the said mark in the
Philippines. On appeal, the IPO Director General
affirmed the BLA-IPOs Decision. Taiwan Kolin
elevated the case to the CA, but without injunctive
relief, Kolin Electronics was able to register the
KOLIN trademark 2003 for its products.
Subsequently, the CA affirmed the Decision of the
Director General.

BLA-IPO rejected the application. The BLA-IPO held

that a mark cannot be registered if it is identical with
a registered mark belonging to a different proprietor
in respect of the same or closely-related goods.
Accordingly, respondent, as the registered owner of
the mark KOLIN for goods falling under Class 9 of
the NCL, should then be protected against anyone
who impinges on its right, including petitioner who
seeks to register an identical mark to be used on
goods also belonging to Class 9 of the NCL.

CA granted the appeal by respondent, reinstating the

BLA-IPO decision.
ISSUE:
Whether petitioner is entitled to its trademark
registration of KOLIN over its specific goods of
television sets and DVD players.
Restatement: Whether petitioners goods are not
closely related to those of respondent, thus entitles it
for a trademark registration.
HELD:
Yes. Identical marks may be registered for
products from the same classification.
The parties admit that their respective sets of goods
belong to Class 9 of the NCL, which includes the
following:
Class 9
Scientific,
nautical,
surveying,
photographic,
cinematographic, optical, weighing, measuring, signalling,
checking (supervision), life-saving and teaching apparatus
and instruments; apparatus and instruments for conducting,
switching, transforming, accumulating, regulating or
controlling electricity; apparatus for recording, transmission
or reproduction of sound or images; magnetic data carriers,
recording discs; compact discs, DVDs and other digital
recording media; mechanisms for coin-operated apparatus;
cash registers, calculating machines, data processing
equipment,
computers;
computer
software;
fireextinguishing apparatus.

But mere uniformity in categorization, by itself,

does not automatically preclude the registration
of what appears to be an identical mark, if that be

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In answer to respondents opposition (present

controversy), petitioner argued that it should be
accorded the benefits of a foreign-registered mark
under Secs. 3 and 131.1 of the Intellectual Property
Code of the Philippines (IP Code); that it has already
registered the KOLIN mark in the Peoples Republic
of China, Malaysia and Vietnam, all of which are
parties to the Paris Convention for the Protection of
Industrial Property (Paris Convention) and the
Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS); and that benefits accorded
to a well-known mark should be accorded to
petitioner.

On appeal, IPO Director General granted the

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

the case. In fact, this Court, in a long line of cases,

has held that such circumstance does not necessarily
result in any trademark infringement. The survey of
jurisprudence cited in Mighty Corporation v. E. & J
Gallo Winery is enlightening on this point:
(a) in Acoje Mining Co., Inc. vs. Director of Patents, we ordered the
approval of Acoje Minings application for registration of the
trademark LOTUS for its soy sauce even though Philippine
Refining Company had prior registration and use of such identical
mark for its edible oil which, like soy sauce, also belonged to Class
47;
(b) in Philippine Refining Co., Inc. vs. Ng Sam and Director of
Patents, we upheld the Patent Directors registration of the same
trademark CAMIA for Ng Sams ham under Class 47, despite
Philippine Refining Companys prior trademark registration and
actual use of such mark on its lard, butter, cooking oil (all of which
belonged to Class 47), abrasive detergents, polishing materials
and soaps;

(c) in Hickok Manufacturing Co., Inc. vs. Court of Appeals

and Santos Lim Bun Liong, we dismissed Hickoks petition
to cancel private respondents HICKOK trademark
registration for its Marikina shoes as against petitioners
earlier registration of the same trademark for
handkerchiefs, briefs, belts and wallets.

It is hornbook doctrine, as held in the above-cited

cases, that emphasis should be on the similarity of
the products involved and not on the arbitrary
classification or general description of their properties
or characteristics. The mere fact that one person has
adopted and used a trademark on his goods would
not, without more, prevent the adoption and use of the
same trademark by others on unrelated articles of a
different kind.

Respondent next parlays the idea of relation between

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

(b) In Chua Che vs. Phil. Patents Office, soap and perfume, lipstick
and nail polish are held to be similarly related because they are
common household items;
(c) In Ang vs. Teodoro, the trademark Ang Tibay for shoes and
slippers was disallowed to be used for shirts and pants because
they belong to the same general class of goods; and
(d) In Khe vs. Lever Bros. Co., soap and pomade, although noncompetitive, were held to be similar or belong to the same class,
since both are toilet articles.

Respondent avers that Kolin Electronics and Taiwan

Kolins products are closely-related not only because
both fall under Class 9 of the NCL, but mainly
because they both relate to electronic products,
instruments, apparatus, or appliances. Pushing the
point, respondent would argue that Taiwan Kolin and
Kolin Electronics goods are inherently similar in that
they are all plugged into electric sockets and perform
a useful function.
a. The products covered by petitioners
application and respondents registration are
unrelated
A certificate of trademark registration confers upon
the trademark owner the exclusive right to sue those
who have adopted a similar mark not only in
connection with the goods or services specified in the
certificate, but also with those that are related thereto.
In resolving one of the pivotal issues in this case
whether or not the products of the parties involved are
relatedthe doctrine in Mighty Corporation is
authoritative. There, the Court held that the goods
should be tested against several factors before
arriving at a sound conclusion on the question of
relatedness. Among these are:
(a) the business (and its location) to which the goods belong;
(b) the class of product to which the goods belong;
(c) the products quality, quantity, or size, including the nature of
the package, wrapper or container;
(d) the nature and cost of the articles;
(e) the descriptive properties, physical attributes or essential
characteristics with reference to their form, composition, texture or
quality;
(f) the purpose of the goods;

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19

The CA erred in denying petitioners registration

application.

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

(g) whether the article is bought for immediate consumption, that

is, day-to-day household items;
(h) the fields of manufacture;
(i) the conditions under which the article is usually purchased; and
(j) the channels of trade through which the goods flow, how they
are distributed, marketed, displayed and sold.

As mentioned, the classification of the products under

the NCL is merely part and parcel of the factors to be
considered in ascertaining whether the goods are
related. It is not sufficient to state that the goods
involved herein are electronic products under Class 9
in order to establish relatedness between the goods,
for this only accounts for one of many considerations
enumerated in Mighty Corporation. In this case,
credence is accorded to petitioners assertions that:
a. Taiwan Kolins goods are classified as home appliances as
opposed to Kolin Electronics goods which are power supply and
audio equipment accessories;
b. Taiwan Kolins television sets and DVD players perform distinct
function and purpose from Kolin Electronics power supply and
audio equipment; and
c. Taiwan Kolin sells and distributes its various home appliance
products on wholesale and to accredited dealers, whereas Kolin
Electronics goods are sold and flow through electrical and
hardware stores.

It bears to stress at this point that the list of products

included in Class 9 can be sub-categorized into five
(5) classifications, namely: (1) apparatus and
instruments for scientific or research purposes, (2)
information technology and audiovisual equipment,
(3) apparatus and devices for controlling the
distribution and use of electricity, (4) optical
apparatus and instruments, and (5) safety equipment.
From this sub-classification, it becomes apparent that
petitioners products, i.e., televisions and DVD
players, belong to audiovisiual equipment, while that
of respondent, consisting of automatic voltage
regulator, converter, recharger, stereo booster, ACDC regulated power supply, step-down transformer,
and PA amplified AC-DC, generally fall under devices
for controlling the distribution and use of electricity.

In trademark cases, particularly in ascertaining

whether one trademark is confusingly similar to
another, no rigid set rules can plausible be
formulated. Each case must be decided on its merits,
with due regard to the goods or services involved, the
usual purchasers character and attitude, among
others. In such cases, even more than in any other
litigation, precedent must be studied in the light of the
facts of a particular case. That is the reason why in
trademark cases, jurisprudential precedents should
be applied only to a case if they are specifically in
point.
While both competing marks refer to the word
KOLIN written in upper case letters and in bold font,
the Court at once notes the distinct visual and aural
differences between them: Kolin Electronics mark is
italicized and colored black while that of Taiwan Kolin
is white in pantone red color background. The
differing features between the two, though they may
appear minimal, are sufficient to distinguish one
brand from the other.
It cannot be stressed enough that the products
involved in the case at bar are, generally speaking,
various kinds of electronic products. These are not
ordinary consumable household items, like catsup,
soy sauce or soap which are of minimal cost. The
products of the contending parties are relatively
luxury items not easily considered affordable.
Accordingly, the casual buyer is predisposed to be
more cautious and discriminating in and would prefer
to mull over his purchase. Confusion and deception,
then, is less likely.
Respondent has made much reliance on Arce &
Sons, Chua Che, Ang, and Khe, oblivious that they
involved common household itemsi.e., biscuits and
milk, cosmetics, clothes, and toilet articles,
respectivelywhereas the extant case involves
luxury items not regularly and inexpensively
purchased by the consuming public. In accord with
common empirical experience, the useful lives of
televisions and DVD players last for about five (5)
years, minimum, making replacement purchases very
infrequent. The same goes true with converters and
regulators that are seldom replaced despite the

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20

Clearly then, it was erroneous for respondent to

assume over the CA to conclude that all electronic
products are related and that the coverage of one
electronic product necessarily precludes the
registration of a similar mark over another.

b. The ordinarily intelligent buyer is not likely to

be confused

acquisition of new equipment to be plugged onto it. In

addition, the amount the buyer would be parting with
cannot be deemed minimal considering that the price
of televisions or DVD players can exceed todays
monthly minimum wage.In light of these
circumstances, it is then expected that the ordinary
intelligent buyer would be more discerning when it
comes to deciding which electronic product they are
going to purchase, and it is this standard which this
Court applies here in in determining the likelihood of
confusion should petitioners application be granted.
To be sure, the extant case is reminiscent of Emerald
Garment Manufacturing Corporation v. CA. In the
said case, the appellate court affirmed the decision of
the Director of Patents denying Emerald Garments
application for registration due to confusing similarity
with H.D. Lees trademark. This Court, however, was
of a different beat and ruled that there is no confusing
similarity between the marks, given that the products
covered by the trademark, i.e., jeans, were, at that
time, considered pricey, typically purchased by
intelligent buyers familiar with the products and are
more circumspect, and, therefore, would not easily be
deceived. As held:
Finally, in line with the foregoing discussions, more credit should
be given to the ordinary purchaser. Cast in this particular
controversy, the ordinary purchaser is not the completely unwary
consumer but is the ordinarily intelligent buyer considering the
type of product involved.

All told, We are convinced that petitioners trademark

registration not only covers unrelated good, but is
also incapable of deceiving the ordinary intelligent
buyer. The ordinary purchaser must be thought of as
having, and credited with, at least a modicum of

UFC Phils. Inc. vs. Fiesta

Barrio Manufacturing Corp.
G.R. NO. 198889 - JANUARY 20, 2016

FACTS:
Respondent filed an application for the mark "PAPA
BOY & DEVICE" for goods under Class 30,
specifically for "lechon sauce." The Intellectual
Property Office (IPO) published said application for
opposition.
Petitioner filed with the IPO-BLA a Verified Notice of
Opposition.
The mark "PAPA" for use on banana catsup and other
similar goods was first used [in] 1954 by Neri Papa,
and thus, was taken from his surname. After using the
mark "PAPA" for about twenty-seven (27) years, Neri
Papa subsequently assigned the mark "PAPA" to
Hernan D. Reyes who, in 1981, filed an application to
register said mark "PAPA" for use on banana catsup,
chili sauce, achara, banana chips, and instant ube
powder.
Certificate of Registration was subsequently assigned
to the following in successive fashion: Acres & Acres
Food, Inc., Southeast Asia Food, Inc., Heinz-UFC
Philippines, Inc., and Opposer UFC Philippines, Inc.
The mark "PAPA BOY & DEVICE" is identical to the
mark "PAPA" owned by Opposer and duly registered
in its favor, particularly the dominant feature thereof.
In its verified opposition before the IPO, petitioner
contended that "PAPA BOY & DEVICE" is
confusingly similar with its "PAPA" marks inasmuch
as the former incorporates the term "PAPA," which is
the dominant feature of petitioner's "PAPA" marks.
Petitioner averred that respondent's use of "PAPA
BOY & DEVICE" mark for its lechon sauce product, if
allowed, would likely lead the consuming public to
believe that said lechon sauce product originates
from or is authorized by petitioner, and that the "PAPA
BOY & DEVICE" mark is a variation or derivative of
petitioner's "PAPA" marks. Petitioner argued that this
was especially true considering that petitioner's

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21

The definition laid down in Dy Buncio v. Tan Tiao Bok is better

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

intelligence to be able to see the differences between

the two trademarks in question.

ketchup product and respondent's lechon sauce

product are related articles that fall under the same
Class 30.
Petitioner alleged that the registration of respondent's
challenged mark was also likely to damage the
petitioner, considering that its former sister company,
Southeast Asia Food, Inc., and the latter's
predecessors-in-interest,
had
been
major
manufacturers and distributors of lechon and other
table sauces since 1965, such as products employing
the registered "Mang Tomas" mark.
In its Verified Answer, respondent argued that there
is no likelihood of confusion between petitioner's
family of "PAPA" trademarks and respondent's
"PAPA BOY & DEVICE" trademark.
IPO-BLA sustained petitioner's Opposition and
rejected respondent's application for "PAPA BOY &
DEVICE."
On appeal, CA reversed the IPO-BLA decision.
ISSUE:
1. Whether CA erred in sustaining petitioner's
opposition and rejecting respondent's application for
"PAPA BOY & DEVICE."
2. Whether CA erred in holding that there is no
likelihood of confusion between the contending marks
given that the "PAPA BOY & DEVICE" mark is used
on lechon sauce, as opposed to ketchup products.
3. Whether CA erred in holding that Petitioner cannot
claim exclusive ownership and use of the "PAPA"
mark for its sauce products because "PAPA" is
supposedly a common term of endearment for one's
father.

The essential element of infringement under R.A. No.

8293 is that the infringing mark is likely to cause
confusion. In determining similarity and likelihood of
confusion, jurisprudence has developed tests the
Dominancy Test and the Holistic or Totality Test.
The Dominancy Test focuses on the similarity of
the prevalent or dominant features of the

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 x
x x or a dominant feature thereof."
On the other hand, the Holistic Test entails a
consideration of the entirety of the marks as
applied to the products, including labels and
packaging, in determining confusing similarity.
The scrutinizing eye of the observer must focus not
only on the predominant words but also on the other
features appearing in both labels so that a conclusion
may be drawn as to whether one is confusingly similar
to the other.
Relative to the question on confusion of marks and
trade names, jurisprudence has noted two (2) types
of confusion, viz.: (1) confusion of goods (product
confusion), where the ordinarily prudent purchaser
would be induced to purchase one product in the
belief that he was purchasing the other; and (2)
confusion of business (source or origin
confusion), where, although the goods of the parties
are different, the product, the mark of which
registration is applied for by one party, is such as
might reasonably be assumed to originate with the
registrant of an earlier product, and the public would
then be deceived either into that belief or into the
belief that there is some connection between the two
parties, though inexistent.
In Societe Des Produits Nestle, S.A. v. CA, SC
applied the dominancy test. The totality or holistic test
is contrary to the elementary postulate of the law on
trademarks and unfair competition that confusing
similarity is to be determined on the basis of visual,
aural, connotative comparisons and overall
impressions engendered by the marks in controversy
as they are encountered in the realities of the

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HELD:
1. Yes. CA erred in applying the holistic test and in
reversing and setting aside the decision of the IPOBLA and that of the IPO Director General.

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.

marketplace. The totality or holistic test only relies

on visual comparison between two trademarks
whereas the dominancy test relies not only on the
visual but also on the aural and connotative
comparisons and overall impressions between
the two trademarks.
The scope of protection afforded to registered
trademark owners is not limited to protection
from infringers with identical goods. The scope of
protection extends to protection from infringers
with related goods, and to market areas that are
the normal expansion of business of the
registered trademark owners. Section 138 of R.A.
No. 8293 states:
Certificates of Registration. A certificate of registration of a mark
shall be prima facie evidence of validity of the registration, the
registrant's ownership of the mark, and of the registrant's exclusive
right to use the same in connection with the goods or services and
those that are related thereto specified in the certificate, x x x.

In Mighty Corporation v. E. & J. Gallo Winery, the

Court held that, "Non-competing goods may be those
which, though they are not in actual competition, are
so related to each other that it can reasonably be
assumed that they originate from one manufacturer,
in which case, confusion of business can arise out of
the use of similar marks." In that case, the Court
enumerated factors in determining whether goods
are related: (1) classification of the goods; (2) nature
of the goods; (3) descriptive properties, physical
attributes or essential characteristics of the goods,
with reference to their form, composition, texture or
quality; and (4) style of distribution and marketing of
the goods, including how the goods are displayed and
sold.

A scrutiny of petitioner's and respondent's respective

marks would show that the IPO-BLA and the IPO
Director General correctly found the word "PAPA" as
the dominant feature of petitioner's mark "PAPA
KETSARAP." Contrary to respondent's contention,

We likewise agree with the IPO-BLA that the word

"PAPA" is also the dominant feature of respondent's
"PAPA BOY & DEVICE" mark subject of the
application, such that "the word 'PAPA' is written on
top of and before the other words such that it is the
first word/figure that catches the eyes." Furthermore,
as the IPO Director General put it, the part of
respondent's mark which appears prominently to the
eyes and ears is the phrase "PAPA BOY" and that is
what a purchaser of respondent's product would
immediately recall, not the smiling hog.
The relevant portion of the IPO-BLA decision on this
point below:
A careful examination of Opposer's and Respondent-applicant's
respective marks shows that the word "PAPA" is the dominant
feature: In Opposer's marks, the word "PAPA" is either the mark by
itself or the predominant word considering its stylized font and the
conspicuous placement of the word "PAPA" before the other
words. In Respondent-applicant's mark, the word "PAPA" is written
on top of and before the other words such that it is the first word
figure that catches the eyes. The visual and aural impressions
created by such dominant word "PAPA" at the least is that the
respective goods of the parties originated from the other, or
that one party has permitted or has been given license to the
other to use the word "PAPA" for the other party's product, or
that there is a relation/connection between the two parties
when, in fact, there is none. This is especially true considering
that the products of both parties belong to the same class and are
closely related: Catsup and lechon sauce or liver sauce are both
gravy-like condiments used to spice up dishes. Thus, confusion of
goods and of business may likely result.
Under the Dominancy Test, the dominant features of the competing
marks are considered in determining whether these competing
marks are confusingly similar. Greater weight is given to the
similarity of the appearance of the products arising from the
adoption of the dominant features of the registered mark,
disregarding minor differences. The visual, aural, connotative, and
overall comparisons and impressions engendered by the marks in
controversy as they are encountered in the realities of the
marketplace are the main considerations. 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 is it necessary that the infringing label should
suggest an effort to imitate. Actual confusion is not required:
Only likelihood of confusion on the part of the buying public
is necessary so as to render two marks confusingly similar so
as to deny the registration of the junior mark.

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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. The Court has recognized that the
registered trademark owner enjoys protection in
product and market areas that are the normal
potential expansion of his business.

"KETSARAP" cannot be the dominant feature of the

mark as it is merely descriptive of the product.
Furthermore, it is the "PAPA" mark that has been in
commercial use for decades and has established
awareness and goodwill among consumers.

3. Yes. The Court of Appeals likewise erred in finding

that "PAPA," being a common term of endearment for
one's father, is a word over which petitioner could not
claim exclusive use and ownership. The MerriamWebster dictionary defines "Papa" simply as "a
person's father." True, a person's father has no logical
connection with catsup products, and that precisely
makes "PAPA" as an arbitrary mark capable of being
registered, as it is distinctive, coming from a family
name that started the brand several decades ago.
What was registered was not the word "Papa" as
defined in the dictionary, but the word "Papa" as
the last name of the original owner of the brand.
In fact, being part of several of petitioner's marks,
there is no question that the IPO has found "PAPA" to
be a registrable mark.

Mirpuri vs. CA
G.R. NO. 114508 - NOVEMBER 19, 1999

FACTS:
Lolita Escobar, the predecessor-ininterest of petitioner Pribhdas J.
Mirpuri, filed an application with the Bureau of Patents
for the registration of the trademark "Barbizon" for use
in brassieres and ladies undergarments. Escobar
alleged that she had been manufacturing and selling
these products under the firm name "L & BM
Commercial".
Private respondent Barbizon Corporation, a
corporation organized and doing business under the
laws of New York, U.S.A., opposed the application. It
claimed that the mark BARBIZON of respondentapplicant is confusingly similar to the trademark
BARBIZON which opposer owns and has not
abandoned.
The Director of Patents rendered judgment
dismissing the opposition and giving due course to
Escobar's application. The decision became final and
Escobar was issued a certificate of registration for the
trademark "Barbizon."
Escobar later assigned all her rights and interest over
the trademark to petitioner Pribhdas J. Mirpuri who,
under his firm name then, the "Bonito Enterprises,"
was the sole and exclusive distributor of Escobar's
"Barbizon" products.
In 1979, however, Escobar failed to file with the
Bureau of Patents the Affidavit of Use of the
trademark required under Section 12 of R.A. 166, the
Philippine Trademark Law. Due to this failure, the
Bureau of Patents cancelled Escobar's certificate of
registration.
In 1981, a reapplication for registration of the
cancelled trademark was filed. This was opposed by
private respondent. It alleged that it has adopted the
trademark BARBIZON since 1933 and has then used
it on various kinds of wearing apparel. Separate
trademark registrations were made in 1934, 1949,
1961 and 1979. Moreover, Opposer (private

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2. Yes. Respondent's mark is related to a product,

lechon sauce, an everyday all-purpose condiment
and sauce, that is not subjected to great scrutiny and
care by the casual purchaser, who knows from
regular visits to the grocery store under what aisle to
find it, in which bottle it is contained, and
approximately how much it costs. Since petitioner's
product, catsup, is also a household product found on
the same grocery aisle, in similar packaging, the
public could think that petitioner had expanded
its product mix to include lechon sauce, and that
the "PAPA BOY" lechon sauce is now part of the
"PAPA" family of sauces, which is not unlikely
considering the nature of business that petitioner is
in. Thus, if allowed registration, confusion of business
may set in, and petitioner's hard-earned goodwill may
be associated to the newer product introduced by
respondent, all because of the use of the dominant
feature of petitioner's mark on respondent's mark,
which is the word "PAPA." The words "Barrio Fiesta"
are not included in the mark, and although printed on
the label of respondent's lechon sauce packaging, still
do not remove the impression that "PAPA BOY" is a
product owned by the manufacturer of "PAPA"
catsup, by virtue of the use of the dominant feature. It
is possible that petitioner could expand its
business to include lechon sauce, and that would
be well within petitioner's rights, but the
existence of a "PAPA BOY" lechon sauce would
already eliminate this possibility and deprive
petitioner of its rights as an owner of a valid mark
included in the Intellectual Property Code.

respondent) obtained from the United States Patent

Office registration of the said mark on 1983 for the
following goods: wearing apparel: robes, pajamas,
nightgowns and lingerie.
All the above registrations are subsisting and in force
and Opposer has not abandoned the use of the said
trademarks. In fact, Opposer, through a wholly-owned
Philippine subsidiary, the Philippine Lingerie
Corporation, has been manufacturing the goods
covered by said registrations and selling them to
various countries, thereby earning valuable foreign
exchange for the country. As a result of respondentapplicant's misappropriation of Opposer's BARBIZON
trademark, Philippine Lingerie Corporation is
prevented from selling its goods in the local market,
to the damage and prejudice of Opposer and its
wholly-owned subsidiary.
The Opposer's goods bearing the trademark
BARBIZON have been used in many countries,
including the Philippines, for at least 40 years and has
enjoyed international reputation and good will for their
quality. To protect its registrations in countries where
the goods covered by the registrations are being sold,
Opposer has procured the registration of the
trademark BARBIZON in many countries.
Replying to private respondent's opposition,
petitioner raised the defense of res judicata.
Forthwith, private respondent filed before the Office
of Legal Affairs of the DTI a petition for cancellation of
petitioner's business name. DTI, Office of Legal
Affairs,
cancelled
petitioner's
certificate
of
registration, and declared private respondent the
owner and prior user of the business name "Barbizon
International."
Meanwhile, the Director rendered a decision
declaring private respondent's opposition barred by
res judicata and giving due course to petitioner's
application for registration.

ISSUE:
Whether the private respondent is barred by res
judicata.

A "trademark" is defined under R.A. 166, the Trademark Law,

as including "any word, name, symbol, emblem, sign or device
or any combination thereof adopted and used by a
manufacturer or merchant to identify his goods and
distinguish them from those manufactured, sold or dealt in by
others. This definition has been simplified in R.A. No. 8293, the
Intellectual Property Code of the Philippines, which defines a
"trademark" as "any visible sign capable of distinguishing
goods." In Philippine jurisprudence, the function of a trademark is
to point out distinctly the origin or ownership of the goods to which
it is affixed; to secure to him, who has been instrumental in bringing
into the market a superior article of merchandise, the fruit of his
industry and skill; to assure the public that they are procuring the
genuine article; to prevent fraud and imposition; and to protect the
manufacturer against substitution and sale of an inferior and
different article as his product.
Modern authorities on trademark law view trademarks as
performing three distinct functions: (1) they indicate origin or
ownership of the articles to which they are attached; (2) they
guarantee that those articles come up to a certain standard of
quality; and (3) they advertise the articles they symbolize.
Symbols have been used to identify the ownership or origin of
articles for several centuries. As early as 5,000 B.C., markings on
pottery have been found by archaeologists. Cave drawings in
southwestern Europe show bison with symbols on their flanks.
Archaeological discoveries of ancient Greek and Roman
inscriptions on sculptural works, paintings, vases, precious stones,
glassworks, bricks, etc. reveal some features which are thought to
be marks or symbols. These marks were affixed by the creator or
maker of the article, or by public authorities as indicators for the
payment of tax, for disclosing state monopoly, or devices for the
settlement of accounts between an entrepreneur and his workmen.
In the Middle Ages, the use of many kinds of marks on a variety of
goods was commonplace. Fifteenth century England saw the
compulsory use of identifying marks in certain trades. There were
the baker's mark on bread, bottlemaker's marks, smith's marks,
tanner's marks, watermarks on paper, etc. Every guild had its own
mark and every master belonging to it had a special mark of his
own. The marks were not trademarks but police marks
compulsorily imposed by the sovereign to let the public know that
the goods were not "foreign" goods smuggled into an area where
the guild had a monopoly, as well as to aid in tracing defective work
or poor craftsmanship to the artisan. For a similar reason,
merchants also used merchants' marks. Merchants dealt in goods
acquired from many sources and the marks enabled them to
identify and reclaim their goods upon recovery after shipwreck or
piracy.
With constant use, the mark acquired popularity and became
voluntarily adopted. It was not intended to create or continue
monopoly but to give the customer an index or guarantee of quality.
It was in the late 18th century when the industrial revolution gave
rise to mass production and distribution of consumer goods that the
mark became an important instrumentality of trade and commerce.
By this time, trademarks did not merely identify the goods; they also

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CA reversed the Director of Patents decision. The

case is remanded to the Bureau of Patents for further
proceedings.

HELD:
Background on the function and historical
development of trademarks and trademark law.

indicated the goods to be of satisfactory quality, and thereby

stimulated further purchases by the consuming public. Eventually,
they came to symbolize the goodwill and business reputation of the
owner of the product and became a property right protected by law.
The common law developed the doctrine of trademarks and
tradenames "to prevent a person from palming off his goods
as another's, from getting another's business or injuring his
reputation by unfair means, and, from defrauding the public."
Subsequently, England and the United States enacted national
legislation on trademarks as part of the law regulating unfair trade.
It became the right of the trademark owner to exclude others from
the use of his mark, or of a confusingly similar mark where
confusion resulted in diversion of trade or financial injury. At the
same time, the trademark served as a warning against the imitation
or faking of products to prevent the imposition of fraud upon the
public.
Today, the trademark is not merely a symbol of origin and goodwill;
it is often the most effective agent for the actual creation and
protection of goodwill. It imprints upon the public mind an
anonymous and impersonal guaranty of satisfaction, creating a
desire for further satisfaction. In other words, the mark actually sells
the goods. The mark has become the "silent salesman," the conduit
through which direct contact between the trademark owner and the
consumer is assured. It has invaded popular culture in ways never
anticipated that it has become a more convincing selling point than
even the quality of the article to which it refers. In the last half
century, the unparalleled growth of industry and the rapid
development of communications technology have enabled
trademarks, tradenames and other distinctive signs of a product to
penetrate regions where the owner does not actually manufacture
or sell the product itself. Goodwill is no longer confined to the
territory of actual market penetration; it extends to zones where the
marked article has been fixed in the public mind through
advertising. Whether in the print, broadcast or electronic
communications medium, particularly on the Internet, advertising
has paved the way for growth and expansion of the product by
creating and earning a reputation that crosses over borders,
virtually turning the whole world into one vast marketplace.

Literally, res judicata means a matter adjudged, a

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

The judgment in IPC No. 686 (first case) being on the

merits, petitioner and the Solicitor General allege that
IPC No. 686 and IPC No. 2049 (second case) also
comply with the fourth requisite of res judicata, i.e.,
they involve the same parties and the same subject
matter, and have identical causes of action.
Undisputedly, IPC No. 686 and IPC No. 2049 involve
the same parties and the same subject matter.
Petitioner herein is the assignee of Escobar while
private respondent is the same American corporation
in the first case. The subject matter of both cases is
the trademark "Barbizon." Private respondent
counter-argues, however, that the two cases do not
have identical causes of action. New causes of action
were allegedly introduced in IPC No. 2049, such as
the prior use and registration of the trademark in the
United States and other countries worldwide, prior
use in the Philippines, and the fraudulent registration
of the mark in violation of Article 189 of the Revised
Penal Code. Private respondent also cited protection
of the trademark under the Convention of Paris for the
Protection of Industrial Property, specifically Article
6bis thereof, and the implementation of Article 6bis by
two Memoranda dated November 20, 1980 and
October 25, 1983 of the Minister of Trade and
Industry to the Director of Patents, as well as
Executive Order (E.O.) No. 913.
The Convention of Paris for the Protection of
Industrial Property, otherwise known as the Paris
Convention, is a multilateral treaty that seeks to
protect industrial property consisting of patents,
utility models, industrial designs, trademarks,
service marks, trade names and indications of
source or appellations of origin, and at the same
time aims to repress unfair competition. The
Convention is essentially a compact among various
countries which, as members of the Union, have
pledged to accord to citizens of the other member
countries trademark and other rights comparable to
those accorded their own citizens by their domestic
laws for an effective protection against unfair
competition. In short, foreign nationals are to be given
the same treatment in each of the member countries
as that country makes available to its own citizens.
Nationals of the various member nations are thus

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26

There is no res judicata in this case. The petition is

denied and the CA decision is affirmed.

of parties, of subject matter and of causes of

action.

assured of a certain minimum of international

protection of their industrial property.

to decide this, or the courts of the country in question

if the issue comes before a court.

In the case at bar, private respondent anchors its

cause of action on the first paragraph of Article 6bis
of the Paris Convention which reads as follows:

In the Villafuerte Memorandum, the Minister of Trade

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

Article 6bis
(1) The countries of the Union undertake, either administratively if
their legislation so permits, or at the request of an interested party,
to refuse or to cancel the registration and to prohibit the use, of a
trademark which constitutes a reproduction, an imitation, or a
translation, liable to create confusion, of a mark considered by the
competent authority of the country of registration or use to be wellknown in that country as being already the mark of a person entitled
to the benefits of this Convention and used for identical or similar
goods. These provisions shall also apply when the essential part of
the mark constitutes a reproduction of any such well-known mark
or an imitation liable to create confusion therewith.
(2) A period of at least five years from the date of registration shall
be allowed for seeking the cancellation of such a mark. The
countries of the Union may provide for a period within which the
prohibition of use must be sought.
(3) No time limit shall be fixed for seeking the cancellation or the
prohibition of the use of marks registered or used in bad faith.
This Article governs protection of well-known trademarks.
Under the first paragraph, each country of the Union bound itself to
undertake to refuse or cancel the registration, and prohibit the use
of a trademark which is a reproduction, imitation or translation, or
any essential part of which trademark constitutes a reproduction,
liable to create confusion, of a mark considered by the
competent authority of the country where protection is
sought, to be well-known in the country as being already the
mark of a person entitled to the benefits of the Convention, and
used for identical or similar goods.

The essential requirement under Article 6bis is that

the trademark to be protected must be "well-known"
in the country where protection is sought. The power
to determine whether a trademark is well-known
lies in the "competent authority of the country of
registration or use." This competent authority would
be either the registering authority if it has the power

In the instant case, the issue of ownership of the

trademark "Barbizon" was not raised in IPC No.
686. Private respondent's opposition therein was
merely anchored on:
(a) "confusing similarity" of its trademark with that of Escobar's;
(b) that the registration of Escobar's similar trademark will cause
damage to private respondent's business reputation and goodwill;
and
(c) that Escobar's use of the trademark amounts to an unlawful
appropriation of a mark previously used in the Philippines which act
is penalized under Section 4 (d) of the Trademark Law.

IPC No. 2049 raised the issue of ownership of the

trademark, the first registration and use of the
trademark in the United States and other countries,
and the international recognition and reputation of the
trademark established by extensive use and
advertisement of private respondent's products for

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Art. 6bis was first introduced at The Hague in 1925

and amended in Lisbon in 1952. It is a selfexecuting provision and does not require
legislative enactment to give it effect in the
member country. It may be applied directly by the
tribunals and officials of each member country by the
mere publication or proclamation of the Convention,
after its ratification according to the public law of each
state and the order for its execution.

In the Ongpin Memorandum, the Minister of Trade

and Industry did not enumerate well-known
trademarks but laid down guidelines for the
Director of Patents to observe in determining
whether a trademark is entitled to protection as a
well-known mark in the Philippines under Article
6bis of the Paris Convention. This was to be
established through Philippine Patent Office
procedures in inter partes and ex parte cases
pursuant to the criteria enumerated therein. The
Philippine Patent Office was ordered to refuse
applications for, or cancel the registration of,
trademarks which constitute a reproduction,
translation or imitation of a trademark owned by a
person who is a citizen of a member of the Union. All
pending applications for registration of world-famous
trademarks by persons other than their original
owners were to be rejected forthwith.

over forty years here and abroad. These are different

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

Intellectual and industrial property rights cases are not simple

property cases. Trademarks deal with the psychological function of
symbols and the effect of these symbols on the public at large.
Trademarks play a significant role in communication, commerce
and trade, and serve valuable and interrelated business functions,

The WTO is a common institutional framework for the conduct of

trade relations among its members in matters related to the
multilateral and plurilateral trade agreements annexed to the WTO
Agreement. The WTO framework ensures a "single undertaking
approach" to the administration and operation of all agreements
and arrangements attached to the WTO Agreement. Among those
annexed is the Agreement on Trade-Related Aspects of Intellectual
Property Rights or TRIPs. Members to this Agreement "desire to
reduce distortions and impediments to international trade, taking
into account the need to promote effective and adequate protection
of intellectual property rights, and to ensure that measures and
procedures to enforce intellectual property rights do not themselves
become barriers to legitimate trade." To fulfill these objectives, the
members have agreed to adhere to minimum standards of
protection set by several Conventions. These Conventions are: the
Berne Convention for the Protection of Literary and Artistic Works
(1971), the Rome Convention or the International Convention for
the Protection of Performers, Producers of Phonograms and
Broadcasting Organisations, the Treaty on Intellectual Property in
Respect of Integrated Circuits, and the Paris Convention (1967),
as revised in Stockholm on July 14, 1967.
A major proportion of international trade depends on the protection
of intellectual property rights. Since the late 1970's, the
unauthorized counterfeiting of industrial property and trademarked
products has had a considerable adverse impact on domestic and
international trade revenues. The TRIPs Agreement seeks to grant
adequate protection of intellectual property rights by creating a
favorable economic environment to encourage the inflow of foreign
investments, and strengthening the multi-lateral trading system to
bring about economic, cultural and technological independence.
The Philippines and the United States of America have acceded to
the WTO Agreement. This Agreement has revolutionized
international business and economic relations among states, and
has propelled the world towards trade liberalization and economic
globalization. Protectionism and isolationism belong to the past.
Trade is no longer confined to a bilateral system. There is now "a
new era of global economic cooperation, reflecting the widespread
desire to operate in a fairer and more open multilateral trading

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It is also noted that the oppositions in the first and

second cases are based on different laws. The
opposition in IPC No. 686 was based on specific
provisions of the Trademark Law, i.e., Section 4 (d)
on confusing similarity of trademarks and Section 8
on the requisite damage to file an opposition to a
petition for registration. The opposition in IPC No.
2049 invoked the Paris Convention, particularly
Article 6bis thereof, E.O. No. 913 and the two
Memoranda of the Minister of Trade and Industry.
This opposition also invoked Article 189 of the
Revised Penal Code which is a statute totally different
from the Trademark Law. Causes of action which are
distinct and independent from each other, although
arising out of the same contract, transaction, or state
of facts, may be sued on separately, recovery on one
being no bar to subsequent actions on others. The
mere fact that the same relief is sought in the
subsequent action will not render the judgment in the
prior action operative as res judicata, such as where
the two actions are based on different statutes. Res
judicata therefore does not apply to the instant case
and respondent Court of Appeals did not err in so
ruling.

both nationally and internationally. For this reason, all agreements

concerning industrial property, like those on trademarks and
tradenames, are intimately connected with economic development.
Industrial property encourages investments in new ideas and
inventions and stimulates creative efforts for the satisfaction of
human needs. They speed up transfer of technology and
industrialization, and thereby bring about social and economic
progress. These advantages have been acknowledged by the
Philippine government itself. The Intellectual Property Code of the
Philippines declares that "an effective intellectual and industrial
property system is vital to the development of domestic and
creative activity, facilitates transfer of technology, it attracts foreign
investments, and ensures market access for our products." The
Intellectual Property Code took effect on January 1, 1998 and by
its express provision, repealed the Trademark Law, the Patent
Law, Articles 188 and 189 of the Revised Penal Code, the Decree
on Intellectual Property, and the Decree on Compulsory Reprinting
of Foreign Textbooks. The Code was enacted to strengthen the
intellectual and industrial property system in the Philippines as
mandated by the country's accession to the Agreement
Establishing the World Trade Organization (WTO).

system." Conformably, the State must reaffirm its commitment to

the global community and take part in evolving a new international
economic order at the dawn of the new millenium.

Kho vs. CA
G.R. NO. 115758 - MARCH 19, 2002

FACTS:
Petitioner Elidad C. Kho filed a
complaint for injunction and damages
with a prayer for the issuance of a writ of preliminary
injunction against the respondents Summerville
General Merchandising and Company (Summerville,
for brevity) and Ang Tiam Chay.
The petitioner's complaint alleges that petitioner,
doing business under the name and style of KEC
Cosmetics Laboratory, is the registered owner of the
copyrights Chin Chun Su and Oval Facial Cream
Container/Case. She also has patent rights on Chin
Chun Su & Device and Chin Chun Su for medicated
cream after purchasing the same from Quintin Cheng,
the registered owner thereof in the Supplemental
Register of the Philippine Patent Office. Respondent
Summerville advertised and sold petitioner's cream
products under the brand name Chin Chun Su, in
similar containers that petitioner uses, thereby
misleading the public, and resulting in the decline in
the petitioner's business sales and income.

The application for preliminary injunction filed by

petitioner was granted. Hence, respondents moved
for reconsideration, which was denied. The
respondents then moved for nullification of said
preliminary injunction with the CA. The latter granted
its petition.

HELD:
No. Trademark, copyright and patents are different
intellectual property rights that cannot be
interchanged with one another. A trademark is any
visible sign capable of distinguishing the goods
(trademark) or services (service mark) of an
enterprise and shall include a stamped or marked
container of goods. In relation thereto, a trade name
means the name or designation identifying or
distinguishing an enterprise. Meanwhile, the scope of
a copyright is confined to literary and artistic works
which are original intellectual creations in the literary
and artistic domain protected from the moment of
their creation. Patentable inventions, on the other
hand, refer to any technical solution of a problem in
any field of human activity which is new, involves an
inventive step and is industrially applicable.
Petitioner has no right to support her claim for the
exclusive use of the subject trade name and its
container. The name and container of a beauty cream
product are proper subjects of a trademark inasmuch
as the same falls squarely within its definition. In order
to be entitled to exclusively use the same in the sale
of the beauty cream product, the user must
sufficiently prove that she registered or used it before
anybody else did. The petitioner's copyright and
patent registration of the name and container
would not guarantee her the right to the exclusive
use of the same for the reason that they are not
appropriate subjects of the said intellectual
rights. Consequently, a preliminary injunction order
cannot be issued for the reason that the petitioner has
not proven that she has a clear right over the said
name and container to the exclusion of others, not
having proven that she has registered a trademark
thereto or used the same before anyone did.

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The respondents, on the other hand, alleged as their

defense that Summerville is the exclusive and
authorized importer, re-packer and distributor of Chin
Chun Su products manufactured by Shun Yi Factory
of Taiwan. The said Taiwanese manufacturing
company authorized Summerville to register its trade
name Chin Chun Su Medicated Cream with the
Philippine Patent Office and other appropriate
governmental agencies.

ISSUE:
Whether the copyright and patent over the name and
container of a beauty cream product would entitle the
registrant to the use and ownership over the same to
the exclusion of others.

EY Industrial vs. Shen Dar

G.R. NO. 184850 - OCTOBER 20, 2010

FACTS:
EYIS is a domestic corporation
engaged in the production, distribution
and sale of air compressors and other industrial tools
and equipment. Petitioner Engracio Yap is the
Chairman of the Board of Directors of EYIS.
Respondent Shen Dar is a Taiwan-based foreign
corporation engaged in the manufacture of air
compressors.
Both companies claimed to have the right to register
the trademark "VESPA" for air compressors.
From 1997 to 2004, EYIS imported air compressors
from Shen Dar through sales contracts. In the
corresponding Bill of Ladings, the items were
described merely as air compressors. There is no
documentary evidence to show that such air
compressors were marked "VESPA."
On 1997, Shen Dar filed Trademark Application with
the IPO for the mark "VESPA, Chinese Characters
and Device" for use on air compressors and welding
machines.

In the meantime, on 2004, Shen Dar filed a Petition

for Cancellation of EYIS COR with the BLA. In the
Petition, Shen Dar primarily argued that the issuance
of the COR in favor of EYIS violated Section 123.1
paragraphs (d), (e) and (f) of Republic Act No. (RA)
8293, otherwise known as the Intellectual Property
Code (IP Code), having first filed an application for
the mark. Shen Dar further alleged that EYIS was a
mere distributor of air compressors bearing the mark
"VESPA" which it imported from Shen Dar. Shen Dar
also argued that it had prior and exclusive right to the
use and registration of the mark "VESPA" in the
Philippines under the provisions of the Paris
Convention.

Director of BLA ruled in favor of EYIS. On appeal, IPO

Director General upheld the COR issued in favor of
EYIS and cancelled the COR of Shen Dar.
CA reversed the IPO Director General and ruled in
favor of Shen Dar.
In ruling for Shen Dar, the CA ruled that, despite the
fact that Shen Dar did not formally offer its evidence
before the BLA, such evidence was properly attached
to the Petition for Cancellation. As such, Shen Dars
evidence may be properly considered. The CA also
enunciated that the IPO failed to properly apply the
provisions of Sec. 123.1(d) of RA 8293, which
prohibits the registration of a trademark in favor of a
party when there is an earlier filed application for the
same mark. The CA further ruled that Shen Dar
should be considered to have prior use of the mark
based on the statements made by the parties in their
respective Declarations of Actual Use. The CA added
that EYIS is a mere importer of the air compressors
with the mark "VESPA" as may be gleaned from its
receipts which indicated that EYIS is an importer,
wholesaler and retailer, and therefore, cannot be
considered an owner of the mark.
ISSUE:
1. Whether the IPO Director General can validly
cancel Shen Dars Certificate of Registration.
2. Whether EYIS is the true owner of the mark
"VESPA".
HELD:
1. Yes. In his Decision, the IPO Director General
stated that, despite the fact that the instant case was
for the cancellation of the COR issued in favor of
EYIS, the interests of justice dictate, and in view of its
findings, that the COR of Shen Dar must be
cancelled.

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On 1999, EYIS filed Trademark Application also for

the mark "VESPA," for use on air compressors. On
2004, the IPO issued COR in favor of EYIS.
Thereafter, on 2007, Shen Dar was also issued COR.

In its Answer, EYIS and Yap denied the claim of Shen

Dar to be the true owners of the mark "VESPA" being
the sole assembler and fabricator of air compressors
since the early 1990s. They further alleged that the
air compressors that Shen Dar allegedly supplied
them bore the mark "SD" for Shen Dar and not
"VESPA." Moreover, EYIS argued that Shen Dar, not
being the owner of the mark, could not seek
protection from the provisions of the Paris Convention
or the IP Code.

Shen Dar challenges the propriety of such

cancellation on the ground that there was no petition
for cancellation as required under Sec. 151 of RA
8293.
Office Order No. 79, Series of 2005, provides under its Sec. 5 that:
Section 5. Rules of Procedure to be followed in the conduct of
hearing of Inter Partes cases.The rules of procedure herein
contained primarily apply in the conduct of hearing of Inter Partes
cases. The Rules of Court may be applied suppletorily. The Bureau
shall not be bound by strict technical rules of procedure and
evidence but may adopt, in the absence of any applicable rule
herein, such mode of proceedings which is consistent with the
requirements of fair play and conducive to the just, speedy and
inexpensive disposition of cases, and which will give the Bureau
the greatest possibility to focus on the contentious issues before it.

The above rule reflects the oft-repeated legal

principle that quasi-judicial and administrative bodies
are not bound by technical rules of procedure. Such
principle, however, is tempered by fundamental
evidentiary rules, including due process.
The fact that no petition for cancellation was filed
against the COR issued to Shen Dar does not
preclude the cancellation of Shen Dars COR. It must
be emphasized that, during the hearing for the
cancellation of EYIS COR before the BLA, Shen Dar
tried to establish that it, not EYIS, was the true owner
of the mark "VESPA" and, thus, entitled to have it
registered. Shen Dar had more than sufficient
opportunity to present its evidence and argue its
case, and it did. It was given its day in court and its
right to due process was respected. The IPO Director
Generals disregard of the procedure for the
cancellation of a registered mark was a valid exercise
of his discretion.
2. Yes.

(iii) If it nearly resembles such a mark as to be likely to deceive or

cause confusion.

Under this provision, the registration of a mark is

prevented with the filing of an earlier application for
registration. This must not, however, be
interpreted to mean that ownership should be
based upon an earlier filing date. While RA 8293
removed the previous requirement of proof of actual
use prior to the filing of an application for registration
of a mark, proof of prior and continuous use is
necessary to establish ownership of a mark. Such
ownership constitutes sufficient evidence to oppose
the registration of a mark.
Notably, the Court has ruled that the prior and
continuous use of a mark may even overcome the
presumptive ownership of the registrant and be held
as the owner of the mark. As aptly stated by the Court
in Shangri-la International Hotel Management, Ltd. v.
Developers Group of Companies, Inc.:
Registration, without more, does not confer upon the registrant an
absolute right to the registered mark. The certificate of
registration is merely a prima facie proof that the registrant is
the owner of the registered mark or trade name. Evidence of
prior and continuous use of the mark or trade name by another
can overcome the presumptive ownership of the registrant
and may very well entitle the former to be declared owner in
an appropriate case.
xxxx
Ownership of a mark or trade name may be acquired not
necessarily by registration but by adoption and use in trade or
commerce. As between actual use of a mark without registration,
and registration of the mark without actual use thereof, the former
prevails over the latter. For a rule widely accepted and firmly
entrenched, because it has come down through the years, is that
actual use in commerce or business is a pre-requisite to the
acquisition of the right of ownership.
xxxx

RA 8293 espouses the "first-to-file" rule as stated

under Sec. 123.1(d) which states:
Section 123. Registrability. - 123.1. A mark cannot be registered if
it:

(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

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31

xxxx

By itself, registration is not a mode of acquiring

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

Here, the incontrovertible truth, as established by the

evidence submitted by the parties, is that EYIS is the
prior user of the mark. The exhaustive discussion on
the matter made by the BLA sufficiently addresses
the issue:
The private respondents prior adoption and continuous use of the
mark "VESPA" on air compressors is bolstered by numerous
documentary evidence consisting of sales invoices issued in the
name of respondent EY Industrial and Bills of Lading. Sales Invoice
No. 12075 dated March 27, 1995 antedates petitioners date of first
use in January 1, 1997 indicated in its trademark application filed
in June 9, 1997 as well as the date of first use in June of 1996 as
indicated in the Declaration of Actual Use submitted on December
3, 2001. The use by respondent-registrant in the concept of owner
is shown by commercial documents, sales invoices unambiguously
describing the goods as "VESPA" air compressors. Private
respondents have sold the air compressors bearing the "VESPA"
to various locations in the Philippines, as far as Mindanao and the
Visayas since the early 1990s. We carefully inspected the
evidence consisting of three hundred seventy one (371) invoices
and shipment documents which show that "VESPA" air
compressors were sold not only in Manila, but to locations such as
Iloilo City, Cebu City, Dumaguete City, Zamboanga City, Cagayan
de Oro City, Davao City to name a few. There is no doubt that it is
through private respondents efforts that the mark "VESPA" used
on air compressors has gained business goodwill and reputation in
the Philippines for which it has validly acquired trademark rights.
Respondent EY Industrials right has been preserved until the
passage of RA 8293 which entitles it to register the same. x x x

On the other hand, Shen Dar failed to refute the

evidence cited by the BLA in its decision. More
importantly, Shen Dar failed to present sufficient
evidence to prove its own prior use of the mark
"VESPA." We cite with approval the ruling of the BLA:

This conclusion is belied by the evidence. We have

gone over each and every document which consist of
Bill of Lading and Packing Weight List. Not one of
these documents referred to a "VESPA" air
compressor. Instead, it simply describes the goods
plainly as air compressors which is type "SD" and not
"VESPA". More importantly, the earliest date
reflected on the Bill of Lading was on May 5, 1997.
[Shen Dar] also attached a purported Sales Contract
with respondent EY Industrial Sales dated April 20,
2002. Surprisingly, nowhere in the document does it
state that respondent EY Industrial agreed to sell
"VESPA" air compressors. The document only
mentions air compressors which if genuine merely

As such, EYIS must be considered as the prior and

continuous user of the mark "VESPA" and its true
owner. Hence, EYIS is entitled to the registration of
the mark in its name.

Superior Comm. Ent. vs.

Kunnan Ent. and Sports
Concept & Distributor Inc.
G.R. NO. 169974 - APRIL 20, 2010

FACTS:
Superior filed a complaint for trademark infringement
and unfair competition with preliminary injunction
against Kunnan and Sports Concept with the RTC of
Quezon City.
In support of its complaint, SUPERIOR first claimed
to be the owner of the trademarks, trading styles,
company names and business names "KENNEX",
"KENNEX & DEVICE", "PRO KENNEX" and "PROKENNEX". Second, it also asserted its prior use of
these trademarks. Third, SUPERIOR also alleged
that it extensively sold and advertised sporting goods
and products covered by its trademark registrations.
In its defense, KUNNAN disputed SUPERIORs claim
of ownership and maintained that SUPERIOR as
mere distributor from 1982 to 1991 fraudulently
registered the trademarks in its name. KUNNAN
alleged that it was incorporated in 1972, under the
name KENNEX Sports Corporation for the purpose of
manufacturing and selling sportswear and sports

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32

Shen Dar avers that it is the true and rightful owner of the trademark
"VESPA" used on air compressors. The thrust of [Shen Dars]
argument is that respondent E.Y. Industrial Sales, Inc. is a mere
distributor of the "VESPA" air compressors. We disagree.

bolsters respondent Engracio Yaps contention that

[Shen Dar] approached them if it could sell the "Shen
Dar" or "SD" air compressor. In its position paper,
[Shen Dar] merely mentions of Bill of Lading
constituting respondent as consignee in 1993 but
never submitted the same for consideration of this
Bureau. The document is also not signed by [Shen
Dar]. The agreement was not even drafted in the
letterhead of either [Shen Dar] nor respondent
registrant. Our only conclusion is that [Shen Dar] was
not able to prove to be the owner of the VESPA mark
by appropriation. Neither was it able to prove actual
commercial use in the Philippines of the mark VESPA
prior to its filing of a trademark application.

equipment; it commercially marketed its products in

different countries, including the Philippines since
1972. It created and first used "PRO KENNEX,"
derived from its original corporate name, as a
distinctive trademark for its products in 1976.
KUNNAN also alleged that it registered the "PRO
KENNEX" trademark not only in the Philippines but
also in 31 other countries.
On 1982, after the expiration of its initial
distributorship agreement with another company,
KUNNAN appointed SUPERIOR as its exclusive
distributor in the Philippines under a Distributorship
Agreement whose pertinent provisions state:
Whereas, KUNNAN intends to acquire ownership of KENNEX
trademark registered by the Superior in the Philippines. Whereas,
the Superior is desirous of having been appointed as the sole
distributor by KUNNAN in the territory of the Philippines.

Even though the Distributorship Agreement clearly

stated that SUPERIOR was obligated to assign the
ownership of the KENNEX trademark to KUNNAN,
the latter claimed that the Certificate of Registration
for the KENNEX trademark remained with
SUPERIOR because Mariano Tan Bon Diong (Mr.
Tan Bon Diong), SUPERIORs President and General
Manager, misled KUNNANs officers into believing
that KUNNAN was not qualified to hold the same due
to the "many requirements set by the Philippine
Patent Office" that KUNNAN could not meet.

On 1991, upon the termination of its distributorship

agreement with SUPERIOR, KUNNAN appointed
SPORTS CONCEPT as its new distributor.
Subsequently, KUNNAN also caused the publication

RTC: It held KUNNAN liable for trademark

infringement and unfair competition. The RTC also
issued a writ of preliminary injunction enjoining
KUNNAN and SPORTS CONCEPT from using the
disputed trademarks.
IPO and CA rulings: In the course of its appeal to the
CA, the BLA ruled in this decision:
In the case at bar, Petitioner-Opposer (Kunnan) has
overwhelmingly and convincingly established its
rights to the mark "PRO KENNEX". It was proven that
actual use by Respondent-Registrant is not in the
concept of an owner but as a mere distributor and as
enunciated in the case of Crisanta Y. Gabriel vs. Dr.
Jose R. Perez, 50 SCRA 406, "a mere distributor of a
product bearing a trademark, even if permitted to use
said trademark has no right to and cannot register the
said trademark."
IPO Director General affirmed the BLA ruling.
CA reversed the RTC ruling. The CA stressed that
SUPERIORs possession of the aforementioned
Certificates of Principal Registration does not
conclusively establish its ownership of the disputed
trademarks as dominion over trademarks is not
acquired by the fact of registration alone; at best,
registration merely raises a presumption of ownership
that can be rebutted by contrary evidence.
In contrast with the failure of SUPERIORs evidence,
the CA found that KUNNAN presented sufficient
evidence to rebut SUPERIORs presumption of
ownership
over
the
trademarks.
KUNNAN
established that SUPERIOR, far from being the
rightful owner of the disputed trademarks, was merely
KUNNANs exclusive distributor.

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33

Prior to and during the pendency of the infringement

and unfair competition case before the RTC,
KUNNAN filed with the now defunct Bureau of
Patents, Trademarks and Technology Transfer
separate Petitions for the Cancellation of Registration
Trademark. In essence, KUNNAN filed the Petition for
Cancellation and Opposition on the ground that
SUPERIOR fraudulently registered and appropriated
the disputed trademarks; as mere distributor and not
as lawful owner, it obtained the registrations and
assignments of the disputed trademarks in violation
of the terms of the Distributorship Agreement and
Sections 2-A and 17 of Republic Act No. 166, as
amended.

of a Notice and Warning in the Manila Bulletins

January 29, 1993 issue, stating that (1) it is the owner
of the disputed trademarks; (2) it terminated its
Distributorship Agreement with SUPERIOR; and (3) it
appointed SPORTS CONCEPT as its exclusive
distributor. This notice prompted SUPERIOR to file its
Complaint for Infringement of Trademark and Unfair
Competition with Preliminary Injunction against
KUNNAN.

ISSUE:
Whether Superior is the true and rightful owner of the
trademark.
Whether CA erred in dismissing the complaint for
trademark infringement and unfair competition.
HELD:
No.
1. On the Issue of Trademark Infringement
a. Kunnan sufficiently
registration by Superior.

established

fraudulent

As to whether respondent Kunnan was able to

overcome the presumption of ownership in favor of
Superior, the former sufficiently established the
fraudulent registration of the questioned trademarks
by Superior.
The Certificates of Registration for the KENNEX
trademark were fraudulently obtained by petitioner
Superior. Even before PROKENNEX products were
imported by Superior into the Philippines, the same
already enjoyed popularity in various countries and
had been distributed worldwide. Riding on the said
popularity, Superior caused the registration thereof in
the Philippines under its name when it knew fully well
that it did not own nor did it manufacture the
PROKENNEX products. Superior claimed ownership
of the subject marks and failed to disclose in its
application with the IPO that it was merely a
distributor of KENNEX and PROKENNEX products in
the Philippines.

b. The cancellation of the trademark of Superior is

correct;
trademark
infringement
aspect
of
SUPERIORs case has been rendered moot and
academic

Section 22 of Republic Act No. 166, as amended ("RA

166"), the law applicable to this case, defines
trademark infringement as follows:
Section 22. 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.

Essentially, Section 22 of RA 166 states that only a

registrant of a mark can file a case for infringement.
Corollary to this, Section 19 of RA 166 provides that
any right conferred upon the registrant under the
provisions of RA 166 terminates when the judgment
or order of cancellation has become final, viz:
Section 19. Cancellation of registration. - If the Director finds that a
case for cancellation has been made out he shall order the
cancellation of the registration. The order shall not become
effective until the period for appeal has elapsed, or if appeal is
taken, until the judgment on appeal becomes final. When the order
or judgment becomes final, any right conferred by such registration
upon the registrant or any person in interest of record shall
terminate. Notice of cancellation shall be published in the Official
Gazette.

Thus, we have previously held that the cancellation of

registration of a trademark has the effect of depriving
the registrant of protection from infringement from the
moment judgment or order of cancellation has
become final.
In the present case, by operation of law, specifically
Section 19 of RA 166, the trademark infringement
aspect of SUPERIORs case has been rendered moot
and academic in view of the finality of the decision in

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34

While Superior accepted the obligation to assign

Certificates of Registration to Kunnan in exchange for
the appointment by the latter as its exclusive
distributor, Superior however breached its obligation
and failed to assign the same to Kunnan. Superior,
through Mr. Tan Bon Diong, misrepresented to
Kunnan that the latter cannot own trademarks in the
Philippines. Thus, Kunnan was misled into assigning
to Superior its (Kunnans) own application for the
disputed trademarks.

The CA decided that the registration of the "KENNEX"

and "PRO KENNEX" trademarks should be cancelled
because SUPERIOR was not the owner of, and could
not in the first place have validly registered these
trademarks. Thus, as of the finality of the CA decision
on December 3, 2007, these trademark registrations
were effectively cancelled and SUPERIOR was no
longer the registrant of the disputed trademarks.

35

Based on these elements, we find it immediately

obvious that the second element the plaintiffs
ownership of the mark was what the Registration
Cancellation Case decided with finality. On this
element depended the validity of the registrations
that, on their own, only gave rise to the presumption
of, but was not conclusive on, the issue of ownership.

c. A mere distributor has no right to register

In its Complaint, SUPERIOR alleged that:

Even assuming that SUPERIORs case for trademark

infringement had not been rendered moot and
academic, there can be no infringement committed by
KUNNAN who was adjudged with finality to be the
rightful owner of the disputed trademarks in the
Registration Cancellation Case. Even prior to the
cancellation of the registration of the disputed
trademarks, SUPERIOR as a mere distributor and
not the owner cannot assert any protection from
trademark infringement as it had no right in the first
place to the registration of the disputed trademarks.
In fact, jurisprudence holds that in the absence of any
inequitable conduct on the part of the manufacturer,
an exclusive distributor who employs the trademark
of the manufacturer does not acquire proprietary
rights of the manufacturer, and a registration of the
trademark by the distributor as such belongs to the
manufacturer, provided the fiduciary relationship
does not terminate before application for registration
is filed. Thus, the CA in the Registration Cancellation
Case correctly held:

17. In January 1993, the plaintiff learned that the defendant Kunnan
Enterprises, Ltd., is intending to appoint the defendant Sports
Concept and Distributors, Inc. as its alleged distributor for
sportswear and sporting goods bearing the trademark "PROKENNEX." For this reason, on January 20, 1993, the plaintiff,
through counsel, wrote the defendant Sports Concept and
Distributors Inc. advising said defendant that the trademark "PROKENNEX" was registered and owned by the plaintiff herein.

As a mere distributor, petitioner Superior undoubtedly had no right

to register the questioned mark in its name. Well-entrenched in
our jurisdiction is the rule that the right to register a trademark
should be based on ownership. When the applicant is not the
owner of the trademark being applied for, he has no right to apply
for the registration of the same. Under the Trademark Law, only the
owner of the trademark, trade name or service mark used to
distinguish his goods, business or service from the goods, business
or service of others is entitled to register the same. An exclusive
distributor does not acquire any proprietary interest in the
principals trademark and cannot register it in his own name unless
it is has been validly assigned to him.

From jurisprudence, unfair competition has been

defined as the passing off (or palming off) or
attempting to pass off upon the public of the
goods or business of one person as the goods or
business of another with the end and probable
effect of deceiving the public. The essential
elements of unfair competition are (1) confusing
similarity in the general appearance of the goods; and
(2) intent to deceive the public and defraud a
competitor.

To establish trademark infringement, the following

elements must be proven: (1) the validity of plaintiffs
mark; (2) the plaintiffs ownership of the mark; and (3)
the use of the mark or its colorable imitation by the
alleged infringer results in "likelihood of confusion."

2. On the Issue of Unfair Competition

18. The above information was affirmed by an announcement

made by the defendants in The Manila Bulletin issue of January 29,
1993, informing the public that defendant Kunnan Enterprises, Ltd.
has appointed the defendant Sports Concept and Distributors, Inc.
as its alleged distributor of sportswear and sporting goods and
equipment bearing the trademarks "KENNEX and "PRO-KENNEX"
which trademarks are owned by and registered in the name of
plaintiff herein as alleged hereinabove.
xxxx
27. The acts of defendants, as previously complained herein, were
designed to and are of the nature so as to create confusion with
the commercial activities of plaintiff in the Philippines and is liable
to mislead the public as to the nature and suitability for their
purposes of plaintiffs business and the defendants acts are likely
to discredit the commercial activities and future growth of plaintiffs
business.

Jurisprudence also formulated the following "true

test" of unfair competition: whether the acts of the
defendant have the intent of deceiving or are
calculated to deceive the ordinary buyer making his
purchases under the ordinary conditions of the

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the Registration Cancellation Case. In short,

SUPERIOR is left without any cause of action for
trademark infringement since the cancellation of
registration of a trademark deprived it of protection
from infringement from the moment judgment or order
of cancellation became final. To be sure, in a
trademark infringement, title to the trademark is
indispensable to a valid cause of action and such title
is shown by its certificate of registration.

particular trade to which the controversy relates. One

of the essential requisites in an action to restrain
unfair competition is proof of fraud; the intent to
deceive, actual or probable must be shown before the
right to recover can exist.
In the present case, no evidence exists showing that
KUNNAN ever attempted to pass off the goods it sold
(i.e. sportswear, sporting goods and equipment) as
those of SUPERIOR. In addition, there is no evidence
of bad faith or fraud imputable to KUNNAN in using
the disputed trademarks. Specifically, SUPERIOR
failed to adduce any evidence to show that KUNNAN
by the above-cited acts intended to deceive the public
as to the identity of the goods sold or of the
manufacturer of the goods sold.
In its place, KUNNAN has appointed SPORTS
CONCEPT AND DISTRIBUTORS, INC. as its
exclusive Philippine distributor of sportswear and
sporting goods and equipment bearing the
trademarks KENNEX and PRO KENNEX. The public
is advised to buy sporting goods and equipment
bearing these trademarks only from SPORTS
CONCEPT AND DISTRIBUTORS, INC. to ensure
that the products they are buying are manufactured
by Kunnan Enterprises Ltd.
Finally, with the established ruling that KUNNAN is
the rightful owner of the trademarks of the goods that
SUPERIOR asserts are being unfairly sold by
KUNNAN
under
trademarks
registered
in
SUPERIORs name, the latter is left with no effective
right to make a claim. In other words, with the CAs
final ruling in the Registration Cancellation Case,
SUPERIORs case no longer presents a valid cause
of action. For this reason, the unfair competition
aspect of the SUPERIORs case likewise falls.

(a) BIRKENSTOCK
(b) BIRKENSTOCK BAD HONNEF-RHEIN &
DEVICE COMPRISING OF ROUND COMPANY
SEAL AND REPRESENTATION OF A FOOT,
CROSS AND SUNBEAM
(c) BIRKENSTOCK BAD HONNEF-RHEIN &
DEVICE COMPRISING OF ROUND COMPANY
SEAL AND REPRESENTATION OF A FOOT,
CROSS AND SUNBEAM
However, registration proceedings of the subject
applications were suspended in view of an existing
registration of the mark BIRKENSTOCK AND
DEVICE in the name of Shoe Town International and
Industrial Corporation.
In this regard, on May 27, 1997 Birkenstock filed a
petition for cancellation of Registration on the ground
that it is the lawful and rightful owner of the
Birkenstock marks.
During its pendency, however, Shoe town failed to file
the required 10th Year Declaration of Actual Use
(10th Year DAU) thereby resulting in the cancellation
of such mark. Accordingly, the cancellation case was
dismissed for being moot and academic.
The aforesaid cancellation of Registration paved the
way for the publication of the subject applications in
the IPO e-Gazette.
Shoe town filed three (3) separate verified notices of
oppositions to the subject applications claiming, inter
alia, that:
(a) it, has been using Birkenstock marks in the Philippines for more
than 16 years through the mark BIRKENSTOCK AND DEVICE;

Birkenstock

Orthopaedie

GMBH and CO. KG vs. Phil.

Shoe Expo Mktg. Corp.
G.R. NO. 194307 - NOVEMBER 20, 2013

FACTS:
Birkenstock is a corporation duly organized and
existing under the laws of Germany, applied for

(b) while Shoe town failed to file the 10th Year DAU, it continued
the use of BIRKENSTOCK AND DEVICE in lawful commerce;
and
(c) to record its continued ownership and exclusive right to use the
BIRKENSTOCK marks, it has filed a re-application of its old
registration.

The BLA of the IPO sustained respondents

opposition, thus, ordering the rejection of the subject
applications.

36

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36

various trademark registrations before the IPO,

namely:

The IPO Director General reversed and set aside the

ruling of the BLA, thus allowing the registration of the
subject applications.
The CA reversed and set aside the ruling of the IPO
Director General and reinstated that of the BLA.
ISSUE:
Whether or not the subject marks should be allowed
registration in the name of petitioner Birkenstock.
HELD:
Yes.
RA 166 the governing law for Registration requires
the filing of a DAU on specified periods, to wit:
Section 12. Duration. Each certificate of registration shall remain
in force for twenty years: Provided, That registrations under the
provisions of this Act shall be cancelled by the Director, unless
within one year following the fifth, tenth and fifteenth
anniversaries of the date of issue of the certificate of
registration, the registrant shall file in the Patent Office an
affidavit showing that the mark or trade-name is still in use or
showing that its non-use is due to special circumstance which
excuse such non-use and is not due to any intention to abandon
the same, and pay the required fee.
The Director shall notify the registrant who files the aboveprescribed affidavits of his acceptance or refusal thereof and, if a
refusal, the reasons therefor.

The aforementioned provision clearly reveals that

failure to file the DAU within the requisite period
results in the automatic cancellation of registration of
a trademark. In turn, such failure is tantamount to the
abandonment or withdrawal of any right or interest the
registrant has over his trademark.
Shoe Town failed to file the 10th Year DAU within the
requisite period. As a consequence, it was deemed to
have abandoned or withdrawn any right or interest
over the mark BIRKENSTOCK.

Under Section 2 of RA 166, which is also the law

governing the subject applications, 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 two (2) months prior to the application
for registration. Section 2-A of the same law sets out
to define how one goes about acquiring ownership
thereof. Under the same section, it is clear that actual

It must be emphasized that registration of a

trademark, by itself, is not a mode of acquiring
ownership. If the applicant is not the owner of the
trademark, he has no right to apply for its registration.
Registration merely creates a prima facie
presumption of the validity of the registration, of the
registrants ownership of the trademark, and of the
exclusive right to the use thereof. Such presumption,
just like the presumptive regularity in the performance
of official functions, is rebuttable and must give way
to evidence to the contrary.
Berris Agricultural Co., Inc. v. Abyadang:
The ownership of a trademark is acquired by its registration
and its actual use by the manufacturer or distributor of the
goods made available to the purchasing public. x x x A
certificate of registration of a mark, once issued, constitutes prima
facie evidence of the validity of the registration, of the registrants
ownership of the mark, and of the registrants exclusive right to use
the same in connection with the goods or services and those that
are related thereto specified in the certificate. x x x In other words,
the prima facie presumption brought about by the registration of a
mark may be challenged and overcome in an appropriate action, x
x x by evidence of prior use by another person, i.e., it will controvert
a claim of legal appropriation or of ownership based on registration
by a subsequent user. This is because a trademark is a creation of
use and belongs to one who first used it in trade or commerce.

In the instant case, petitioner Birkenstock was able to

establish that it is the owner of the mark
BIRKENSTOCK. It submitted evidence relating to
the origin and history of BIRKENSTOCK and its use
in commerce long before respondent Shoe Town was
able to register the same here in the Philippines. It
has sufficiently proven that BIRKENSTOCK was
first adopted in Europe in 1774 by its inventor, Johann
Birkenstock, a shoemaker, on his line of quality
footwear and thereafter, numerous generations of his
kin continuously engaged in the manufacture and
sale of shoes and sandals bearing the mark
BIRKENSTOCK until it became the entity now

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37

Petitoner Birkenstock has duly established its true

and lawful ownership of the mark BIRKENSTOCK.

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.
Significantly, to be an owner, Section 2-A does not
require that the actual use of a trademark must be
within the Philippines. Thus, under RA 166, one may
be an owner of a mark due to its actual use but may
not yet have the right to register such ownership here
due to the owners failure to use the same in the
Philippines for two (2) months prior to registration.

known as the petitioner. Petitioner also submitted

various certificates of registration of the mark
BIRKENSTOCK in various countries and that it has
used such mark in different countries worldwide,
including the Philippines.

2. Berris failed to establish its ownership of the

mark "D-10 80 WP" and
3. Berris trademark registration for "D-10 80
WP" may be cancelled in the present case to
avoid multiplicity of suits.

On the other hand, respondent Show Town only

presented
copies
of
sales
invoices
and
advertisements, which are not conclusive evidence of
its claim of ownership of the mark BIRKENSTOCK
as these merely show the transactions made by
respondent.

ISSUE:
1. Who between Berris or Abyadang is the prior user
of their respective marks.

Petition is granted.

2. "Is Abyadang's mark `NS D-10 PLUS' confusingly

similar to that of Berris' `D-10 80 WP' such that Berris
can rightfully prevent the IPO registration of
Abyadang?"
HELD:
The court ruled in favor of Berris.

Berris Agricultural Co. Inc.

vs. Norvy Abyadang

G.R. NO. 183404 - OCTOBER 13, 2010

FACTS:
Norvy A. Abyadang (Abyadang), proprietor of NS
Northern Organic Fertilizer filed with the (IPO) a
trademark application for the mark "NS D-10 PLUS"
for use in connection with Fungicide. The application
was given due course and was published in the IPO
e-Gazette for opposition.
Berris Agricultural Co., Inc. (Berris), filed with the IPO
Bureau of Legal Affairs (IPO-BLA) a Verified Notice of
Opposition against the mark under application

1. Abyadangs mark "NS D-10 PLUS" is not

confusingly similar with Berris trademark "D10 80 WP";

Furthermore, even the FPA Certification stating that

the office had neither encountered nor received
reports about the sale of the fungicide "D-10 80 WP"

38

The BLA ruled that Abyadangs Applicant's mark "NS

D-10 PLUS" is confusingly similar to the Opposer's
mark and as such, the opposition is hereby
SUSTAINED. On appeal, The Director General also
denied the petition.

38

CA Reversed the decision: Petition should be granted

due to the following reasons:

Hence, we cannot subscribe to the contention of

Abyadang that Berris' DAU is fraudulent based only
on his assumption that Berris could not have legally
used the mark in the sale of its goods way back in
June 2002 because it registered the product with the
Fertilizer and Pesticide Authority (FPA) only on
November 12, 2004. The question of whether or not
Berris violated P.D. No. 1144, because it sold its
product without prior registration with the FPA, is a
distinct and separate matter from the jurisdiction and
concern of the IPO. Thus, even a determination of
violation by Berris of P.D. No. 1144 would not
controvert the fact that it did submit evidence that it
had used the mark "D-10 80 WP" earlier than its FPA
registration in 2004.

"NS D-10 PLUS" is similar and/or confusingly similar

to its registered trademark "D-10 80 WP," also used
for Fungicide.

Page

(1) Berris was able to establish that it was using its

mark "D-10 80 WP" since June 20, 2002, even before
it filed for its registration with the IPO on November
29, 2002, as shown by its DAU which was under oath
and notarized, bearing the stamp of the Bureau of
Trademarks of the IPO on April 25, 2003, and which
stated that it had an attachment as Annex "B" sales
invoices and official receipts of goods bearing the
mark. Indeed, the DAU, being a notarized document,
especially when received in due course by the IPO, is
evidence of the facts it stated and has the
presumption of regularity, entitled to full faith and
credit upon its face.

within Region I and the Cordillera Administrative

Region, could not negate the fact that Berris was
selling its product using that mark in 2002, especially
considering that it first traded its goods in Calauan,
Laguna, where its business office is located, as stated
in the DAU.
Therefore, Berris, as prior user and prior registrant, is
the owner of the mark "D-10 80 WP." As such, Berris
has in its favor the rights conferred by Section 147 of
R.A. No. 8293, which provides:
Sec. 147. Rights Conferred.
147.1. The owner of a registered mark shall have the exclusive
right to prevent all third parties not having the owner's consent from
using in the course of trade identical or similar signs or containers
for goods or services which are identical or similar to those in
respect of which the trademark is registered where such use would
result in a likelihood of confusion. In case of the use of an identical
sign for identical goods or services, a likelihood of confusion shall
be presumed.
147.2. The exclusive right of the owner of a well-known mark
defined in Subsection 123.1(e) which is registered in the
Philippines, shall extend to goods and services which are not
similar to those in respect of which the mark is registered: Provided,
That use of that mark in relation to those goods or services would
indicate a connection between those goods or services and the
owner of the registered mark: Provided, further, That the interests
of the owner of the registered mark are likely to be damaged by
such use.

(2) Yes. Abyadangs mark is confusingly similar to

that of Berris.
According to Section 123.1(d) of R.A. No. 8293, a
mark cannot be registered if it is identical with a
registered mark belonging to a different proprietor
with an earlier filing or priority date, with respect to:
(1) the same goods or services; (2) closely related
goods or services; or (3) near resemblance of such
mark as to likely deceive or cause confusion.

The 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

In contrast, the 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.
Comparing Berris' mark "D-10 80 WP" with
Abyadang's mark "NS D-10 PLUS," as appearing on
their respective packages, one cannot but notice that
both have a common component which is "D-10."
On Berris' package, the "D-10" is written with a bigger
font than the "80 WP." Admittedly, the "D-10" is the
dominant feature of the mark. The "D-10," being at
the beginning of the mark, is what is most
remembered of it. Although, it appears in Berris'
certificate of registration in the same font size as the
"80 WP," its dominancy in the "D-10 80 WP" mark
stands since the difference in the form does not alter
its distinctive character.
Applying the Dominancy Test, it cannot be gainsaid
that Abyadang's "NS D-10 PLUS" is similar to Berris'
"D-10 80 WP," that confusion or mistake is more likely
to occur. Undeniably, both marks pertain to the
same type of goods - fungicide with 80% Mancozeb
as an active ingredient and used for the same group
of fruits, crops, vegetables, and ornamental plants,
using the same dosage and manner of application.
They also belong to the same classification of
goods under R.A. No. 8293. Both depictions of "D10," as found in both marks, are similar in size, such
that this portion is what catches the eye of the
purchaser. Undeniably, the likelihood of confusion is
present.
This likelihood of confusion and mistake is made
more manifest when the Holistic Test is applied,
taking into consideration the packaging, for both use
the same type of material (foil type) and have identical
color schemes (red, green, and white); and the marks
are both predominantly red in color, with the same

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39

In determining similarity and likelihood of confusion,

jurisprudence has developed tests: the Dominancy
Test and the Holistic or Totality Test.

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.

phrase "BROAD SPECTRUM FUNGICIDE" written

underneath.
Considering these striking similarities, predominantly
the "D-10," the buyers of both products, mainly
farmers, may be misled into thinking that "NS D10 PLUS" could be an upgraded formulation of
the "D-10 80 WP."
Moreover, notwithstanding the finding of the IPPDG
that the "D-10" is a fanciful component of the
trademark, created for the sole purpose of functioning
as a trademark, and does not give the name, quality,
or description of the product for which it is used, nor
does it describe the place of origin, such that the
degree of exclusiveness given to the mark is closely
restricted and considering its challenge by Abyadang
with respect to the meaning he has given to it, what
remains is the fact that Berris is the owner of the mark
"D-10 80 WP," inclusive of its dominant feature "D10," as established by its prior use, and prior
registration with the IPO. Therefore, Berris properly
opposed and the IPO correctly rejected Abyadang's
application for registration of the mark "NS D-10
PLUS."

Inasmuch as the ownership of the mark "D-10 80 WP"

fittingly belongs to Berris, and because the same
should not have been cancelled by the CA, we

Amigo

Manufacturing

vs.

Cluett Peabody Co.

G.R. NO. 139300 - MARCH 14, 2001

FACTS:
Cluett Peabody Co., Inc. (a New York corporation)
filed a cancellation of trademark against Amigo
Manufacturing Inc. (a Philippine corporation) claiming
exclusive ownership (as successor in interest of
Great American Knitting Mills, Inc.) of the following
trademark and devices, as used on men's socks:
a) GOLD TOE, under Certificate of Registration No. 6797 dated
September 22, 1958;
b) DEVICE, representation of a sock and magnifying glass on the
toe of a sock, under Certificate of Registration No. 13465 dated
January 25, 1968;
c) DEVICE, consisting of a `plurality of gold colored lines arranged
in parallel relation within a triangular area of toe of the stocking and
spread from each other by lines of contrasting color of the major
part of the stocking' under Certificate of Registration No. 13887
dated May 9, 1968; and
d) LINENIZED, under Certificate of Registration No. 15440 dated
April 13, 1970.

On the other hand, Amigo Manufacturings trademark

and device `GOLD TOP, Linenized for Extra Wear'
has the dominant color `white' at the center and a
`blackish brown' background with a magnified design
of the sock's garter, and is labeled `Amigo
Manufacturing Inc., Mandaluyong, Metro Manila,
Made in the Philippines'.
The decision pivots on two point: the application of
the rule of idem sonans and the existence of a
confusing similarity in appearance between two
trademarks
Director of Bureau of Patent ruled in favor of Cluett
Peabody and ordered the cancellation of certificate of
registration of Amigo.

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40

Verily, the protection of trademarks as intellectual

property is intended not only to preserve the goodwill
and reputation of the business established on the
goods bearing the mark through actual use over a
period of time, but also to safeguard the public as
consumers against confusion on these goods. On this
matter of particular concern, administrative agencies,
such as the IPO, by reason of their special knowledge
and expertise over matters falling under their
jurisdiction, are in a better position to pass judgment
thereon. Thus, their findings of fact in that regard are
generally accorded great respect, if not finality by the
courts, as long as they are supported by substantial
evidence, even if such evidence might not be
overwhelming or even preponderant. It is not the task
of the appellate court to weigh once more the
evidence submitted before the administrative body
and to substitute its own judgment for that of the
administrative agency in respect to sufficiency of
evidence.

consider it proper not to belabor anymore the issue of

whether cancellation of a registered mark may be
done absent a petition for cancellation.

CA: Reversed the decision of the Director of Bureau

of Patent. However, upon motion for reconsideration
of Cluet Peabodys the CA granted it.
The CA affirmed the decision of the Director of
Bureau of Patent.
ISSUE:
(1) Who between Amigo Manufacturing and Cluet
Peabody dates of first use of Trademark and Devices
(2) Whether there is similarity of Trademarks
(3) The Paris Convention
HELD:
(1) Amigo claims that it started the actual use of the
trademark "Gold Top and Device" in September
1956, while respondent began using the trademark
"Gold Toe" only on May 15, 1962.
SC: We do not agree. Based on the evidence
presented, this Court concurs in the findings of the
Bureau of Patents that Cluet Peabody had actually
used the trademark and the devices in question prior
to Amigos use of its own. During the hearing at the
Bureau of Patents, Cluet Peabody presented Bureau
registrations indicating the dates of first use in the
Philippines of the trademark and the devices as
follows:
a) March 16, 1954, Gold Toe;
b) February 1, 1952, the Representation of a Sock and a
Magnifying Glass;
c) January 30, 1932, the Gold Toe Representation; and
d) February 28, 1952, "Linenized."

The registration of the above marks in favor of Cluett

Peabody constitutes prima facie evidence, which
Amigo failed to overturn satisfactorily, of Cluett
Peabody ownership of those marks, the dates of
appropriation and the validity of other pertinent facts
stated therein.

"Sec. 20. Certificate of registration prima facie evidence of validity.

- A certificate of registration of a mark or trade-name shall be prima
facie evidence of the validity of the registration, the registrant's
ownership of the mark or trade-name, and of the registrant's
exclusive right to use the same in connection with the goods,

Moreover, the validity of the Certificates of

Registration was not questioned. Consequently, the
claimed dates of Cluetts Peabody first use of the
marks are presumed valid. Clearly, they were ahead
of Amigos claimed date of first use of "Gold Top and
Device" in 1958.
Section 5-A of Republic Act No. 166[10] states that
an applicant for a trademark or trade name shall,
among others, state the date of first use. The fact that
the marks were indeed registered by Cluett Peabody
shows that it did use them on the date indicated in the
Certificate of Registration.
On the other hand, Amigo failed to present proof of
the date of alleged first use of the trademark "Gold
Top and Device". Thus, even assuming that Cluett
Peabody started using it only on May 15, 1962, we
can make no finding that Amigo had started using it
ahead of Cluett Peabody.
Furthermore, Amigo registered its trademark only
with the supplemental register. In La Chemise
Lacoste v. Fernandez the Court held that registration
with the supplemental register gives no presumption
of ownership of the trademark. Said the Court:
"The registration of a mark upon the supplemental register is
not, as in the case of the principal register, prima facie
evidence of (1) the validity of registration; (2) registrant's
ownership of the mark; and (3) registrant's exclusive right to
use the mark. It is not subject to opposition, although it may be
cancelled after its issuance. Neither may it be the subject of
interference proceedings. Registration in the supplemental register
is not constructive notice of registrant's claim of ownership. A
supplemental register is provided for the registration because of
some defects (conversely, defects which make a mark
unregistrable on the principal register, yet do not bar them from the
supplemental register.)

(2) Similarity of Trademarks

Amigo assails the finding of the director of patents
that its trademark is confusingly similar to that of
Cluett Peabody. Amigo points out that the director of
patents erred in its application of the idem sonans
rule, claiming that the two trademarks "Gold Toe" and
"Gold Top" do not sound alike and are pronounced
differently. It avers that since the words gold and toe

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41

Indeed, Section 20 of Republic Act 166 provides as

follows:

business or services specified in the certificate, subject to any

conditions and limitations stated therein."

are generic, respondent has no right to their exclusive

use.

must be considered in determining confusing

similarity."

SC: The arguments of Amigo are incorrect. True, it

would not be guilty of infringement on the basis alone
of the similarity in the sound of Amigos "Gold Top"
with that of Cluett Peabody "Gold Toe." Admittedly,
the pronunciations of the two do not, by themselves,
create confusion.

In the present case, a resort to either the

Dominancy Test or the Holistic Test shows that
colorable imitation exists between Cluett
Peabody "Gold Toe" and Amigos "Gold Top." A
glance at Amigos mark shows that it definitely has a
lot of similarities and in fact looks like a combination
of the trademark and devices that Cluett Peabody has
already registered; namely, "Gold Toe," the
representation of a sock with a magnifying glass, the
"Gold Toe" representation and "linenized."

The Bureau of Patents, however, did not rely on the

idem sonans test alone in arriving at its conclusion.
"With respect to the issue of confusing similarity between the marks
of the Amigo and that of the Cluett Peabody applying the tests of
idem sonans, the mark `GOLD TOP & DEVICE' is confusingly
similar with the mark `GOLD TOE'. The difference in sound occurs
only in the final letter at the end of the marks. For the same
reason, hardly is there any variance in their appearance.
`GOLD TOE' and `GOLD TOP' are printed in identical lettering.
Both show [a] representation of a man's foot wearing a sock.
`GOLD TOP' blatantly incorporates petitioner's `LINENIZED'
which by itself is a registered mark."

The Bureau considered the drawings and the labels,

the appearance of the labels, the lettering, and the
representation of a man's foot wearing a sock.
Obviously, its conclusion is based on the totality of the
similarities between the parties' trademarks and not
on their sounds alone.
In determining whether trademarks are confusingly
similar, jurisprudence has developed two kinds of
tests, the Dominancy Test and the Holistic Test.
The test of dominancy focuses on the similarity of the
prevalent features of the competing trademarks which
might cause confusion or deception and thus
constitutes infringement.
xxxxxxxxx

xxxxxxxxx

On the other side of the spectrum, the holistic test

mandates that the entirety of the marks in question

In addition, these representations are at the same

location, either in the sock itself or on the label. Amigo
presents no explanation why it chose those
representations, considering that these were the
exact symbols used in Cluett Peabody marks. Thus,
the overall impression created is that the two products
are deceptively and confusingly similar to each other.
Clearly, Amigo violated the applicable trademark
provisions during that time.

(3) The Paris Convention

Amigo claims that the Court of Appeals erred in
applying the Paris Convention. Although Cluett
Peabody registered its trademark ahead, Amigo
argues that the actual use of the said mark is

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42

. . . . 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 is it 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.

Admittedly, there are some minor differences

between the two sets of marks. The similarities,
however, are of such degree, number and quality that
the overall impression given is that the two brands of
socks are deceptively the same, or at least very
similar to each another. An examination of the
products in question shows that their dominant
features are gold checkered lines against a
predominantly
black
background
and
a
representation of a sock with a magnifying glass. In
addition, both products use the same type of lettering.
Both also include a representation of a man's foot
wearing a sock and the word "linenized" with arrows
printed on the label. Lastly, the names of the brands
are similar -- "Gold Top" and "Gold Toe." Moreover, it
must also be considered that petitioner and
respondent are engaged in the same line of business.

necessary in order to be entitled to the protection of

the rights acquired through registration.

demand that petitioner cease and desist from using

the aforesaid mark.

As already discussed, Cluett Peabody registered its

trademarks under the principal register, which means
that the requirement of prior use had already been
fulfilled. To emphasize, Section 5-A of Republic Act
166 requires the date of first use to be specified in the
application for registration. Since the trademark was
successfully registered, there exists a prima facie
presumption of the correctness of the contents
thereof, including the date of first use. Amigo has
failed to rebut this presumption.

Horphag filed a Complaint for Infringement of

Trademark with Prayer for Preliminary Injunction
against petitioner, in using the name PCO-GENOLS
for being confusingly similar. Prosource appealed
otherwise, and denied liability, since it discontinued
the use of the mark prior to the institution of the
infringement case.

Thus, applicable is the Union Convention for the

Protection of Industrial Property adopted in Paris on
March 20, 1883, otherwise known as the Paris
Convention, of which the Philippines and the United
States are members. Cluett Peabody is domiciled in
the United States and is the registered owner of the
"Gold Toe" trademark. Hence, it is entitled to the
protection of the Convention. A foreign-based
trademark owner, whose country of domicile is a
party to an international convention relating to
protection of trademarks is accorded protection
against infringement or any unfair competition as
provided in Section 37 of Republic Act 166, the
Trademark Law which was the law in force at the
time this case was instituted.
In sum, Amigo has failed to show any reversible error
on the part of the Court of Appeals. Hence, its Petition
must fail.

Horphag Research
G.R 180073 - NOVEMBER 25, 2009

FACTS:
Respondent Horphag is a corporation and owner of
trademark PYCNOGENOL, a food supplement sold
and distributed by Zuellig Pharma Corporation.
Respondent later discovered that petitioner
Prosource International, Inc. was also distributing a
similar food supplement using the mark PCOGENOLS since 1996. This prompted respondent to

CA: The appellate court explained that under the

Dominancy or the Holistic Test, PCO-GENOLS is
deceptively similar to PYCNOGENOL, thus the
present case.
ISSUE:
Whether the names are confusingly similar.
HELD:
Yes. There is confusing similarity and the petition is
denied. Jurisprudence developed two test to prove
such.
The Dominancy Test focuses on the similarity of the
prevalent features of the competing trademarks that
might cause confusion and deception, thus
constituting infringement. If the competing trademark
contains the main, essential and dominant features of
another, and confusion or deception is likely to result,
infringement takes place. Duplication or imitation is
not necessary; nor is it necessary that the infringing
label should suggest an effort to imitate. The question
is whether the use of the marks involved is likely to
cause confusion or mistake in the mind of the public
or to deceive purchasers. 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.

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43

13

Prosource Int'l Inc. vs.

RTC: The RTC decided in favor of respondent. It

observed that PYCNOGENOL and PCO-GENOLS
have the same suffix "GENOL" which appears to be
merely descriptive and thus open for trademark
registration by combining it with other words and
concluded that the marks, when read, sound similar,
and thus confusingly similar especially since they
both refer to food supplements. The RTC decision
prompted Prosource to appeal to the CA.

In applying the DOMINANCY TEST, Both the words

have the same suffix "GENOL" which on evidence,
appears to be merely descriptive and furnish no
indication of the origin of the article and hence, open
for trademark registration by the plaintiff through
combination with another word or phrase. When the
two words are pronounced, the sound effects are
confusingly similar not to mention that they are both
described by their manufacturers as a food
supplement and thus, identified as such by their
public consumers. And although there were
dissimilarities in the trademark due to the type of
letters used as well as the size, color and design
employed on their individual packages/bottles, still
the close relationship of the competing products
name in sounds as they were pronounced, clearly
indicates that purchasers could be misled into
believing that they are the same and/or originates
from a common source and manufacturer.

14

Dermaline Inc. vs Myra

Pharmaceutical
G.R. 190065 - AUGUST 16, 2010

FACTS:
Petitioner Dermaline, Inc. filed before the IPO an
application for registration of the trademark
DERMALINE DERMALINE, INC. which was
published for opposition in the IPO E-Gazette.

Myra claimed that, the dominant feature is the term

DERMALINE, which is practically identical with its
own DERMALIN, particularly that the first 8 letters of
the marks are identical, even the very the
pronunciation. Further, both marks have three 3
syllables each.

Parties failed to amicably settle their differences.

IPO-BLA: Decided in favor of MYRA, sustaining
MYRAs opposition and rejecting the application for
registration of DERMALINE.
Dermaline appealed to the Office of the Director
General of the IPO.
DG-IPO: Appeal by DERMALINE is dismissed for
simply being filed out of time. Undaunted, Dermaline
appealed to the CA.
CA: Appellate court affirmed the rejection of
Dermalines application for registration of trademark.
The CA likewise denied Dermalines motion for
reconsideration; hence, this present case.
ISSUE:
Whether Dermalines TM (DERMALINE) is indeed
confusingly similar to Myras TM (DERMALIN).
HELD:
Yes. Applying the dominancy test, which is now
incorporated into law in Section 155.1 of R.A. No.
8293, the public may mistakenly think that Dermaline
is connected to or associated with Myra. Both TMs
are spelled almost the same way, pronounced
practically the same manner, and are under
practically the same category (health / medicine).
Again, The Dominancy Test focuses on the similarity
of the prevalent features of the competing trademarks
that might cause confusion or deception. It is applied
when the trademark sought to be registered contains
the main, essential and dominant features of the
earlier registered trademark, and confusion or
deception is likely to result. Duplication or imitation is
not even required; neither is it necessary that the label
of the applied mark for registration should suggest an
effort to imitate.
The important issue is whether the use of the marks
involved would likely cause confusion or mistake in
the mind of or deceive the ordinary purchaser, or one

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44

Respondent Myra Pharmaceuticals, Inc. filed a

Verified Opposition alleging that the trademark
sought to be registered resembles its trademark
DERMALIN and will likely cause confusion, mistake
and deception to the purchasing public. Myra said
that the registration of Dermalines trademark will
violate Section 123 of Republic Act (R.A.) No. 8293
(Intellectual Property Code of the Philippines).
Furthermore, it alleged that Dermalines use and
registration of its applied trademark will diminish the
distinctiveness of Myras DERMALIN.

In its Verified Answer, Dermaline contended that

there were glaring and striking dissimilarities between
the two trademarks, particularly that there could not
be any relation between its trademark for health and
beauty services from Myras trademark classified
under medicinal goods against skin disorders.

who is accustomed to buy, and therefore to some

extent familiar with, the goods in question.

15

Societe Des Produits vs

Dy Jr.
G.R. 172276 - AUGUST 8, 2010

FACTS:
Petitioner is a foreign corporation organized under the
laws of Switzerland and manufactures food products
and beverages. As evidenced by Certificate of
Registration by the then Bureau of Patents,
Trademarks and Technology Transfer, Nestle owns
the NAN trademark for its line of infant powdered milk
products, consisting of PRE-NAN, NAN-H.A., NAN-1,
and NAN-2. NAN is classified under Class 6 dietetic
preparations for infant feeding. On the other hand,
respondent Dy owns 5M Enterprises which imports
Sunny Boy powdered milk from Australia, and
repacks the milk into plastic bags bearing the name
NANNY, and is also classified as Class-6 full cream
milk for adults.
In 1985, petitioner requested respondent to refrain
from using NANNY and to stop infringing the NAN
trademark. Respondents inaction forced Nestle to file
a complaint against respondent.
RTC (Commercial Court): Held that Dy Jr. is liable
for trademark infringement on the grounds that even
though it is not apparent in the packaging of NANNY,
the name itself relates to a childs nurse, which is
closely related to the product line of NAN catering to
infants.
The case was then raised to the CA.

ISSUE:
Whether or not respondent is liable for infringement

The test of dominancy is in fact explicitly incorporated

into law in Section 155.1 of the IPC, which defines
infringement as the colourable imitation of a
registered mark...or a dominant feature thereof.
While the SC agrees with the CAs enumeration of
differences between the respective trademarks, the
SC does not agree that the holistic test is not the one
applicable in the case. The dominancy test considers
the dominant features in the competing marks in
determining whether they are confusingly similar.
Under the dominancy test, 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 segment.
Applying such test in the present case, it is apparent
that upon first glance or even at close inspection that
there is confusing similarity between NAN and
NANNY. This is sufficient to establish trademark
infringement. The decision of the RTC is reinstated
brads.

16

Sketchers USA vs. Inter

Pacific Industrial Trading
Corp.

G.R. NO. 164321 - NOVEMBER 30, 2006

FACTS:
Petitioner filed an application for the issuance of
search warrants against an outlet and warehouse
operated by respondents for infringement of
trademark under Section 155, in relation to Section
170 of Republic Act No. 8293, IP Code of the
Philippines. In the course of its business, petitioner
has registered the trademark "SKECHERS" and the
trademark "S" (within an oval design) with the IPO.
Two search warrants were issued and more than
6,000 pairs of shoes bearing the S logo were seized.

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45

CA: RTCs ruling is reversed. Stating that even

though there is similarity in the products, the lower
price range of NANNY cautions and reminds the
purchaser that it is different from NAN, which is more
expensive. This does not create confusion as to the
consumers because the apparent difference in price
shows that they are two different products.

HELD:
Yes. There is no question that the product will cause
confusion within the consuming public. The primary
test that should be used in determining trademark
infringement in this case is the dominancy test.

Respondents, before the RTC, moved to quash the

warrants arguing that there was no confusing
similarity between petitioners "Skechers" rubber
shoes and its "Strong" rubber shoes.

respondent did not use an oval design, the mere fact

that it used the same stylized "S", the same being the
dominant feature of petitioners trademark, already
constitutes infringement under the Dominancy Test.

RTC: The court granted the motion and quashed the

search warrants directing the NBI to return to
respondents the items seized by virtue of said search
warrant.

While
respondents
shoes
contain
some
dissimilarities with petitioners shoes, this Court
cannot close its eye to the fact that for all intents and
purpose, respondent had deliberately attempted to
copy petitioners mark and overall design and
features of the shoes.

According to the RTC, it ruled in fine that ordinary

prudent purchaser would not likely be misled or
confused in purchasing the wrong article by reason
of:
1. The mark S found in Strong Shoes is not enclosed
in an oval design;
2. The word Strong is conspicuously placed at the
backside and insoles;
3. The hang tags and labels attached to the shoes
bears the word Strong for respondent and Sketchers
U.S.A. for private complainant;
4. Strong Shoes are modestly priced compared to
the costs of Sketchers Shoes.
Petitioner filed a petition for certiorari with the CA.
CA: This court however, affirmed the decision of the
RTC. Thus, petitioner filed the present petition with
the SC.

is

guilty

of

trademark

HELD:
Yes. The essential element of infringement under
R.A. No. 8293 is that the infringing mark is likely to
cause confusion. Applying the Dominancy Test,
which focuses on the similarity of the prevalent or
dominant features of the competing trademarks that
might cause confusion, the Court found that the use
of the stylized "S" by respondent in its Strong rubber
shoes infringes on the mark already registered by
petitioner with the IPO. While it is undisputed that
petitioners stylized "S" is within an oval design, to this
Courts mind, the dominant feature of the trademark
is the stylized "S," as it is precisely the stylized "S"
which catches the eye of the purchaser. Thus, even if

It is understood that in this case as well as in the case

of DERMALINE v MYRA, these 2 types of confusion
is present after applying dominancy test. (GOOD
LUCK BRODS!)

20

Victorio

People

Diaz
and

vs.
Levi

Strauss Phils.

G.R. NO. 180677 - FEBRUARY 18, 2013

FACTS:
Levis Strauss and company is a foreign corporation
based in the state of Delaware, USA, had been
engaged in the apparel business. It is the owner of
trademarks and designs of Levis jeans like Levis
501. Levis Strauss Philippines Inc, is a licensee of
Levis. Diaz on the other hand is the owner of LS
Jeans Tailoring, he used the label LS Jeans
Tailoring in the jeans that he made and sold; that his
label was registered with the IPO; that his shops
received clothes for sewing or repair; that his shops

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46

ISSUE:
Whether respondent
infringement.

Note: There are two types of confusion: (1)

confusion of goods (product confusion), where the
ordinarily prudent purchaser would be induced to
purchase one product in the belief that he was
purchasing the other; and (2) confusion of business
(source or origin confusion), where, although the
goods of the parties are different, the product, the
mark of which registration is applied for by one party,
is such as might reasonably be assumed to originate
with the registrant of an earlier product, and the public
would then be deceived either into that belief or into
the belief that there is some connection between the
two parties, though inexistent.

offered made-to-order jeans whose styles or designs

were done in accordance with the instructions of the
customers; that the jeans he produced were easily
recognizable because of the label, and each of the
jeans had an LSJT red tab, that LS stood for Latest
Style; that the leather patch on his jeans had two
buffaloes and not two horses. After receiving
information that Diaz is selling counterfeit Levis 501
jeans in his tailoring shops in Almanza and Talon, Las
Pinas City, Levis hired a private investigation group
to verify the information. Surveillance and the
purchase of jeans from the tailoring shops of Diaz
established that the jeans bought from the tailoring
shops were counterfeit or imitations of Levis 501.
Levis then sought the assistance of the NBI armed
with search warrants, searched the tailoring shops
and seized several fake Levis 501 jeans from them.
Levis claimed that it did not authorize the making and
selling of the said jeans. On his part, Diaz admitted
being the owner of the shops searched but he denied
any criminal liability.

On February 13, 2006 the RTC rendered its decision

finding Diaz guilty as charged beyond reasonable
doubt for violationg Sec. 155 in relation to Sec 170 of
the IP code sentencing him to suffer imprisonment of
a minimum of 2 years to a maximum of 5 years and
to pay 50,000 for each case. Diaz appealed, but the
CA dismissed the appeal on the ground that Diaz had
not filed his appellants brief on time despite being
granted his requested several extension periods.
Upon his denial of his motion for reconsideration,
Diaz is now before the SC to plead for his Acquittal.

HELD:
The SC acquitted the petitioner Diaz of the crimes of
infringement of trademark, for failure of the state to
establish his guilt beyond reasonable doubt.
Section 155 of R.A. No. 8293 defines the acts that
constitute infringement of trademark, viz:
Remedies; Infringement. Any person who shall, without the
consent of the owner of the registered mark:
155.1. Use in commerce any reproduction, counterfeit, copy, or
colorable imitation of a registered mark or the same container or a
dominant feature thereof in connection with the sale, offering for
sale, distribution, advertising of any goods or services including
other preparatory steps necessary to carry out the sale of any
goods or services on or in connection with which such use is likely
to cause confusion, or to cause mistake, or to deceive; or
155.2. Reproduce, counterfeit, copy or colorably imitate a
registered mark or a dominant feature thereof and apply such
reproduction, counterfeit, copy or colorable imitation to labels,
signs, prints, packages, wrappers, receptacles or advertisements
intended to be used in commerce upon or in connection with the
sale, offering for sale, distribution, or advertising of goods or
services on or in connection with which such use is likely to cause
confusion, or to cause mistake, or to deceive, shall be liable in a
civil action for infringement by the registrant for the remedies
hereinafter set forth: Provided, That the infringement takes place at
the moment any of the acts stated in Subsection 155.1 or this
subsection are committed regardless of whether there is actual
sale of goods or services using the infringing material.

The elements of the offense of trademark

infringement under the Intellectual Property Code are,
therefore, the following:
1. The trademark being infringed is registered in the Intellectual
Property Office;
2. The trademark is reproduced, counterfeited, copied, or colorably
imitated by the infringer;
3. The infringing mark is used in connection with the sale, offering
for sale, or advertising of any goods, business or services; or the
infringing mark is applied to labels, signs, prints, packages,
wrappers, receptacles or advertisements intended to be used upon
or in connection with such goods, business or services;
4. The use or application of the infringing mark is likely to cause
confusion or mistake or to deceive purchasers or others as to the
goods or services themselves or as to the source or origin of such
goods or services or the identity of such business; and
5. The use or application of the infringing mark is without the
consent of the trademark owner or the assignee thereof.

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47

The DOJ filed 2 informations in the RTC of Las Pinas

City charging Diaz with violation of Sec. 155 in
relation to Sec. 170, of RA 8293 The IP code of the
Phils. Diaz allegedly with criminal intent defrauded
Levis Strauss Phils. by reproducing, counterfeiting
and colorably imitating Levis registered trademark
thereof such as the arcuate design, two horse brand,
two horse patch, two horse label with patterned
arcuate design, tab and composite arcuate design
and sold offered for sale, manufactured, distributed
counterfeit patches and jeans which likely caused
confusion, mistake and or deceived the general
consuming public without the consent, permit and
authority of the registered owner. Diaz entered a plea
of not guilty to the said two counts.

ISSUES:
Whether Diaz is guilty in violating sec 155 in relation
to sec 170 of the IP Code.

As can be seen, the likelihood of confusion is the

gravamen of the offense of trademark infringement.
There are two tests to determine the likelihood of
confusion, namely: the dominancy test and the
holistic test. The dominancy test focuses on the
similarity of the main, prevalent or essential
features of the competing trademarks that might
cause confusion. Infringement takes place when the
competing trademark contains the essential features
of another. Imitation or an effort to imitate is
unnecessary. The question is whether the use of the
marks is likely to cause confusion or deceive
purchasers.
The holistic test considers the
entirety of the marks, including 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.
In trademark cases, no set rules can be deduced
because each case must be decided on its merits,
precedent must be studied in the light of the facts of
the particular case. That is the reason why in
trademark cases, jurisprudential precedents should
be applied only to a case if they are specifically in
point.

Applying the Holistic Test, the court ruled that there

was no infringement. 1.) Diaz used the trademark LS
JEANS TAILORING for the jeans he produced and
sold in his tailoring shops. His trademark was visually
and aurally different from the trademark, LEVI
STRAUSS & CO. 2.) In Levis there is a two horse

21

Mighty Corp vs E & J

Gallo Winery
G.R. NO. 154342 - JULY 14, 2004

FACTS:
Respondent Gallo Winery is a foreign corporation not
doing business in the Philippines. Gallo Winery
produces different kinds of wines and brandy
products and sells them in many countries under
different registered trademarks, including the GALLO
and ERNEST & JULIO GALLO wine trademarks.
Gallo wine trademark was registered in the
Philippines, also applied for its ERNEST & JULIO
GALLO wine trademark but records did not disclose if
it was approved.
Petitioners Mighty Corporation and La Campana and
their sister company, Tobacco Industries of the
Philippines are engaged in the cultivation,
manufacture, distribution and sale of tobacco
products for which they have been using the GALLO
cigarette trademark since 1973.
BIR approved Tobacco Industries use of Gallo 100s
cigarette and filter mark. On 1984, Tobacco Inds.
Assigned Gallo cigarette to La Campana which has
La Campanas 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

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48

The case of Emerald Garments v. CA which involved

an alleged trademark infringement of jeans products
is worth referring to. Accordingly, the jeans trademark
of Levis Phils and Diaz must be considered as a
whole in determining the likelihood of confusion
between them. The ordinary purchaser, accustomed
to buy and therefore to some extent familiar with, the
goods in question. The test of fraudulent simulation is
to be found in the likelihood of the deception of some
persons in some measure acquainted with an
established design and desirous of purchasing the
commodity with which that design has been
associated. The simulation, in order to be
objectionable, must be such as appears likely to
mislead the ordinary intelligent buyer who has a need
to supply and is familiar with the article that seeks to
purchase.

design on its patch but on Diazs it was a buffalo

design. The horse and buffalo are two different
animals which an ordinary customer can distinguish.
3.) The RED TAB on respondent states, LEVIS
while that of Diazs was the letter LSJT again, even
an ordinary customer can distinguish the words that
they actually differ from each other. 4.) in terms of
customer based, Levis was for the upper A and B
market and sold only in shopping malls while Diazs
was for the lower C & D market and sold only in his
tailoring shops. Given the foregoing, it should be plain
that there was no likelihood of confusion between the
trademarks involved. Thereby the evidence of guilt
did not satisfy the quantum of proof required for the
criminal conviction, which is proof beyond reasonable
doubt.

brand. Petitioners claim that GALLO cigarettes have

been sold in the Philippines since 1973, initially by
Tobacco Industries, then by La Campana and finally
by Mighty Corporation.
Respondents sued petitioners in the Makati RTC for
trademark and tradename infringement and unfair
competition, with a prayer for damages and
preliminary injunction.
Respondents charged petitioners with violating Article
6 of the Paris Convention for the Protection of
Industrial Property (Paris Convention) and RA 166
(Trademark Law) for trademark infringement, unfair
competition and false designation of origin, and
tradename infringement.

Petitioners alleged 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; GALLO cigarettes, sold at P4.60
for GALLO filters and P3 for GALLO menthols, were
low-cost items compared to Gallo Winerys highpriced luxury wines which cost between P98 to
P242.50; 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; by their inaction and conduct, respondents
were guilty of laches and estoppel; and petitioners
acted with honesty, justice and good faith in the

RTC
Makati RTC denied, for lack of merit, respondents
prayer for the issuance of a writ of preliminary
injunction, holding that respondents GALLO
trademark registration certificate covered wines only,
that respondents wines and petitioners cigarettes
were not related goods and respondents failed to
prove material damage or great irreparable injury as
required by Section 5, Rule 58 of the Rules of Court.
Motion for reconsideration was also denied. The court
reiterated that respondents wines and petitioners
cigarettes were not related goods since the likelihood
of deception and confusion on the part of the
consuming public was very remote. The trial court
emphasized that it could not rely on foreign rulings
cited by respondents because these cases were
decided by foreign courts on the basis of unknown
facts peculiar to each case or upon factual
surroundings which may exist only within their
jurisdiction. Moreover, there was no showing that
these cases had been tested or found applicable in
our jurisdiction.
CA
Dismissed respondents petition for review on
certiorari, and affirming RTCs denial of the
application of PI.
After trial on merits RTC held petitioners liable for,
and permanently enjoined them from, committing
trademark infringement and unfair competition with
respect to the GALLO trademark.
ISSUE:
1. Whether RA 8293 (Intellectual Property Code of
the Philippines [IP Code]) was applicable in this case.
2. Whether GALLO cigarettes and GALLO wines
were identical, similar or related goods for the reason
alone that they were purportedly forms of vice.
3. Whether petitioners were liable for trademark
infringement, unfair competition and damages.
HELD:
1. No.

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49

They claimed that 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. Respondents prayed for the issuance
of a writ of preliminary injunction and ex parte
restraining order, and damages.

exercise of their right to manufacture and sell GALLO

cigarettes.

The trademark law and the Paris Convention are

the applicable laws, not the intellectual property
code
Note that respondents sued petitioners on March 12,
1993 for trademark infringement and unfair
competition committed during the effectivity of the
Paris Convention and the Trademark Law.
Yet, in the Makati RTC decision of November 26,
1998, petitioners were held liable not only under the
aforesaid governing laws but also under the IP Code
which took effect only on January 1, 1998,
Defendants unauthorized use of the GALLO
trademark constitutes trademark infringement
pursuant to Section 22 of Republic Act No. 166,
Section 155 of the IP Code, Article 6bis of the Paris
Convention, and Article 16 (1) of the TRIPS
Agreement as it causes confusion, deception and
mistake on the part of the purchasing public.
Appellants use of the GALLO trademark on its
cigarettes is likely to create confusion with the GALLO
trademark on wines previously registered and used in
the Philippines by appellee E & J Gallo Winery, the
trial court thus did not err in holding that appellants
acts not only violated the provisions of the our
trademark laws (R.A. No. 166 and R.A. Nos. 8293)
but also Article 6thof the Paris Convention.
The RTC erred in retroactively applying IP code in this
case. A law that is not yet effective cannot be consider
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. Any doubt
must generally be resolved against the retroactive
operation of laws, whether these are original
enactments, amendments or repeals.
2. No. GALLO cigarettes and GALLO wines are not
identical, similar or related goods.

The law on unfair competition is broader and more

inclusive than the law on trademark infringement. The
latter is more limited but it recognizes a more
exclusive right derived from the trademark adoption
and registration by the person whose goods or

Del Monte Corporation vs. Court of Appeals

distinguished trademark infringement from unfair
competition:
(1) Infringement of trademark is the unauthorized use of a
trademark, whereas unfair competition is the passing off of one's
goods as those of another.
(2) In infringement of trademark fraudulent intent is unnecessary,
whereas in unfair competition fraudulent intent is essential.
(3) In infringement of trademark the prior registration of the
trademark is a prerequisite to the action, whereas in unfair
competition registration is not necessary.

Paris Convention protects well-known trademarks

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

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50

Distinctions between trademark infringement and

unfair competition

business is first associated with it. The law on

trademarks is thus a specialized subject distinct from
the law on unfair competition, although the two
subjects are entwined with each other and are dealt
with together in the Trademark Law. Hence, even if
one fails to establish his exclusive property right to a
trademark, he may still obtain relief on the ground of
his competitors unfairness or fraud. Conduct
constitutes unfair competition if the effect is to pass
off on the public the goods of one man as the goods
of another. It is not necessary that any particular
means should be used to this end.

The actual commercial use in the Philippines of

Gallo cigarette trademark preceded that of Gallo
Wine trademark
GALLO wine trademark was registered in Nov 1971
but wine was first marketed and sold in the only in
1974. To prove commercial use of the GALLO wine
trademark in the Philippines, respondents presented
sales invoice. The invoices were for the sale and
shipment of GALLO wines to the Philippines during
that period. But nothing proves the sales of Gallo in
the Philippines.
Rulings in Pagasa Industrial Corp. v. Court of Appeals
(118 SCRA 526 [1982]) and Converse Rubber Corp.
v. Universal Rubber Products, Inc., (147 SCRA 154
[1987]), respectively, are instructive: the Trademark
Law is very clear. It requires actual commercial use
of the mark prior to its registration.

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 registrants
express or implied consent and other fair and
equitable considerations.
Petitioners and respondents both use GALLO in the
labels of their respective cigarette and wine products.
But, the use of an identical mark does not, by itself,
lead to a legal conclusion that there is trademark
infringement.
Jurisprudence has developed two tests in
determining similarity and likelihood of confusion in
trademark resemblance:
(a) The Dominancy Test applied in Asia Brewery,
Inc. vs. Court of Appeals

Respondents GALLO trademark registration is

limited towines only

(b) The Holistic or Totality Test used in Del Monte

Corporation vs. Court of Appeals

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. 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.

The Dominancy Test focuses on the similarity of the

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

No likelihood of confusion, mistake or deceit as

to the identity or source of petitioners and
respondents goods or business

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51

The Trademark Law is very clear. It requires actual commercial use

of the mark prior to its registration. There is no dispute that
respondent corporation was the first registrant, yet it failed to fully
substantiate its claim that it used in trade or business in the
Philippines the subject mark; it did not present proof to invest it with
exclusive, continuous adoption of the trademark which should
consist among others, of considerable sales since its first use. The
invoices submitted by respondent which were dated way back in
1957 show that the zippers sent to the Philippines were to be used
as samples and of no commercial value. The evidence for
respondent must be clear, definite and free from inconsistencies.
Samples are not for sale and therefore, the fact of exporting them
to the Philippines cannot be considered to be equivalent to the use
contemplated by law. Respondent did not expect income from such
samples. There were no receipts to establish sale, and no proof
were presented to show that they were subsequently sold in the
Philippines.

There are two types of confusion in trademark

infringement. The first is confusion of goods when
an otherwise prudent purchaser is induced to
purchase one product in the belief that he is
purchasing another, in which case defendants 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 defendants 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.

On the other hand, the Holistic Test requires that the

entirety of the marks in question be considered in
resolving confusing similarity. Comparison of words is
not the only determining factor. The trademarks in
their entirety as they appear in their respective labels
or hang tags must also be considered in relation to
the goods to which they are attached. The discerning
eye of the observer must focus not only on the
predominant words but also on the other features
appearing in both labels in order that he may draw his
conclusion whether one is confusingly similar to the
other.
Applying the Dominancy and Holistic Tests, we find
that the dominant feature of the GALLO cigarette
trademark is the device of a large rooster facing left,
outlined in black against a gold background. The
roosters color is either green or red green for GALLO
menthols and red for GALLO filters. Directly below the
large rooster device is the word GALLO. The rooster
device is given prominence in the GALLO cigarette
packs in terms of size and location on the labels.
The GALLO mark appears to be a fanciful and
arbitrary mark for the cigarettes as it has no relation
at all to the product but was chosen merely as a
trademark due to the fondness for fighting cocks of
the son of petitioners president. Furthermore,
petitioners adopted GALLO, the Spanish word for
rooster, as a cigarette trademark to appeal to one of
their target markets, the sabungeros.
Also, as admitted by respondents themselves, on the
side of the GALLO cigarette packs are the words
MADE BY MIGHTY CORPORATION, thus clearly
informing the public as to the identity of the
manufacturer of the cigarettes.

unlike petitioners uniform casque-font bold-lettered

GALLO mark.
Moreover, on the labels of Gallo Winerys wines are
printed the words VINTED AND BOTTLED BY
ERNEST
&
JULIO
GALLO,
MODESTO,
CALIFORNIA.
The many different features like color schemes, art
works and other markings of both products drown out
the similarity between them the use of the word
GALLO a family surname for the Gallo Winerys
wines and a Spanish word for rooster for petitioners
cigarettes.
Wines and cigarettes are not identical, similar,
competing or related goods
Confusion of goods is evident where the litigants are
actually in competition; but confusion of business may
arise between non-competing interests as well.
Non-competing goods may be those which, though
they are not in actual competition, are so related to
each other that it can reasonably be assumed that
they originate from one manufacturer, in which case,
confusion of business can arise out of the use of
similar marks. They may also be those which, being
entirely unrelated, cannot be assumed to have a
common source; hence, there is no confusion of
business, even though similar marks are used. Thus,
there is no trademark infringement if the public does
not expect the plaintiff to make or sell the same class
of goods as those made or sold by the defendant.
In resolving whether goods are related, several
factors come into play:

On the other hand, GALLO Winerys wine and brandy

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

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

(c) the product's quality, quantity, or size, including the nature of
the package, wrapper or container
(d) the nature and cost of the articles
(e) the descriptive properties, physical attributes or essential
characteristics with reference to their form, composition, texture or
quality
(f) the purpose of the goods
(g) whether the article is bought for immediate consumption, that
is, day-to-day household items

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52

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

(h) the fields of manufacture

(i) the conditions under which the article is usually purchased and
(j) the channels of trade through which the goods flow, how they
are distributed, marketed, displayed and sold.

In the adjudication of trademark infringement, we give

due regard to the goods usual purchasers character,
attitude, habits, age, training and education.
Applying these legal precepts to the present case,
petitioners use of the GALLO cigarette trademark is
not likely to cause confusion or mistake, or to deceive
the ordinarily intelligent buyer of either wines or
cigarettes or both as to the identity of the goods, their
source and origin, or identity of the business of
petitioners and respondents.
Obviously, wines and cigarettes are not identical or
competing products. Neither do they belong to the
same class of goods. Respondents GALLO wines
belong to Class 33 under Rule 84[a] Chapter III, Part
II of the Rules of Practice in Trademark Cases while
petitioners GALLO cigarettes fall under Class 34.
Both the Makati RTC and the CA held that wines and
cigarettes are related products because: (1) they are
related forms of vice, harmful when taken in excess,
and used for pleasure and relaxation and (2) they are
grouped or classified in the same section of
supermarkets and groceries. We find these premises
patently insufficient and too arbitrary to support the
legal conclusion that wines and cigarettes are related
products within the contemplation of the Trademark
Law and the Paris Convention.
Wines and cigarettes are non-competing and are
totally unrelated products not likely to cause
confusion vis--vis the goods or the business of the
petitioners and respondents.

GALLO cigarettes are inexpensive items while

GALLO wines are not. GALLO wines are patronized
by middle-to-high-income earners while GALLO
cigarettes appeal only to simple folks like farmers,

GALLO cigarettes and GALLO wines are not sold

through the same channels of trade. GALLO
cigarettes are Philippine-made and petitioners neither
claim nor pass off their goods as imported or
emanating from Gallo Winery. GALLO cigarettes are
distributed, marketed and sold through ambulant and
sidewalk vendors, small local sari-sari stores and
grocery stores in Philippine rural areas, mainly in
Misamis Oriental, Pangasinan, Bohol, and Cebu. On
the other hand, GALLO wines are imported,
distributed and sold in the Philippines through Gallo
Winerys exclusive contracts with a domestic entity,
which is currently Andresons. By respondents own
testimonial evidence, GALLO wines are sold in
hotels, expensive bars and restaurants, and high-end
grocery stores and supermarkets, not through sarisari stores or ambulant vendors.
In short, tobacco and alcohol products may be
considered related only in cases involving special
circumstances which exist only if a famous mark is
involved and there is a demonstrated intent to
capitalize on it. Both of these are absent in the
present case.
The Gallo wine trademark is not a well-known
mark in the contextof the Paris Convention in
this case since wines and cigarettes are not
identical or similar goods
We agree with public respondents that the controlling
doctrine with respect to the applicability of Article 8 of
the Paris Convention is that established in Kabushi
Kaisha Isetan vs. Intermediate Appellate Court (203
SCRA 59 [1991]). As pointed out by the BPTTT:
Regarding the applicability of Article 8 of the Paris Convention, this
Office believes that there is no automatic protection afforded an
entity whose tradename is alleged to have been infringed
through the use of that name as a trademark by a local entity.

In Kabushiki Kaisha Isetan vs. The Intermediate

Appellate Court, et. al., G.R. No. 75420, 15
November 1991, the Honorable Supreme Court held
that:

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53

Wines are bottled and consumed by drinking

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

fishermen, laborers and other low-income workers.

Indeed, the big price difference of these two products
is an important factor in proving that they are in fact
unrelated and that they travel in different channels of
trade. There is a distinct price segmentation based on
vastly different social classes of purchasers.

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.

GALLO mark for their cigarettes which are totally

unrelated to respondents GALLO wines. Thus, we
rule out trademark infringement on the part of
petitioners.

The then Minister of Trade and Industry, the Hon. Roberto V.

Ongpin, issued a memorandum dated 25 October 1983 to the
Director of Patents, a set of guidelines in the implementation of
Article 6bis of the Treaty of Paris. These conditions are:

Petitioners are
competition

a) the mark must be internationally known;

b) the subject of the right must be a trademark, not a patent or
copyright or anything else;
c) the mark must be for use in the same or similar kinds of goods;
and
d) the person claiming must be the owner of the mark

The GALLO trademark cannot be considered a strong

and distinct mark in the Philippines. Respondents do
not dispute the documentary evidence that aside from
Gallo Winerys GALLO trademark registration. GALLO
cannot be considered a well-known mark within the
contemplation and protection of the Paris Convention
in this case since wines and cigarettes are not
identical or similar goods.

Respondents claim that GALLO wines and GALLO

cigarettes flow through the same channels of trade,
that is, retail trade. If respondents assertion is true,
then both goods co-existed peacefully for a
considerable period of time. It took respondents
almost 20 years to know about the existence of
GALLO cigarettes and sue petitioners for trademark
infringement. Given, on one hand, the long period of
time that petitioners were engaged in the
manufacture, marketing, distribution and sale of
GALLO cigarettes and, on the other, respondents
delay in enforcing their rights we hold that equity,
justice and fairness require us to rule in favor of
petitioners. The scales of conscience and reason tip
far more readily in favor of petitioners than
respondents.
There exists no evidence that petitioners employed
malice, bad faith or fraud, or that they intended to
capitalize on respondents goodwill in adopting the

also

not

liable

for

unfair

Section 29 of the Trademark Law, any person who

employs deception or any other means contrary to
good faith by which he passes off the goods
manufactured by him or in which he deals, or his
business, or services for those of the one having
established such goodwill, or who commits any acts
calculated to produce said result, is guilty of unfair
competition.
The universal test question is whether the public is
likely to be deceived. Nothing less than conduct
tending to pass off one mans goods or business as
that of another constitutes unfair competition. Actual
or probable deception and confusion on the part of
customers by reason of
Defendants practices must always appear. On this
score, we find that petitioners never attempted to
pass off their cigarettes as those of respondents.
There is no evidence of bad faith or fraud imputable
to petitioners in using their GALLO cigarette mark.
All told, after applying all the tests provided by the
governing laws as well as those recognized by
jurisprudence, we conclude that petitioners are not
liable for trademark infringement, unfair competition
or damages.

22

Sehwani Inc vs In-NOut Burger Inc

G.R. NO. 171053 - OCTOBER 15,
2007

FACTS:
IN-N-OUT BURGER, INC., is a business entity
incorporated under the laws of California. It is a
signatory to the Convention of Paris on Protection of
Industrial Property and the TRIPS Agreement. It is

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54

Consent of the Registrant and Other air, Just and

Equitable Considerations

3. No.

engaged mainly in the restaurant business, but it has

never engaged in business in the Philippines.

ISSUE:
Whether there was unfair competition.

Sehwani, Incorporated and Benita Frites, Inc. are

corporations organized in the Philippines

HELD:
Yes. The evidence on record shows that Sehwani Inc.
and Benita Frites were not using their registered
trademark but that of In-n-Out Burger. Sehwani and
Benita Frites are also giving their products the
general appearance that would likely influence the
purchasers to believe that their products are that of
In-N-Out Burger. The intention to deceive may be
inferred from the similarity of the goods as packed
and offered for sale, and, thus, an action will lie to
restrain unfair competition. The respondents
fraudulent intention to deceive purchasers is also
apparent in their use of the In-N-Out Burger in
business signages.

Sehwani filed with the BPTTT an application for the

registration of the mark IN N OUT (the inside of the
letter O formed like a star). Its application was
approved and a certificate of registration was issued
in its name and entered into a Licensing Agreement,
wherein the former entitled the latter to use its
registered mark, IN N OUT.
In-N-Out Burger filed trademark and service mark
applications with the Bureau of Trademarks for the
IN-N-OUT and IN-N-OUT Burger & Arrow Design.
In-N-Out Burger found out that Sehwani, Inc. had
already obtained Trademark Registration for the mark
IN N OUT (the inside of the letter O formed like a
star). In-N-Out Burger sent a demand letter directing
Sehwani, Inc. to cease and desist from claiming
ownership of the mark IN-N-OUT and to voluntarily
cancel its trademark registration. Sehwani Inc. did not
accede to In-N-Out Burgers demand but it expressed
its willingness to surrender its registration for a
consideration.
Respondent filed a complaint for violation of
intellectual property rights. In their answer with
counterclaim, petitioners alleged that respondent lack
the legal capacity to sue because it was not doing
business in the Philippines and that it has no cause of
action because its mark is not registered or used in
the Philippines. Petitioner Sehwani, Inc. also claimed
that as the registered owner of the IN-N-OUT mark, it
enjoys the presumption that the same was validly
acquired and that it has the exclusive right to use the
mark.

CA dismissed for lack of merit. It held that the right to

appeal is not a natural right or a part of due process,
but a procedural remedy of statutory origin, hence, its
requirements must be strictly complied with.

Article 6bis which governs the protection of wellknown trademarks, is a self-executing provision and
does not require legislative enactment to give it effect
in the member country. It may be applied directly by
the tribunals and officials of each member country by
the mere publication or proclamation of the
Convention, after its ratification according to the
public law of each state and the order for its
execution. The essential requirement under this
Article is that the trademark to be protected must be
"well-known" in the country where protection is
sought. The power to determine whether a trademark
is well-known lies in the competent authority of the
country of registration or use. This competent
authority would be either the registering authority if it
has the power to decide this, or the courts of the
country in question if the issue comes before a court.

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55

Bureau Director Estrellita Beltran-Abelardo rendered

Decision finding that respondent has the legal
capacity to sue and that it is the owner of the
internationally well-known trademarks; however, she
held that petitioners are not guilty of unfair
competition

The essential elements of an action for unfair

competition are (1) confusing similarity in the general
appearance of the goods and (2) intent to deceive the
public and defraud a competitor. The confusing
similarity may or may not result from similarity in the
marks, but may result from other external factors in
the packaging or presentation of the goods. The
intent to deceive and defraud may be inferred from
the similarity of the appearance of the goods as
offered for sale to the public. Actual fraudulent intent
need not be shown.

23

Fredco Mfg Corp. vs

President and Fellows

of Harvard Col.

the mark Harvard Jeans USA, Established 1936, and

Cambridge, Massachusetts. On 20 April 2004,
Harvard University filed an administrative complaint
against Fredco before the IPO for trademark
infringement and/or unfair competition with damages.
BLA

G.R. NO. 185917 - JUNE 1, 2011

FACTS:
Petitioner Fredco Manufacturing Corporation, a
corporation organized and existing under the laws of
the Philippines, filed a Petition for Cancellation of
Registration No. 56561 before the Bureau of Legal
Affairs of the Intellectual Property Office against
respondents President and Fellows of Harvard
College.
Fredco alleged that Registration No. 56561 was
issued to Harvard University that the mark Harvard for
t-shirts, polo shirts, sandos, briefs, jackets and slacks
was first used in the Philippines by New York
Garments Manufacturing & Export Co., Inc.

Harvard University alleged that it discovered, through

its international trademark watch program, Fredcos
website
www.harvard-usa.com.
The
website
advertises and promotes the brand name Harvard
Jeans USA without Harvard Universitys consent. The
websites main page shows an oblong logo bearing

Director General ruled that more than the use of the

trademark in the Philippines, the applicant must be
the owner of the mark sought to be registered. The
right to register a trademark is based on ownership
and when the applicant is not the owner, he has no
right to register the mark. The Director General noted
that the mark covered by Harvard Universitys
Registration No. 56561 is not only the word Harvard
but also the logo, emblem or symbol of Harvard
University. The Director General ruled that Fredco
failed to explain how its predecessor New York
Garments came up with the mark Harvard. In
addition, there was no evidence that Fredco or New
York Garments was licensed or authorized by
Harvard University to use its name in commerce or for
any other use.
CA
Court of Appeals affirmed the decision of the Office of
the Director General of the IPO.
CA adopted the findings of the Office of the Director
General and ruled that the latter correctly set aside
the cancellation by the Director of the Bureau of Legal
Affairs of Harvard Universitys trademark registration
under Class 25, Harvard University was able to
substantiate that it appropriated and used the marks
Harvard and Harvard Veritas Shield Symbol in Class
25 way ahead of Fredco and its predecessor New
York Garments.
ISSUE:
Whether Court of Appeals committed a reversible
error in affirming the decision of the Office of the

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56

New York Garments filed for trademark registration of

the mark Harvard for goods under Class 2, but
matured into a registration and a Certificate of
Registration and was later assigned to Romeo
Chuateco, a member of the family that owned New
York Garments. Fredco alleged that at the time of
issuance of Registration No. 56561 to Harvard
University, New York Garments had already
registered the mark Harvard for goods under Class
25. Fredco alleged that the registration was cancelled
on 30 July 1998 when New York Garments
inadvertently failed to file an affidavit of use/non-use
on the fifth anniversary of the registration but the right
to the mark Harvard remained with its predecessor
New York Garments and now with Fredco. Harvard
University, on the other hand, alleged that it is the
lawful owner of the name and mark Harvard in
numerous countries worldwide, including the
Philippines.

Dir. Abelardo, IPO cancelled Harvard University

registration of the mark Harvard under Class 25.
Harvard University filed an appeal before the Office of
the Director General of the IPO. The Office of the
Director General, IPO reversed the decision of the
Bureau of Legal Affairs, IPO.

Director General of the IPO.

HELD:
Petition has no merit.
There is no dispute that the mark Harvard used by
Fredco is the same as the mark Harvard t is also
unrefuted that Harvard University has been using the
mark Harvard in commerce since 1872. It is also
established that Harvard University has been using
the marks Harvard and Harvard Veritas Shield
Symbol for Class 25 goods in the United States since
1953. Further, there is no dispute that Harvard
University has registered the name and mark Harvard
in at least 50 countries.
Under Section 2 of Republic Act No. 166, before a
trademark can be registered, it must have been
actually used in commerce for not less than two
months in the Philippines prior to the filing of an
application for its registration. While Harvard
University had actual prior use of its marks abroad for
a long time, it did not have actual prior use in the
Philippines of the mark Harvard Veritas Shield
Symbol before its application for registration of the
mark Harvard with the then Philippine Patents Office.
However, Harvard Universitys registration of the
name Harvard is based on home registration which is
allowed under Section 37 of R.A. No. 166.
Two compelling reasons why Fredcos petition must
fail.

Fredcos use of the mark Harvard, coupled with its

claimed origin in Cambridge, Massachusetts,
obviously suggests a false connection with Harvard
University. On this ground alone, Fredcos registration
of the mark Harvard should have been disallowed,
and does not have any affiliation or connection with
Harvard University

ARTICLE 6bis
(i) The countries of the Union undertake either
administratively if their legislation so permits, or at the
request of an interested party, to refuse or to cancel the
registration and to prohibit the use of a trademark which
constitutes a reproduction, imitation or translation, liable to
create confusion or a mark considered by the competent
authority of the country as being already the mark of a
person entitled to the benefits of the present
Convention and used for identical or similar goods.
These provisions shall also apply when the essential
part of the mark constitutes a reproduction of any such
well-known mark or an imitation liable to create
confusion therewith.
ARTICLE 8
A trade name 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.

This Court has ruled that the Philippines is obligated

to assure nationals of countries of the Paris
Convention that they are afforded an effective
protection against violation of their intellectual
property rights in the Philippines in the same way that
their own countries are obligated to accord similar
protection to Philippine nationals.
Under Philippine law, a trade name of a national of a
State that is a party to the Paris Convention, whether
or not the trade name forms part of a trademark, is
protected without the obligation of filing or
registration. Harvard is the trade name of the world
famous Harvard University, and it is also a trademark
of Harvard University. Under Article 8 of the Paris
Convention, as well as Section 37 of R.A. No. 166,
Harvard University is entitled to protection in the
Philippines of its trade name Harvard even without
registration of such trade name in the Philippines.
This means that no educational entity in the
Philippines can use the trade name Harvard without
the consent of Harvard University. Likewise, no entity
in the Philippines can claim, expressly or impliedly

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57

First, Fredcos registration of the mark Harvard and its

identification of origin as Cambridge, Massachusetts
falsely suggest that Fredco or its goods are
connected with Harvard University, which uses the
same mark Harvard and is also located in Cambridge,
Massachusetts. This can easily be gleaned from the
following oblong logo of Fredco that it attaches to its
clothing line.

Second, the Philippines and the United States of

America are both signatories to the Paris Convention
for the Protection of Industrial Property (Paris
Convention). The Philippines became a signatory to
the Paris Convention on 27 September 1965. Articles
6bis and 8 of the Paris Convention.

through the use of the name and mark Harvard, that

its products or services are authorized, approved, or
licensed by, or sourced from, Harvard University
without the latters consent.
In Mirpuri, the Court ruled that the essential
requirement under Article 6bis of the Paris
Convention is that the trademark to be protected must
be well-known in the country where protection is
sought. The Court declared that the power to
determine whether a trademark is well-known lies in
the competent authority of the country of registration
or use. The Court then stated that the competent
authority would either be the registering authority if it
has the power to decide this, or the courts of the
country in question if the issue comes before the
courts.
To be protected under the two directives of the
Ministry of Trade, an internationally well-known mark
need not be registered or used in the Philippines. All
that is required is that the mark is well-known
internationally and in the Philippines for identical or
similar goods, whether or not the mark is registered
or used in the Philippines. The Court ruled in
Sehwani, Incorporated v. In-N-Out Burger, Inc.:
The fact that respondents marks are neither registered nor
used in the Philippines is of no moment. The scope of protection
initially afforded by Article 6bis of the Paris Convention has been
expanded in the 1999 Joint Recommendation Concerning
Provisions on the Protection of Well-Known Marks, wherein the
World Intellectual Property Organization (WIPO) General
Assembly and the Paris Union agreed to a nonbinding
recommendation that a well-known mark should be protected in
a country even if the mark is neither registered nor used in
that country. Part I, Article 2(3) thereof provides:
(3) [Factors Which Shall Not Be Required] (a) A Member State shall
not require, as a condition for determining whether a mark is a wellknown mark:
(i) that the mark has been used in, or that the mark has been
registered or that an application for registration of the mark has
been filed in or in respect of, the Member State:

(iii) that the mark is well known by the public at large in the Member
State.

Indeed, Section 123.1(e) of R.A. No. 8293 now

Rule 102. Criteria for determining whether a mark is well-known. In

determining whether a mark is well-known, the following criteria or
any combination thereof may be taken into account:
(a) the duration, extent and geographical area of any use of the
mark, in particular, the duration, extent and geographical area of
any promotion of the mark, including advertising or publicity and
the presentation, at fairs or exhibitions, of the goods and/or
services to which the mark applies;
(b) the market share, in the Philippines and in other countries, of
the goods and/or services to which the mark applies;
(c) the degree of the inherent or acquired distinction of the mark;
(d) the quality-image or reputation acquired by the mark;
(e) the extent to which the mark has been registered in the world;
(f) the exclusivity of registration attained by the mark in the world;
(g) the extent to which the mark has been used in the world;
(h) the exclusivity of use attained by the mark in the world;
(i) the commercial value attributed to the mark in the world;
(j) the record of successful protection of the rights in the mark;
(k) the outcome of litigations dealing with the issue of whether the
mark is a well-known mark; and
(l) the presence or absence of identical or similar marks validly
registered for or used on identical or similar goods or services and
owned by persons other than the person claiming that his mark is
a well-known mark.

Since any combination of the foregoing criteria is

sufficient to determine that a mark is well-known, it is
clearly not necessary that the mark be used in
commerce in the Philippines. Thus, while under the
territoriality principle a mark must be used in
commerce in the Philippines to be entitled to

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(ii) that the mark is well known in, or that the mark has been
registered or that an application for registration of the mark has
been filed in or in respect of, any jurisdiction other than the Member
State; or

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. Section
123.1(e) does not require that the well-known mark
be used in commerce in the Philippines but only that
it be well-known in the Philippines. Moreover, Rule
102 of the Rules and Regulations on Trademarks,
Service Marks, Trade Names and Marked or
Stamped Containers, which implement R.A. No.
8293, provides:

protection, internationally well-known marks are the

exceptions to this rule.
In the assailed Decision of the Office of the Director
General dated 21 April 2008, the Director General
found that:
Traced to its roots or origin, HARVARD is not an ordinary word. It
refers to no other than Harvard University, a recognized and
respected institution of higher learning located in Cambridge,
Massachusetts, U.S.A. Initially referred to simply as the new
college, the institution was named Harvard College on 13 March
1639, after its first principal donor, a young clergyman named John
Harvard. A graduate of Emmanuel College, Cambridge in England,
John Harvard bequeathed about four hundred books in his will to
form the basis of the college library collection, along with half his
personal wealth worth several hundred pounds. The earliest known
official reference to Harvard as a university rather than college
occurred in the new Massachusetts Constitution of 1780.
Records also show that the first use of the name HARVARD was
in 1638 for educational services, policy courses of instructions and
training at the university level. It has a Charter. Its first commercial
use of the name or mark HARVARD for Class 25 was on 31
December 1953 covered by UPTON Reg. No. 2,119,339 and
2,101,295. Assuming in arguendo, that the Appellate may have
used the mark HARVARD in the Philippines ahead of the Appellant,
it still cannot be denied that the Appellants use thereof was
decades, even centuries, ahead of the Appellees. More
importantly, the name HARVARD was the name of a person whose
deeds were considered to be a cornerstone of the university. The
Appellants logos, emblems or symbols are owned by Harvard
University. The name HARVARD and the logos, emblems or
symbols are endemic and cannot be separated from the institution.

Finally, in its assailed Decision, the Court of Appeals

ruled:

The mark Harvard College was first used in commerce in the United
States in 1638 for educational services, specifically, providing
courses of instruction and training at the university level (Class 41).
Its application for registration with the United States Patent and
Trademark Office was filed on September 20, 2000 and it was
registered on October 16, 2001. The marks Harvard and Harvard
Ve ri tas Shield Symbol were first used in commerce in the the
United States on December 31, 1953 for athletic uniforms, boxer
shorts, briefs, caps, coats, leather coats, sports coats, gym shorts,
infant jackets, leather jackets, night shirts, shirts, socks, sweat
pants, sweatshirts, sweaters and underwear (Class 25). The
applications for registration with the USPTO were filed on
September 9, 1996, the mark Harvard was registered on December
9, 1997 and the mark Harvard Ve ri tas Shield Symbol was
registered on September 30, 1997.

There is no question then, and this Court so declares,

that Harvard is a well-known name and mark not only
in the United States but also internationally, including
the Philippines. The mark Harvard is rated as one of
the most famous marks in the world. It has been
registered in at least 50 countries. It has been used
and promoted extensively in numerous publications
worldwide. It has established a considerable goodwill
worldwide since the founding of Harvard University
more than 350 years ago. It is easily recognizable as
the trade name and mark of Harvard University of
Cambridge, Massachusetts, U.S.A., internationally
known as one of the leading educational institutions
in the world. As such, even before Harvard University
applied for registration of the mark Harvard in the
Philippines, the mark was already protected under
Article 6bis and Article 8 of the Paris Convention.
Again, even without applying the Paris Convention,
Harvard University can invoke Section 4(a) of R.A.
No. 166 which prohibits the registration of a mark
which may disparage or falsely suggest a connection
with persons, living or dead, institutions.

27

Sasot vs. People

GR NO. 143193 - JUNE 29, 2005

FACTS:
Sometime in May 1997, the
National Bureau of Investigation (NBI) conducted an
investigation pursuant to a complaint by the NBA
Properties, Inc., against petitioners for possible
violation of Article 189 of the RPC on unfair
competition. In its Report, the NBI stated that NBA
Properties, Inc., is a foreign corporation organized
under the laws of the United States of America, and
is the registered owner of NBA trademarks and
names of NBA basketball teams. These names are
used on hosiery, footwear, t-shirts, sweatshirts, tank
tops, pajamas, sport shirts, and other garment

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59

Records show that Harvard University is the oldest and one of the
foremost educational institutions in the United States, it being
established in 1636. It is located primarily in Cambridge,
Massachusetts and was named after John Harvard, a puritan
minister who left to the college his books and half of his estate.

We also note that in a Decision dated 18 December

2008 involving a separate case between Harvard
University and Streetward International, Inc., the
Bureau of Legal Affairs of the IPO ruled that the
mark Harvard is a well-known mark. This Decision,
which cites among others the numerous trademark
registrations of Harvard University in various
countries, has become final and executory.

products, which are allegedly registered with the

Bureau of Patents, Trademarks and Technology
Transfer. The Report further stated that during the
investigation, it was discovered that petitioners are
engaged in the manufacture, printing, sale, and
distribution of counterfeit NBA garment products.
Hence, it recommended petitioners prosecution for
unfair competition under Article 189 of the RPC.
In a Special Power of Attorney, Rick Welts, as
President of NBA Properties, Inc., constituted the law
firm of Ortega, Del Castillo, Bacorro, Odulio, Calma &
Carbonell, as the companys attorney-in-fact, and to
act for and on behalf of the company, in the filing of
criminal, civil and administrative complaints, among
others. The Special Power of Attorney was notarized
by Nicole Brown of New York County and certified by
Norman Goodman, County Clerk and Clerk of the
Supreme Court of the State of New York. Consul
Cecilia B. Rebong of the Consulate General of the
Philippines, New York, authenticated the certification.
Welts also executed a Complaint-Affidavit on, before
Notary Public Nicole J. Brown of the State of New
York.
Thereafter, in a Resolution, Prosecution Attorney
Aileen Marie S. Gutierrez recommended the filing of
an Information against petitioners for violation of
Article 189 of the RPC. The accusatory portion of the
Information reads:
That on or about May 9, 1997 and on dates prior thereto, in the City
of Manila, Philippines, and within the jurisdiction of this Honorable
Court, above named accused ALLANDALE SASOT and
MELBAROSE SASOT of Allandale Sportslines, Inc., did then and
there willfully, unlawfully and feloniously manufacture and sell
various garment products bearing the appearance of NBA names,
symbols and trademarks, inducing the public to believe that the
goods offered by them are those of NBA to the damage and
prejudice of the NBA Properties, Inc., the trademark owner of the
NBA.

Petitioners argue that the fiscal should have

dismissed Weltss complaint because under the rules,
the complaint must be sworn to before the prosecutor
and the copy on record appears to be only a fax
transmittal. They also contend that complainant is a
foreign corporation not doing business in the
Philippines, and cannot be protected by Philippine
patent laws since it is not a registered patentee.
Petitioners aver that they have been using the

ISSUE:
1. Whether a foreign corporation not engaged and
licensed to do business in the Philippines may
maintain a cause of action for unfair competition.
2. Whether a foreign corporation not engaged in
business and whose emblem it sought to protect is
not in actual use is entitled to the protection of the
Philippine law.
HELD:
1. Yes.
The crime of Unfair Competition punishable under
Article 189 of the RPC is a public crime. It is
essentially an act against the State and it is the latter
which principally stands as the injured party. The
complainants capacity to sue in such case becomes
immaterial.
In La Chemise Lacoste, S.A. vs. Fernandez, a case
akin to the present dispute, as it involved the crime of
Unfair Competition under Article 189 of the Revised
Penal Code, and the quashal of search warrants
issued against manufacturers of garments bearing
the same trademark as that of the petitioner, the Court
succinctly ruled that:
More important is the nature of the case which led to this petition.
What preceded this petition for certiorari was a letter-complaint filed
before the NBI charging Hemandas with a criminal offense, i.e.,
violation of Article 189 of the Revised Penal Code. If prosecution
follows after the completion of the preliminary investigation being
conducted by the Special Prosecutor the information shall be in the
name of the People of the Philippines and no longer the petitioner
which is only an aggrieved party since a criminal offense is
essentially an act against the State. It is the latter which is
principally the injured party although there is a private right violated.
Petitioner's capacity to sue would become, therefore, of not much
significance in the main case. We cannot allow a possible violator
of our criminal statutes to escape prosecution upon a far-fetched
contention that the aggrieved party or victim of a crime has no
standing to sue.

In upholding the right of the petitioner to maintain the

present suit before our courts for unfair competition or
infringement of trademarks of a foreign corporation,
we are moreover recognizing our duties and the rights
of foreign states under the Paris Convention for the

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CONTRARY TO LAW.

business name ALLANDALE SPORTSLINE, INC.

since 1972, and their designs are original and do not
appear to be similar to complainants, and they do not
use complainants logo or design.

Protection of Industrial Property to which the

Philippines and France are parties. We are simply
interpreting and enforcing a solemn international
commitment of the Philippines embodied in a
multilateral treaty to which we are a party and which
we entered into because it is in our national interest
to do so.
2.
Lastly, with regard to petitioners arguments that the
NBA Properties, Inc., is not entitled to protection
under Philippine patent laws since it is not a
registered patentee, that they have not committed
acts amounting to unfair competition for the reason
that their designs are original and do not appear to be
similar to complainants, and they do not use
complainants logo or design, the Court finds that
these are matters of defense that are better ventilated
and resolved during trial on the merits of the case.
WHERFORE, the petition is DENIED for lack of merit.
Let the records of this case be REMANDED to the
Regional Trial Court of Manila (Branch 24) where
Criminal Case No. 98-166147 is presently assigned,
for further proceedings with reasonable dispatch.

28

Levi Strauss & Co. vs.

Clinton Apparelle Inc.
GR NO. 138900 - SEPTEMBER 20,

2005

The Complaint alleged that LS & Co., a foreign

corporation duly organized and existing under the
laws of the State of Delaware, U.S.A., and engaged
in the apparel business, is the owner by prior adoption
and use since 1986 of the internationally famous
Dockers and Design trademark. This ownership is
evidenced by its valid and existing registrations in
various member countries of the Paris Convention. In
the Philippines, it has a Certificate of Registration No.

The Dockers and Design trademark was first used in

the Philippines in or about May 1988, by LSPI, a
domestic corporation engaged in the manufacture,
sale and distribution of various products bearing
trademarks owned by LS & Co. To date, LSPI
continues to manufacture and sell Dockers Pants with
the Dockers and Design trademark.
LS & Co. and LSPI further alleged that they
discovered the presence in the local market of jeans
under the brand name Paddocks using a device
which is substantially, if not exactly, similar to the
Dockers and Design trademark owned by and
registered in the name of LS & Co., without its
consent. Based on their information and belief, they
added, Clinton Apparelle manufactured and
continues to manufacture such Paddocks jeans and
other apparel.
ISSUE:
1. Whether there was confusion between the two
marks.
2. Whether the issuance of the writ of preliminary
injunction by the trial court was proper.
HELD:
1. No.
Petitioners anchor their legal right to Dockers and
Design trademark on the Certificate of Registration
issued in their favor by the Bureau of Patents,
Trademarks and Technology Transfer.* According to
Section 138 of Republic Act No. 8293, this Certificate
of Registration is prima facie evidence of the validity
of the registration, the registrants ownership of the
mark and of the exclusive right to use the same in
connection with the goods or services and those that
are related thereto specified in the certificate. Section
147.1 of said law likewise grants the owner of the
registered mark the exclusive right to prevent all third
parties not having the owners consent from using in
the course of trade identical or similar signs for goods
or services which are identical or similar to those in
respect of which the trademark is registered if such
use results in a likelihood of confusion.

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61

FACTS:
This case stemmed from the Complaint for
Trademark Infringement, Injunction and Damages
filed by petitioners LS & Co. and LSPI against
respondent Clinton Apparelle, Inc.* (Clinton Aparelle)
together with an alternative defendant, Olympian
Garments, Inc. (Olympian Garments), before the RTC
of Quezon City.

46619 in the Principal Register for use of said

trademark on pants, shirts, blouses, skirts, shorts,
sweatshirts and jackets under Class 25.

However, attention should be given to the fact that

petitioners registered trademark consists of two
elements: (1) the word mark Dockers and (2) the
wing-shaped design or logo. Notably, there is only
one registration for both features of the trademark
giving the impression that the two should be
considered as a single unit. Clinton Apparelles
trademark, on the other hand, uses the Paddocks
word mark on top of a logo which according to
petitioners is a slavish imitation of the Dockers
design. The two trademarks apparently differ in their
word marks (Dockers and Paddocks), but again
according to petitioners, they employ similar or
identical logos. It could thus be said that respondent
only appropriates petitioners logo and not the word
mark Dockers; it uses only a portion of the registered
trademark and not the whole.
Given the single registration of the trademark
Dockers and Design and considering that respondent
only uses the assailed device but a different word
mark, the right to prevent the latter from using the
challenged Paddocks device is far from clear. Stated
otherwise, it is not evident whether the single
registration of the trademark Dockers and Design
confers on the owner the right to prevent the use of a
fraction thereof in the course of trade. It is also
unclear whether the use without the owners consent
of a portion of a trademark registered in its entirety
constitutes material or substantial invasion of the
owners right.
It is likewise not settled whether the wing-shaped
logo, as opposed to the word mark, is the dominant
or central feature of petitioners trademark, the
feature that prevails or is retained in the minds of the
public, an imitation of which creates the likelihood of
deceiving the public and constitutes trademark
infringement. In sum, there are vital matters which
have yet and may only be established through a fullblown trial.

From the above discussion, we find that petitioners

right to injunctive relief has not been clearly and
unmistakably demonstrated. The right has yet to be
determined. Petitioners also failed to show proof that
there is material and substantial invasion of their right
to warrant the issuance of an injunctive writ. Neither

Petitioners wish to impress upon the Court the

urgent necessity for injunctive relief, urging that
the erosion or dilution of their trademark is
protectable. They assert that a trademark owner
does not have to wait until the mark loses its
distinctiveness to obtain injunctive relief, and that the
mere use by an infringer of a registered mark is
already actionable even if he has not yet profited
thereby or has damaged the trademark owner.
Trademark dilution is the lessening of the capacity
of a famous mark to identify and distinguish goods or
services, regardless of the presence or absence of:
(1) competition between the owner of the famous
mark and other parties; or (2) likelihood of
confusion, mistake or deception. Subject to the
principles of equity, the owner of a famous mark is
entitled to an injunction against another persons
commercial use in commerce of a mark or trade
name, if such use begins after the mark has become
famous and causes dilution of the distinctive quality
of the mark. This is intended to protect famous marks
from subsequent uses that blur distinctiveness of the
mark or tarnish or disparage it.
Based on the foregoing, to be eligible for
protection from dilution, there has to be a finding
that: (1) the trademark sought to be protected is
famous and distinctive; (2) the use by respondent
of Paddocks and Design began after the
petitioners mark became famous; and (3) such
subsequent use defames petitioners mark. In the
case at bar, petitioners have yet to establish whether
Dockers and Design has acquired a strong degree of
distinctiveness and whether the other two elements
are present for their cause to fall within the ambit of
the invoked protection. The Trends MBL Survey
Report which petitioners presented in a bid to
establish that there was confusing similarity between
two marks is not sufficient proof of any dilution that
the trial court must enjoin.
After a careful consideration of the facts and
arguments of the parties, the Court finds that
petitioners did not adequately prove their entitlement
to the injunctive writ. In the absence of proof of a legal

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2. No.

were petitioners able to show any urgent and

permanent necessity for the writ to prevent serious
damage.

right and the injury sustained by the applicant, an

order of the trial court granting the issuance of an
injunctive writ will be set aside for having been issued
with grave abuse of discretion. Conformably, the
Court of Appeals was correct in setting aside the
assailed orders of the trial court.
WHEREFORE, the instant petition is DENIED. The
Decision of the Court of Appeals dated 21 December
1998 and its Resolution dated 10 May 1999 are
AFFIRMED. Costs against petitioners.

29

Tanduay Distillers, Inc. vs

Ginebra San Miguel

G.R. NO. 164324 - AUGUST 14, 2009

After filing the trademark application for Ginebra

Kapitan with the Intellectual Property Office (IPO) and
after securing the approval of the permit to
manufacture and sell Ginebra Kapitan from the
bureau of internal revenue, Tanduay began selling
Ginebra Kapitan in northern and southern Luzon
areas in May 2003. In June 2003, Ginebra Kapitan
was also launched in Metro Manila.

On August 2003, San Miguel filed a complaint for

trademark infringement, unfair competition and
damages, with applications for issuance of TRO and
writ of preliminary injunction against Tanduay before
the RTC of Mandaluyong.
The trial court conducted hearings on the TRO. San
Miguel submitted the following pieces of evidence:
1. Affidavit of Mercedes Abad, President and
Managing Director of the research firm NFO Trends,
Inc. (NFO Trends), to present, among others, market
survey results which prove that gin drinkers associate
the term Ginebra with San Miguel, and that the
consuming public is being misled that Ginebra
Kapitan is a product of San Miguel;
2. Market survey results conducted by NFO trends to
determine the brand associations of the mark Ginebra
and to prove that the consuming public is confused as
to the manufacturer of Ginebra Kapitan;
3. Affidavit of Ramon Cruz, San Miguels group
product manager, to prove, among others, the prior
right of San Miguel to the mark Ginebra as shown in
various applications for, and registrations of,
trademarks that contain the mark Ginebra. His
affidavit included documents showing that the mark
Ginebra has been used on San Miguels gin products
since 1834;
4. Affidavits of Leopoldo Guanzon, Jr., San Miguels
trade and promo merchandising head for North Luzon
area, and Juderick Crescini, San Miguels district
sales supervisor for South Luzon-east area, to prove,
among others, that Tanduays salesmen or
distributors misrepresent Ginebra Kapitan as San
Miguels product and that numerous retailers of San
Miguels gin products are confused as to the
manufacturer of Ginebra Kapitan; and
5. Affidavit of Jose Rginald Pascual, San Miguels
district sales supervisor for the North-Greater Manila
area, to prove, among others, that gin drinkers
confuse San Miguel to be the manufacturer of

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63

FACTS:
Tanduay, a corporation organized and existing under
Philippine laws, has been engaged in the liquor
business since 1854. In 2002, Tanduay developed a
new gin product distinguished by its sweet smell,
smooth taste, and affordable price. Tanduay claims
that it engaged the services of an advertising firm to
develop a brand name and a label for its new gin
product. The brand name eventually chosen was
Ginebra Kapitan with the representation of a
revolutionary Kapitan on horseback as the dominant
feature of its label. Tanduay points out that the label
design of Ginebra Kapitan in terms of color scheme,
size and arrangement of text, and other label features
were precisely selected to distinguish it from the
leading gin brand in the Philippine market, Ginebra
San Miguel. Tanduay also states that the Ginebra
Kapitan bottle uses a resealable twist cap to
distinguish it from Ginebra San Miguel and other local
gin products with bottles which use the crown cap or
tansan.

On August 2003, Tanduay received a letter from San

Miguels counsel. The letter informed Tanduay to
immediately cease and desist from using the mark
Ginebra and from committing acts that violate San
Miguels intellectual property rights.

Ginebra Kapitan due to the use of the dominant

feature Ginebra.
Tanduay filed a Motion to Strike Out Hearsay
Affidavits and Evidence, which motion was denied by
the trial court. Tanduay presented witnesses who
affirmed their affidavits in open court, as follows:
1. Ramoncito Bugia, general services manager of
Tanduay. Attached to his affidavit were various
certificates of registration of trademarks containing
the word Ginebra obtained by Tanduay and other
liquor companies, to prove that the word Ginebra is
required to be disclaimed by the IPO. The affidavit
also attested that there are other liquor companies
using the word Ginebra as part of their trademarks for
gin products aside from San Miguel and Tanduay.
2. Herbert Rosales, vice president of J. Salcedo and
Associates, Inc., the advertising and promotions
company hired by Tanduay to design the label of
Ginebra Kapitan. His affidavit attested that the label
was designed to make it look absolutely different from
the Ginebra San Miguel label.
On September 2003, the trial court issued a TRO
prohibiting Tanduay from manufacturing, selling and
advertising Ginebra Kapitan. The dispositive portion
reads in part:

On 3 October 2003, Tanduay filed a petition for

certiorari with the CA. Despite Tanduays Urgent
Motion to Defer Injunction Hearing, the trial court
continued to conduct hearings on 8, 9, 13 and 14
October 2003 for Tanduay to show cause why no writ
of preliminary injunction should be issued. On
October 2003, the trial court granted San Miguels
application for the issuance of a writ of preliminary
injunction. The dispositive portion of the Order reads:

On 22 October 2003, Tanduay filed a supplemental

petition in the CA assailing the injunction order. On 10
November 2003, the CA issued a TRO enjoining the
trial court from implementing its injunction order and
from further proceeding with the case. On 23
December 2003, the CA issued a resolution directing
the parties to appear for a hearing on 6 January 2004
to determine the need for the issuance of a writ of
preliminary injunction.
CA rendered a decision dismissing Tanduays petition
and supplemental petition. Tanduay moved for
reconsideration which was denied.
ISSUE:
Whether San Miguel is entitled to the writ of
preliminary injunction granted by the trial court as
affirmed by the CA.
HELD:
No.
Clear and Unmistakable Right
The CA upheld the trial courts ruling that San Miguel
has sufficiently established its right to prior use and
registration of the word Ginebra as a dominant
feature of its trademark. The CA ruled that based on
San Miguels extensive, continuous, and substantially
exclusive use of the word Ginebra, it has become
distinctive of San Miguels gin products; thus, a clear
and unmistakable right was shown.
We hold that the CA committed a reversible error. The
issue in the main case is San Miguels right to the
exclusive use of the mark Ginebra. The two
trademarks Ginebra San Miguel and Ginebra Kapitan
apparently differ when taken as a whole, but
according to San Miguel, Tanduay appropriates the

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64

WHEREFORE, the application for temporary restraining order is

hereby GRANTED and made effective immediately. Plaintiff is
directed to post a bond of ONE MILLION PESOS (Php
1,000,000.00) within five (5) days from issuance hereof, otherwise,
this restraining order shall lose its efficacy. Accordingly, defendant
Tanduay Distillers, Inc., and all persons and agents acting for and
in behalf are enjoined to cease and desist from manufacturing,
distributing, selling, offering for sale and/or advertising or otherwise
using in commerce the mark GINEBRA KAPITAN which employs,
thereon, or in the wrappings, sundry items, cartons and packages
thereof, the mark GINEBRA as well as from using the bottle design
and labels for its gin products during the effectivity of this temporary
restraining order unless a contrary order is issued by this Court.

WHEREFORE, the plaintiffs application for a writ of preliminary

injunction is GRANTED. Upon plaintiffs filing of an injunctive bond
executed to the defendant in the amount of P20,000,000.00
(TWENTY MILLION) PESOS, let a Writ of Preliminary Injunction
issue enjoining the defendant, its employees, agents,
representatives, dealers, retailers or assigns, and any all persons
acting on its behalf, from committing the acts complained of, and,
specifically, to cease and desist from manufacturing, distributing,
selling, offering for sale, advertising, or otherwise using in
commerce the mark GINEBRA, and manufacturing, producing,
distributing or otherwise dealing in gin products which have the
general appearance of, and which are confusingly similar with,
plaintiffs marks, bottle design and label for its gin products.

word Ginebra which is a dominant feature of San

Miguels mark.
It is not evident whether San Miguel has the right
to prevent other business entities from using the
word Ginebra. It is not settled (1) whether Ginebra is
indeed the dominant feature of the trademarks, (2)
whether it is a generic word that as a matter of law
cannot be appropriated, or (3) whether it is merely a
descriptive word that may be appropriated based on
the fact that it has acquired a secondary meaning.
The issue that must be resolved by the trial court is
whether a word like Ginebra can acquire a secondary
meaning for gin products so as to prohibit the use of
the word Ginebra by other gin manufacturers or
sellers. This boils down to whether the word Ginebra
is a generic mark that is incapable of appropriation by
gin manufacturers.
In Asia Brewery, Inc. v. Court of Appeals, the Court
ruled that pale pilsen are generic words, pale being
the actual name of the color and pilsen being the type
of beer, a light bohemian beer with a strong hops
flavor that originated in Pilsen City in Czechoslovakia
and became famous in the Middle Ages, and hence
incapable of appropriation by any beer manufacturer.
Moreover, Section 123.1(h) of the IP Code states that
a mark cannot be registered if it consists exclusively
of signs that are generic for the goods or services that
they seek to identify.
In this case, a cloud of doubt exists over San
Miguels exclusive right relating to the word
Ginebra. San Miguels claim to the exclusive use of
the word Ginebra is clearly still in dispute because of
Tanduays claim that it has, as others have, also
registered the word Ginebra for its gin products. This
issue can be resolved only after a full-blown trial.

We find that San Miguels right to injunctive relief has

not been clearly and unmistakably demonstrated. The
right to the exclusive use of the word Ginebra has yet
to be determined in the main case. The trial courts

Prejudging the Merits of the Case

We believe that the issued writ of preliminary
injunction, if allowed, disposes of the case on the
merits as it effectively enjoins the use of the word
ginebra without the benefit of a full-blown trial. In
Rivas v. Securities and Exchange Commission, we
ruled that courts should avoid issuing a writ of
preliminary injunction which would in effect dispose of
the main case without trial. The issuance of the writ of
preliminary injunction had the effect of granting the
main prayer of the complaint such that there is
practically nothing left for the trial court to try except
the plaintiffs claim for damages.
Irreparable Injury
In Levi Strauss & Co. V. Clinton Apparelle, Inc., this
Court upheld the appellate courts ruling that the
damages Levi Strauss & Co. had suffered or
continues to suffer may be compensated in terms of
monetary consideration. This court, quoting GSIS v.
Florendo, held:
x x x a writ of injunction should never issue when an action for
damages would adequately compensate the injuries caused. The
very foundation of the jurisdiction to issue the writ of injunction rests
in the probability of irreparable injury, inadequacy of pecuniary
compensation and the prevention of the multiplicity of suits, and
where facts are not shown to bring the case within these conditions,
the relief of injunction should be refused.

Based on the affidavits and market survey report

submitted during the injunction hearings, San Miguel
has failed to prove the probability of irreparable
injury which it will stand to suffer if the sale of
Ginebra Kapitan is not enjoined. San Miguel has
not presented proof of damages incapable of
pecuniary estimation. At most, San Miguel only
claims that it has invested hundreds of millions over a
period of 170 years to establish goodwill and
reputation now being enjoyed by the Ginebra San
Miguel mark such that the full extent of the damage
cannot be measured with reasonable accuracy.
Without the submission of proof that the damage is
irreparable and incapable of pecuniary estimation,

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65

In Ong Ching Kian Chuan v. Court of Appeals, we

held that in the absence of proof of a legal right and
the injury sustained by the movant, the trial courts
order granting the issuance of an injunctive writ will
be set aside, for having been issued with grave abuse
of discretion.

grant of the writ of preliminary injunction in favor of

San Miguel, despite the lack of a clear and
unmistakable right on its part, constitutes grave
abuse of discretion amounting to lack of jurisdiction.

San Miguels claim cannot be the basis for a valid writ

of preliminary injunction.
Wherefore, we grant the petition. We set aside the
decision of the court of appeals and the resolution.
We declare void the order dated 17 October 2003 and
the corresponding writ of preliminary injunction issued
by branch 214 of the RTC of Mandaluyong City.
The RTC of Mandaluyong City is directed to continue
expeditiously with the trial to resolve the merits of the
case.

30

Del Monte Corp and Phil.

Packing Corp. vs CA and
Sunshine Sauce

G.R. NO. L-78325 - JANUARY 25, 1990

FACTS:
Petitioner Del Monte Corporation is a foreign
company organized under the laws of the United
States and not engaged in business in the
Philippines. Both the Philippines and the United
States are signatories to the Convention of Paris of
September 27, 1965, which grants to the nationals of
the parties rights and advantages which their own
nationals enjoy for the repression of acts of
infringement and unfair competition.
Petitioner Philippine Packing Corporation (Philpack)
is a domestic corporation duly organized under the
laws of the Philippines. On April 11, 1969, Del Monte
granted Philpack the right to manufacture, distribute
and sell in the Philippines various agricultural
products, including catsup, under the Del Monte
trademark and logo.

Respondent
Sunshine
Sauce
Manufacturing
Industries was issued a Certificate of Registration by
the Bureau of Domestic Trade on April 17, 1980, to
engage in the manufacture, packing, distribution and

Having received reports that the private respondent

was using its exclusively designed bottles and a logo
confusingly similar to Del Monte's, Philpack warned it
to desist from doing so on pain of legal action.
Thereafter, claiming that the demand had been
ignored, Philpack and Del Monte filed a complaint
against the private respondent for infringement of
trademark and unfair competition, with a prayer for
damages and the issuance of a writ of preliminary
injunction.
In its answer, Sunshine alleged that it had long
ceased to use the Del Monte bottle and that its logo
was substantially different from the Del Monte logo
and would not confuse the buying public to the
detriment of the petitioners.
After trial, the RTC of Makati dismissed the complaint.
It held that there were substantial differences
between the logos or trademarks of the parties; that
the defendant had ceased using the petitioners'
bottles; and that in any case the defendant became
the owner of the said bottles upon its purchase
thereof from the junk yards. Furthermore, the
complainants had failed to establish the defendant's
malice or bad faith, which was an essential element
of infringement of trademark or unfair competition.
This decision was affirmed in toto by the respondent
court, which is now faulted in this petition for certiorari
under Rule 45 of the Rules of Court.
ISSUE:
1. Whether Sunshine is guilty of unfair competition
2. Whether Sunshine committed infringement of
trademark.
HELD:
To arrive at a proper resolution of this case, it is
important to bear in mind the following distinctions
between infringement of trademark and unfair
competition.

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66

On October 27, 1965, Del Monte authorized Philpack

to register with the Philippine Patent Office the Del
Monte catsup bottle configuration, for which it was
granted Certificate of Trademark by the Philippine
Patent Office under the Supplemental Register. On
November 20, 1972, Del Monte also obtained two
registration certificates for its trademark "DEL
MONTE" and its logo.

sale of various kinds of sauce, identified by the logo

Sunshine Fruit Catsup. This logo was registered in
the Supplemental Register on September 20, 1983.
The product itself was contained in various kinds of
bottles, including the Del Monte bottle, which the
private respondent bought from the junk shops for
recycling.

(1) Infringement of trademark is the unauthorized use

of a trademark, whereas unfair competition is the
passing off of one's goods as those of another.
(2) In infringement of trademark fraudulent intent is
unnecessary whereas in unfair competition fraudulent
intent is essential.

6. As to label below the cap:

Del Monte: Seal covering the cap down to the neck of the bottle,
with picture of tomatoes with words "made from real tomatoes."
Sunshine: There is a label below the cap which says "Sunshine
Brand."

(3) In infringement of trademark the prior registration

of the trademark is a prerequisite to the action,
whereas in unfair competition registration is not
necessary.

7. As to the color of the products:

Del Monte: Darker red.
Sunshine: Lighter than Del Monte.

In the challenged decision, the respondent court cited

the following test laid down by this Court in a number
of cases:

While the Court does recognize these distinctions, it

does not agree with the conclusion that there was no
infringement or unfair competition. It seems to us that
the lower courts have been so pre-occupied with the
details that they have not seen the total picture.

In determining whether two trademarks are

confusingly similar, the two marks in their entirety as
they appear in the respective labels must be
considered in relation to the goods to which they are
attached; the discerning eye of the observer must
focus not only on the predominant words but also on
the other features appearing on both labels.
Applying the same, held that there was no colorable
imitation of the petitioners' trademark and logo by the
private respondent. The respondent court agreed with
the findings of the trial court that:
In order to resolve the said issue, the Court now
attempts to make a comparison of the two products,
to wit:
1. As to the shape of label or make:
Del Monte: Semi-rectangular with a crown or tomato shape design
on top of the rectangle.
Sunshine: Regular rectangle.
2. As to brand printed on label:
Del Monte: Tomato catsup mark.
Sunshine: Fruit catsup.

67

3. As to the words or lettering on label or mark:

Del Monte: Clearly indicated words packed by Sysu International,
Inc., Q.C., Philippines.
Sunshine: Sunshine fruit catsup is clearly indicated "made in the
Philippines by Sunshine Sauce Manufacturing Industries" No. 1 Del
Monte Avenue, Malabon, Metro Manila.
4. As to color of logo:
Del Monte: Combination of yellow and dark red, with words "Del
Monte Quality" in white.
Sunshine: White, light green and light red, with words "Sunshine
Brand" in yellow.

The question is not whether the two articles are

distinguishable by their label when set side by side
but whether the general confusion made by the
article upon the eye of the casual purchaser who
is unsuspicious and off his guard, is such as to
likely result in his confounding it with the original.
As observed in several cases, the general impression
of the ordinary purchaser, buying under the normally
prevalent conditions in trade and giving the attention
such purchasers usually give in buying that class of
goods is the touchstone.
A number of courts have held that to determine
whether a trademark has been infringed, we must
consider the mark as a whole and not as dissected. If
the buyer is deceived, it is attributable to the marks as
a totality, not usually to any part of it. The court
therefore should be guided by its first impression, for
a buyer acts quickly and is governed by a casual
glance, the value of which may be dissipated as soon
as the court assumes to analyze carefully the
respective features of the mark.
1. Yes.
At that, even if the labels were analyzed together it is
not difficult to see that the Sunshine label is a
colorable imitation of the Del Monte trademark. The
predominant colors used in the Del Monte label are
green and red-orange, the same with Sunshine. The
word "catsup" in both bottles is printed in white and
the style of the print/letter is the same. Although the

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5. As to shape of logo:
Del Monte: In the shape of a tomato.
Sunshine: Entirely different in shape.

logo of Sunshine is not a tomato, the figure

nevertheless approximates that of a tomato.
As previously stated, the person who infringes a trade
mark does not normally copy out but only makes
colorable changes, employing enough points of
similarity to confuse the public with enough points of
differences to confuse the courts. What is undeniable
is the fact that when a manufacturer prepares to
package his product, he has before him a boundless
choice of words, phrases, colors and symbols
sufficient to distinguish his product from the others.
When as in this case, Sunshine chose, without a
reasonable explanation, to use the same colors and
letters as those used by Del Monte though the field of
its selection was so broad, the inevitable conclusion
is that it was done deliberately to deceive.
It has been aptly observed that the ultimate ratio in
cases of grave doubt is the rule that as between a
newcomer who by the confusion has nothing to lose
and everything to gain and one who by honest dealing
has already achieved favor with the public, any doubt
should be resolved against the newcomer inasmuch
as the field from which he can select a desirable
trademark to indicate the origin of his product is
obviously a large one.
2. Yes.
Coming now to the second issue, we find that the
private respondent is not guilty of infringement for
having used the Del Monte bottle. The reason is that
the configuration of the said bottle was merely
registered in the Supplemental Register. In the case
of Lorenzana v. Macagba, we declared that:
(1) Registration in the Principal Register gives rise to a presumption
of the validity of the registration, the registrant's ownership of the
mark and his right to the exclusive use thereof. There is no such
presumption in the registration in the Supplemental Register.

Registration in the Principal Register is constructive notice of the

registrant's claim of ownership, while registration in the
Supplemental Register is merely proof of actual use of the
trademark and notice that the registrant has used or appropriated
it. It is not subject to opposition although it may be cancelled after
the issuance. Corollarily, registration in the Principal Register is a

(3) In applications for registration in the Principal Register,

publication of the application is necessary. This is not so in
applications for registrations in the Supplemental Register.

It can be inferred from the foregoing that although Del

Monte has actual use of the bottle's configuration, the
petitioners cannot claim exclusive use thereof
because it has not been registered in the Principal
Register. However, we find that Sunshine, despite the
many choices available to it and notwithstanding that
the caution "Del Monte Corporation, Not to be
Refilled" was embossed on the bottle, still opted to
use the petitioners' bottle to market a product which
Philpack also produces. This clearly shows the
private respondent's bad faith and its intention to
capitalize on the latter's reputation and goodwill and
pass off its own product as that of Del Monte.
The Court observes that the reasons given by the
respondent court in resolving the case in favor of
Sunshine are untenable. First, it declared that the
registration of the Sunshine label belied the
company's malicious intent to imitate petitioner's
product. Second, it held that the Sunshine label was
not improper because the Bureau of Patent
presumably considered other trademarks before
approving it. Third, it cited the case of Shell Co. v.
Insular Petroleum, where this Court declared that
selling oil in containers of another with markings
erased, without intent to deceive, was not unfair
competition.

31

Asia Brewery Inc. vs CA &

SMC
G.R. NO. 103543 JULY 5, 1993

FACTS:
On September 15, 1988, San Miguel Corporation
(SMC) filed a complaint against Asia Brewery Inc.
(ABI) for infringement of trademark and unfair
competition on account of the latter's BEER PALE
PILSEN or BEER NA BEER product which has been
competing with SMC's SAN MIGUEL PALE PILSEN.
The RTC dismissed the complaint prompting SMC to
appeal to the CA.

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68

(2) Registration in the Principal Register is limited to the actual

owner of the trademark and proceedings therein on the issue of
ownership which may be contested through opposition or
interference proceedings or, after registration, in a petition for
cancellation.

basis for an action for infringement while registration in the

Supplemental Register is not.

CA reversed the RTCs decision founding ABI guilty

of infringement and ordering ABI, among others, to
render an accounting and pay the San Miguel
Corporation double any and all the payments derived
by defendant from operations of its business and the
sale of goods bearing the mark "Beer Pale Pilsen"
estimated at approximately Five Million Pesos
(P5,000,000.00); to recall all its products bearing the
mark "Beer Pale Pilsen" from its retailers and deliver
these to the Court.
Upon ABIs motion for reconsideration, the CAs
decision was modified to the extent of cancelling the
order to render accounting and payment of P5m to
SMC but maintaining the order to recall he products
bearing the mark "Beer Pale Pilsen" from its retailers
and deliver these to the Court.
ISSUE:
Whether ABI infringes SMC's trademark: San Miguel
Pale Pilsen with Rectangular Hops and Malt Design,
and thereby commits unfair competition against the
latter.
HELD:
As a general rule, the findings of the Court of Appeals
upon factual questions are conclusive and ought not
to be disturbed by us. However, there are exceptions
to this general rule; where findings of the Court of
Appeals and trial court are contrary to each other, the
Supreme Court may scrutinize the evidence on
record.

There is hardly any dispute that the dominant feature

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

The trial court perceptively observed that the word

"BEER" does not appear in SMC's trademark, just as
the words "SAN MIGUEL" do not appear in ABI's
trademark. Hence, there is absolutely no similarity in
the dominant features of both trademarks.
Neither in sound, spelling or appearance can BEER
PALE PILSEN be said to be confusingly similar to
SAN MIGUEL PALE PILSEN. No one who purchases
BEER PALE PILSEN can possibly be deceived that it
is SAN MIGUEL PALE PILSEN. No evidence
whatsoever was presented by SMC proving
otherwise.
Besides the dissimilarity in their names, the following
other dissimilarities in the trade dress or appearance
of the competing products abound:
(1) The SAN MIGUEL PALE PILSEN bottle has a
slender tapered neck.
The BEER PALE PILSEN bottle has a fat, bulging
neck.
(2) The words "pale pilsen" on SMC's label are printed
in bold and laced letters along a diagonal band,
whereas the words "pale pilsen" on ABI's bottle are
half the size and printed in slender block letters on a
straight horizontal band.
(3) The names of the manufacturers are prominently
printed on their respective bottles.
SAN MIGUEL PALE PILSEN is "Bottled by the San
Miguel Brewery, Philippines," whereas BEER PALE
PILSEN is "Especially brewed and bottled by Asia
Brewery Incorporated, Philippines."
(4) On the back of ABI's bottle is printed in big, bold
letters, under a row of flower buds and leaves, its
copyrighted slogan:
"BEER NA BEER!"
Whereas SMC's bottle carries no slogan.
(5) The back of the SAN MIGUEL PALE PILSEN
bottle carries the SMC logo, whereas the BEER PALE
PILSEN bottle has no logo.

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69

It has been consistently held that the question of

infringement of a trademark is to be determined by
the test of dominancy. Similarity in size, form and
color, while relevant, is not conclusive. If the
competing trademark contains the main or
essential or dominant features of another, and
confusion and deception is likely to result,
infringement takes place.

word "Beer" written in large amber letters, larger than

any of the letters found in the SMC label.

(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 words "pale pilsen" may not be appropriated by
SMC for its exclusive use even if they are part of its
registered trademark: SAN MIGUEL PALE PILSEN,
any more than such descriptive words as "evaporated
milk," "tomato ketchup," "cheddar cheese," "corn
flakes" and "cooking oil" may be appropriated by any
single manufacturer of these food products.
The fact that BEER PALE PILSEN like SAN MIGUEL
PALE PILSEN is bottled in amber-colored steinie
bottles of 320 ml. capacity and is also advertised in
print, broadcast, and television media, does not
necessarily constitute unfair competition.

The use of ABI of the steinie bottle, similar but not

identical to the SAN MIGUEL PALE PILSEN bottle, is
not unlawful. As pointed out by ABI's counsel,

Considering further that SAN MIGUEL PALE PILSEN

has virtually monopolized the domestic beer market
for the past hundred years, those who have been
drinking no other beer but SAN MIGUEL PALE
PILSEN these many years certainly know their beer
too well to be deceived by a newcomer in the market.
WHEREFORE, finding the petition for review
meritorious, the same is hereby granted. The decision
and resolution of the Court of Appeals in CA-G.R. CV
No. 28104 are hereby set aside and that of the trial
court is REINSTATED and AFFIRMED. Costs against
the private respondent.

32

Pearl & Dean (PHIL.), INC

vs. Shoemart, INC, and
North Edsa Mktg, INC

G.R. NO. 148222 - AUGUST 15, 2003

FACTS:
Pearl and Dean (Phil.), Inc. is a corporation engaged
in the manufacture of advertising display units simply
referred to as light boxes. These units utilize specially
printed posters sandwiched between plastic sheets
and illuminated with back lights. Pearl and Dean was
able to secure a Certificate of Copyright Registration
dated January 20, 1981 over these illuminated
display units. The advertising light boxes were
marketed under the trademark Poster Ads. The
application for registration of the trademark was filed
with the Bureau of Patents, Trademarks and
Technology Transfer on June 20, 1983, but was
approved only on September 12, 1988, per
Registration No. 41165. From 1981 to about 1988,
Pearl and Dean employed the services of Metro
Industrial Services to manufacture its advertising
displays.
Sometime in 1985, Pearl and Dean negotiated with
defendant-appellant Shoemart, Inc. (SMI) for the
lease and installation of the light boxes in SM City
North Edsa. Since SM City North Edsa was under

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70

The universal test question is whether the public is

likely to be deceived. Nothing less than conduct
tending to pass off one man's goods or business as
that of another will constitute unfair competition.

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. The steinie bottle is a standard
bottle for beer and is universally used.

construction at that time, SMI offered as an

alternative, SM Makati and SM Cubao, to which Pearl
and Dean agreed. Only the contract for SM Makati,
however, was returned signed.
In a letter dated January 14, 1986, SMIs house
counsel informed Pearl and Dean that it was
rescinding the contract for SM Makati due to nonperformance of the terms thereof. In his reply dated
February 17, 1986, Vergara protested the unilateral
action of SMI, saying it was without basis. In the same
letter, he pushed for the signing of the contract for SM
Cubao.
Two years later, Metro Industrial Services, the
company formerly contracted by Pearl and Dean to
fabricate its display units, offered to construct light
boxes for Shoemarts chain of stores. SMI approved
the proposal and ten (10) light boxes were
subsequently fabricated by Metro Industrial for SMI.
After its contract with Metro Industrial was terminated,
SMI engaged the services of EYD Rainbow
Advertising Corporation to make the light boxes.
Some 300 units were fabricated in 1991.
Sometime in 1989, Pearl and Dean found out that
exact copies of its light boxes were installed in several
SM stores. Further, North Edsa Marketing Inc.
(NEMI), a sister company of SMI, through its
marketing arm, Prime Spots Marketing Services, was
set up primarily to sell advertising space in lighted
display units located in SMIs different branches. Pearl
and Dean then filed for infringement of trademark and
copyright, unfair competition and damages.

The RTC decided in favor of Pearl and Dean but was

eventually reversed by the CA stating that since the
light boxes cannot, by any stretch of the imagination,
be considered as either prints, pictorial illustrations,
advertising copies, labels, tags or box wraps, to be
properly classified as a copyrightable class O work,
we have to agree with SMI when it posited that what

While we do not discount the striking similarity

between Pearl and Deans registered trademark and
defendants-appellants Poster Ads design, as well as
the parallel use by which said words were used in the
parties respective advertising copies, we cannot find
defendants-appellants liable for infringement of
trademark. Poster Ads was registered by Pearl and
Dean for specific use in its stationeries, in contrast to
defendants-appellants who used the same words in
their advertising display units.
ISSUE:
1. Whether copyright infringements were committed
by SMI and NEMI.
2. Whether infringements of P&Ds Tradermark,
Poster Ads were committed by SMI and NEMI.
HELD:
Even as we find that P & D indeed owned a valid
copyright, the same could have referred only to the
technical drawings within the category of pictorial
illustrations. It could not have possibly stretched out
to include the underlying light box.
For some reason or another, petitioner never secured
a patent for the light boxes. It therefore acquired no
patent rights which could have protected its invention,
if in fact it really was. On the assumption that
petitioners advertising units were patentable
inventions, petitioner revealed them fully to the public
by submitting the engineering drawings thereof to the
National Library.
To be able to effectively and legally preclude others
from copying and profiting from the invention, a patent
is a primordial requirement. No patent, no protection.
Under the circumstances, the Court of Appeals
correctly cited Faberge Inc. vs. Intermediate
Appellate Court, where we, invoking Section 20 of the
old Trademark Law, ruled that the certificate of
registration issued by the Director of Patents can
confer the exclusive right to use its own symbol only
to those goods specified in the certificate, subject to
any conditions and limitations specified in the
certificate x x x. Assuming arguendo that Poster Ads
could validly qualify as a trademark, the failure of P &

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71

In response, SMI maintained that it independently

developed its poster panels using commonly known
techniques and available technology, without notice
of or reference to Pearl and Deans copyright. SMI
noted that the registration of the mark Poster Ads was
only for stationeries such as letterheads, envelopes,
and the like.

was copyrighted were the technical drawings only,

and not the light boxes themselves.

D to secure a trademark registration for specific use

on the light boxes meant that there could not have
been any trademark infringement since registration
was an essential element thereof.

Opposition was filed by petitioner, a Japanese

corporation, alleging that it will be damaged by the
registration of the trademark CANON in the name of
private respondent.

Further, there can be no unfair competition under the

law on copyrights although it is applicable to disputes
over the use of trademarks. Even a name or phrase
incapable of appropriation as a trademark or
tradename may, by long and exclusive use by a
business, be entitled to protection against unfair
competition. In this case, there was no evidence that
P & Ds use of Poster Ads was distinctive or wellknown. Petitioners expert witness himself had
testified that Poster Ads was too generic a name. So
it was difficult to identify it with any company, honestly
speaking. This crucial admission by its own expert
witness that Poster Ads could not be associated with
P & D showed that, in the mind of the public, the
goods and services carrying the trademark Poster
Ads could not be distinguished from the goods and
services of other entities.

The BPTTT declared private respondent in default for

failure to file an answer on time and allowed petitioner
to present its evidence ex-parte. 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).

This fact also prevented the application of the

doctrine of secondary meaning. Poster Ads was
generic and incapable of being used as a trademark
because it was used in the field of poster advertising,
the very business engaged in by petitioner.
Secondary meaning means that a word or phrase
originally incapable of exclusive appropriation
with reference to an article in the market might
nevertheless have been used for so long and so
exclusively by one producer with reference to his
article that, in the trade and to that branch of the
purchasing public, the word or phrase has come
to mean that the article was his property.

33

Canon Kabushiki Kaisha

vs. CA and NSR Rubber
Corporation

FACTS:
On January 15, 1985, NSR Rubber Corporation 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

ISSUE:
1. Whether petitioner is entitled to exclusive use of the
mark CANON because it is its trademark and is used
also for footwear.
HELD:
We find the arguments of petitioner to be
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 latters product cannot be
validly objected to.
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).
On this basis, the 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). Clearly, there is a world of
difference between the paints, chemical products,
toner, and dyestuff of petitioner and the sandals of
private respondent.

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72

G.R. NO. 120900 - JULY 20, 2000

On November 10, 1992, the BPTTT issued its

decision dismissing the opposition of petitioner and
giving due course to private respondents application
for the registration of the trademark CANON. On
February 16, 1993, petitioner appealed the decision
of the BPTTT with public respondent Court of Appeals
that eventually affirmed the decision of BPTTT.

Petitioner counters that 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". We do not agree. Even
in this instant petition, except for its bare assertions,
petitioner failed to attach evidence that would
convince this Court that petitioner has also embarked
in the production of footwear products. This is clearly
shown in its Trademark Principal Register (Exhibit
"U") 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".

Undoubtedly, the paints, chemical products, toner

and dyestuff of petitioner that carry the trademark
CANON are unrelated to sandals, the product of
private respondent. We agree with the BPTTT,
following the Esso doctrine, when it noted that the two
classes of products in this case flow through different
trade channels. 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. Thus, 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.

We cannot uphold petitioners position. 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." Simply put, a trade
name refers to the business and its goodwill; a
trademark refers to the goods.
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.
Then Minister of Trade and Industry, the Hon.
Roberto V. Ongpin, issued a memorandum dated 25
October 1983 to the Director of Patents, a set of
guidelines in the implementation of Article 6 of the
Treaty of Paris. These conditions are: a) the mark

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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 the junior user are so related as to likely
cause confusion of business or origin, and
thereby render the trademark or tradenames
confusingly similar. Goods are related when they
belong to the same class or have the same
descriptive properties; when they possess the same
physical attributes or essential characteristics with
reference to their form, composition, texture or
quality. They may also be related because they serve
the same purpose or are sold in grocery stores.

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: "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." Petitioner calls
attention to the fact that Article 8, even as embodied
in par. 6, sec. 37 of RA 166, mentions no requirement
of similarity of goods.

must be internationally known; b) the subject of the

right must be a trademark, not a patent or copyright
or anything else; c ) the mark must be for use in the
same or similar kinds of goods; and d) the person
claiming must be the owner of the mark
From the set of facts found in the records, it is ruled
that the Petitioner failed to comply with the third
requirement of the said memorandum that is the
mark must be for use in the same or similar kinds of
goods. The Petitioner is using the mark "CANON" for
products belonging to class 2 (paints, chemical
products) while the Respondent is using the same
mark for sandals (class 25). Hence, Petitioners
contention that its mark is well-known at the time the
Respondent filed its application for the same mark
should fail.

34

Willian Yao, et. al. vs.

People and Pilipinas

Shell

G.R. NO. 168306 - JUNE 19, 2007

On 3 April 2003, National Bureau of Investigation

(NBI) agent Ritche N. Oblanca filed two applications
for search warrant with the RTC, Branch 17, Cavite
City, against petitioners and other occupants of the
MASAGANA compound located at Governors Drive,
Barangay Lapidario, Trece Martires, Cavite City, for
alleged violation of Section 155, in relation to Section
170 of Republic Act No. 8293, otherwise known as
The Intellectual Property Code of the Philippines. The
two applications for search warrant uniformly alleged

Presiding Judge of the RTC, Branch 17, Cavite City,

found probable cause and correspondingly issued
Search Warrants No. 2-2003 and No. 3-2003 which
Oblanca and several NBI agents immediately served.
Among those seized were one set of motor
compressor and one LPG refilling machine. On 22
April 2003, petitioners filed with the RTC a Motion to
Quash Search Warrants No. 2-2003 and No. 3-2003.
On 30 April 2003, MASAGANA, as third party
claimant, filed with the RTC a Motion for the Return of
Motor Compressor and LPG Refilling Machine. It
claimed that it is the owner of the said motor
compressor and LPG refilling machine; that these
items were used in the operation of its legitimate
business; and that their seizure will jeopardize its
business interests.
On 5 June 2003, the RTC issued two Orders, one of
which denied the petitioners Motion to Quash Search
Warrants No. 2-2003 and No. 3-2003, and the other
one also denied the Motion for the Return of Motor
Compressor and LPG Refilling Machine of
MASAGANA, for lack of merit.
As regards the Order denying the motion of
MASAGANA for the return of its motor compressor
and LPG refilling machine, the RTC resolved that
MASAGANA cannot be considered a third party
claimant whose rights were violated as a result of the
seizure since the evidence disclosed that petitioners
are stockholders of MASAGANA and that they
conduct their business through the same juridical
entity. It maintained that to rule otherwise would result
in the misapplication and debasement of the veil of
corporate fiction.
Petitioners filed for a motion for reconsideration which
was denied. Upon appeal, the CA affirmed the RTCs
jurisdiction.
ISSUE:
1. Whether there was probable cause in the issuance
of the search warrant.

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FACTS:
Petitioners are incorporators and officers of
MASAGANA GAS CORPORATION (MASAGANA),
an entity engaged in the refilling, sale and distribution
of LPG products. Private respondents Petron
Corporation (Petron) and Pilipinas Shell Petroleum
Corporation (Pilipinas Shell) are two of the largest
bulk suppliers and producers of LPG in the
Philippines. Petron is the registered owner of the
trademarks Gasul and Gasul Cylinders while Shell is
the Philippines authorized user of the trademarks
Shellane and Shell. Both are sole entities authorized
to allow refillers and distributors to refill, use, sell, and
distribute their respective LPG containers and
products.

that the petitioners are actually producing, selling,

offering for sale and/or distributing LPG products
using steel cylinders owned by, and bearing the
tradenames, trademarks, and devices of Petron and
Pilipinas Shell, without authority and in violation of the
rights of the said entities.

2. Whether Oblanca and Alejar lacked authority and

competence to testify on the trademarks infringed.
HELD:
Petitioners allege that Oblanca and Alajar had no
personal knowledge of the matters on which they
testified. Petitioners also contend that Alajar is not
connected with either of the private respondents; that
Alajar was not in a position to inform the RTC as to
the distinguishing trademarks of SHELLANE and
GASUL. These contentions are devoid of merit.
A search warrant can be issued only upon a finding of
probable cause. Probable cause for search warrant
means such facts and circumstances which would
lead a reasonably discreet and prudent man to
believe that an offense has been committed and that
the objects sought in connection with the offense are
in the place to be searched.
Section 155 of Republic Act No. 8293 identifies the
acts constituting trademark infringement, thus:
SEC. 155. Remedies; Infringement. Any person who shall, without
the consent of the owner of the registered mark:
155.1. Use in commerce any reproduction, counterfeit, copy, or
colorable imitation of a registered mark or the same container or a
dominant feature thereof in connection with the sale, offering for
sale, distribution, advertising of any goods or services including
other preparatory steps necessary to carry out the sale of any
goods or services on or in connection with which such use is likely
to cause confusion, or to cause mistake, or to deceive; or

As can be gleaned in Section 155.1, mere

unauthorized use of a container bearing a registered
trademark in connection with the sale, distribution or
advertising of goods or services which is likely to
cause confusion, mistake or deception among the
buyers/consumers can be considered as trademark
infringement.

Extant from the foregoing testimonial, documentary

and object evidence is that Oblanca and Alajar have
personal knowledge of the fact that petitioners,
through MASAGANA, have been using the LPG
cylinders bearing the marks GASUL and SHELLANE
without permission from Petron and Pilipinas Shell, a
probable cause for trademark infringement.
It cannot be gainfully said that Oblanca and Alajar are
not competent to testify on the trademarks infringed
by the petitioners because prior to conducting an
investigation, Oblanca reviewed the certificates of
trademark registrations issued by the Philippine
Intellectual Property Office in favor of Petron and
Pilipinas Shell. Alajar, on the other hand, works as a
private investigator and, in fact, owns a private
investigation and research/consultation firm. His firm
was hired and authorized, pursuant to the Brand
Protection Program of Petron and Pilipinas Shell.

35

Gemma Ong vs. People

G.R. 169440 - NOVEMBER 23, 2011

FACTS:
On September 10, 1998, Jesse S. Lara, then Senior
Investigator III at the Intellectual Property Rights
(IPR) Unit of the Economic Intelligence and
Investigation Bureau (EIIB), Department of Finance,
received reliable information that counterfeit
"Marlboro" cigarettes were being distributed and sold
in the areas of Tondo, Binondo, Sta. Cruz and
Quiapo, Manila. A team formed by EIIB conducted
surveillance operation to verify the report. EIIB agents
did a "test-buy" on the different sari-sari stores of
Manila. During the surveillance, the container van

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155.2. Reproduce, counterfeit, copy or colorably imitate a

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

In his sworn affidavits, Oblanca stated that before

conducting an investigation on the alleged illegal
activities of MASAGANA, he reviewed the certificates
of trademark registrations issued by the Philippine
Intellectual Property Office in favor of Petron and
Pilipinas Shell; that he confirmed from Petron and
Pilipinas Shell that MASAGANA is not authorized to
sell, use, refill or distribute GASUL and SHELLANE
LPG cylinder containers, and that, using different
names, they conducted two test-buys therein where
they purchased LPG cylinders bearing the
trademarks GASUL and SHELLANE.

delivering the "Marlboro" packed in black plastic bags

was seen parked at 1677 Bulacan corner Hizon
Streets, Sta. Cruz, Manila. Upon inquiry from the
Barangay Chairman, they also learned that the place
is owned by a certain Mr. Jackson Ong.
The EIIB team coordinated with officers of Philip
Morris, Inc., owner of the trademark Marlboro Label
in the Philippines duly registered with the Philippine
Patents Office and subsequently with the Intellectual
Property Office (IPO) since 1956. Initial examination
made by Philip Morris, Inc. on those random sample
purchases revealed that the cigarettes were indeed
fake products unauthorized by the company. With
official indorsement by the EIIB, Senior Investigator
Lara filed an application for search warrant before the
Regional Trial Court of Dasmarias, Cavite, Branch
90.
Upon the granting of the search warrant, the EIIB,
together with a member of the PNP, the barangay,
and Atty. Leonardo P. Salvador who was sent by the
law firm engaged by Philip Morris, Inc. served the
same. It was only the accused, supposedly either the
spouse or common-law wife of Jackson Ong, that was
present and entertained them. The team was able to
search the premises and found Marlboro cigarettes
stocked in several boxes containing fifty (50) reams
inside each box which were packed in black plastic
sacks like in "balikbayan boxes."
On the basis of the results of the examination
conducted by PMPI on the samples obtained from the
confiscated boxes of cigarettes bearing the Marlboro
brand, which confirmed the same to be unauthorized
products and not genuine Marlboro cigarettes, the
EIIB filed a case for Violation of Sections 155 and 168
in relation to Section 170 of Republic Act No. 8293
against Jackson Ong who is not an authorized
distributor of Marlboro products in the Philippines.

Gemma, as the lone witness for the defense, denied

that she was the Gemma Ong accused in the case.
She averred that she was arrested without being
asked for her name; that when she posted her bond
and signed her certificate of arraignment, she did so

On September 30, 2003, the RTC convicted Gemma

of the crime as charged.
The RTC noted the fact that while Gemma claimed to
have never engaged in the sale and manufacture of
Marlboro cigarettes, the address of her business
"Fascinate Trading" is registered as 1677 Bulacan
Street, Sta. Cruz, Manila, the same property raided
by the EIIB that contained the counterfeit cigarettes.
Upon appeal, the Court of Appeals affirmed the
conviction of Gemma for trademark infringement
under Section 155 of Republic Act No. 8293, as the
counterfeit goods seized by the EIIB were not only
found in her possession and control, but also in the
building registered under her business, Fascinate
Trading. The Court of Appeals said that the
prosecution had satisfactorily proven Gemmas
commission of the offense since the unauthorized use
of the trademark Marlboro, owned by PMPI, was
clearly intended to deceive the public as to the origin
of the cigarettes being distributed and sold, or
intended to be distributed and sold.

ISSUE:
1. (Procedural) Whether accused-appellants petition
for review on certiorari under Rule 45 of the Rules of
Court is fatally defective as it raises questions of fact.
2. Whether Gemma is guilty of infringement.

HELD:
As this case reached this Court via Rule 45 of the
Rules of Court, the basic rule is that factual questions
are beyond the province of this Court, because only
questions of law may be raised in a petition for review.
However, in exceptional cases, this Court has taken

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After the prosecution rested its case, the defense filed

a Demurrer to Evidence, which the RTC denied. The
defense moved for a reconsideration of this order but
the same was denied.

under her real name Maria Teresa Gemma

Catacutan; that she was not interrogated by the police
prior to her arrest, despite the two-year gap between
it and the search of the subject premises; and that she
is a dentist by profession, although a businessperson
in practice. She said that she used to buy and sell
gear fabrics, t-shirts, truck materials, and real
estate17 under the business name "Fascinate
Trading" based in Bulacan Street, Sta. Cruz, Manila,
but that it had ceased operations in February 1998.

cognizance of questions of fact in order to resolve

legal issues. Since the determination of the identity of
Gemma is the very issue affecting her guilt or
innocence, this Court chooses to take cognizance of
this case in the interest of proper administration of
justice.
Gemma is guilty of violating Section 155 in relation to
Section 170 of Republic Act No. 8293.
Gemma was charged and convicted of violating
Section 155 in relation to Section 170 of Republic Act
No. 8293, or the Intellectual Property Code of the
Philippines.
Section 155. Remedies; Infringement. - Any person who shall,
without the consent of the owner of the registered mark:
155.1. Use in commerce any reproduction, counterfeit, copy, or
colorable imitation of a registered mark or the same container or a
dominant feature thereof in connection with the sale, offering for
sale, distribution, advertising of any goods or services including
other preparatory steps necessary to carry out the sale of any
goods or services on or in connection with which such use is likely
to cause confusion, or to cause mistake, or to deceive; or
155.2. Reproduce, counterfeit, copy or colorably imitate a
registered mark or a dominant feature thereof and apply such
reproduction, counterfeit, copy or colorable imitation to labels,
signs, prints, packages, wrappers, receptacles or advertisements
intended to be used in commerce upon or in connection with the
sale, offering for sale, distribution, or advertising of goods or
services on or in connection with which such use is likely to cause
confusion, or to cause mistake, or to deceive, shall be liable in a
civil action for infringement by the registrant for the remedies
hereinafter set forth: Provided, That the infringement takes place at
the moment any of the acts stated in Subsection 155.1 or this
subsection are committed regardless of whether there is actual
sale of goods or services using the infringing material.

To establish trademark infringement, the following

elements must be shown: (1) the validity of plaintiffs
mark; (2) the plaintiffs ownership of the mark; and (3)
the use of the mark or its colorable imitation by the
alleged infringer results in "likelihood of confusion." Of
these, it is the element of likelihood of confusion that
is the gravamen of trademark infringement.
A mark is valid if it is distinctive and not barred from
registration. Once registered, not only the marks

The prosecution was able to establish that the

trademark "Marlboro" was not only valid for being
neither generic nor descriptive, it was also exclusively
owned by PMPI, as evidenced by the certificates of
registration issued by the Intellectual Property Office
of the Department of Trade and Industry.
Anent the element of confusion, both the RTC and the
Court of Appeals have correctly held that the
counterfeit cigarettes seized from Gemmas
possession were intended to confuse and deceive the
public as to the origin of the cigarettes intended to be
sold, as they not only bore PMPIs mark, but they
were also packaged almost exactly as PMPIs
products.
Gemmas defense consists of her claim of mistaken
identity, her denial of her involvement in the crime,
and her accusation against the prosecution witnesses
of allegedly giving false testimonies and committing
perjury. These are all weak, unproven, and
unfounded claims, and will not stand against the
strong evidence against her.

37

Republic Gas Corp. vs

Petron Corp, Pilipinas

Shell and Shell Int.

G.R. NO. 194062 - JUNE 17, 2013

FACTS:
Petitioners Petron Corporation ("Petron" for brevity)
and Pilipinas Shell Petroleum Corporation ("Shell" for
brevity) are two of the largest bulk suppliers and
producers of LPG in the Philippines. Petron is the
registered owner in the Philippines of the trademarks
GASUL and GASUL cylinders used for its LGP
products while Pilipinas Shell, on the other hand, is
the authorized user in the Philippines of the
tradename, trademarks, symbols or designs of its
principal, Shell International Petroleum Company
Limited, including the marks SHELLANE and SHELL
device in connection with the production, sale and
distribution of SHELLANE LPGs.

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A "mark" is any visible sign capable of distinguishing

the goods (trademark) or services (service mark) of
an enterprise and shall include a stamped or marked
container of goods.

validity, but also the registrants ownership of the

mark is prima facie presumed.

The two are entities in the Philippines authorized to

allow refillers and distributors to refill, use, sell, and
distribute GASUL LPG and SHELLANE LGP
containers, products and its trademarks respectively.
Private respondents, on the other hand, are the
directors and officers of Republic Gas Corporation
("REGASCO" for brevity), an entity duly licensed to
engage in, conduct and carry on, the business of
refilling, buying, selling, distributing and marketing at
wholesale and retail of Liquefied Petroleum Gas
("LPG").
LPG Dealers Associations, such as the Shellane
Dealers Association, Inc., Petron Gasul Dealers
Association, Inc. and Totalgaz Dealers Association,
received reports that certain entities were engaged in
the unauthorized refilling, sale and distribution of LPG
cylinders bearing the registered tradenames and
trademarks of the petitioners.
As a consequence, on February 5, 2004, Genesis
Adarlo on behalf of the aforementioned dealers
associations, filed a letter-complaint in the National
Bureau of Investigation regarding the alleged illegal
trading of petroleum products and/or underdelivery or
underfilling in the sale of LPG products.
Acting on the said letter-complaint, the NBI
surveillance revealed that REGASCO LPG Refilling
Plant in Malabon was engaged in the refilling and sale
of LPG cylinders bearing the registered marks of the
petitioners without authority from the latter.

Subsequently, on January 28, 2005, the NBI lodged

a complaint in the Department of Justice against the
private respondents for alleged violations of Sections
155 and 168 of Republic Act (RA) No. 8293,
otherwise known as the Intellectual Property Code of
the Philippines.
On January 15, 2006, Assistant City Prosecutor
Armando C. Velasco recommended the dismissal of
the complaint contending that there was no proof
introduced by the petitioners that would show that
private respondent REGASCO was engaged in
selling petitioners products or that it imitated and
reproduced the registered trademarks of the
petitioners. He further held that he saw no deception
on the part of REGASCO in the conduct of its
business of refilling and marketing LPG.
On appeal, the Secretary of the Department of Justice
affirmed the prosecutors dismissal of the complaint in
a Resolution dated September 18, 2008.
Dispensing with the filing of a motion for
reconsideration, respondents sought recourse to the
CA through a petition for certiorari.
In a Decision, the CA granted respondents certiorari
petition.
Petitioners then filed a motion for reconsideration.
However, the same was denied by the CA in a
Resolution.
ISSUE:
Whether probable cause exists to hold petitioners
liable for the crimes of trademark infringement and
unfair competition as defined and penalized under
Sections 155 and 168, in relation to Section 170 of
Republic Act (R.A.) No. 8293.
Held:

Thus, on March 5, 2004, De Jemil applied for the

issuance of search warrants in the RTC of Manila.

1. Yes.

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De Jemil, with other NBI operatives, then conducted

a test-buy operation on February 19, 2004 with the
former and a confidential asset going undercover.
They brought with them four (4) empty LPG cylinders
bearing the trademarks of SHELLANE and GASUL
and included the same with the purchase of J&S, a
REGASCOs regular customer. Inside REGASCOs
refilling plant, they witnessed that REGASCOs
employees carried the empty LPG cylinders to a
refilling station and refilled the LPG empty cylinders.
The LPG cylinders refilled by REGASCO were
likewise found later to be underrefilled.

Upon the issuance of the said search warrants,

Special Investigator Edgardo C. Kawada and other
NBI operatives immediately proceeded to the
REGASCO LPG Refilling Station in Malabon and
served the search warrants on the private
respondents.

Section 155 of R.A. No. 8293 identifies the acts

constituting trademark infringement as follows:

Section 168. Unfair Competition, Rights, Regulations and

Remedies. x x x.

Section 155. Remedies; Infringement. Any person who shall,

without the consent of the owner of the registered mark:

168.3 In particular, and without in any way limiting the scope of

protection against unfair competition, the following shall be deemed
guilty of unfair competition:

155.1 Use in commerce any reproduction, counterfeit, copy or

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

From the foregoing provision, the Court in a very

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

As to the charge of unfair competition, Section 168.3,

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

xxxx
Section 170. Penalties. Independent of the civil and administrative
sanctions imposed by law, a criminal penalty of imprisonment from
two (2) years to five (5) years and a fine ranging from Fifty thousand
pesos (P50,000) to Two hundred thousand pesos (P200,000), shall
be imposed on any person who is found guilty of committing any of
the acts mentioned in Section 155, Section 168 and Subsection
169.1.

From jurisprudence, unfair competition has been

defined as the passing off (or palming off) or
attempting to pass off upon the public of the
goods or business of one person as the goods or
business of another with the end and probable
effect of deceiving the public.
Passing off (or palming off) takes place where the
defendant, by imitative devices on the general
appearance of the goods, misleads prospective
purchasers into buying his merchandise under
the impression that they are buying that of his
competitors. Thus, the defendant gives his goods
the general appearance of the goods of his
competitor with the intention of deceiving the public
that the goods are those of his competitor.
In the present case, respondents pertinently
observed that by refilling and selling LPG cylinders
bearing their registered marks, petitioners are selling
goods by giving them the general appearance of
goods of another manufacturer.
What's more, the CA correctly pointed out that there
is a showing that the consumers may be misled into
believing that the LPGs contained in the cylinders
bearing the marks "GASUL" and "SHELLANE" are

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Here, petitioners have actually committed trademark

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

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

those goods or products of the petitioners when, in

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

Securities Regulation Code

Abacus Securities Corp v.

Ampil
G.R. NO. 160016 - 27 FEB 2006

FACTS:
Petitioner Abacus Securities Corp is engaged in
business as a broker and dealer of securities of listed
companies at the Philippine Stock Exchange Center.
In April 8, 1997, respondent Ruben Ampil opened a
cash or regular account with petitioner for the purpose
of buying and selling securities. Respondents
purchases were consistently unpaid from April 10 to
30, 1997. Respondent failed to pay in full, or even just
his deficiency, for the transactions on April 10 and 11,
1997. Despite respondents failure to cover his initial
deficiency, petitioner subsequently purchased and
sold securities for respondents account on April 25
and 29. Respondent accumulated an outstanding
obligation in favor of petitioner in the principal sum
P6,617,036.22 as of April 30, 1997.
Petitioner did not cancel or liquidate a substantial
amount of respondents stock transactions until May
6, 1997.
Respondent failed to settle his account upon the
lapse of the required period and the extension
given by petitioner, prompting it to sell his
securities on May 6, 1997, to offset his unsettled
obligations. After the sale of respondents securities
and application of the proceeds thereof against his
account, respondents remaining unsettled obligation
to petitioner was P3,364,313.56.

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80

WHEREFORE, premises considered, the petition is

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

Copyright

Abacus eventually sued Ampil to collect P3.4 million

representing the unpaid purchase price for all the
stock purchases it made on Ampils behalf.
For his defense, respondent claims that he was
induced to trade in a stock security with petitioner
because the latter allowed offset settlements wherein
he is not obliged to pay the purchase price. Rather, it
waits for the customer to sell. And if there is a loss,
petitioner only requires the payment of the deficiency
(i.e., the difference between the higher buying price
and the lower selling price). In addition, it charges a
commission for brokering the sale.
However, if the customer sells and there is a profit,
petitioner deducts the purchase price and delivers
only the surplus after charging its commission.

RTC:
RTC held that petitioner violated Sections 23 and 25
of the Revised Securities Act (RSA) and Rule 25-1 of
the Rules Implementing the Act (RSA Rules) when it

The trial court also found respondent to be equally at

fault, by incurring excessive credits and waiting to see
how his investments turned out before deciding to
invoke the RSA. Thus, the RTC concluded that
petitioner and respondent were in pari delicto and
therefore without recourse against each other.
CA:
The CA upheld the lower courts finding that the
parties were in pari delicto. It castigated petitioner for
allowing respondent to keep on trading despite the
latters failure to pay his outstanding obligations. It
explained that "the reason [behind petitioners act] is
elemental in its simplicity. And it is not exactly
altruistic. Because whether respondents trading
transaction would result in a surplus or deficit, he
would still be liable to pay [petitioner] its commission.
Petitioners cash register will keep on ringing to the
sound of incoming money, no matter what happened
to respondent.
The CA debunked petitioners contention that the trial
court lacked jurisdiction to determine violations of the
RSA. The court a quo held that petitioner was
estopped from raising the question, because it had
actively and voluntarily participated in the assailed
proceedings.
ISSUES:
1. Whether the petitioner and respondent are in pari
delicto which allegedly bars any recovery.
2. Whether the RTC has no jurisdiction over violations
of the Revised Securities Act.

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81

Respondent further claims that all his trades with

petitioner were not paid in full in cash at anytime after
purchase or within the T+4 [4 days subsequent to
trading] and none of these trades was cancelled by
petitioner as required in RSA. Neither did petitioner
apply with either the Philippine Stock Exchange or the
SEC for an extension of time for the payment or
settlement of his cash purchases. This was not
brought to his attention by his broker and so with the
requirement of collaterals in margin account. Thus,
his trade under an offset transaction with petitioner is
unlimited subject only to the discretion of the broker.
Had petitioner followed the provision under par. 8 of
RSA which stipulated the liquidation within the T+3 [3
days subsequent to trading], his net deficit would only
be P1,601,369.59. Respondent however affirmed that
this is not in accordance with RSA [Rule 25-1 par. C,
which mandates that if you do not pay for the first]
order, you cannot subsequently make any further
order without depositing the cash price in full. So, if
RSA Rule 25-1, par. C, was applied, he was limited
only to the first transaction. Petitioner did not comply
with the T+4 mandated in cash transaction. When
respondent failed to comply with the T+3, petitioner
did not require him to put up a deposit before it
executed its subsequent orders. Petitioner did not
likewise apply for extension of the T+4 rule.

failed to: 1) require the respondent to pay for his stock

purchases within three (T+3) or four days (T+4) from
trading; and 2) request from the appropriate authority
an extension of time for the payment of respondents
cash purchases. The trial court noted that despite
respondents non-payment within the required period,
petitioner did not cancel the purchases of respondent.
Neither did it require him to deposit cash payments
before it executed the buy and/or sell orders
subsequent to the first unsettled transaction.
According to the RTC, by allowing respondent to
trade his account actively without cash, petitioner
effectively induced him to purchase securities thereby
incurring excessive credits.

HELD:
1. The pari delicto rule applied only to transactions
entered into after those initial trades.

deposit sufficient funds in the account to cover each purchase

transaction prior to execution.

The provisions governing the above transactions are

Sections 23 and 25 of the RSA and Rule 25-1 of the
RSA Rules, which state as follows:

(f) Written application for an extension of the period of time required

for payment under paragraph (a) be made by the broker or dealer
to the Philippine Stock Exchange, in the case of a member of the
Exchange, or to the Commission, in the case of a non-member of
the Exchange. Applications for the extension must be based upon
exceptional circumstances and must be filed and acted upon
before the expiration of the original payment period or the
expiration of any subsequent extension.

SEC. 23. Margin Requirements.

xxxxxxxxx
(b) It shall be unlawful for any member of an exchange or any
broker or dealer, directly or indirectly, to extend or maintain credit
or arrange for the extension or maintenance of credit to or for any
customer
(1) On any security other than an exempted security, in
contravention of the rules and regulations which the Commission
shall prescribe under subsection (a) of this Section;
(2) Without collateral or on any collateral other than securities,
except (i) to maintain a credit initially extended in conformity with
the rules and regulations of the Commission and (ii) in cases where
the extension or maintenance of credit is not for the purpose of
purchasing or carrying securities or of evading or circumventing the
provisions of subparagraph (1) of this subsection.
x x x x x x x x x"
SEC. 25. Enforcement of margin requirements and restrictions on
borrowings. To prevent indirect violations of the margin
requirements under Section 23 hereof, the broker or dealer shall
require the customer in nonmargin transactions to pay the price of
the security purchased for his account within such period as the
Commission may prescribe, which shall in no case exceed three
trading days; otherwise, the broker shall sell the security purchased
starting on the next trading day but not beyond ten trading days
following the last day for the customer to pay such purchase price,
unless such sale cannot be effected within said period for justifiable
reasons. The sale shall be without prejudice to the right of the
broker or dealer to recover any deficiency from the customer. x x
x.
RSA RULE 25-1

xxxxxxxxx

Section 23(b) above -- the alleged violation of

petitioner which provides the basis for respondents
defense -- makes it unlawful for a broker to extend or
maintain credit on any securities other than in
conformity with the rules and regulations issued by
Securities and Exchange Commission (SEC). Section
25 lays down the rules to prevent indirect violations of
Section 23 by brokers or dealers. RSA Rule 25-1
prescribes in detail the regulations governing cash
accounts.
The United States, from which our countrys security
policies are patterned, abound with authorities
explaining the main purpose of the above statute on
margin requirements. This purpose is to regulate the
volume of credit flow, by way of speculative
transactions, into the securities market and redirect
resources into more productive uses. Specifically, the
main objective of the law on margins is explained in
this wise:
"The main purpose of these margin provisions xxx is not to increase
the safety of security loans for lenders. Banks and brokers normally
require sufficient collateral to make themselves safe without the
help of law. Nor is the main purpose even protection of the small
speculator by making it impossible for him to spread himself too
thinly although such a result will be achieved as a byproduct of
the main purpose.

Purchases and Sales in Cash Account

xxxxxxxxx

(b) If full payment is not received within the required time period,
the broker or dealer shall cancel or otherwise liquidate the
transaction, or the unsettled portion thereof, starting on the next
business day but not beyond ten (10) business days following the
last day for the customer to pay, unless such sale cannot be
effected within said period for justifiable reasons.
(c) If a transaction is cancelled or otherwise liquidated as a result
of non-payment by the customer, prior to any subsequent purchase
during the next ninety (90) days, the customer shall be required to

The main purpose is to give a government credit agency an

effective method of reducing the aggregate amount of the nations
credit resources which can be directed by speculation into the stock
market and out of other more desirable uses of commerce and
industry x x x."

A related purpose of the governmental regulation of

margins is the stabilization of the economy.
Restrictions on margin percentages are imposed "in
order to achieve the objectives of the government

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(a) Purchases by a customer in a cash account shall be paid in full

within three (3) business days after the trade date.

with due regard for the promotion of the economy and

prevention of the use of excessive credit."
Otherwise stated, the margin requirements set out in
the RSA are primarily intended to achieve a
macroeconomic purpose -- the protection of the
overall economy from excessive speculation in
securities. Their recognized secondary purpose is to
protect small investors.
The law places the burden of compliance with margin
requirements primarily upon the brokers and dealers.
Sections 23 and 25 and Rule 25-1, otherwise known
as the "mandatory close-out rule," clearly vest
upon petitioner the obligation, not just the right, to
cancel or otherwise liquidate a customers order,
if payment is not received within three days from
the date of purchase. The word "shall" as opposed
to the word "may," is imperative and operates to
impose a duty, which may be legally enforced. For
transactions subsequent to an unpaid order, the
broker should require its customer to deposit funds
into the account sufficient to cover each purchase
transaction prior to its execution. These duties are
imposed upon the broker to ensure faithful
compliance with the margin requirements of the law,
which forbids a broker from extending undue credit to
a customer.

The nature of the stock brokerage business enables

brokers, not the clients, to verify, at any time, the
status of the clients account. Brokers, therefore, are
in the superior position to prevent the unlawful

Right is one thing; obligation is quite another. A

right may not be exercised; it may even be
waived. An obligation, however, must be performed;
those who do not discharge it prudently must
necessarily face the consequence of their dereliction
or omission.
Respondent Liable for the First, but Not for the
Subsequent Trades
Nonetheless, these margin requirements are
applicable only to transactions entered into by the
present parties subsequent to the initial trades of April
10 and 11, 1997. Thus, we hold that petitioner can still
collect from respondent to the extent of the difference
between the latters outstanding obligation as of April
11, 1997 less the proceeds from the mandatory sell
out of the shares pursuant to the RSA Rules.
Petitioners right to collect is justified under the
general law on obligations and contracts.
Article 1236 (second paragraph) of the Civil Code,
provides:
"Whoever pays for another may demand from the debtor what he
has paid, except that if he paid without the knowledge or against
the will of the debtor, he can recover only insofar as the payment
has been beneficial to the debtor."

Since a brokerage relationship is essentially a

contract for the employment of an agent, principles of
contract law also govern the broker-principal
relationship.
The right to collect cannot be denied to petitioner as
the initial transactions were entered pursuant to the
instructions of respondent. The obligation of
respondent for stock transactions made and entered
into on April 10 and 11, 1997 remains outstanding.
These transactions were valid and the obligations
incurred by respondent concerning his stock
purchases on these dates subsist. At that time, there
was no violation of the RSA yet. Petitioners fault
arose only when it failed to: 1) liquidate the
transactions on the fourth day following the stock
purchases, or on April 14 and 15, 1997; and 2)
complete its liquidation no later than ten days

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83

It will be noted that trading on credit (or "margin

trading") allows investors to buy more securities
than their cash position would normally allow.
Investors pay only a portion of the purchase price of
the securities; their broker advances for them the
balance of the purchase price and keeps the
securities as collateral for the advance or loan.
Brokers take these securities/stocks to their bank and
borrow the "balance" on it, since they have to pay in
full for the traded stock. Hence, increasing margins
i.e., decreasing the amounts which brokers may lend
for the speculative purchase and carrying of stocks is
the most direct and effective method of discouraging
an abnormal attraction of funds into the stock market
and achieving a more balanced use of such
resources.

extension of credit. Because of this awareness, the

law imposes upon them the primary obligation to
enforce the margin requirements.

thereafter, applying the proceeds thereof as payment

for respondents outstanding obligation.
Respondent
Trades

Equally

Guilty

for

Subsequent

On the other hand, we find respondent equally guilty

in entering into the transactions in violation of the RSA
and RSA Rules. We are not prepared to accept his
self-serving assertions of being an "innocent victim"
in all the transactions. Clearly, he is not an
unsophisticated, small investor merely prodded by
petitioner to speculate on the market with the
possibility of large profits with low -- or no -- capital
outlay, as he pictures himself to be. Rather, he is an
experienced and knowledgeable trader who is well
versed in the securities market and who made his
own investment decisions. In fact, in the Account
Opening Form (AOF), he indicated that he had
excellent knowledge of stock investments; had
experience in stocks trading, considering that he had
similar accounts with other firms. Obviously, he
knowingly speculated on the market, by taking
advantage of the "no-cash-out" arrangement
extended to him by petitioner.

In the final analysis, both parties acted in violation of

the law and did not come to court with clean hands
with regard to transactions subsequent to the initial
trades made on April 10 and 11, 1997. Thus, the
peculiar facts of the present case bar the application
of the pari delicto rule -- expressed in the maxims "Ex

2. Yes.
The instant controversy is an ordinary civil case
seeking to enforce rights arising from the Agreement
(AOF) between petitioner and respondent. It relates
to acts committed by the parties in the course of their
business relationship. The purpose of the suit is to
collect respondents alleged outstanding debt to
petitioner for stock purchases.
To be sure, the RSA and its Rules are to be read into
the Agreement entered into between petitioner and
respondent. Compliance with the terms of the AOF
necessarily means compliance with the laws. Thus, to
determine whether the parties fulfilled their
obligations in the AOF, this Court had to pass upon
their compliance with the RSA and its Rules. This, in
no way, deprived the Securities and Exchange
Commission (SEC) of its authority to determine willful
violations of the RSA and impose appropriate
sanctions therefor, as provided under Sections 45
and 46 of the Act.
Moreover, we uphold the SEC in its Opinion, thus:
"As to the issue of jurisdiction, it is settled that a party cannot invoke
the jurisdiction of a court to secure affirmative relief against his
opponent and after obtaining or failing to obtain such relief,
repudiate or question that same jurisdiction.
"Indeed, after voluntarily submitting a cause and encountering an
adverse decision on the merits, it is too late for petitioner to
question the jurisdictional power of the court. It is not right for a
party who has affirmed and invoked the jurisdiction of a court in a
particular matter to secure an affirmative relief, to afterwards deny
that same jurisdiction to escape a penalty."

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We note that it was respondent who repeatedly asked

for some time to pay his obligations for his stock
transactions. Petitioner acceded to his requests. It is
only when sued upon his indebtedness that
respondent raised as a defense the invalidity of the
transactions due to alleged violations of the RSA. It
was respondents privilege to gamble or speculate, as
he apparently did so by asking for extensions of time
and refraining from giving orders to his broker to sell,
in the hope that the prices would rise. Sustaining his
argument now would amount to relieving him of the
risk and consequences of his own speculation and
saddling them on the petitioner after the result was
known to be unfavorable. Such contention finds no
legal or even moral justification and must necessarily
be overruled. Respondents conduct is precisely the
behavior of an investor deplored by the law.

dolo malo non oritur action" and "In pari delicto potior
est conditio defendentis" -- to all the transactions
entered into by the parties. The pari delecto rule
refuses legal remedy to either party to an illegal
agreement and leaves them where they were. In this
case, the pari delicto rule applies only to transactions
entered into after the initial trades made on April 10
and 11, 1997.

Tan vs. CA
G.R. NO. 161057 - SEPTEMBER 12, 2008

FACTS:
On 21 August 2000, petitioners Betty
Go Gabionza (Gabionza) and Isabelita
Tan (Tan) filed their respective Complaints-affidavit
charging private respondents Luke Roxas (Roxas)
and Evelyn Nolasco (Nolasco) with several criminal
acts. Roxas was the president of ASB Holdings, Inc.
(ASBHI) while Nolasco was the senior vice president
and treasurer of the same corporation.
According to petitioners, ASBHI was incorporated in
1996 with its declared primary purpose to invest in
any and all real and personal properties of every kind
or otherwise acquire the stocks, bonds, and other
securities or evidence of indebtedness of any other
corporation, and to hold or own, use, sell, deal in,
dispose of, and turn to account any such stocks.
ASBHI was organized with an authorized capital
stock of P500,000, a fact reflected in the corporations
articles of incorporation, copies of which were
appended as annexes to the complaint.

ASBHI would issue two (2) postdated checks to its

lenders, one representing the principal amount and
the other covering the interest thereon. The checks
were drawn against DBS Bank and would mature in
30 to 45 days. On the maturity of the checks, the
individual lenders would renew the loans, either

In the first quarter of 2000, DBS Bank started to

refuse to pay for the checks purportedly by virtue of
stop payment orders from ASBHI. In May of 2000,
ASBHI filed a petition for rehabilitation and
receivership with the Securities and Exchange
Commission (SEC), and it was able to obtain an order
enjoining
it
from
paying
its
outstanding
liabilities.[6]This series of events led to the filing of the
complaints by petitioners, together with Christine
Chua, Elizabeth Chan, Ando Sy and Antonio Villareal,
against ASBHI. The complaints were for estafa under
Article 315(2)(a) and (2)(d) of the Revised Penal
Code, estafa under Presidential Decree No. 1689,
violation of the Revised Securities Act and violation of
the General Banking Act.
A special task force, the Task Force on Financial
Fraud (Task Force), was created by the Department
of Justice (DOJ) to investigate the several complaints
that were lodged in relation to ASBHI. The Task
Force, dismissed the complaint on 19 October 2000,
and the dismissal was concurred in by the assistant
chief state prosecutor and approved by the chief state
prosecutor. Petitioners filed a motion for
reconsideration but this was denied in February 2001.
With respect to the charges of estafa under Article
315(2) of the Revised Penal Code and of violation of
the Revised Securities Act (which form the crux of the
issues before this Court), the Task Force concluded
that the subject transactions were loans which gave
rise only to civil liability; that petitioners were satisfied
with the arrangement from 1996 to 2000; that
petitioners never directly dealt with Nolasco and
Roxas; and that a check was not a security as
contemplated by the Revised Securities Act.
Petitioners then filed a joint petition for review with the
Secretary of Justice. On 15 October 2001, then
Secretary Hernando Perez issued a resolution which
partially reversed the Task Force and instead directed
the filing of five (5) Informations for estafa under
Article 315(2)(a) of the Revised Penal Code on the
complaints of Chan and petitioners Gabionza and
Tan, and an Information for violation of Section 4 in
relation to Section 56 of the Revised Securities
Act.[11] Motions for reconsideration to this Resolution

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85

Both petitioners had previously placed monetary

investment with the Bank of Southeast Asia (BSA).
They alleged that between 1996 and 1997, they were
convinced by the officers of ASBHI to lend or deposit
money with the corporation. They and other investors
were urged to lend, invest or deposit money with
ASBHI, and in return they would receive checks from
ASBHI for the amount so lent, invested or deposited.
At first, they were issued receipts reflecting the name
ASB Realty Development which they were told was
the same entity as BSA or was connected therewith,
but beginning in March 1998, the receipts were
issued in the name of ASBHI. They claimed that they
were told that ASBHI was exactly the same institution
that they had previously dealt with.

collecting only the interest earnings or rolling over the

same with the principal amounts.

were denied by the Department of Justice in a

Resolution dated 3 July 2002.
Even as the Informations were filed before the
Regional Trial Court of Makati City, private
respondents assailed the DOJ Resolution by way of
a certiorari petition with the Court of Appeals. In its
assailed Decision dated 18 July 2003, the Court of
Appeals reversed the DOJ and ordered the dismissal
of the criminal cases. The dismissal was sustained by
the appellate court when it denied petitioners motion
for reconsideration in a Resolution dated 28
November 2003. Hence this petition filed by
Gabionza and Tan.
ISSUES:
1. Whether the DOJ Resolution clearly supports a
prima facie finding that the crime of estafa under
Article 315 (2)(a) has been committed against
petitioners.
2. Whether the postdated checks issued by ASBHI
constituted a security under the Revised Securities
Act.
HELD:
1. Yes.

First. The DOJ Resolution explicitly identified the

false pretense, fraudulent act or fraudulent means
perpetrated upon the petitioners. It narrated that
petitioners were made to believe that ASBHI had the
financial capacity to repay the loans it enticed
petitioners to extend, despite the fact that it had an
authorized capital stock of only P500,000 and paid up
capital of only P125,000. The deficient capitalization
of ASBHI is evinced by its articles of incorporation,

Second. The DOJ Resolution also made it clear that

the false representations have been made to
petitioners prior to or simultaneously with the
commission of the fraud. The assurance given to
them by ASBHI that it is a worthy credit partner
occurred before they parted with their money.
Relevantly, ASBHI is not the entity with whom
petitioners initially transacted with, and they averred
that they had to be convinced with such
representations that Roxas and the same group
behind BSA were also involved with ASBHI.
Third. As earlier stated, there was an explicit and
reasonable conclusion drawn by the DOJ that it was
the representation of ASBHI to petitioners that it was
creditworthy and financially capable to pay that
induced petitioners to extend the loans. Petitioners, in
their respective complaint-affidavits, alleged that they
were enticed to extend the loans upon the following
representations: that ASBHI was into the very same
activities of ASB Realty Corp., ASB Development
Corp. and ASB Land, Inc., or otherwise held
controlling interest therein; that ASB could
legitimately solicit funds from the public for
investment/borrowing purposes; that ASB, by itself, or
through the corporations aforestated, owned real and
personal properties which would support and justify
its borrowing program; that ASB was connected with
and firmly backed by DBS Bank in which Roxas held
a substantial stake; and ASB would, upon maturity of
the checks it issued to its lenders, pay the same and
that it had the necessary resources to do so.
Fourth. The DOJ Resolution established that
petitioners sustained damage as a result of the acts
perpetrated against them. The damage is
considerable as to petitioners. Gabionza lost
P12,160,583.32 whereas Tan lost 16,411,238.57. In
addition, the DOJ Resolution noted that neither
Roxas nor Nolasco disputed that ASBHI had
borrowed funds from about 700 individual investors
amounting to close to P4B.

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The elements of estafa by means of deceit as defined

under Article 315(2)(a) of the Revised Penal Code are
as follows: (1) that there must be a false pretense,
fraudulent act or fraudulent means; (2) that such false
pretense, fraudulent act or fraudulent means must be
made or executed prior to or simultaneously with the
commission of the fraud; (3) that the offended party
must have relied on the false pretense, fraudulent act
or fraudulent means, that is, he was induced to part
with his money or property because of the false
pretense, fraudulent act or fraudulent means; and (4)
that as a result thereof, the offended party suffered
damage.

the treasurers affidavit executed by Nolasco, the

audited financial statements of the corporation for
1998 and the general information sheets for 1998 and
1999, all of which petitioners attached to their
respective affidavits

To the benefit of private respondents, the Court of

Appeals ruled, citing Sesbreno v. Court of Appeals,
that the subject transactions are akin to money
market placements which partake the nature of a
loan, the non-payment of which does not give rise to
criminal liability for estafa. The citation is woefully
misplaced. Sesbreno affirmed that a money market
transaction partakes the nature of a loan and
therefore nonpayment thereof would not give rise to
criminal liability for estafa through misappropriation or
conversion. Estafa through misappropriation or
conversion is punishable under Article 315(1)(b),
while the case at bar involves Article 315 (2)(a), a
mode of estafa by means of deceit. Indeed,
Sesbreno explains: In money market placement, the
investor is a lender who loans his money to a
borrower through a middleman or dealer. Petitioner
here loaned his money to a borrower through
Philfinance. When the latter failed to deliver back
petitioner's placement with the corresponding interest
earned at the maturity date, the liability incurred by
Philfinance was a civil one. That rationale is wholly
irrelevant to the complaint at bar, which centers not
on the inability of ASBHI to repay petitioners but on
the fraud and misrepresentation committed by ASBHI
to induce petitioners to part with their money.
To be clear, it is possible to hold the borrower in a
money market placement liable for estafa if the
creditor was induced to extend a loan upon the false
or fraudulent misrepresentations of the borrower.
Such estafa is one by means of deceit. The borrower
would not be generally liable for estafa through
misappropriation if he or she fails to repay the loan,
since the liability in such instance is ordinarily civil in
nature.
We can thus conclude that the DOJ Resolution clearly
supports a prima facie finding that the crime of estafa
under Article 315 (2)(a) has been committed against
petitioners.

It is one thing for a corporation to issue checks to

satisfy isolated individual obligations, and another for
a corporation to execute an elaborate scheme where
it would comport itself to the public as a pseudoinvestment house and issue postdated checks
instead of stocks or traditional securities to evidence

Moreover, it bears pointing out that the definition of

securities set forth in Section 2 of the Revised
Securities Act includes commercial papers
evidencing indebtedness of any person, financial or
non-financial entity, irrespective of maturity, issued,
endorsed, sold, transferred or in any manner
conveyed to another. A check is a commercial paper
evidencing indebtedness of any person, financial or
non-financial entity. Since the checks in this case
were generally rolled over to augment the creditors
existing investment with ASBHI, they most definitely
take on the attributes of traditional stocks.
WHEREFORE, the petition is GRANTED. The
assailed Decision and Resolution of the Court of
Appeals dated 18 July 2003 and 28 November 2003
are REVERSED and SET ASIDE. The Resolutions of
the Department of Justice in I.S. Nos. 2000-1418 to
1422 dated 15 October 2001 and 3 July 2002 are
REINSTATED. Costs against private respondents.
NOTE: There may be estafa under art.315 (2)(a), not
under (1), and the checks may be considered
securities, but full-blown trial must first be held. Case
is remanded to RTC of Makati City.

SEC vs. Prosperity.com.

Inc.
G.R. NO. 164197 - JANUARY 25, 2012

FACTS:
Prosperity.Com, Inc. (PCI) sold
computer
software
and
hosted
websites without providing internet service. To make
a profit, PCI devised a scheme in which, for the price
of US$234.00 (subsequently increased to US$294), a
buyer could acquire from it an internet website of a

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2.

the investments of its patrons. The Revised Securities

Act was geared towards maintaining the stability of
the national investment market against activities such
as those apparently engaged in by ASBHI. As the
DOJ Resolution noted, ASBHI adopted this scheme
in an attempt to circumvent the Revised Securities
Act, which requires a prior license to sell or deal in
securities. After all, if ASBHIs activities were actually
regulated by the SEC, it is hardly likely that the design
it chose to employ would have been permitted at all.

15-Mega Byte (MB) capacity. At the same time, by

referring to PCI his own down-line buyers, a first-time
buyer could earn commissions, interest in real estate
in the Philippines and in the United States, and
insurance coverage worth P50,000.
To benefit from this scheme, a PCI buyer must enlist
and sponsor at least two other buyers as his own
down-lines. These second tier of buyers could in turn
build up their own down-lines. For each pair of downlines, the buyer-sponsor received a US$92.00
commission. But referrals in a day by the buyersponsor should not exceed 16 since the commissions
due from excess referrals inure to PCI, not to the
buyer-sponsor.
Apparently, PCI patterned its scheme from that of
Golconda Ventures, Inc. (GVI), which company
stopped operations after the Securities and Exchange
Commission (SEC) issued a cease and desist order
(CDO) against it. As it later on turned out, the same
persons who ran the affairs of GVI directed PCIs
actual operations.
GVI filed a complaint with the SEC against PCI,
alleging that the latter had taken over GVIs
operations. After hearing, the SEC, through its
Compliance and Enforcement unit, issued a CDO
against PCI. The SEC ruled that PCIs scheme
constitutes an Investment contract and, following the
Securities Regulations Code, it should have first
registered such contract or securities with the SEC.
PCI filed with the Court of Appeals (CA) a petition for
certiorari against the SEC with an application for a
temporary restraining order (TRO) and preliminary
injunction.
CA granted PCIs petition and setting aside the SECissued CDO. The CA ruled that, following the Howey
test, PCIs scheme did not constitute an investment
contract that needs registration pursuant to R.A.
8799.

HELD:
No.

The United States Supreme Court held in Securities

and Exchange Commission v. W.J. Howey Co. that,
for an investment contract to exist, the following
elements, referred to as the Howey test must concur:
(1) a contract, transaction, or scheme; (2) an
investment of money; (3) investment is made in a
common enterprise; (4) expectation of profits; and (5)
profits arising primarily from the efforts of others.
An example that comes to mind would be the longterm commercial papers that large companies, like
San Miguel Corporation (SMC), offer to the public for
raising funds that it needs for expansion. When an
investor buys these papers or securities, he invests
his money, together with others, in SMC with an
expectation of profits arising from the efforts of those
who manage and operate that company. SMC has to
register these commercial papers with the SEC
before offering them to investors.1wphi1
Here, PCIs clients do not make such investments.
They buy a product of some value to them: an Internet
website of a 15-MB capacity. The client can use this
website to enable people to have internet access to
what he has to offer to them, say, some skin cream.
The buyers of the website do not invest money in PCI
that it could use for running some business that would
generate profits for the investors. The price of
US$234.00 is what the buyer pays for the use of the
website, a tangible asset that PCI creates, using its
computer facilities and technical skills.
Actually, PCI appears to be engaged in network
marketing, a scheme adopted by companies for
getting people to buy their products outside the usual
retail system where products are bought from the
stores shelf. Under this scheme, adopted by most
health product distributors, the buyer can
become a down-line seller. The latter earns
commissions from purchases made by new
buyers whom he refers to the person who sold the
product to him. The network goes down the line
where the orders to buy come.
The commissions, interest in real estate, and
insurance coverage worth P50,000 are incentives to

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88

ISSUE:
Whether PCIs scheme constitutes an investment
contract that requires registration under R.A. 8799.

An investment contract is a contract, transaction, or

scheme where a person invests his money in a
common enterprise and is led to expect profits
primarily from the efforts of others.

down-line sellers to bring in other customers. These

can hardly be regarded as profits from investment of
money under the Howey test.
The CA is right in ruling that the last requisite in the
Howey test is lacking in the marketing scheme that
PCI has adopted. Evidently, it is PCI that expects
profit from the network marketing of its products. PCI
is correct in saying that the US$234 it gets from its
clients is merely a consideration for the sale of the
websites that it provides.

SEC vs. Santos

G.R. NO. 195542 - MARCH 19, 2014

FACTS:
This petition for review on certiorari
under Rule 45 of the Rules of Court
assails the Decision1 of the Court of Appeals in CA
G.R. SP No. 112781 affirming the Resolutions2 of the
Secretary of Justice in I.S. No. 20071054 which,
among others, dismissed the criminal complaint for
violation of Section 28 of Republic Act No. 8799, the
Securities Regulation Code, filed by petitioner
Securities and Exchange Commission (SEC) against
respondent Oudine Santos (Santos).
Sometime in 2007, yet another investment scam was
exposed with the disappearance of its primary
perpetrator, Michael H.K. Liew (Liew), a selfstyled
financial guru and Chairman of the Board of Directors
of Performance Investment Products Corporation
(PIPCBVI), a foreign corporation registered in the
British Virgin Islands.

Because the head of PIPC Corporation had gone

missing and with it the monies and investment of a
significant number of investors, the SEC was flooded
with complaints from thirtyone (31) individuals
against PIPC Corporation, its directors, officers,
employees, agents and brokers for alleged violation
of certain provisions of the Securities Regulation
Code, including Section 28 thereof. Santos was
charged in the complaints in her capacity as

ISSUE:
Whether the DOJ erred in excluding Santos in the
Information for violation of Sec.28 of the Securitites
Regulation Code.
HELD:
We sustain the DOJ panels findings which were not
overruled by the Secretary of the DOJ and the
appellate court, that PIPC Corporation and/or PIPC
BVI was: (1) an issuer of securities without the
necessary registration or license from the SEC, and
(2) engaged in the business of buying and selling
securities. In connection therewith, we look to Section
3 of the Securities Regulation Code for pertinent
definitions of terms:
Sec. 3. Definition of Terms. x x x.
xxxx
3.3. Broker is a person engaged in the business of buying and
selling securities for the account of others.
3.4. Dealer means [any] person who buys [and] sells securities
for his/her own account in the ordinary course of business.
3.5. Associated person of a broker or dealer is an employee
thereof whom, directly exercises control of supervisory authority,
but does not include a salesman, or an agent or a person whose
functions are solely clerical or ministerial.
xxxx
3.13. Salesman is a natural person, employed as such [or] as an
agent, by a dealer, issuer or broker to buy and sell securities.

To determine whether the DOJ Secretarys

Resolution was tainted with grave abuse of discretion,
we pass upon the elements for violation of Section 28
of the Securities Regulation Code: (a) engaging in the
business of buying or selling securities in the
Philippines as a broker or dealer; or (b) acting as a
salesman; or (c) acting as an associated person of
any broker or dealer, unless registered as such with
the SEC.
Tying it all in, there is no quarrel that Santos was in
the employ of PIPC Corporation and/or PIPCBVI, a
corporation which sold or offered for sale
unregistered securities in the Philippines. To escape

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89

To do business in the Philippines, PIPCBVI

incorporated herein as Philippine International
Planning Center Corporation (PIPC Corporation).

investment consultant of PIPC Corporation, who

supposedly induced private complainants Luisa
Mercedes P. Lorenzo (Lorenzo) and Ricky Albino P.
Sy (Sy), to invest their monies in PIPC Corporation.

probable culpability, Santos claims that she was a

mere clerical employee of PIPC Corporation and/or
PIPCBVI and was never an agent or salesman who
actually solicited the sale of or sold unregistered
securities issued by PIPC Corporation and/or PIPC
BVI.
Solicitation is the act of seeking or asking for business
or information; it is not a commitment to an
agreement.
Santos, by the very nature of her function as what she
now unaffectedly calls an information provider,
brought about the sale of securities made by PIPC
Corporation and/or PIPCBVI to certain individuals,
specifically private complainants Sy and Lorenzo by
providing information on the investment products of
PIPC Corporation and/or PIPCBVI with the end in
view of PIPC Corporation closing a sale.
While Santos was not a signatory to the contracts on
Sys or Lorenzos investments, Santos procured the
sale of these unregistered securities to the two (2)
complainants by providing information on the
investment products being offered for sale by PIPC
Corporation and/or PIPCBVI and convincing them to
invest therein.

In all of the documents presented by Santos, she

never alleged or pointed out that she did not receive
extra consideration for her simply providing
information to Sy and Lorenzo about PIPC
Corporation and/or PIPCBVI. Santos only claims
that the monies invested by Sy and Lorenzo did not
pass through her hands. In short, Santos did not
present in evidence her salaries as a supposed mere
clerical employee or information provider of PIPC
BVI. Such presentation would have foreclosed all
questions on her status within PIPC Corporation
and/or PIPCBVI at the lowest rung of the ladder who
only provided information and who did not use her
discretion in any capacity.

The transaction initiated by Santos with Sy and

Lorenzo, respectively, is an investment contract or
participation in a profit sharing agreement that falls
within the definition of the law. When the investor is
relatively uninformed and turns over his money to
others,
essentially
depending
upon
their
representations and their honesty and skill in
managing it, the transaction generally is considered
to be an investment contract.23 The touchstone is the
presence of an investment in a common venture
premised on a reasonable expectation of profits to be
derived from the entrepreneurial or managerial efforts
of others.
At bottom, the exculpation of Santos cannot be
preliminarily established simply by asserting that she
did not sign the investment contracts, as the facts
alleged in this case constitute fraud perpetrated on
the public. Specially so because the absence of
Santos signature in the contract is, likewise,
indicative of a scheme to circumvent and evade
liability should the pyramid fall apart.
Lastly, we clarify that we are only dealing herein with
the preliminary investigation aspect of this case. We
do not adjudge respondents guilt or the lack thereof.
Santos defense of being a mere employee or simply
an information provider is best raised and threshed
out during trial of the case.
WHEREFORE, the petition is GRANTED. The
Decision of the Court of Appeals in CAG.R. No. SP
No. 112781 and the Resolutions of the Department of
Justice dated 1 October 2009 and 23 November 2009
are ANNULLED and SET ASIDE. The Resolution of
the Department of Justice dated 18 April 2008 and 2
September 2008 are REINSTATED. The Department
of Justice is directed to include respondent Oudine
Santos in the Information for violation of Section 28 of
the Securities and Regulation Code.

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No matter Santos strenuous objections, it is apparent

that she connected the probable investors, Sy and
Lorenzo, to PIPC Corporation and/or PIPCBVI,
acting as an ostensible agent of the latter on the
viability of PIPC Corporation as an investment
company. At each point of Sys and Lorenzos
investment, Santos participation thereon, even if not
shown strictly on paper, was prima facie established.

We cannot overemphasize that the very information

provided by Santos locked the deal on unregistered
securities with Sy and Lorenzo.

SEC

vs.

Interport

Resources Corp
G.R. NO. 135808 - OCTOBER 6, 2008

FACTS:
The Board of Directors of IRC
approved
a
Memorandum
of
Agreement with Ganda Holdings Berhad (GHB).
Under the Memorandum of Agreement, IRC acquired
100% or the entire capital stock of Ganda Energy
Holdings, Inc. (GEHI), which would own and operate
a 102 megawatt (MW) gas turbine power-generating
barge, the output of which was to be purchased by
NAPOCOR for 5 years. On the side, IRC would
acquire 67% of the entire capital stock of Philippine
Racing Club, Inc. (PRCI). PRCI owns 25.724
hectares of real estate property in Makati. Under the
Agreement, GHB, a member of the Westmont Group
of Companies in Malaysia, shall extend or arrange a
loan required to pay for the proposed acquisition by
IRC of PRCI.
IRC alleged that on 8 August 1994, a press release
announcing the approval of the agreement was sent
through facsimile transmission to the Philippine Stock
Exchange and the SEC, but that the facsimile
machine of the SEC could not receive it.

In compliance with the SEC Chairman's directive, the

IRC sent a letter dated 16 August 1994 to the SEC,
attaching thereto copies of the Memorandum of
Agreement.

Respondent alleged that the SEC had no authority to

investigate the subject matter, since under Section 8
of Presidential Decree No. 902-A, as amended by
Presidential Decree No. 1758, jurisdiction was
conferred upon the Prosecution and Enforcement
Department (PED) of the SEC. Respondents also
claimed that the SEC violated their right to due
process when it ordered that the respondents appear
before the SEC and "show cause why no
administrative, civil or criminal sanctions should be
imposed on them," and, thus, shifted the burden of
proof to the respondents. Lastly, they sought to have
their cases tried jointly given the identical factual
situations surrounding the alleged violation
committed by the respondents.
SEC issued an Omnibus Order which thus disposed
of the same in this wise:
WHEREFORE, premised on the foregoing considerations, the
Commission resolves and hereby rules:
1. To create a special investigating panel to hear and decide the
instant case in accordance with the Rules of Practice and
Procedure Before the Prosecution and Enforcement Department
(PED).
2. To recall the show cause orders requiring the respondents to
appear and show cause why no administrative, civil or criminal
sanctions should be imposed on them.

The respondents filed a petition before the Court of

Appeals. Subsequently, Court of Appeals issued a
writ of preliminary injunction, which effectively
enjoined the SEC from filing any criminal, civil or
administrative case against the respondents.
CA:
CA held that there were no implementing rules and
regulations regarding disclosure, insider trading, or
any of the provisions of the Revised Securities Acts
which the respondents allegedly violated. The Court

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The SEC averred that it received reports that IRC

failed to make timely public disclosures of its
negotiations with GHB and that some of its directors,
respondents herein, heavily traded IRC shares
utilizing this material insider information. On 16
August 1994, the SEC Chairman issued a directive
requiring IRC to submit to the SEC a copy of its
aforesaid Memorandum of Agreement with GHB. The
SEC Chairman further directed all principal officers of
IRC to appear at a hearing before the Brokers and
Exchanges Department (BED) of the SEC to explain
IRC's failure to immediately disclose the information
as required by the Rules on Disclosure of Material
Facts.

On 19 September 1994, the SEC Chairman issued an

Order finding that IRC violated the Rules on
Disclosure of Material Facts, in connection with the
Old Securities Act of 1936, when it failed to make
timely disclosure of its negotiations with GHB. In
addition, the SEC pronounced that some of the
officers and directors of IRC entered into transactions
involving IRC shares in violation of Section 30, in
relation to Section 36, of the Revised Securities Act.

of Appeals likewise noted that it found no statutory

authority for the SEC to initiate and file any suit for
civil liability under Sections 8, 30 and 36 of the
Revised Securities Act. Thus, it ruled that no civil,
criminal or administrative proceedings may possibly
be held against the respondents without violating their
rights to due process and equal protection. It further
resolved that absent any implementing rules, the SEC
cannot be allowed to quash the assailed Omnibus
Orders for the sole purpose of re-filing the same case
against the respondents.
The Court of Appeals further decided that the Rules
of Practice and Procedure Before the PED, which
took effect on 14 April 1990, did not comply with the
statutory
requirements
contained
in
the
Administrative Code of 1997.
While this case was pending in this Court, Republic
Act No. 8799, otherwise known as the Securities
Regulation Code, took effect on 8 August 2000.
Section 8 of Presidential Decree No. 902-A, as
amended, which created the PED, was already
repealed as provided for in Section 76 of the
Securities Regulation Code:
SEC. 76. Repealing Clause. - The Revised Securities Act (Batas
Pambansa Blg. 178), as amended, in its entirety, and Sections 2,
4 and 8 of Presidential Decree 902-A, as amended, are hereby
repealed. All other laws, orders, rules and regulations, or parts
thereof, inconsistent with any provision of this Code are hereby
repealed or modified accordingly.

Thus, under the new law, the PED has been

abolished, and the Securities Regulation Code has
taken the place of the Revised Securities Act.
ISSUES:
Whether the SEC has authority to file suit against
respondents for violations of the RSA.
HELD:
Yes.

In the absence of any constitutional or statutory

infirmity, which may concern Sections 30 and 36 of
the Revised Securities Act, this Court upholds these
provisions as legal and binding. It is well settled that
every law has in its favor the presumption of validity.

The necessity for vesting administrative authorities

with power to make rules and regulations is based on
the impracticability of lawmakers' providing general
regulations for various and varying details of
management. To rule that the absence of
implementing rules can render ineffective an act of
Congress, such as the Revised Securities Act, would
empower the administrative bodies to defeat the
legislative will by delaying the implementing rules. To
assert that a law is less than a law, because it is made
to depend on a future event or act, is to rob the
Legislature of the power to act wisely for the public
welfare whenever a law is passed relating to a state
of affairs not yet developed, or to things future and
impossible to fully know.
This Court does not discern any vagueness or
ambiguity in Sections 30 and 36 of the Revised
Securities Act, such that the acts proscribed and/or
required would not be understood by a person of
ordinary intelligence.
Section 30 of the Revised Securities Act reads:
Sec. 30. Insider's duty to disclose when trading. - (a) It shall be
unlawful for an insider to sell or buy a security of the issuer, if he
knows a fact of special significance with respect to the issuer or the
security that is not generally available, unless (1) the insider proves
that the fact is generally available or (2) if the other party to the
transaction (or his agent) is identified, (a) the insider proves that
the other party knows it, or (b) that other party in fact knows it from
the insider or otherwise.
(b) "Insider" means (1) the issuer, (2) a director or officer of, or a
person controlling, controlled by, or under common control with, the
issuer, (3) a person whose relationship or former relationship to the
issuer gives or gave him access to a fact of special significance
about the issuer or the security that is not generally available, or
(4) a person who learns such a fact from any of the foregoing
insiders as defined in this subsection, with knowledge that the
person from whom he learns the fact is such an insider.
(c) A fact is "of special significance" if (a) in addition to being
material it would be likely, on being made generally available, to
affect the market price of a security to a significant extent, or (b) a
reasonable person would consider it especially important under the
circumstances in determining his course of action in the light of

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I. Sections 8, 30 and 36 of the Revised Securities

Act do not require the enactment of implementing
rules to make them binding and effective.

Unless and until a specific provision of the law is

declared invalid and unconstitutional, the same is
valid and binding for all intents and purposes. The
mere absence of implementing rules cannot
effectively invalidate provisions of law, where a
reasonable construction that will support the law may
be given.

such factors as the degree of its specificity, the extent of its

difference from information generally available previously, and its
nature and reliability.
(d) This section shall apply to an insider as defined in subsection
(b) (3) hereof only to the extent that he knows of a fact of special
significance by virtue of his being an insider.

The provision explains in simple terms that the

insider's misuse of nonpublic and undisclosed
information is the gravamen of illegal conduct. The
intent of the law is the protection of investors against
fraud, committed when an insider, using secret
information, takes advantage of an uninformed
investor. Insiders are obligated to disclose material
information to the other party or abstain from trading
the shares of his corporation. This duty to disclose or
abstain is based on two factors: first, the existence of
a relationship giving access, directly or indirectly, to
information intended to be available only for a
corporate purpose and not for the personal benefit of
anyone; and second, the inherent unfairness involved
when a party takes advantage of such information
knowing it is unavailable to those with whom he is
dealing.

Under the law, what is required to be disclosed is a

fact of "special significance" which may be (a) a
material fact which would be likely, on being made
generally available, to affect the market price of a
security to a significant extent, or (b) one which a
reasonable person would consider especially
important in determining his course of action with
regard to the shares of stock.
(a) Material Fact - The concept of a "material fact" is
not a new one. As early as 1973, the Rules Requiring
Disclosure of Material Facts by Corporations Whose

(b.1) Reasonable Person - The second definition

given to a fact of special significance involves the
judgment of a "reasonable person." Contrary to the
allegations of the respondents, a "reasonable person"
is not a problematic legal concept that needs to be
clarified for the purpose of giving effect to a statute;
rather, it is the standard on which most of our legal
doctrines stand.
(b.2) Nature and Reliability - The factors affecting the
second definition of a "fact of special significance,"
which is of such importance that it is expected to
affect the judgment of a reasonable man, were
substantially lifted from a test of materiality
pronounced in the case In the Matter of Investors
Management Co., Inc.:
Among the factors to be considered in determining whether
information is material under this test are the degree of its
specificity, the extent to which it differs from information previously
publicly disseminated, and its reliability in light of its nature and
source and the circumstances under which it was received.

It can be deduced from the foregoing that the "nature

and reliability" of a significant fact in determining the
course of action a reasonable person takes regarding
securities must be clearly viewed in connection with
the particular circumstances of a case. To enumerate
all circumstances that would render the "nature and
reliability" of a fact to be of special significance is
close to impossible. Nevertheless, the proper
adjudicative body would undoubtedly be able to
determine if facts of a certain "nature and reliability"
can influence a reasonable person's decision to
retain, sell or buy securities, and thereafter explain
and justify its factual findings in its decision.
(c) Materiality Concept - What is referred to in our
laws as a fact of special significance is referred to in

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Respondents further aver that under Section 30 of the

Revised Securities Act, the SEC still needed to define
the following terms: "material fact," "reasonable
person," "nature and reliability" and "generally
available." In determining whether or not these terms
are vague, these terms must be evaluated in the
context of Section 30 of the Revised Securities Act.
To fully understand how the terms were used in the
aforementioned provision, a discussion of what the
law recognizes as a fact of special significance is
required, since the duty to disclose such fact or to
abstain from any transaction is imposed on the insider
only in connection with a fact of special significance.

Securities Are Listed In Any Stock Exchange or

Registered/Licensed Under the Securities Act, issued
by the SEC on 29 January 1973, explained that "[a]
fact is material if it induces or tends to induce or
otherwise affect the sale or purchase of its securities."
Thus, Section 30 of the Revised Securities Act
provides that if a fact affects the sale or purchase of
securities, as well as its price, then the insider would
be required to disclose such information to the other
party to the transaction involving the securities. This
is the first definition given to a "fact of special
significance."

the U.S. as the "materiality concept" and the latter is

similarly not provided with a precise definition.

her ownership of the issuer's securities and such

changes in his or her ownership thereof.

Moreover, materiality "will depend at any given time

upon a balancing of both the indicated probability that
the event will occur and the anticipated magnitude of
the event in light of the totality of the company
activity."45 In drafting the Securities Act of 1934, the
U.S. Congress put emphasis on the limitations to the
definition of materiality:

Even assuming that the term "beneficial ownership"

was vague, it would not affect respondents' case,
where the respondents are directors and/or officers of
the corporation, who are specifically required to
comply with the reportorial requirements under
Section 36(a) of the Revised Securities Act. The
validity of a statute may be contested only by one who
will sustain a direct injury as a result of its
enforcement.

Although the Committee believes that ideally it would be desirable

to have absolute certainty in the application of the materiality
concept, it is its view that such a goal is illusory and unrealistic. The
materiality concept is judgmental in nature and it is not
possible to translate this into a numerical formula. The
Committee's advice to the [SEC] is to avoid this quest for certainty
and to continue consideration of materiality on a case-by-case
basis as disclosure problems are identified."

(d) Generally Available - Section 30 of the Revised

Securities Act allows the insider the defense that in a
transaction of securities, where the insider is in
possession of facts of special significance, such
information is "generally available" to the public.
Whether information found in a newspaper, a
specialized magazine, or any cyberspace media be
sufficient for the term "generally available" is a matter
which may be adjudged given the particular
circumstances of the case. The standards cannot
remain at a standstill. A medium, which is widely used
today was, at some previous point in time,
inaccessible to most. Furthermore, it would be difficult
to approximate how the rules may be applied to the
instant case, where investigation has not even been
started. Respondents failed to allege that the
negotiations of their agreement with GHB were made
known to the public through any form of media for
there to be a proper appreciation of the issue
presented.

As regards Section 36(a) of the Revised Securities

Act, respondents claim that the term "beneficial
ownership" is vague and that it requires implementing
rules to give effect to the law. Section 36(a) of the
Revised Securities Act is a straightforward provision
that imposes upon (1) a beneficial owner of more than
ten percent of any class of any equity security or (2)
a director or any officer of the issuer of such security,
the obligation to submit a statement indicating his or

PED Rules provided that the Hearing Officer may

require the parties to submit their respective verified
position papers, together with all supporting
documents and affidavits of witnesses. A formal
hearing was not mandatory; it was within the
discretion of the Hearing Officer to determine whether
there was a need for a formal hearing. Since,
according to the foregoing rules, the holding of a
hearing before the PED is discretionary, then the right
to cross-examination could not have been demanded
by either party.
Secondly, it must be pointed out that Chapter 3, Book
VII of the Administrative Code, entitled "Adjudication,"
does not affect the investigatory functions of the
agencies.
The law creating PED empowers it to investigate
violations of the rules and regulations promulgated by
the SEC and to file and prosecute such cases. It fails
to mention any adjudicatory functions insofar as the
PED is concerned. Thus, the PED Rules of Practice
and Procedure need not comply with the provisions of
the Administrative Code on adjudication, particularly
Section 12(3), Chapter 3, Book VII.
In Cario v. Commission on Human Rights, this Court
sets out the distinction between investigative and
adjudicative functions, thus:
"Investigate," commonly understood, means to examine, explore,
inquire or delve or probe into, research on, study. The dictionary
definition of "investigate" is "to observe or study closely; inquire into
systematically: "to search or inquire into" xx to subject to an official
probe xx: to conduct an official inquiry." The purpose of an

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Section 36(a) of the Revised Securities Act

II. The right to cross-examination is not absolute

and cannot be demanded during investigative
proceedings before the PED.

investigation, of course is to discover, to find out, to learn, obtain

information. Nowhere included or intimated is the notion of settling,
deciding or resolving a controversy involved in the facts inquired
into by application of the law to the facts established by the inquiry.
The legal meaning of "investigate" is essentially the same: "to
follow up step by step by patient inquiry or observation. To trace or
track; to search into; to examine and inquire into with care and
accuracy; to find out by careful inquisition; examination; the taking
of evidence; a legal inquiry;" "to inquire; to make an investigation,"
"investigation" being in turn described as "(a)n administrative
function, the exercise of which ordinarily does not require a
hearing. 2 Am J2d Adm L Sec. 257; xx an inquiry, judicial or
otherwise, for the discovery and collection of facts concerning a
certain matter or matters."
"Adjudicate," commonly or popularly understood, means to
adjudge, arbitrate, judge, decide, determine, resolve, rule on,
settle. The dictionary defines the term as "to settle finally (the rights
and duties of parties to a court case) on the merits of issues raised:
xx to pass judgment on: settle judicially: xx act as judge." And
"adjudge" means "to decide or rule upon as a judge or with judicial
or quasi-judicial powers: xx to award or grant judicially in a case of
controversy x x x."

95

Section 30 of the Revised Securities Act has been

reenacted as Section 27 of the Securities Regulations
Code, still penalizing an insider's misuse of material
and non-public information about the issuer, for the
purpose of protecting public investors. Section 26 of
the Securities Regulations Code even widens the
coverage of punishable acts, which intend to defraud
public
investors
through
various
devices,
misinformation and omissions.

In a legal sense, "adjudicate" means: "To settle in the

exercise of judicial authority. To determine finally.
Synonymous with adjudge in its strictest sense;" and
"adjudge" means: "To pass on judicially, to decide,
settle, or decree, or to sentence or condemn. x x x
Implies a judicial determination of a fact, and the entry
of a judgment."

Section 23 of the Securities Regulations Code was

practically lifted from Section 36(a) of the Revised
Securities Act. Both provisions impose upon (1) a
beneficial owner of more than ten percent of any class
of any equity security or (2) a director or any officer of
the issuer of such security, the obligation to submit a
statement indicating his or her ownership of the
issuer's securities and such changes in his or her
ownership thereof.

There is no merit to the respondent's averment that

the sections under Chapter 3, Book VII of the
Administrative Code, do not distinguish between
investigative and adjudicatory functions. Chapter 3,
Book VII of the Administrative Code, is unequivocally
entitled "Adjudication."

Clearly, the legislature had not intended to deprive

the courts of their authority to punish a person
charged with violation of the old law that was
repealed; in this case, the Revised Securities Act.

III. The Securities Regulations Code did not repeal

Sections 8, 30 and 36 of the Revised Securities
Act since said provisions were reenacted in the
new law.

IV. The SEC retained the jurisdiction to

investigate violations of the Revised Securities
Act, reenacted in the Securities Regulations
Code, despite the abolition of the PED.

The Securities Regulations Code absolutely repealed

the Revised Securities Act. While the absolute repeal
of a law generally deprives a court of its authority to
penalize the person charged with the violation of the
old law prior to its appeal, an exception to this rule
comes about when the repealing law punishes the act
previously penalized under the old law.

Section 53 of the Securities Regulations Code clearly

provides that criminal complaints for violations of
rules and regulations enforced or administered by the
SEC shall be referred to the Department of Justice
(DOJ) for preliminary investigation, while the SEC
nevertheless retains limited investigatory powers.
Additionally, the SEC may still impose the appropriate
administrative sanctions under Section 54 of the
aforementioned law.

Section 8 of the Revised Securities Act, which

previously provided for the registration of securities
and the information that needs to be included in the

In this case, the SEC already commenced the

investigative proceedings against respondents as

95

Page

registration statements, was expanded under Section

12, in connection with Section 8 of the Securities
Regulations Code. Further details of the information
required to be disclosed by the registrant are
explained in the Amended Implementing Rules and
Regulations of the Securities Regulations Code,
issued on 30 December 2003, particularly Sections 8
and 12 thereof.

early as 1994. Respondents were called to appear

before the SEC and explain their failure to disclose
pertinent information on 14 August 1994. Thereafter,
the SEC Chairman, having already made initial
findings that respondents failed to make timely
disclosures of their negotiations with GHB, ordered a
special investigating panel to hear the case. The
investigative proceedings were interrupted only by
the writ of preliminary injunction issued by the Court
of Appeals, which became permanent by virtue of the
Decision, dated 20 August 1998, in C.A.-G.R. SP No.
37036. During the pendency of this case, the
Securities Regulations Code repealed the Revised
Securities Act. As in Morato v. Court of Appeals, the
repeal cannot deprive SEC of its jurisdiction to
continue investigating the case; or the regional trial
court, to hear any case which may later be filed
against the respondents.

Philippine

Veterans

Bank vs. Callangan

GR NO. 191995 - AUGUST 3, 2011

FACTS:
We resolve the motion for
reconsideration filed by petitioner Philippine Veterans
Bank (the Bank) dated August 5, 2010, addressing
our June 16, 2010 Resolution that denied the Banks
petition for review on certiorari.

The Bank responded by explaining that it should not

be considered a public company because it is a
private company whose shares of stock are available
only to a limited class or sector, i.e., to World War II
veterans, and not to the general public.

On March 6, 2008, the CA dismissed the petition and

affirmed the assailed SEC ruling, with the
modification that the assessment of the penalty be
recomputed from May 31, 2004.
The CA also denied the Banks motion for
reconsideration, opening the way for the Banks
petition for review on certiorari filed with this Court.
On June 16, 2010, the Court denied the Banks
petition for failure to show any reversible error in the
assailed CA decision and resolution.
The Bank reiterates that it is not a public company
subject to the reportorial requirements under Section
17.1 of the SRC because its shares can be owned
only by a specific group of people, namely, World War
II veterans and their widows, orphans and
compulsory heirs, and is not open to the investing
public in general. The Bank also asks the Court to
take into consideration the financial impact to the
cause of veteranism; compliance with the reportorial
requirements under the SRC, if the Bank would be
considered a public company, would compel the Bank
to spend approximately P40 million just to reproduce
and mail the Information Statement to its 400,000
shareholders nationwide.
ISSUE:
Whether the bank is a public company subject to the
reportorial requirements under section 17.1 of the
Securities Regulation Code.
HELD:
Yes.

96

Page

96

On March 17, 2004, respondent Justina F. Callangan,

the Director of the Corporation Finance Department
of the Securities and Exchange Commission (SEC),
sent the Bank a letter, informing it that it qualifies as
a public company under Section 17.2 of the Securities
Regulation Code (SRC) in relation with Rule 3(1)(m)
of the Amended Implementing Rules and Regulations
of the SRC. The Bank is thus required to comply with
the reportorial requirements set forth in Section 17.1
of the SRC.

In a letter dated April 20, 2004, Director Callangan

rejected the Banks explanation and assessed it a total
penalty of One Million Nine Hundred Thirty-Seven
Thousand Two Hundred Sixty-Two and 80/100 Pesos
(P1,937,262.80) for failing to comply with the SRC
reportorial requirements from 2001 to 2003. The Bank
moved for the reconsideration of the assessment, but
Director Callangan denied the motion in SEC-CFD
Order No. 085, Series of 2005 dated July 26, 2005.
When the SEC En Banc also dismissed the Banks
appeal for lack of merit in its Order dated August 31,
2006, prompting the Bank to file a petition for review
with the Court of Appeals (CA).

To determine whether the Bank is a public company

burdened with the reportorial requirements ordered
by the SEC, we look to Subsections 17.1 and 17.2 of
the SRC, which provide:

The records establish, and the Bank does not dispute,

that the Bank has assets exceeding P50,000,000 and
has 395,998 shareholders. It is thus considered a
public company that must comply with the reportorial
requirements set forth in Section 17.1 of the SRC.

Section 17. Periodic and Other Reports of Issuers.

17.1. Every issuer satisfying the requirements in Subsection 17.2
hereof shall file with the Commission:
a) Within one hundred thirty-five (135) days, after the end of the
issuers fiscal year, or such other time as the Commission may
prescribe, an annual report which shall include, among others, a
balance sheet, profit and loss statement and statement of cash
flows, for such last fiscal year, certified by an independent certified
public accountant, and a management discussion and analysis of
results of operations; and
b) Such other periodical reports for interim fiscal periods and
current reports on significant developments of the issuer as the
Commission may prescribe as necessary to keep current
information on the operation of the business and financial condition
of the issuer.
17.2. The reportorial requirements of Subsection 17.1 shall apply
to the following:
xxxx
c) An issuer with assets of at least Fifty million pesos
(P50,000,000.00) or such other amount as the Commission shall
prescribe, and having two hundred (200) or more holders each
holding at least one hundred (100) shares of a class of its
equity securities: Provided, however, That the obligation of such
issuer to file reports shall be terminated ninety (90) days after
notification to the Commission by the issuer that the number of its
holders holding at least one hundred (100) shares is reduced to
less than one hundred (100).

From these provisions, it is clear that a public

company, as contemplated by the SRC, is not limited
to a company whose shares of stock are publicly
listed; even companies like the Bank, whose shares
are offered only to a specific group of people, are
considered a public company, provided they meet the
requirements enumerated above.

On this point, the Bank is apparently referring to the

obligation set forth in Subsections 17.5 and 17.6 of
the SRC, which provide:
Section 17.5. Every issuer which has a class of equity securities
satisfying any of the requirements in Subsection 17.2 shall furnish
to each holder of such equity security an annual report in such form
and containing such information as the Commission shall
prescribe.
Section 17.6. Within such period as the Commission may prescribe
preceding the annual meeting of the holders of any equity security
of a class entitled to vote at such meeting, the issuer shall transmit
to such holders an annual report in conformity with Subsection
17.5.

In making this argument, the Bank ignores the fact

that the first and fundamental duty of the Court is to
apply the law. Construction and interpretation come
only after a demonstration that the application of the
law is impossible or inadequate unless interpretation
is resorted to. In this case, we see the law to be very
clear and free from any doubt or ambiguity; thus, no
room exists for construction or interpretation.
Additionally, and contrary to the Banks claim, the
Banks obligation to provide its stockholders with
copies of its annual report is actually for the benefit of
the veterans-stockholders, as it gives these
stockholders access to information on the Banks
financial status and operations, resulting in greater
transparency on the part of the Bank. While
compliance with this requirement will undoubtedly
cost the Bank money, the benefit provided to the
shareholders clearly outweighs the expense. For
many stockholders, these annual reports are the only
means of keeping in touch with the state of health of

97

Page

97

We also cite Rule 3(1)(m) of the Amended

Implementing Rules and Regulations of the SRC,
which defines a public company as any corporation
with a class of equity securities listed on an Exchange
or with assets in excess of Fifty Million Pesos
(P50,000,000.00) and having two hundred (200) or
more holders, at least two hundred (200) of which
are holding at least one hundred (100) shares of a
class of its equity securities.

The Bank also argues that even assuming it is

considered a public company pursuant to Section 17
of the SRC, the Court should interpret the pertinent
SRC provisions in such a way that no financial
prejudice is done to the thousands of veterans who
are stockholders of the Bank. Given that the
legislature intended the SRC to apply only to publicly
traded companies, the Court should exempt the Bank
from complying with the reportorial requirements.

their investments; to them, these are invaluable and

continuing links with the Bank that immeasurably
contribute to the transparency in public companies
that the law envisions.
WHEREFORE, premises considered, petitioner
Philippine Veterans Banks motion for reconsideration
is hereby DENIED with finality.

Citibank

NA

v.

Tanco-

Gabaldon

FACTS:
On September 21, 2007, Ester H.
Tanco-Gabaldon (Gabaldon), Arsenio Tanco (Tanco)
and the Heirs of Ku Tiong Lam (Lam) (respondents)
filed with the Securities and Exchange Commissions
Enforcement and Prosecution Department (SECEPD) a complaint for violation of the Revised
Securities Act (RSA) and the Securities Regulation
Code (SRC)against petitioners Citibank N.A.
(Citibank) and its officials, Citigroup Private Bank
(Citigroup) and its officials, and petitioner Carol Lim
(Lim),who is Citigroups Vice-President and Director.
In their Complaint, the respondents alleged that
Gabaldon, Tanco and Lam were joint accountholders
of petitioner Citigroup. Sometime in March 2000, the
respondents met with petitioner Lim, who "induced"
them into signing a subscription agreement for the
purchase of USD 2,000,000 worth of Ceres II Finance
Ltd. Income Notes. In September of the same year,
they met again with Lim for another investment
proposal, this time for the purchase of USD500,000
worth of Aeries Finance II Ltd. Senior Subordinated
Income Notes. In a January 2003 statement issued
by the Citigroup, the respondents learned that their
investments declined, until their account was totally
wiped out. Upon verification with the SEC, they
learned that the Ceres II Finance Ltd. Notes and the
Aeries Finance II Ltd. Notes were not duly registered
securities. They also learned that Ceres II Finance
Ltd., Aeries Finance II Ltd. and the petitioners, among
others, are not duly-registered security issuers,
brokers, dealers or agents.

ISSUE:
Whether the criminal action for offenses punished
under the SRC filed by the respondents against the
petitioners has already prescribed;
HELD:
No.
SEC. 62. Limitation of Actions.
62.1. No action shall be maintained to enforce any liability created
under Section 56 or 57 of this Code unless brought within two (2)
years after the discovery of the untrue statement or the omission,
or, if the action is to enforce a liability created under Subsection
57.1(a), unless brought within two (2) years after the violation upon
which it is based. In no event shall any such action be brought to
enforce a liability created under Section 56 or Subsection 57.1(a)
more than five (5) years after the security was bona fide offered to
the public, or under Subsection 57.1(b) more than five (5) years
after the sale.
62.2. No action shall be maintained to enforce any liability created
under any other provision of this Code unless brought within two
(2) years after the discovery of the facts constituting the cause of
action and within five (5) years after such cause of action accrued.

Section 62 provides for two different prescriptive

periods.
Section 62.1 specifically sets out the prescriptive period for the
liabilities created under Sections 56, 57, 57.1(a) and 57.1(b).
Section 56refers to Civil Liabilities on Account of False Registration
Statement while Section 57 pertains to Civil Liabilities on Arising in
Connection with Prospectus, Communications and Reports. Under
these provisions, enforcement of the civil liability must be brought
within two (2) years or five (5) years, as the case may be.

On the other hand, Section 62.2 provides for the

prescriptive period to enforce any liability created
under the SRC. It is the interpretation of the phrase
"any liability" that creates the uncertainty. Does it
include both civil and criminal liability? Or does it
pertain solely to civil liability?

98

Page

98

GR NO. 198444 - SEPTEMBER 4, 2013

Hence, the respondents prayed in their complaint

that: (1) the petitioners be held administratively liable;
(2) the petitioners be liable to pay an administrative
fine pursuant to Section 54(ii), SRC; (3) the
petitioners existing registration/s or secondary
license/s to act as a broker/dealer in securities,
government securities eligible dealer, investment
adviser of an investment house/underwriter of
securities and transfer agent be revoked; and (4)
criminal complaints against the petitioners be filed
and endorsed to the Department of Justice (DOJ) for
investigation.

In order to put said phrase in its proper perspective,

reference must be made to the rule of statutory
construction that every part of the statute must be
interpreted with reference to the context, i.e., that
every part of the statute must be considered together
with the other parts, and kept subservient to the
general intent of the whole enactment.
Section 62.2 should not be read in isolation of the
other provision included in Section 62, particularly
Section62.1, which provides for the prescriptive
period for the enforcement of civil liability in cases of
violations of Sections 56, 57, 57.1(a) and 57.1(b).
Moreover, it should be noted that the civil liabilities
provided in the SRC are not limited to Sections 56 and
57. Section 58 provides for Civil Liability For Fraud in
Connection With Securities Transactions; Section 59
Civil Liability For Manipulation of Security Prices;
Section 60 Civil Liability With Respect to
Commodity Future Contracts and Pre-need Plans;
and Section 61 Civil Liability on Account of Insider
Trading. Thus, bearing in mind that Section 62.1
merely addressed the prescriptive period for the civil
liability provided in Sections 56, 57, 57.1(a) and
57.1(b), then it reasonably follows that the other subprovision, Section 62.2, deals with the other civil
liabilities that were not covered by Section 62.1,
namely Sections59, 60 and 61. This conclusion is
further supported by the fact that the subsequent
provision, Section 63, explicitly pertains to the amount
of damages recoverable under Sections 56, 57, 58,
59, 60 and 61, the trial court having jurisdiction over
such actions, the persons liable and the extent of their
liability.

The CA, therefore, did not commit any error when it

ruled that "the phrase any liability in subsection 62.2
can only refer to other liabilities that are also civil in
nature. The phrase could not have suddenly intended
to mean criminal liability for this would go beyond the
context of the other provisions among which it is
found."
Given the absence of a prescriptive period for the
enforcement of the criminal liability in violations of the
SRC, Act No. 3326 now comes into play. Panaguiton,

Section 1 of Act No. 3326 provides:

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

Under Section 73 of the SRC, violation of its

provisions or the rules and regulations is punishable
with imprisonment of not less than seven (7) years nor
more than twenty-one (21) years. Applying Section 1
of Act No.3326, a criminal prosecution for violations
of the SRC shall, therefore, prescribe in twelve (12)
years.
Hand in hand with Section 1, Section 2 of Act No.
3326 states that" prescription shall begin to run from
the day of the commission of the violation of the law,
and if the same be not known at the time, from the
discovery thereof and the institution of judicial
proceedings for its investigation and punishment." In
Republic v. Cojuangco, Jr. the Court ruled that
Section 2 provides two rules for determining when the
prescriptive period shall begin to run: first, from the
day of the commission of the violation of the law, if
such commission is known; and second, from its
discovery, if not then known, and the institution of
judicial proceedings for its investigation and
punishment.
The respondents alleged in their complaint that the
transactions occurred between September 2000,
when they purchased the Subscription Agreement for
the purchase of USD 2,000,000.00 worth of Ceres II
Finance Ltd. Income Notes, and July 31, 2003, when
their Ceres II Finance Ltd. account was totally wiped
out. Nevertheless, it was only sometime in November
2004 that the respondents discovered that the
securities they purchased were actually worthless.
Thereafter, the respondents filed on October 23, 2005
with the Mandaluyong City Prosecutors Office a

99

Page

99

Clearly, the intent is to encompass in Section 62the

prescriptive periods only of the civil liability in cases
of violations of the SRC.

Jr. v. Department of Justice expressly ruled that Act

No. 3326 is the law applicable to offenses under
special laws which do not provide their own
prescriptive periods.

complaint for violation of the RSA and SRC. In

Resolution dated July 18, 2007, however, the
prosecutors office referred the complaint to the
SEC.31 Finally, the respondents filed the complaint
with the SEC on September 21,2007. Based on the
foregoing antecedents, only seven (7) years lapsed
since the respondents invested their funds with the
petitioners, and three (3) years since the
respondents discovery of the alleged offenses, that
the complaint was correctly filed with the SEC for
investigation. Hence, the respondents complaint was
filed well within the twelve (12)-year prescriptive
period provided by Section 1 of Act No. 3326.

10

Timeshare

Corporation

Realty
vs.

Lao

and Cortez

G.R. NO. 158941 - FEBRUARY 11, 2008

FACTS:
On October 6, 1996, herein petitioner sold to Ceasar
M. Lao and Cynthia V. Cortez (respondents), one
timeshare of Laguna de Boracay for US$7,500.00
under Contract No. 135000998 payable in eight
months and fully paid by the respondents.

Petitioner claims that at the time it entered into a

timeshare purchase agreement with respondents on
October 6, 1996, it already possessed the requisite
license and marketing agreement to engage in such
transactions, as evidenced by its registration with the
SEC as a corporation. Petitioner argues that when it
was registered and authorized by the SEC as broker
of securities - such as the Laguna de Boracay
timeshares - this had the effect of ratifying its October
6, 1996 purchase agreement with respondents, and
removing any cause for the latter to rescind it.
ISSUE:
Whether the issuance by the SEC of an authority to
sell securities in favor of Timeshare Realty, at a later
date, will have the effect of ratifying those
transactions entered into, at an earlier date, without
such license to sell said securities.
HELD:
The provisions of B.P. Blg. 178 do not support the
contention of petitioner that its mere registration as a
corporation already authorizes it to deal with
unregistered timeshares. Corporate registration is
just one of several requirements before it may deal
with timeshares:
Section 8. Procedure for registration. - (a) All securities required to
be registered under subsection (a) of Section four of this Act shall
be registered through the filing by the issuer or by any dealer or
underwriter interested in the sale thereof, in the office of the
Commission, of a sworn registration statement with respect to such
securities, containing or having attached thereto, the following:
xxxx
(36) Unless previously filed and registered with the Commission
and brought up to date:

Petitioner sought a reconsideration of the aforesaid

order but the SEC denied the same in a letter dated
March 9, 1998.

(a)
A copy of its articles of incorporation with all amendments
thereof and its existing by-laws or instruments corresponding
thereto, whatever the name, if the issuer be a corporation.

On March 30, 1998, respondents wrote petitioner

demanding their right and option to cancel their
Contract, as it appears that Laguna de Boracay is
selling said shares without license or authority from

Prior to fulfillment of all the other requirements of

Section 8, petitioner is absolutely proscribed under
Section 4 from dealing with unregistered timeshares,
thus:

100

Page

100

Sometime in February 1998, the SEC issued a

resolution to the effect that petitioner was without
authority to sell securities, like timeshares, prior to
February 11, 1998.
It further stated in the
resolution/order that the Registration Statement of
petitioner became effective only on February 11,
1998. It also held that the 30 days within which a
purchaser may exercise the option to unilaterally
rescind the purchase agreement and receive the
refund of money paid applies to all purchase
agreements entered into by petitioner prior to the
effectivity of the Registration Statement.

the SEC. For failure to get an answer to the said

letter, respondents this time, through counsel,
reiterated their demand through another letter dated
June 29, 1998. But despite repeated demands,
petitioner failed and refused to refund or pay
respondents.

Section 4. Requirement of registration of securities. - (a) No

securities, except of a class exempt under any of the provisions of
Section five hereof or unless sold in any transaction exempt under
any of the provisions of Section six hereof, shall be sold or offered
for sale or distribution to the public within the Philippines unless
such securities shall have been registered and permitted to be
sold as hereinafter provided.

WHEREFORE, the petition is DENIED for lack of

merit.

12

People vs. Tibayan and

Puerto
G.R. NOS. 209655-60 - JANUARY 14,
2015

FACTS:
Tibayan Group Investment Company, Inc. (TGICI) is
is an open-end investment company registered with
the Securities and Exchange Commission (SEC) on
September 21, 2001. Sometime in 2002, the SEC
conducted an investigation on TGICI and its
subsidiaries. In the course thereof, it discovered that
TGICI was selling securities to the public without a
registration statement in violation of Republic Act No.
8799, otherwise known as The Securities Regulation
Code, and that TGICI submitted a fraudulent
Treasurers Affidavit before the SEC. Resultantly, on
October 21, 2003, the SEC revoked TGICIs
corporate registration for being fraudulently procured.

According to the prosecution, private complainants

Hector H. Alvarez, Milagros Alvarez, Clarita P.
Gacayan, Irma T. Ador, Emelyn Gomez, Yolanda
Zimmer, Nonito Garlan, Judy C. Rillon, Leonida D.
Jarina, Reynaldo A. Dacon, Cristina Dela Pea, and
Rodney E. Villareal (private complainants) were
enticed to invest in TGICI due to the offer of high
interest rates, as well as the assurance that they will

In their defense, accused-appellants denied having

conspired with the other TGICI incorporators to
defraud private complainants. Particularly, Puerto
claimed that his signature in the Articles of
Incorporation of TGICI was forged and that since
January 2002, he was no longer a director of TGICI.
For her part, Tibayan also claimed that her signature
in the TGICIs Articles of Incorporation was a forgery,
as she was neither an incorporator nor a director of
TGICI.19chanRoblesvirtualLawlibrary
ISSUE:
Whether or not accused-appellants are guilty beyond
reasonable doubt of the crime of Syndicated Estafa
defined and penalized under Item 2 (a), Paragraph 4,
Article 315 of the RPC in relation to PD 1689.
HELD:
Yes.
The elements of Syndicated Estafa are: (a) Estafa or
other forms of swindling, as defined in Articles 315
and 316 of the RPC,, is committed; (b) the Estafa or
swindling is committed by a syndicate of five (5) or
more persons; and (c) defraudation results in the
misappropriation of moneys contributed by
stockholders, or members of rural banks,
cooperative, samahang nayon(s), or farmers
associations,
or
of
funds
solicited
by
corporations/associations from the general public.
In this case, a judicious review of the records reveals
TGICIs modus operandi of inducing the public to
invest in it on the undertaking that their investment

101

Page

101

The foregoing led to the filing of multiple criminal

cases for Syndicated Estafa against the incorporators
and directors of TGICI, namely, Jesus Tibayan,
Ezekiel D. Martinez, Liborio E. Elacio, Jimmy C.
Catigan, Nelda B. Baran, and herein accusedappellants. Consequently, warrants of arrest were
issued against all of them; however, only accusedappellants were arrested, while the others remained
at large.

recover their investments. After giving their money to

TGICI, private complainants received a Certificate of
Share and post-dated checks, representing the
amount of the principal investment and the monthly
interest earnings, respectively. Upon encashment,
the checks were dishonored, as the account was
already closed, prompting private complainants to
bring the bounced checks to the TGICI office to
demand payment. At the office, the TGICI employees
took the said checks, gave private complainants
acknowledgement receipts, and reassured that their
investments, as well as the interests, would be paid.
However, the TGICI office closed down without
private complainants having been paid and, thus,
they were constrained to file criminal complaints
against the incorporators and directors of TGICI.

would be returned with a very high monthly interest

rate ranging from three to five and a half percent (3%5.5%).Under such lucrative promise, the investing
public are enticed to infuse funds into TGICI.
However, as the directors/incorporators of TGICI
knew from the start that TGICI is operating without
any paid-up capital and has no clear trade by which it
can pay the assured profits to its investors, they
cannot comply with their guarantee and had to simply
abscond with their investors money. Thus, the CA
correctly held that accused-appellants, along with the
other accused who are still at large, used TGICI to
engage in a Ponzi scheme, resulting in the
defraudation of the TGICI investors.

In this light, it is clearthat all the elements of

Syndicated Estafa, committed through a Ponzi
scheme,are present in this case, considering that: (a)
the incorporators/directors of TGICI comprising more
than five (5) people, including herein accusedappellants,,
made
false
pretenses
and
representations to the investing public in this
case,the private complainants regarding a
supposed lucrative investment opportunity with TGICI
in order to solicit money from them; (b) the said false
pretenses and representations were made prior to or
simultaneous with the commission of fraud; (c) relying

WHEREFORE, the appeal is DENIED. The Decision

dated June 28, 2013 of the Court of Appeals in CAG.R. CR Nos. 33063, 33562, 33660, 33669, 33939,
and 34398 is hereby AFFIRMED. Accordingly,
accused-appellants Palmy Tibayan and Rico Z.
Puerto are found GUILTY beyond reasonable doubt
of 13 and 11 counts, respectively, of Syndicated
Estafa and are sentenced to suffer the penalty of life
imprisonment for each count.

14

SEC

vs.

Universal

Rightfield

Property

Holdings

G.R. NO. 181381 - JULY 20, 2015

FACTS:
Respondent Universal Rightfield Property Holdings,
Inc. (URPHI) is a corporation duly registered and
existing under the Philippine Laws, and is engaged in
the business of providing residential and leisurerelated needs and wants of the middle and upper
middle-income market.
On May 29, 2003, petitioner Securities and Exchange
Commission (SEC), through its Corporate Finance
Department, issued an Order revoking URPHI's
Registration of Securities and Permit to Sell
Securities to the Public for its failure to timely file its
Year 2001 Annual Report and Year 2002 1st, 2nd and
3rd Quarterly Reports pursuant to Section 173 of the
Securities Regulation Code (SRC), Republic Act No.
8799.
On October 16, 2003, URPHI filed with the SEC a
Manifestation/Urgent Motion to Set Aside Revocation
Order and Reinstate Registration after complying with
its reportorial requirements.
On October 24, 2003, the SEC granted URPHI's
motion to lift the revocation order, considering the
current economic situation, URPHI's belated filing of

102

Page

102

To be sure, a Ponzi scheme is a type of investment

fraud that involves the payment of purported returns
to existing investors from funds contributed by new
investors. Its organizers often solicit new investors by
promising to invest funds in opportunities claimed to
generate high returns with little or no risk. In many
Ponzi schemes, the perpetrators focus on attracting
new money to make promised payments to earlierstage investors to create the false appearance that
investors are profiting from a legitimate business.45
It is not an investment strategy but a gullibility
scheme, which works only as long as there is an ever
increasing number of new investors joining the
scheme.46 It is difficult to sustain the scheme over a
long period of time because the operator needs an
ever larger pool of later investors to continue paying
the promised profits to early investors. The idea
behind this type of swindle is that the con-man
collects his money from his second or third round of
investors and then absconds before anyone else
shows up to collect. Necessarily, Ponzi schemes only
last weeks, or months at the most.

on the same, private complainants invested their hard

earned money into TGICI; and (d) the
incorporators/directors of TGICI ended up running
away with the private complainants investments,
obviously to the latters prejudice.

the required annual and quarterly reports, and its

payment of the reduced fine of P82,000.00.
Thereafter, URPHI failed again to comply with the
same reportorial requirements.
In a Notice of Hearing dated June 25, 2004, the SEC
directed URPHI to show cause why its Registration of
Securities and Certificate of Permit to Sell Securities
to the Public should not be suspended for failure to
submit the said requirements.
During the scheduled hearing on July 6, 2004,
URPHI, through its Chief Accountant, Rhodora
Lahaylahay, informed the SEC why it failed to submit
the reportorial requirements, viz.: (1) it was
constrained to reduce its accounting staff due to costcutting measures; thus, some of the audit
requirements were not completed within the original
timetable; and (2) its audited financial statements for
the period ending December 31, 2003 could not be
finalized by reason of the delay in the completion of
some of its audit requirements.
In an Order dated July 27, 2004, the SEC suspended
URPHI's Registration of Securities and Permit to Sell
Securities to the Public for failure to submit its
reportorial requirements despite the lapse of the
extension period, and due to lack of sufficient
justification for its inability to comply with the said
requirements.
On August 23, 2004, the SEC, through its Corporation
Finance Department, informed URPHI that it failed to
submit its 2004 2nd Quarter Report (SEC Form 17-Q)
in violation of the Amended Implementing Rules and
Regulations of the SRC Rule 17 .1(1)(A)(ii). It also
directed URPHI to file the said report, and to show
cause why it should not be held liable for violation of
the said rule.

On December 1, 2004, URPHI filed with the SEC its

2003 Annual Report.
In an Order of Revocation7 dated December 8, 2004,
the SEC revoked URPHI's Registration of Securities

On December 9, 10, and 14, 2004, URPHI finally

submitted to the SEC its 1st Quarterly Report for
2004, 2nd Quarterly Report for 2004, and 3rd
Quarterly Report for 2004, respectively. Meantime,
URPHI appealed the SEC Order of Revocation dated
December 8, 2004 by filing a Notice of Appeal and a
Memorandum both dated January 3, 2005.
In a Resolution dated December 15, 2005, the SEC
denied URPHI's appeal, thus:
WHEREFORE, premises considered, the Memorandum dated 03
January 2005 of Universal Rightfield Property Holdings, Inc.
praying for the reversal of the Order of Revocation dated 08
December 2004 is DENIED for lack of merit.
SO ORDERED.

Aggrieved, URPHI filed a petition for review with the

CA.
In a Decision dated January 21, 2008, the CA granted
the petition and set aside the SEC Order of
Revocation after finding that URPHI was not afforded
due process because no due notice was given and no
hearing was conducted before its registration of
securities and permit to sell them to the public was
revoked. The CA noted that the hearing conducted on
July 6, 2004 was only for the purpose of determining
whether URPHI's registration and permit to sell
should be suspended and not whether said
registration should be revoked.
The CA ruled that based on how Sections 5.1 (m) and
13.110 of the SRC are worded, suspension and
revocation of URPHI's registration of securities each
requires separate notices and hearings.
ISSUE:
Whether the revocation by the Securities and
Exchange Commission of the URPHIs registration
was valid.
HELD:
Yes.
There is no dispute that violation of the reportorial
requirements under Section 17.1 of the Amended
Implementing Rules and Regulation of the SRC is a

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In a letter dated September 28, 2004, URPHI

requested for a final extension, or until November 15,
2004, within which to submit its reportorial
requirements.

and Permit to Sell Securities to the Public for its failure

to submit its reportorial requirements within the final
extension period.

ground for suspension or revocation of registration of

securities pursuant to Sections 13.1 and 54.1 of the
SRC. However, contrary to the CA ruling that
separate notices and hearings for suspension and
revocation of registration of securities and permit to
sell them to the public are required, Sections 13 .1
and 54.1 of the SRC expressly provide that the SEC
may suspend or revoke such registration only after
due notice and hearing, to wit:
13.1. The Commission may reject a registration statement and
refuse registration of the security thereunder, or revoke the
effectivity of a registration statement and the registration of the
security thereunder after due notice and hearing by issuing an
order to such effect, setting forth its findings in respect thereto, if it
finds that:
a) The issuer:
xxxx
(ii) Has violated any of the provisions of this Code, the rules
promulgated pursuant thereto, or any order of the Commission
of which the issuer has notice in connection with the offering for
which a registration statement has been filed;
xxxx
54.1. If, after due notice and hearing, the Commission finds
that: (a) There is a violation of this Code, its rules, or its
orders; (b) Any registered broker or dealer, associated person
thereof has failed reasonably to supervise, with a view to
preventing violations, another person subject to supervision who
commits any such violation; ( c) Any registrant or other person has,
in a registration statement or in other reports, applications,
accounts, records or documents required by law or rules to be filed
with the Commission, made any untrue statement of a material fact,
or omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; or, in the
case of an underwriter, has failed to conduct an inquiry with
reasonable diligence to insure that a registration statement is
accurate and complete in all material respects; or ( d) Any person
has refused to permit any lawful examinations into its affairs, it
shall, in its discretion, and subject only to the limitations hereinafter
prescribed, impose any or all of the following sanctions as may be
appropriate in light of the facts and circumstances:

Contrary to the view that a separate notice of hearing

to revoke is necessary to initiate the revocation
proceeding, the Court holds that such notice would be
a superfluity since the Order dated July 27, 2004
already states that such proceeding shall ensue if
URPHI would still fail to submit the reportorial
requirements after the lapse of the 60-day
suspension period. After all, "due notice" simply

Granted that no formal hearing was held before the

issuance of the Order of Revocation, the Court finds
that there was substantial compliance with the
requirements of due process when URPHI was given
opportunity to be heard. Upon receipt of the SEC
Order dated July 27, 2004, URPHI filed the letters
dated September 13 and 28, 2004, seeking a final
extension to submit the reportorial requirements, and
admitting that its failure to submit its 2nd Quarterly
Report for 2004 was due to the same reasons that it
was unable to submit its 2003 Annual Report and 1st
Quarterly Report for 2004. Notably, in its Order of
Revocation, the SEC considered URPHI's letters and
stated that it still failed to submit the required reports,
despite the lapse of the final extension requested.
In A.Z. Arnaiz, Realty, Inc. v. Office of the
President,28 the Court held that due process, as a
constitutional precept, does not always, and in all
situations, require a trial-type proceeding. Litigants
may be heard through pleadings, written
explanations, position papers, memoranda or oral
arguments. The standard of due process that must be
met in administrative tribunals allows a certain degree
of latitude as long as fairness is not ignored. It is,
therefore, not legally objectionable for being violative
of due process for an administrative agency to
resolve a case based solely on position papers,
affidavits or documentary evidence submitted by the
parties. Guided by the foregoing principle, the Court
rules that URPHI was afforded opportunity to be
heard when the SEC took into account in its Order of
Revocation URPHI's September 13 and 28, 2004
letters, explaining its failure to submit the reportorial
requirements, as well as its request for final extension
within which to comply.
WHEREFORE, the petition is GRANTED and the
Decision dated January 21, 2008 of the Court of
Appeals in CA-G.R. SP No. 93337, is REVERSED
and SET ASIDE. In lieu thereof, the Resolution dated
December 15, 2005 of the Securities and Exchange

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(i) Suspension, or revocation of any registration for the

offering of securities;

means the information that must be given or made to

a particular person or to the public within a legally
mandated period of time so that its recipient will have
the opportunity to respond to a situation or to
allegations that affect the individual's or public's legal
rights or duties.

Commission and its Order of Revocation dated

December 8, 2004 are REINSTATED.
NOTE: (also important)
Meanwhile, the Court disagrees with URPHI's claim
that the Globe Telecom, Inc. ruling - that notice and
hearing are indispensable when an administrative
agency exercises quasi-judicial functions and that
such requirements become even more imperative if
the statute itself demands it -is applicable to the
present case.

requires due notice and hearing before issuing an

order of revocation, the SEC does not perform such
quasi-judicial functions and exercise discretion of a
judicial nature in the exercise of such regulatory
power. It neither settles actual controversies involving
rights which are legally demandable and enforceable,
nor adjudicates private rights and obligations in cases
of adversarial nature. Rather, when the SEC
exercises its incidental power to conduct
administrative hearings and make decisions, it does
so in the course of the performance of its regulatory
and law enforcement function.

In Gamboa v. Finance Secretary, the Court has held

that the SEC has both regulatory and adjudicative
functions, thus:
Under its regulatory responsibilities, the SEC may pass upon
applications for, or may suspend or revoke (after due notice and
hearing), certificates of registration of corporations, partnerships
and associations (excluding cooperatives, homeowners
associations, and labor unions); compel legal and regulatory
compliances; conduct inspections; and impose fines or other
penalties for violations of the Revised Securities Act, as well as
implementing rules and directives of the SEC, such as may be
warranted.
Relative to its adjudicative authority, the SEC has original and
exclusive jurisdiction to hear and decide controversies and cases
involving

a. Intra-corporate and partnership relations between or among the

corporation, officers and stockholders and partners, including their
elections or appointments;
b. State and corporate affairs in relation to the legal existence of
corporations, partnerships and associations or to their franchises;
and

As can be gleaned from the aforequoted ruling, the

revocation of registration of securities and permit to
sell them to the public is not an exercise of the SEC's
quasi-judicial power, but of its regulatory power. A
"quasi-judicial function" is a term which applies to the
action, discretion, etc., of public administrative
officers or bodies, who are required to investigate
facts, or ascertain the existence of facts, hold
hearings, and draw conclusions from them, as a basis
for their official action and to exercise discretion of a
judicial nature.33 Although Section 13.1 of the SRC

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c. Investors and corporate affairs particularly in respect of devices

and schemes, such as fraudulent practices, employed by directors,
officers, business associates, and/or other stockholders, partners,
or members of registered firms; x x x