G.R. No. 172276 August 8, 2010

SOCIETE DES PRODUITS NESTLE, S.A., Petitioner, vs.MARTIN T. DY, JR., Respondent.

D E C I S I O N

CARPIO, J.:

The Case

This is a petition for review on certiorari under Rule 45 of the Rules of Court. The petition challenges the 1 September 2005 Decision and 4 April 2006 Resolution of the Court of Appeals in CA-G.R. CV No. 62730, finding respondent Martin T. Dy, Jr. (Dy, Jr.) not liable for trademark infringement. The Court of Appeals reversed the 18 September 1998 Decision of the Regional Trial Court (RTC), Judicial Region 7, Branch 9, Cebu City, in Civil Case No. CEB-19345.

The Facts

Petitioner Societe Des Produits Nestle, S.A. (Nestle) is a foreign corporation organized under the laws of Switzerland. It manufactures food products and beverages. As evidenced by Certificate of Registration No. R-14621 issued on 7 April 1969 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 — "diatetic preparations for infant feeding."

Nestle distributes and sells its NAN milk products all over the Philippines. It has been investing tremendous amounts of resources to train its sales force and to promote the NAN milk products through advertisements and press releases.

Dy, Jr. owns 5M Enterprises. He imports Sunny Boy powdered milk from Australia and repacks the powdered milk into three sizes of plastic packs bearing the name "NANNY." The packs weigh 80, 180 and 450 grams and are sold for P8.90, P17.50 and P39.90, respectively. NANNY is is also classified under Class 6 — "full cream milk for adults in [sic] all ages." Dy, Jr. distributes and sells the powdered milk in Dumaguete, Negros Oriental, Cagayan de Oro, and parts of Mindanao.

In a letter dated 1 August 1985, Nestle requested Dy, Jr. to refrain from using "NANNY" and to undertake that he would stop infringing the "NAN" trademark. Dy, Jr. did not act on Nestle’s request. On 1 March 1990, Nestle filed before the RTC, Judicial Region 7, Branch 31, Dumaguete City, a complaint against Dy, Jr. for infringement. Dy, Jr. filed a motion to dismiss alleging that the complaint did not state a cause of action. In its 4 June 1990 order, the trial court dismissed the complaint. Nestle appealed the 4 June 1990 order to the Court of Appeals. In its 16 February 1993 Resolution, the Court of Appeals set aside the 4 June 1990 order and remanded the case to the trial court for further proceedings.

Pursuant to Supreme Court Administrative Order No. 113-95, Nestle filed with the trial court a motion to transfer the case to the RTC, Judicial Region 7, Branch 9, Cebu City, which was designated as a special court for intellectual property rights.

The RTC’s Ruling

In its 18 September 1998 Decision, the trial court found Dy, Jr. liable for infringement. The trial court held:

If determination of infringement shall only be limited on whether or not the mark used would likely cause confusion or mistake in the minds of the buying public or deceive customers, such in [sic] the most considered view of this forum

would be highly unlikely to happen in the instant case. This is because upon comparison of the plaintiff’s NAN and defendant’s NANNY, the following features would reveal the absence of any deceptive tendency in defendant’s NANNY: (1) all NAN products are contained tin cans [sic], while NANNY are contained in plastic packs; (2) the predominant colors used in the labels of NAN products are blue and white, while the predominant colors in the plastic packings of NANNY are blue and green; (3) the labels of NAN products have at the bottom portion an elliptical shaped figure containing inside it a drawing of nestling birds, which is overlapped by the trade-name "Nestle", while the plastic packs of NANNY have a drawing of milking cows lazing on a vast green field, back-dropped with snow covered mountains; (4) the word NAN are [sic] all in large, formal and conservative-like block letters, while the word NANNY are [sic] all in small and irregular style of letters with curved ends; and (5) all NAN products are milk formulas intended for use of [sic] infants, while NANNY is an instant full cream powdered milk intended for use of [sic] adults.

The foregoing has clearly shown that infringement in the instant case cannot be proven with the use of the "test of dominancy" because the deceptive tendency of the unregistered trademark NANNY is not apparent from the essential features of the registered trademark NAN.

However, in Esso Standard Eastern, Inc. vs. Court of Appeals, et al. L-29971, Aug. 31, 1982, the Supreme Court took the occasion of discussing what is implied in the definition of "infringement" when it stated: "Implicit in this definition is the concept that the goods must be so related that there is likelihood either of confusion of goods or business. x x x But as to whether trademark infringement exists depends for the most part upon whether or not the goods are so related that the public may be, or is actually, deceived and misled that they came from the same maker or manufacturer. For non-competing goods may be those which, though they are not in actual competition, are so related to each other that it might reasonably be assumed that they originate from one manufacturer. Non-competing goods may also be those which, being entirely unrelated, could not reasonably be assumed to have a common source. In the former case of related goods, confusion of business could arise out of the use of similar marks; in the latter case of non-related goods, it could not."

Furthermore, in said case the Supreme Court as well discussed on when goods may become so related for purposes of infringement when it stated: "Goods are related when they belong to the same class or have 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. x x x

Considering that defendant’s NANNY belongs to the same class as that of plaintiff’s NAN because both are food products, the defendant’s unregistered trade mark NANNY should be held an infringement to plaintiff’s registered trademark NAN because defendant’s use of NANNY would imply that it came from the manufacturer of NAN. Furthermore, since the word "nanny" means a "child’s nurse," there might result the not so remote probability that defendant’s NANNY may be confused with infant formula NAN despite the aparent [sic] disparity between the features of the two products.

Dy, Jr. appealed the 18 September 1998 Decision to the Court of Appeals.

The Court of Appeals’ Ruling

In its 1 September 2005 Decision, the Court of Appeals reversed the trial court’s 18 September 1998 Decision and found Dy, Jr. not liable for infringement. The Court of Appeals held:

[T]he trial court appeared to have made a finding that there is no colorable imitation of the registered mark "NAN" in Dy’s use of "NANNY" for his own milk packs. Yet it did not stop there. It continued on applying the "concept of related goods."

The Supreme Court utlilized the "concept of related goods" in the said case of Esso Standard Easter, Inc. versus Court of Appeals, et al. wherein two contending parties used the same trademark "ESSO" for two different goods, i.e. petroleum products and cigarettes. It rules that there is infringement of trademark involving two goods bearing the same mark or label, even if the said goods are non-competing, if and only if they are so related that the public may be, or is actually, deceived that they originate from the one maker or manufacturer. Since petroleum products and cigarettes, in kind and nature, flow through different trade channels, and since the possibility of confusion is unlikely in the general appearances of each mark as a whole, the Court held in this case that they cannot be so related in the context of infringement.

In applying the concept of related goods in the present case, the trial court haphazardly concluded that since plaintiff-appellee’s NAN and defendant-appellant’s NANNY belong to the same class being food products, the unregistered NANNY should be held an infringement of Nestle’s NAN because "the use of NANNY would imply that it came from the manufacturer of NAN." Said court went on to elaborate further: "since the word "NANNY" means a "child’s nurse," there might result the not so remote probability that defendant’s NANNY may be confused with infant formula NAN despite the aparent (sic) disparity between the features of the two products as discussed above."

The trial court’s application of the doctrine laid down by the Supreme Court in the Esso Standard case aforementioned and the cases cited therein is quite misplaced. The goods of the two contending parties in those cases bear similar marks or labels: "Esso" for petroleum products and cigarettes, "Selecta" for biscuits and milk, "X-7" for soap and perfume, lipstick and nail polish. In the instant case, two dissimilar marks are involved — plaintiff-appellee’s "NAN" and defendant-appellant’s "NANNY." Obviously, the concept of related goods cannot be utilized in the instant case in the same way that it was used in the Esso Standard case.

In the Esso Standard case, the Supreme Court even cautioned judges that in resolving infringement or trademark cases in the Philippines, particularly in ascertaining whether one trademark is confusingly similar to or is a colorable imitation of another, precedent must be studied in the light of the facts of the particular case. Each case must be decided on its own merits. In the more recent case of Societe Des Produits Nestle S.A. Versus Court of Appeals, the High Court further stressed that due to the peculiarity of the facts of each infringement case, a judicial forum should not readily apply a certain test or standard just because of seeming similarities. The entire panoply of elements constituting the relevant factual landscape should be comprehensively examined.

While it is true that both NAN and NANNY are milk products and that the word "NAN" is contained in the word "NANNY," there are more glaring dissimilarities in the entirety of their trademarks as they appear in their respective labels and also 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. Even the trial court found these glaring dissimilarities as above-quoted. We need not add more of these factual dissimilarities.

NAN products, which consist of Pre-NAN, NAN-H-A, NAN-1 and NAN-2, are all infant preparations, while NANNY is a full cream milk for adults in [sic] all ages. NAN milk products are sold in tin cans and hence, far expensive than the full cream milk NANNY sold in three (3) plastic packs containing 80, 180 and 450 grams and worth P8.90, P17.50 and P39.90 per milk pack. The labels of NAN products are of the colors blue and white and have at the bottom portion an elliptical shaped figure containing inside it a drawing of nestling birds, which is overlapped by the trade-name "Nestle." On the other hand, the plastic packs NANNY have a drawing of milking cows lazing on a vast green field, back-dropped with snow-capped mountains and using the predominant colors of blue and green. The word NAN are [sic] all in large, formal and conservative-like block letters, while the word NANNY are [sic] all in small and irregular style of letters with curved ends. With these material differences apparent in the packaging of both milk products, NANNY full cream milk cannot possibly be an infringement of NAN infant milk.1avvphi1

Moreover, NAN infant milk preparation is more expensive than NANNY instant full cream milk. The cheaper price of NANNY would give, at the very first instance, a considerable warning to the ordinary purchaser on whether he is buying an infant milk or a full cream milk for adults. A cursory examination of the packaging would confirm the striking differences between the products in question.

In view of the foregoing, we find that the mark NANNY is not confusingly similar to NAN. Dy therefore cannot be held liable for infringement.

Nestle filed a motion for reconsideration. In its 4 April 2006 Resolution, the Court of Appeals denied the motion for lack of merit. Hence, the present petition.

Issue

The issue is whether Dy, Jr. is liable for infringement.

The Court’s Ruling

The petition is meritorious.

Section 22 of Republic Act (R.A.) No. 166, as amended, states:

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

Section 155 of R.A. No. 8293 states:

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.

In Prosource International, Inc. v. Horphag Research Management SA, the Court laid down the elements of infringement under R.A. Nos. 166 and 8293:

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

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

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

packages, wrappers, receptacles or advertisements intended to be used upon or in connection with such goods, business or services as to likely cause confusion or mistake or to deceive purchasers[;]

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

(d) [S]uch act is done without the consent of the trademark registrant or assignee."

On the other hand, the elements of infringement under R.A. No. 8293 are as follows:

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

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

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

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

·It is without the consent of the trademark or trade name owner or the assignee thereof.

Among the elements, the element of likelihood of confusion is the gravamen of trademark infringement. There are two types of confusion in trademark infringement: confusion of goods and confusion of business. In Sterling Products International, Inc. v. Farbenfabriken Bayer Aktiengesellschaft, the Court distinguished the two types of confusion:

Callman notes two types of confusion. The first is the confusion of goods "in which event the ordinarily prudent purchaser would be induced to purchase one product in the belief that he was purchasing the other." In which case, "defendant’s goods are then bought as the plaintiff’s, and the poorer quality of the former reflects adversely on the plaintiff’s reputation." The other is the confusion of business: "Here though the goods of the parties are different, the defendant’s product is such as might reasonably be assumed to originate with the plaintiff, and the public would then be deceived either into that belief or into the belief that there is some connection between the plaintiff and defendant which, in fact, does not exist."

There are two tests to determine likelihood of confusion: the dominancy test and 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 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 cases involving trademark infringement, no set of rules can be deduced. Each case must be decided on its own merits. Jurisprudential precedents must be studied in the light of the facts of each particular case. In McDonald’s Corporation v. MacJoy Fastfood Corporation, the Court held:

In trademark cases, particularly in ascertaining whether one trademark is confusingly similar to another, no set rules can be deduced because each case must be decided on its merits. In such cases, even more than in any other

litigation, precedent must be studied in the light of the facts of the particular case. That is the reason why in trademark cases, jurisprudential precedents should be applied only to a case if they are specifically in point.

In the light of the facts of the present case, the Court holds that the dominancy test is applicable. In recent cases with similar factual milieus, the Court has consistently applied the dominancy test. In Prosource International, Inc., the Court applied the dominancy test in holding that "PCO-GENOLS" is confusingly similar to "PYCNOGENOL." The Court held:

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

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

We find no cogent reason to depart from such conclusion.

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

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

In McDonald’s Corporation v. MacJoy Fastfood Corporation, the Court applied the dominancy test in holding that "MACJOY" is confusingly similar to "MCDONALD’S." The Court held:

While we agree with the CA’s detailed enumeration of differences between the two (2) competing trademarks herein involved, we believe that the holistic test is not the one applicable in this case, the dominancy test being the one more suitable. In recent cases with a similar factual milieu as here, the Court has consistently used and applied the dominancy test in determining confusing similarity or likelihood of confusion between competing trademarks.

x x x x

Applying the dominancy test to the instant case, the Court finds that herein petitioner’s "MCDONALD’S" and respondent’s "MACJOY" marks are are confusingly similar with each other that an ordinary purchaser can conclude an association or relation between the marks.

To begin with, both marks use the corporate "M" design logo and the prefixes "Mc" and/or "Mac" as dominant features. x x x

For sure, it is the prefix "Mc," and abbreviation of "Mac," which visually and aurally catches the attention of the consuming public. Verily, the word "MACJOY" attracts attention the same way as did "McDonalds," "MacFries," "McSpaghetti," "McDo," "Big Mac" and the rest of the MCDONALD’S marks which all use the prefixes Mc and/or Mac.

Besides and most importantly, both trademarks are used in the sale of fastfood products. Indisputably, the respondent’s trademark application for the "MACJOY & DEVICE" trademark covers goods under Classes 29 and 30 of the International Classification of Goods, namely, fried chicken, chicken barbeque, burgers, fries, spaghetti, etc. Likewise, the petitioner’s trademark registration for the MCDONALD’S marks in the Philippines covers goods which are similar if not identical to those covered by the respondent’s application.

In McDonald’s Corporation v. L.C. Big Mak Burger, Inc., the Court applied the dominancy test in holding that "BIG MAK" is confusingly similar to "BIG MAC." The Court held:

This Court x x x has relied on the dominancy test rather than the holistic test. 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 segments.

Thus, in the 1954 case of Co Tiong Sa v. Director of Patents, the Court ruled:

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

x x x x

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."

Applying the dominancy test, the Court finds that respondents’ use of the "Big Mak" mark results in likelihood of confusion. First, "Big Mak" sounds exactly the same as "Big Mac." Second, the first word in "Big Mak" is exactly the same as the first word in "Big Mac." Third, the first two letters in "Mak" are the same as the first two letters in "Mac." Fourth, the last letter "Mak" while a "k" sounds the same as "c" when the word "Mak" is pronounced. Fifth, in Filipino, the letter "k" replaces "c" in spelling, thus "Caloocan" is spelled "Kalookan."

In Societe Des Produits Nestle, S.A v. Court of Appeals, the Court applied the dominancy test in holding that "FLAVOR MASTER" is confusingly similar to "MASTER ROAST" and "MASTER BLEND." The Court held:

While this Court agrees with the Court of Appeals’ detailed enumeration of differences between the respective trademarks of the two coffee products, this Court cannot agree that totality test is the one applicable in this case. Rather, this Court believes that the dominancy test is more suitable to this case in light of its peculiar factual milieu.

Moreover, 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 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.

For this reason, this Court agrees with the BPTTT when it applied the test of dominancy and held that:

From the evidence at hand, it is sufficiently established that the word MASTER is the dominant feature of opposer’s mark. The word MASTER is printed across the middle portion of the label in bold letters almost twice the size of the printed word ROAST. Further, the word MASTER has always been given emphasis in the TV and radio commercials and other advertisements made in promoting the product. x x x In due time, because of these advertising schemes the mind of the buying public had come to learn to associate the word MASTER with the opposer’s goods.

x x x. It is the observation of this Office that much of the dominance which the word MASTER has acquired through Opposer’s advertising schemes is carried over when the same is incorporated into respondent-applicant’s trademark FLAVOR MASTER. Thus, when one looks at the label bearing the trademark FLAVOR MASTER (exh. 4) one’s attention is easily attracted to the word MASTER, rather than to the dissimilarities that exist. Therefore, the possibility of confusion as to the goods which bear the competing marks or as to the origins thereof is not farfetched.

Applying the dominancy test in the present case, the Court finds that "NANNY" is confusingly similar to "NAN." "NAN" is the prevalent feature of Nestle’s line of infant powdered milk products. It is written in bold letters and used in all products. The line consists of PRE-NAN, NAN-H.A., NAN-1, and NAN-2. Clearly, "NANNY" contains the prevalent feature "NAN." The first three letters of "NANNY" are exactly the same as the letters of "NAN." When "NAN" and "NANNY" are pronounced, the aural effect is confusingly similar.

In determining the issue of confusing similarity, the Court takes into account the aural effect of the letters contained in the marks. In Marvex Commercial Company, Inc. v. Petra Hawpia & Company, the Court held:

It is our considered view that the trademarks "SALONPAS" and "LIONPAS" are confusingly similar in sound.

Both these words have the same suffix, "PAS", which is used to denote a plaster that adheres to the body with curative powers. "PAS," being merely descriptive, furnishes no indication of the origin of the article and therefore is open for appropriation by anyone (Ethepa vs. Director of Patents, L-20635, March 31, 1966) and may properly become the subject of a trademark by combination with another word or phrase.

x x x x

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

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. (Emphasis supplied)

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.

NANNY and NAN have the same classification, descriptive properties and physical attributes. Both are classified under Class 6, both are milk products, and both are in powder form. Also, NANNY and NAN are displayed in the same section of stores — the milk section.

The Court agrees with the lower courts that there are differences between NAN and NANNY: (1) NAN is intended for infants while NANNY is intended for children past their infancy and for adults; and (2) NAN is more expensive than NANNY. However, as the registered owner of the "NAN" mark, Nestle should be free to use its mark on similar products, in different segments of the market, and at different price levels. In McDonald’s Corporation v. L.C. Big Mak Burger, Inc., the Court held that the scope of protection afforded to registered trademark owners extends to market areas that are the normal expansion of business:

x x x

Even respondent’s use of the "Big Mak" mark on non-hamburger food products cannot excuse their infringement of petitioners’ registered mark, otherwise registered marks will lose their protection under the law.

The registered trademark owner may use his mark on the same or similar products, in different segments of the market, and at different price levels depending on variations of the products for specific segments of the market. 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. Thus, the Court has declared:

Modern law recognizes that the protection to which the owner of a trademark is entitled is not limited to guarding his goods or business from actual market competition with identical or similar products of the parties, but extends to all cases in which the use by a junior appropriator of a trade-mark or trade-name is likely to lead to a confusion of source, as where prospective purchasers would be misled into thinking that the complaining party has extended his business into the field (see 148 ALR 56 et sq; 53 Am. Jur. 576) or is in any way connected with the activities of the infringer; or when it forestalls the normal potential expansion of his business (v. 148 ALR, 77, 84; 52 Am. Jur. 576, 577). (Emphasis supplied)

WHEREFORE, we GRANT the petition. We SET ASIDE the 1 September 2005 Decision and 4 April 2006 Resolution of the Court of Appeals in CA-G.R. CV No. 62730 and REINSTATE the 18 September 1998 Decision of the Regional Trial Court, Judicial Region 7, Branch 9, Cebu City, in Civil Case No. CEB-19345.

SO ORDERED.

G.R. No. 164321 March 23, 2011

SKECHERS, U.S.A., INC., Petitioner, vs.INTER PACIFIC INDUSTRIAL TRADING CORP., and/or INTER PACIFIC TRADING CORP. and/or STRONG SPORTS GEAR CO., LTD., and/or STRONGSHOES WAREHOUSE and/or STRONG FASHION SHOES TRADING and/or TAN TUAN HONG and/or VIOLETA T. MAGAYAGA and/or JEFFREY R. MORALES and/or

any of its other proprietor/s, directors, officers, employees and/or occupants of its premises located at S-7, Ed & Joe's Commercial Arcade, No. 153 Quirino Avenue, Parañaque City, Respondents.

x - - - - - - - - - - - - - - - - - - - - - - -x

TRENDWORKS INTERNATIONAL CORPORATION, Petitioner-Intervenor, vs.INTER PACIFIC INDUSTRIAL TRADING CORP. and/or INTER PACIFIC TRADING CORP. and/or STRONG SPORTS GEAR CO., LTD., and/or STRONGSHOES WAREHOUSE and/or STRONG FASHION SHOES TRADING and/or TAN TUAN HONG and/or VIOLETA T. MAGAYAGA and/or JEFFREY R. MORALES and/or any of its other proprietor/s, directors, officers, employees and/or occupants of its premises located at S-7, Ed & Joe's Commercial Arcade, No. 153 Quirino Avenue, Parañaque City, Respondents.

R E S O L U T I O N

PERALTA, J.:

For resolution are the twin Motions for Reconsideration1 filed by petitioner and petitioner-intervenor from the Decision rendered in favor of respondents, dated November 30, 2006.

At the outset, a brief narration of the factual and procedural antecedents that transpired and led to the filing of the motions is in order.

The present controversy arose when petitioner filed with Branch 24 of the Regional Trial Court (RTC) of Manila 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, otherwise known as the Intellectual Property Code of the Philippines.2 In the course of its business, petitioner has registered the trademark "SKECHERS"3 and the trademark "S" (within an oval design)4 with the Intellectual Property Office (IPO).

Two search warrants5 were issued by the RTC and were served on the premises of respondents. As a result of the raid, more than 6,000 pairs of shoes bearing the "S" logo were seized.

Later, respondents moved to quash the search warrants, arguing that there was no confusing similarity between petitioner’s "Skechers" rubber shoes and its "Strong" rubber shoes.

On November 7, 2002, the RTC issued an Order6 quashing the search warrants and directing the NBI to return the seized goods. The RTC agreed with respondent’s view that Skechers rubber shoes and Strong rubber shoes have glaring differences such that an ordinary prudent purchaser would not likely be misled or confused in purchasing the wrong article.

Aggrieved, petitioner filed a petition for certiorari7 with the Court of Appeals (CA) assailing the RTC Order. On November 17, 2003, the CA issued a Decision8 affirming the ruling of the RTC.

Subsequently, petitioner filed the present petition9 before this Court which puts forth the following assignment of errors:

A. WHETHER THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN CONSIDERING MATTERS OF DEFENSE IN A CRIMINAL TRIAL FOR TRADEMARK INFRINGEMENT IN PASSING UPON THE VALIDITY OF THE SEARCH WARRANT WHEN IT SHOULD HAVE LIMITED ITSELF TO A DETERMINATION OF WHETHER THE TRIAL COURT COMMITTED GRAVE ABUSE OF DISCRETION IN QUASHING THE SEARCH WARRANTS.

B. WHETHER THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN FINDING THAT RESPONDENTS ARE NOT GUILTY OF TRADEMARK INFRINGEMENT IN THE

CASE WHERE THE SOLE TRIABLE ISSUE IS THE EXISTENCE OF PROBABLE CAUSE TO ISSUE A SEARCH WARRANT.10

In the meantime, petitioner-intervenor filed a Petition-in-Intervention11 with this Court claiming to be the sole licensed distributor of Skechers products here in the Philippines.

On November 30, 2006, this Court rendered a Decision12 dismissing the petition.

Both petitioner and petitioner-intervenor filed separate motions for reconsideration.

In petitioner’s motion for reconsideration, petitioner moved for a reconsideration of the earlier decision on the following grounds:

(a) THIS HONORABLE COURT MUST RE-EXAMINE THE FACTS OF THIS CASE DUE TO THE SIGNIFICANCE AND REPERCUSSIONS OF ITS DECISION.

(b) COMMERCIAL QUANTITIES OF THE SEIZED ITEMS WITH THE UNAUTHORIZED REPRODUCTIONS OF THE "S" TRADEMARK OWNED BY PETITIONER WERE INTENDED FOR DISTRIBUTION IN THE PHILIPPINE MARKET TO THE DETRIMENT OF PETITIONER – RETURNING THE GOODS TO RESPONDENTS WILL ADVERSELY AFFECT THE GOODWILL AND REPUTATION OF PETITIONER.

(c) THE SEARCH WARRANT COURT AND THE COURT OF APPEALS BOTH ACTED WITH GRAVE ABUSE OF DISCRETION.

(d) THE SEARCH WARRANT COURT DID NOT PROPERLY RE-EVALUATE THE EVIDENCE PRESENTED DURING THE SEARCH WARRANT APPLICATION PROCEEDINGS.

(e) THE SOLID TRIANGLE CASE IS NOT APPLICABLE IN THIS CASE, AS IT IS BASED ON A DIFFERENT FACTUAL MILIEU. PRELIMINARY FINDING OF GUILT (OR ABSENCE THEREOF) MADE BY THE SEARCH WARRANT COURT AND THE COURT OF APPEALS WAS IMPROPER.

(f) THE SEARCH WARRANT COURT OVERSTEPPED ITS DISCRETION. THE LAW IS CLEAR. THE DOMINANCY TEST SHOULD BE USED.

(g) THE COURT OF APPEALS COMMITTED ERRORS OF JURISDICTION.13

On the other hand, petitioner-intervenor’s motion for reconsideration raises the following errors for this Court’s consideration, to wit:

(a) THE COURT OF APPEALS AND THE SEARCH WARRANT COURT ACTED CONTRARY TO LAW AND JURISPRUDENCE IN ADOPTING THE ALREADY-REJECTED HOLISTIC TEST IN DETERMINING THE ISSUE OF CONFUSING SIMILARITY;

(b) THE COURT OF APPEALS AND THE SEARCH WARRANT COURT ACTED CONTRARY TO LAW IN HOLDING THAT THERE IS NO PROBABLE CAUSE FOR TRADEMARK INFRINGEMENT; AND

(c) THE COURT OF APPEALS SANCTIONED THE TRIAL COURT’S DEPARTURE FROM THE USUAL AND ACCEPTED COURSE OF JUDICIAL PROCEEDINGS WHEN IT UPHELD THE QUASHAL OF THE SEARCH WARRANT ON THE BASIS SOLELY OF A FINDING THAT THERE IS NO CONFUSING SIMILARITY.14

A perusal of the motions submitted by petitioner and petitioner-intervenor would show that the primary issue posed by them dwells on the issue of whether or not respondent is guilty of trademark infringement.

After a thorough review of the arguments raised herein, this Court reconsiders its earlier decision.

The basic law on trademark, infringement, and unfair competition is Republic Act (R.A.) No. 8293. Specifically, Section 155 of R.A. No. 8293 states:

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.15

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 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.16

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.17

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.18

Applying the Dominancy Test to the case at bar, this Court finds 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 petitioner’s stylized "S" is within an oval design, to this Court’s 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 respondent did not use an oval design, the mere fact that it used the same stylized "S", the same being the dominant feature of petitioner’s trademark, already constitutes infringement under the Dominancy Test.

This Court cannot agree with the observation of the CA that the use of the letter "S" could hardly be considered as highly identifiable to the products of petitioner alone. The CA even supported its conclusion by stating that the letter "S" has been used in so many existing trademarks, the most popular of which is the trademark "S" enclosed by an inverted triangle, which the CA says is identifiable to Superman. Such reasoning, however, misses the entire point,

which is that respondent had used a stylized "S," which is the same stylized "S" which petitioner has a registered trademark for. The letter "S" used in the Superman logo, on the other hand, has a block-like tip on the upper portion and a round elongated tip on the lower portion. Accordingly, the comparison made by the CA of the letter "S" used in the Superman trademark with petitioner’s stylized "S" is not appropriate to the case at bar.

Furthermore, respondent did not simply use the letter "S," but it appears to this Court that based on the font and the size of the lettering, the stylized "S" utilized by respondent is the very same stylized "S" used by petitioner; a stylized "S" which is unique and distinguishes petitioner’s trademark. Indubitably, the likelihood of confusion is present as purchasers will associate the respondent’s use of the stylized "S" as having been authorized by petitioner or that respondent’s product is connected with petitioner’s business.

Both the RTC and the CA applied the Holistic Test in ruling that respondent had not infringed petitioner’s trademark. For its part, the RTC noted the following supposed dissimilarities between the shoes, to wit:

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 "Skechers U.S.A." for private complainant;

4. Strong shoes are modestly priced compared to the costs of Skechers Shoes.19

While there may be dissimilarities between the appearances of the shoes, to this Court’s mind such dissimilarities do not outweigh the stark and blatant similarities in their general features. As can be readily observed by simply comparing petitioner’s Energy20 model and respondent’s Strong21 rubber shoes, respondent also used the color scheme of blue, white and gray utilized by petitioner. Even the design and "wavelike" pattern of the midsole and outer sole of respondent’s shoes are very similar to petitioner’s shoes, if not exact patterns thereof. At the side of the midsole near the heel of both shoes are two elongated designs in practically the same location. Even the outer soles of both shoes have the same number of ridges, five at the back and six in front. On the side of respondent’s shoes, near the upper part, appears the stylized "S," placed in the exact location as that of the stylized "S" on petitioner’s shoes. On top of the "tongue" of both shoes appears the stylized "S" in practically the same location and size. Moreover, at the back of petitioner’s shoes, near the heel counter, appears "Skechers Sport Trail" written in white lettering. However, on respondent’s shoes appears "Strong Sport Trail" noticeably written in the same white lettering, font size, direction and orientation as that of petitioner’s shoes. On top of the heel collar of petitioner’s shoes are two grayish-white semi-transparent circles. Not surprisingly, respondent’s shoes also have two grayish-white semi-transparent circles in the exact same location.lihpwa1

Based on the foregoing, this Court is at a loss as to how the RTC and the CA, in applying the holistic test, ruled that there was no colorable imitation, when it cannot be any more clear and apparent to this Court that there is colorable imitation. The dissimilarities between the shoes are too trifling and frivolous that it is indubitable that respondent’s products will cause confusion and mistake in the eyes of the public. Respondent’s shoes may not be an exact replica of petitioner’s shoes, but the features and overall design are so similar and alike that confusion is highly likely.1avvphi1

In Converse Rubber Corporation v. Jacinto Rubber & Plastic Co., Inc.,22 this Court, in a case for unfair competition, had opined that even if not all the details are identical, as long as the general appearance of the two products are such that any ordinary purchaser would be deceived, the imitator should be liable, to wit:

From said examination, We find the shoes manufactured by defendants to contain, as found by the trial court, practically all the features of those of the plaintiff Converse Rubber Corporation and manufactured, sold or marketed by plaintiff Edwardson Manufacturing Corporation, except for their respective brands, of course. We fully agree with the trial court that "the respective designs, shapes, the colors of the ankle patches, the bands, the toe patch and the soles of the two products are exactly the same ... (such that) at a distance of a few meters, it is impossible to distinguish "Custombuilt" from "Chuck Taylor." These elements are more than sufficient to serve as basis for a charge of unfair competition. Even if not all the details just mentioned were identical, with the general appearances

alone of the two products, any ordinary, or even perhaps even a not too perceptive and discriminating customer could be deceived, and, therefore, Custombuilt could easily be passed off for Chuck Taylor. Jurisprudence supports the view that under such circumstances, the imitator must be held liable. x x x23

Neither can the difference in price be a complete defense in trademark infringement. In McDonald’s Corporation v. L.C. Big Mak Burger. Inc.,24 this Court held:

Modern law recognizes that the protection to which the owner of a trademark is entitled is not limited to guarding his goods or business from actual market competition with identical or similar products of the parties, but extends to all cases in which the use by a junior appropriator of a trade-mark or trade-name is likely to lead to a confusion of source, as where prospective purchasers would be misled into thinking that the complaining party has extended his business into the field (see 148 ALR 56 et seq; 53 Am. Jur. 576) or is in any way connected with the activities of the infringer; or when it forestalls the normal potential expansion of his business (v. 148 ALR 77, 84; 52 Am. Jur. 576, 577). x x x25

Indeed, the registered trademark owner may use its 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.26 The purchasing public might be mistaken in thinking that petitioner had ventured into a lower market segment such that it is not inconceivable for the public to think that Strong or Strong Sport Trail might be associated or connected with petitioner’s brand, which scenario is plausible especially since both petitioner and respondent manufacture rubber shoes.

Withal, 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.27 While respondent’s shoes contain some dissimilarities with petitioner’s shoes, this Court cannot close its eye to the fact that for all intents and purpose, respondent had deliberately attempted to copy petitioner’s mark and overall design and features of the shoes. Let it be remembered, that defendants in cases of infringement do not normally copy but only make colorable changes.28 The most successful form of copying is to employ enough points of similarity to confuse the public, with enough points of difference to confuse the courts.29

WHEREFORE, premises considered, the Motion for Reconsideration is GRANTED. The Decision dated November 30, 2006 is RECONSIDERED and SET ASIDE.

SO ORDERED.

G.R. No. 78413 November 8, 1989

CAGAYAN VALLEY ENTERPRISES, INC., Represented by its President, Rogelio Q. Lim, petitioner, vs.THE HON. COURT OF APPEALS and LA TONDEÑA, INC., respondents.

Efren M. Cacatian for petitioners.

San Jose, Enrique, Lacas, Santos and Borje for private respondent.

REGALADO, J.:

This petition for review on certiorari seeks the nullification of the decision of the Court of Appeals of December 5, 1986 in CA-G.R. CV No. 06685 which reversed the decision of the trial court, and its resolution dated May 5, 1987 denying petitioner's motion for reconsideration.

The following antecedent facts generative of the present controversy are not in dispute.

Sometime in 1953, La Tondeña, Inc. (hereafter, LTI for short) registered with the Philippine Patent Office pursuant to Republic Act No. 623 1 the 350 c.c. white flint bottles it has been using for its gin popularly known as "Ginebra San Miguel". This registration was subsequently renewed on December 4, 1974. 2

On November 10, 1981, LTI filed Civil Case No. 2668 for injunction and damages in the then Branch 1, Court of First Instance of Isabela against Cagayan Valley Enterprises, Inc. (Cagayan, for brevity) for using the 350 c.c., white flint bottles with the mark "La Tondeña Inc." and "Ginebra San Miguel" stamped or blown-in therein by filling the same with Cagayan's liquor product bearing the label "Sonny Boy" for commercial sale and distribution, without LTI's written consent and in violation of Section 2 of Republic Act No. 623, as amended by Republic Act No. 5700. On the same date, LTI further filed an ex parte petition for the issuance of a writ of preliminary injunction against the defendant therein. 3 On November 16, 1981, the court a quo issued a temporary restraining order against Cagayan and its officers and employees from using the 350 c.c. bottles with the marks "La Tondeña" and "Ginebra San Miguel." 4

Cagayan, in its answer, 5 alleged the following defenses:

1. LTI has no cause of action due to its failure to comply with Section 21 of Republic Act No. 166 which requires the giving of notice that its aforesaid marks are registered by displaying and printing the words "Registered in the Phil. Patent Office" or "Reg Phil. Pat. Off.," hence no suit, civil or criminal, can be filed against Cagayan;

2. LTI is not entitled to any protection under Republic Act No. 623, as amended by Republic Act No. 5700, because its products, consisting of hard liquor, are not among those contemplated therein. What is protected under said law are beverages like Coca-cola, Royal Tru-Orange, Lem-o-Lime and similar beverages the bottles whereof bear the words "Reg Phil. Pat. Off.;"

3. No reservation of ownership on its bottles was made by LTI in its sales invoices nor does it require any deposit for the retention of said bottles; and

4. There was no infringement of the goods or products of LTI since Cagayan uses its own labels and trademark on its product.

In its subsequent pleadings, Cagayan contended that the bottles they are using are not the registered bottles of LTI since the former was using the bottles marked with "La Tondeña, Inc." and "Ginebra San Miguel" but without the words "property of" indicated in said bottles as stated in the sworn statement attached to the certificate of registration of LTI for said bottles.

On December 18, 1981, the lower court issued a writ of preliminary injunction, upon the filing of a bond by LTI in the sum of P50,000.00, enjoining Cagayan, its officers and agents from using the aforesaid registered bottles of LTI. 6

After a protracted trial, which entailed five (5) motions for contempt filed by LTI against Cagayan, the trial court rendered judgment 7 in favor of Cagayan, ruling that the complaint does not state a cause of action and that Cagayan was not guilty of contempt. Furthermore, it awarded damages in favor of Cagayan.

LTI appealed to the Court of Appeals which, on December 5, 1986 rendered a decision in favor of said appellant, the dispositive portion whereof reads:

WHEREFORE, the decision appealed from is hereby SET ASIDE and judgment is rendered permanently enjoining the defendant, its officers and agents from using the 350 c.c. white flint bottles with the marks of ownership "La Tondeña, Inc." and "Ginebra San Miguel", blown-in or stamped on said bottles as containers for defendant's products.

The writ of preliminary injunction issued by the trial court is therefore made permanent.

Defendant is ordered to pay the amounts of:

(1) P15,000.00 as nominal or temperate damages;

(2) P50,000.00 as exemplary damages;

(3) P10,000.00 as attorney's fees; and

(4) Costs of suit. 8

On December 23, 1986, Cagayan filed a motion for reconsideration which was denied by the respondent court in its resolution dated May 5, 1987, hence the present petition, with the following assignment of errors:

I. The Court of Appeals gravely erred in the decision granting that "there is, therefore, no need for plaintiff to display the words "Reg. Phil. Pat. Off." in order for it to succeed in bringing any injunction suit against defendant for the illegal use of its bottles. Rep. Act No. 623, as amended by Rep. Act No. 5700 simply provides and requires that the marks or names shall be stamped or marked on the containers."

II. The Court of Appeals gravely erred in deciding that "neither is there a reason to distinguish between the two (2) sets of marked bottles-those which contain the marks "Property of La Tondeña, Inc., Ginebra San Miguel," and those simply marked La Tondeña Inc., Ginebra San Miguel'. By omitting the words "property of" plaintiff did not open itself to violation of Republic Act No. 623, as amended, as having registered its marks or names it is protected under the law."

III. The Honorable Court of Appeals gravely erred in deciding that the words "La Tondeña, Inc. and Ginebra San Miguel" are sufficient notice to the defendant which should have inquired from the plaintiff or the Philippine Patent Office, if it was lawful for it to re-use the empty bottles of the plaintiff.

IV. The Honorable Court of Appeals gravely erred in deciding that defendant-appellee cannot claim good faith from using the bottles of plaintiff with marks "La Tondeña, Inc." alone, short for the description contained in the sworn statement of Mr. Carlos Palanca, Jr., which was a requisite of its original and renewal registrations.

V. The Honorable Court of Appeals gravely erred in accommodating the appeal on the dismissals of the five (5) contempt charges.

VI. The Honorable Court of Appeals gravely erred in deciding that the award of damages in favor of the defendant-appellee, petitioner herein, is not in order. Instead it awarded nominal or temperate, exemplary damages and attorney's fees without proof of bad faith. 9

The pertinent provisions of Republic Act No. 623, as amended by Republic Act No. 5700, provides:

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, or in the manufacturing, compressing or selling of gases such as oxygen, acytelene, nitrogen, carbon dioxide ammonia, hydrogen, chloride, helium, sulphur, dioxide, butane, propane, freon, melthyl chloride or similar gases contained in steel cylinders, tanks, flasks, accumulators or similar containers, with the name 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 marks, and the purpose for which the containers so marked and used by them, under the same conditions, rules, and regulations, made applicable by law or regulation to the issuance of trademarks.

SEC. 2. It shall be unlawful for any person, without the written consent of the manufacturer, bottler, or seller, who has succesfully registered the marks of ownership in accordance with the provisions of the next preceding section, to fill such bottles, boxes, kegs, barrels, steel cylinders, tanks, flasks, accumulators or other similar containers so marked or stamped, for the purpose of sale, or to sell, disposed of, buy or traffic in, or wantonly destroy the same, whether filled or not, to use the same, for drinking vessels or glasses or drain pipes, foundation pipes, for any other purpose than that registered by the manufacturer, bottler or seller. Any violation of this section shall be punished by a fine of not more than one thousand pesos or imprisonment of not more than one year or both.

SEC. 3. The use by any person other than the registered manufacturer, bottler or seller, without written permission of the latter of any such bottle, cask, barrel, keg, box, steel cylinders, tanks, flask, accumulators, or other similar containers, or the possession thereof without written permission of the manufacturer, by any junk dealer or dealer in casks, barrels, kegs boxes, steel cylinders, tanks, flasks, accumulators or other similar containers, the same being duly marked or stamped and registered as herein provided, shall give rise to a prima facie presumption that such use or possession is unlawful.

The above-quoted provisions grant protection to a qualified manufacturer who successfully registered with the Philippine Patent Office its duly stamped or marked bottles, boxes, casks and other similar containers. The mere use of registered bottles or containers without the written consent of the manufacturer is prohibited, the only exceptions being when they are used as containers for "sisi," bagoong," "patis" and similar native products. 10

It is an admitted fact that herein petitioner Cagayan buys from junk dealers and retailers bottles which bear the marks or names La Tondeña Inc." and "Ginebra San Miguel" and uses them as containers for its own liquor products. The contention of Cagayan that the aforementioned bottles without the words "property of" indicated thereon are not the registered bottles of LTI, since they do not conform with the statement or description in the supporting affidavits attached to the original registration certificate and renewal, is untenable.

Republic Act No. 623 which governs the registration of marked bottles and containers merely requires that the bottles, in order to be eligible for registration, must be stamped or marked with the names of the manufacturers or the names of their principals or products, or other marks of ownership. No drawings or labels are required but, instead, two photographs of the container, duly signed by the applicant, showing clearly and legibly the names and other marks of ownership sought to be registered and a bottle showing the name or other mark or ownership, irremovably stamped or marked, shall be submitted. 11

The term "Name or Other Mark of Ownership" 12 means the name of the applicant or the name of his principal, or of the product, or other mark of ownership. The second set of bottles of LTI without the words "property of" substantially complied with the requirements of Republic Act No. 623, as amended, since they bear the name of the principal, La Tondeña Inc., and of its product, Ginebra San Miguel. The omitted words "property of" are not of such vital indispensability such that the omission thereof will remove the bottles from the protection of the law. The owner of a trade-mark or trade-name, and in this case the marked containers, does not abandon it by making minor modifications in the mark or name itself. 13 With much more reason will this be true where what is involved is the mere omission of the words "property of" since even without said words the ownership of the bottles is easily

Identifiable. The words "La Tondeña Inc." and "Ginebra San Miguel" stamped on the bottles, even without the words "property of," are sufficient notice to the public that those bottles so marked are owned by LTI.

The claim of petitioner that hard liquor is not included under the term "other lawful beverages" as provided in Section I of Republic Act No. 623, as amended by Republic Act No. 5700, is without merit. The title of the law itself, which reads " An Act to Regulate the Use of Duly Stamped or Marked Bottles, Boxes, Casks, Kegs, Barrels and Other Similar Containers" clearly shows the legislative intent to give protection to all marked bottles and containers of all lawful beverages regardless of the nature of their contents. The words "other lawful beverages" is used in its general sense, referring to all beverages not prohibited by law. Beverage is defined as a liquor or liquid for drinking. 14 Hard liquor, although regulated, is not prohibited by law, hence it is within the purview and coverage of Republic Act No. 623, as amended.

Republic Act No. 623, as amended, has for its purpose the protection of the health of the general public and the prevention of the spread of contagious diseases. It further seeks to safeguard the property rights of an important sector of Philippine industry. 15 As held by this Court in Destileria Ayala, Inc. vs. Tan Tay & Co., 16 the purpose of then Act 3070, was to afford a person a means of Identifying the containers he uses in the manufacture, preservation, packing or sale of his products so that he may secure their registration with the Bureau of Commerce and Industry and thus prevent other persons from using them. Said Act 3070 was substantially reenacted as Republic Act No. 623. 17

The proposition that Republic Act No. 623, as amended, protects only the containers of the soft drinks enumerated by petitioner and those similar thereto, is unwarranted and specious. The rule of ejusdem generis cannot be applied in this case. To limit the coverage of the law only to those enumerated or of the same kind or class as those specifically mentioned will defeat the very purpose of the law. Such rule of ejusdem generis is to be resorted to only for the purpose of determining what the intent of the legislature was in enacting the law. If that intent clearly appears from other parts of the law, and such intent thus clearly manifested is contrary to the result which would be reached by the appreciation of the rule of ejusdem generis, the latter must give way. 18

Moreover, the above conclusions are supported by the fact that the Philippine Patent Office, which is the proper and competent government agency vested with the authority to enforce and implement Republic Act No. 623, registered the bottles of respondent LTI as containers for gin and issued in its name a certificate of registration with the following findings:

It appearing, upon due examination that the applicant is entitled to have the said MARKS OR NAMES registered under R.A. No. 623, the said marks or names have been duly registered this day in the PATENT OFFICE under the said Act, for gin, Ginebra San Miguel. 19

While executive construction is not necessarily binding upon the courts, it is entitled to great weight and consideration. The reason for this is that such construction comes from the particular branch of government called upon to implement the particular law involved. 20

Just as impuissant is petitioners contention that respondent court erred in holding that there is no need for LTI to display the words "Reg Phil. Pat. Off." in order to succeed in its injunction suit against Cagayan for the illegal use of the bottles. To repeat, Republic Act No. 623 governs the registration of marked bottles and containers and merely requires that the bottles and/or containers be marked or stamped by the names of the manufacturer or the names of their principals or products or other marks of ownership. The owner upon registration of its marked bottles, is vested by law with an exclusive right to use the same to the exclusion of others, except as a container for native products. A violation of said right gives use to a cause of action against the violator or infringer.

While Republic Act No. 623, as amended, provides for a criminal action in case of violation, a civil action for damages is proper under Article 20 of the Civil Code which provides that every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for the same. This particular provision of the Civil Case was clearly meant to complement all legal provisions which may have inadvertently failed to provide for indemnification or reparation of damages when proper or called for. In the language of the Code Commission "(t)he foregoing rule pervades the entire legal system, and renders it impossible that a person who suffers damage because another has violated some legal provisions, should find himself without relief." 21 Moreover, under Section 23 of Republic Act No. 166, as amended, a person entitled to the exclusive use of a registered mark or tradename

may recover damages in a civil action from any person who infringes his rights. He may also, upon proper showing, be granted injunction.

It is true that the aforesaid law on trademarks provides:

SEC. 21. Requirements of notice of registration of trade-mark.-The registrant of a trade-mark, heretofore registered or registered under the provisions of this Act, shall give notice that his mark is registered by displaying with the same as used the words 'Registered in the Philippines Patent Office' or 'Reg Phil. Pat. Off.'; and in any suit for infringement under this Act by a registrant failing so to mark the goods bearing the registered trade-mark, no damages shall be recovered under the provisions of this Act, unless the defendant has actual notice of the registration.

Even assuming that said provision is applicable in this case, the failure of LTI to make said marking will not bar civil action against petitioner Cagayan. The aforesaid requirement is not a condition sine qua non for filing of a civil action against the infringer for other reliefs to which the plaintiff may be entitled. The failure to give notice of registration will not deprive the aggrieved party of a cause of action against the infringer but, at the most, such failure may bar recovery of damages but only under the provisions of Republic Act No. 166.

However, in this case an award of damages to LTI is ineluctably called for. Petitioner cannot claim good faith. The record shows that it had actual knowledge that the bottles with the blown-in marks "La Tondeña Inc." and "Ginebra San Miguel" are duly registered. In Civil Case No. 102859 of the Court of First Instance of Manila, entitled "La Tondeña Inc. versus Diego Lim, doing business under the name and style 'Cagayan Valley Distillery,' " a decision was rendered in favor of plaintiff therein on the basis of the admission and/or acknowledgment made by the defendant that the bottles marked only with the words "La Tondeña Inc." and "Ginebra San Miguel" are registered bottles of LTI. 22

Petitioner cannot avoid the effect of the admission and/or acknowledgment made by Diego Lim in the said case. While a corporation is an entity separate and distinct from its stock-holders and from other corporations with which it may be connected, where the discreteness of its personality is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons, or in the case of two corporations, merge them into one. When the corporation is the mere alter ego or business conduit of a person, it may be disregaded. 23

Petitioner's claim that it is separate and distinct from the former Cagayan Valley Distillery is belied by the evidence on record. The following facts warrant the conclusion that petitioner, as a corporate entity, and Cagayan Valley Distillery are one and the same. to wit: (1) petitioner is being managed by Rogelio Lim, the son of Diego Lim, the owner and manager of Cagayan Valley Distellery; (2) it is a family corporation; 24 (3) it is an admitted fact that before petitioner was incorporated it was under a single proprietorship; 25 (4) petitioner is engaged in the same business as Cagayan Valley Distillery, the manufacture of wines and liquors; and (5) the factory of petitioner is located in the same place as the factory of the former Cagayan Valley Distillery.

It is thus clear that herein petitioner is a mere continuation and successor of Cagayan Valley Distillery. It is likewise indubitable that the admission made in the former case, as earlier explained, is binding on it as cogent proof that even before the filing of this case it had actual knowledge that the bottles in dispute were registered containers of LTI As held in La Campana Coffee Factory, Inc., et al. vs. Kaisahan Ng Mga Manggagawa sa La Campana (KKM), et al., 26 where the main purpose in forming the corporation was to evade one's subsidiary liability for damages in a criminal case, the corporation may not be heard to say that it has a personality separate and distinct from its members, because to allow it to do so would be to sanction the use of the fiction of corporate entity as a shield to further an end subversive of justice.

Anent the several motions of private respondent LTI to have petitioner cited for contempt, we reject the argument of petitioner that an appeal from a verdict of acquittal in a contempt, proceeding constitutes double jeopardy. A failure to do something ordered by the court for the benefit of a party constitutes civil contempt. 27 As we held in Converse Rubber Corporation vs. Jacinto Rubber & Plastics Co., Inc.:

...True it is that generally, contempt proceedings are characterized as criminal in nature, but the more accurate juridical concept is that contempt proceedings may actually be either civil or criminal, even if the distinction between one and the other may be so thin as to be almost imperceptible. But it does exist in law. It is criminal when the purpose is to vindicate the authority of the court and protect its outraged dignity. It is civil when there is failure to do something ordered by a court to be done for the benefit of a party (3 Moran Rules of Court, pp. 343-344, 1970 ed.; see also Perkins vs. Director of Prisons, 58 Phil. 272; Harden vs. Director of Prisons, 81 Phil. 741.) And with this distinction in mind, the fact that the injunction in the instant case is manifestly for the benefit of plaintiffs makes of the contempt herein involved civil, not criminal. Accordingly, the conclusion is inevitable that appellees have been virtually found by the trial court guilty of civil contempt, not criminal contempt, hence, the rule on double jeopardy may not be invoked. 28

The contempt involved in this case is civil and constructive in nature, it having arisen from the act of Cagayan in violating the writ of preliminary injunction of the lower court which clearly defined the forbidden act, to wit:

NOW THEREFORE, pending the resolution of this case by the court, you are enjoined from using the 350 c.c. white flint bottles with the marks La Tondeña Inc.,' and 'Ginebra San Miguel' blown-in or stamped into the bottles as containers for the defendant's products. 19

On this incident, two considerations must be borne in mind. Firstly, an injunction duly issued must be obeyed, however erroneous the action of the court may be, until its decision is overruled by itself or by a higher court. 30 Secondly, the American rule that the power to judge a contempt rests exclusively with the court contemned does not apply in this Jurisdiction. The provision of the present Section 4, Rule 71 of the Rules of Court as to where the charge may be filed is permissive in nature and is merely declaratory of the inherent power of courts to punish contumacious conduct. Said rules do not extend to the determination of the jurisdiction of Philippine courts. 31 In appropriate case therefore, this Court may, in the interest of expedient justice, impose sanctions on contemners of the lower courts.

Section 3 of Republic Act No. 623, as amended, creates a prima facie presumption against Cagayan for its unlawful use of the bottles registered in the name of LTI Corollarily, the writ of injunction directing petitioner to desist from using the subject bottles was properly issued by the trial court. Hence, said writ could not be simply disregarded by Cagayan without adducing proof sufficient to overcome the aforesaid presumption. Also, based on the findings of respondent court, and the records before us being sufficient for arbitrament without remanding the incident to the court a quo petitioner can be adjudged guilty of contempt and imposed a sanction in this appeal since it is a cherished rule of procedure for this Court to always strive to settle the entire controversy in a single proceeding, 32 We so impose such penalty concordant with the preservative principle and as demanded by the respect due the orders, writs and processes of the courts of justice.

WHEREFORE, judgment is hereby rendered DENYING the petition in this case and AFFIRMING the decision of respondent Court of Appeals. Petitioner is hereby declared in contempt of court and ORDERED to pay a fine of One Thousand Pesos (P1,000.00), with costs.

SO ORDERED.

DISTILLERIA WASHINGTON, INC. or WASHINGTON DISTILLERY, INC., petitioner vs LA TONDEA DISTILLERS, INC. and THE HONORABLE COURT OF APPEALS, respondents.

R E S O L U T I O N

KAPUNAN, J.:

On October 17, 1996, this court rendered a decision in the above-entitled case, the dispositive portion of which reads, as follows:

WHEREFORE, the decision of the appellate court is MODIFIED by ordering LTDI to pay petitioner just compensation for the seized bottles. Instead, however, of remanding the case to the Court of Appeals to receive evidence on, and thereafter resolve, the assessment thereof, this Court accepts and accordingly adopts the quantification of P18,157.00 made the the trial court. No costs.

With the deanial of the Motion for Reconsideration ,petitioner sought a second reconsideration with leave of court of our decision raising new issues, to wit:

1.01.d. The Supreme Court, in its Decision of October 17, 1996, modified the decision of the Court of Appeals. It held that ownership of the bottles has passed to the consumer, ultimately, to Washington Distillery, Inc., thereby upholding the finding of the Regional Trial Court and reversing the ruling or the Court of Appeals; nonetheless, while ruling that the ownership over the bottles had passed to Washington Distillery, Inc.,it held that Washington Distillery, Inc. may not use the bottles because of the trademark protection to the registrant (La Tondea Distillers, Inc.). Instead of directing the return to the bottles to Washington Distillery, Inc., the Court ordered La Tondea Distillers, Inc. to pay Washington Distillery, Inc. the amount of P18,157.00.

2.00. The decision of the Supreme Court itself therefore raises new issues. As owner of the bottles, should not Washington Distillery, Inc. be given possession of the bottles? Would its use of the bottles violate the trademark protection of the registrant, La Tondea Distillers, Inc. afforded by R.A. 623, as amended?

3.00. The Motion for Reconsideration of the petitioner Washington Distillery, Inc. is addressed to these new issues. They had not been previously addressed by the parties. They could not have been previously passed upon. It could hardly be said that no substantial argument, not previously raised, is made in the Motion for Reconsideration to warrant a modification of the Courts decision.

On May 21, 1997, the Court resolved to set for hearing the motion for reconsideration on May 28, 1997 for its judicious disposition. Thereafter, the parties as required by the Court filed their simultaneous memoranda to expound and lay particular emphasis on the provision of Section 5 of R.A. 623 which proscribes the filing of an action against any person to whom registered manufacturer, bottler or seller has transferred by way of sale, any to the containers. The parties complied.

A reexamination of the arguments raised by petitioner in its Second Motion for Reconsideration filed on February 13, 1997, in the hearing on May 28, 1997 and in the subsequent memorandum filed thereafter, convinces us the merits of its position.

To recall, La Tondea Distillers, Inc. (La Tondea, for short) filed before the Regional Trial Court for the recovery, under its claim of ownership, of possession or replevin against Distilleria Washington, Inc. or Washington Distillery, Inc. (Distilleria Washington) of 18,157 empty 350 c.c. white flint bottles bearing the blown-in marks of La Tondea Inc. and Ginebra San Miguel, averring that Distilleria Washington was using the bottles for its own Gin Seven products without the consent of Distilleria Washington in violation of Republic Act 623.

The trial court in its decision dismissed the complaint, upholding Distilleria Washingtons contention that a purchaser of liquor pays only a single price for the liquor and the bottle and is not required to return the bottle at any time.

The Court of Appeals reversed the trial courts decision, ruling that under Republic Act 623, the use of marked bottles by any person other than the manufacturer, bottler or seller, without the latters written consent, is unlawful. It emphasized that the marks of La Tondea s ownership stamped or blown-in to the bottles are sufficient notice to the public that the bottles are La Tondeas property; hence, Distilleria Washington cannot be considered a purchaser on good faith.

While our decision of October 17, 1996 affirmed with modification the Court of Appeals decision, we at least implicitly acknowledge that there was a valid transfer of the bottles to Distilleria Washington, except that its possession of the bottles without the written consent of La Tondea gives rise to a prima facie presumption of illegal use under R.A. 623.

In seeking reconsideration of the decision of this Court, petitioner advances, among others, the following arguments:

(1) If, as the Court found in its decision of October 17, 1996, Distilleria Washington had acquired ownership of the bottles, La Tondeas suit for replevin, where the sole issue is possession, should be denied.

(2) Since the right of ownership over the bottles gives rise, accordiing to the Courts own language, to its own elements of jus posidendi, jus utendi , jus fruendi, jus disponendi, and jus abutendi, along with the applicable jus lex, to allow La Tondea to keep the bottles is to deny Distilleria Washington, the very attributes or elements of its ownership.

(3) There is no showing--and it cannot be assumed--that if Distilleria Washington would have possession of the bottles, it will exercise the other attributes of ownership, along with the applicable jus lex, over the marks of ownership stamped or marked on the bottles.

(4) The provision in Sec. 3 of Republic Act 623 to the effect that the use by any person other than the registered manufacturer, bottler or seller without the written permission of the latter of any such bottle, etc. shall give rise to a prima facie presumption that such use or possession is unlawful, does not arise in the instant case because the Court has itself found Section 5 of the same law applicable.

Additionally, petitioner argues with persuasion the following points in its memorandum:

(5) It is absurd to hold the buyer such as Distilleria Washington, liable for the possession and use of its own bottles without the written consent of La Tondea who is no longer the owner thereof and for which it has received payment in full.

(6) To hold the buyer liable under Sections 2 and 3 would grant La Tondea the extraordinary right not only of possession and use of the bottles which it has sold and no longer owns, but also to sell said bottles ad infinitum, thus enriching itself unjustly.

(7) It is manifestly unjust and unconscionable that millions of buyers of Ginebra San Miguel, who pay not only for gin but also for the bottles containing it should run the risk of criminal prosecution by the mere fact of possession of the empty bottles after consuming the liquor.

Distilleria Washingtons motion raises the novel issue that if, as we ruled in our decision of October 17, 1996, petitioner became the owner over the bottles seized from it by replevin, then it has the right to their possession and use as attributes of ownership, unless their use violates the trademark or incorporeal rights accorded private respondent by R.A 623 which has not really been established in this case.

As pointed out in our decision,

Parenthetically, petitioner is not here being charged with violation of Sec. 2 of R.A. 623 or the Trademark Law. The instant case is one for replevin (manual delivery) where the claimant must be able to show convincingly that he is either the owner or clearly entitled to the possession of the object sought to be recovered. Replevin is a possessory action. The gist of which focuses on the right of possession that in turn, is dependent on a legal basis that, not infrequently, looks to the ownership of the object sought to be replevied.

Since replevin as a possessory action is dependent upon ownership, it is relevant to ask: Did La Tondea Distillers, Inc. transfer ownership of its marked bottles or containers when it sold its products in the market? Were the marked bottles or containers part of the products sold to the public?

In our decision sought to be reconsidered, we categorically answered the question in the affirmative in this wise:

R.A. No. 623 does not disallow the sale or transfer of ownership of the marked bottles or containers. In fact, the contrary is implicit in the law thus:

SEC. 5. x x x.

SEC. 6. x x x

Scarcely disputed are certain and specific industry practices in the sale of gin. The manufacturer sells the product in marked containers, through dealers, to the public in supermarkets, grocery shops, retail stores and other sales outlets. The buyer takes the item; he is neither required to return the bottle nor required to make a deposit to assure its return to the seller. He could return the bottle and get a refund. A number of bottles at times find their way to commercial users. It cannot be gainsaid that ownership of the containers does pass on the consumer albeit subject to the statutory limitations on the use of the registered containers and to the trademark rights of the registrant. The statement in Section 5 of R.A. 623 to the effect that the sale of beverage contained the said containers shall not include the sale of the containers unless specifically so provided is not a rule of proscription. It is a rule of construction that, in keeping with the spirit and intent of the law, establishes at best a presumption (of non-conveyance of the container) and which by no means can be taken to be either interdictive or conclusive in character. Upon the other hand, LTDIs sales invoice, stipulating that the sale does not include the bottles with the blown-in marks of ownership of La Tondea Distillers, cannot affect those who are not privies thereto.

In plain terms, therefore, La Tondea not only sold its gin products but also the marked bottles or containers, as well. And when these products were transferred by way of sale, then ownership over the bottles and all its attributes (jus utendi, jus abutendi, just fruendi, jus disponendi) passed to the buyer. It necessarily follows that the transferee has the right to possession of the bottles unless he uses them in violation of the original owners registered or incorporeal rights.

After practically saying that La Tondea has surrendered ownership and consequently, possession of the marked bottles or container, it is incongrous and, certainly, it does not seem fair and just to still allow La Tondea, citing the prima facie presumption of illegal use under Sec. 3 of R.A. 623., to retain possession of the seized bottles by simply requiring payment of just compensation to petitioner.

The pertinent provisions of R.A. 623 are as follows:

SEC. 2. It shall be unlawful for any person, without the written consent of the manufacturer, bottler, or seller (underscoring supplied) 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, steel cylinders, tanks, flasks, accumulators, 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 to use the same for drinking vessels or glasses or drain pipes, foundation pipers, for any other purpose than that registered by the manufacturer, bottler or seller. Any violation of this section shall be punished by a fine of not more than one thousand pesos or imprisonment of not more than one year or both.

SEC. 3. The use by any person other than the registered manufacturer, bottler or seller, without written permission of the latter (underscoring supplied) of any such bottle, cask, barrel, keg, box, steel cylinders, tanks, flask, accumulators, or other similar containers, or the possession thereof without written permission of the manufacturer, by any junk dealer or dealer in casks, barrels, keg, boxes, steel cylinders, tanks, flask, accumulators or other similar containers, the same being duly marked or stamped and registered as herein provided, shall give rise to a prima facie presumption that such use or possession is unlawful.

x x x

SEC. 5. No action shall be brought under this Act (underscoring supplied) against any person to whom the registered manufacturer, bottler or seller, has transferred by way of sale, (underscoring supplied) any of the containers herein referred to, but the sale of the beverage contained in the said containers shall not include the sale of the containers unless specifically so provided.

In resolving that petitioner is the owner of the bottles, this Court applied Section 5 of R.A. 623; and in withholding possession of the bottles from the petitioner and in concluding that use or possession thereof without the written permission of the registered owner would constitute prima facie presumption of illegal use, this Court invoked Sections 2 and 3 of the same law.

A careful reading of Sections 2, 3 and 5 of R.A. 623 would lead to the conclusion that they contemplate situations separate and distinct from each other. Section 2 prohibits any person from using, selling or otherwise disposing of registered containers without the written consent of the registrant. Such rights belong exclusively to the registrant. Under Section 3, mere possession of such registered containers without the written consent of the registrant is prima facie presumed unlawful.

It appears - and this is the critical point - that Sections 2 and 3 apply only when the filling up of the bottle or the use of the bottle is without the written permission of the registered manufacturer, bottler, or seller, who has registered the marks of ownership of the bottles. It is thus implicit that Sections 2 and 3 apply only when the registered manufacturer, bottler, or seller retain ownership of the bottles.

Upon the other hand, when the bottles have been transferred by way of sale, Section 5 applies, thereby precluding the institution of any action under this Act, meaning to say, including any action under Sections 2 and 3.

The general rule on ownership, therefore, must apply and petitioner be allowed to enjoy all the rights of an owner in regard the bottles in question, to wit: the jus utendi or the right to receive from the thing what it produces; the jus abutendi or the right to consume the thing by its use; the jus disponendi or the power of the owner to alienate, encumber, transform and even destroy the thing owned; and the jus vindicandi or the right to exclude from the possession of the thing owned any other person to whom the owner has not transmitted such thing. What is proscribed is the use of the bottles in infringement of anothers trademark or incorporeal rights.

Since the Court has found that the bottles have been transferred by way of sale then, La Tondea has relinquished all its proprietary rights over the bottles in favor of Distilleria Washington who has obtained them in due course. Now as owner, it can exercise all attributes of ownership over the bottles. This is the import of the decision that La Tondea had transferred ownership over its marked bottles or containers when it sold its gin products to the public. While others may argue that Section 5 is applicable only to the immediate transferee of the marked bottles or container, this matter is best discussed where the applicability of Sec. 5, R.A. 623 is squarely raised. It must be recalled, however, that this is a case of replevin, not a violation of the "trademark protection of the registrant" under R.A. 623 or of the Trademark Law.

A query may be posed: Would use of the bottles constitute a violation of the incorporeal rights of La Tondea Distillers, Inc. over its marks of ownership embossed on the bottles? While apparently relevant, it would be improper and premature for this Court to rule on the point because:

First, because violation of the marks of ownership of La Tondea Distillers, Inc, on the bottles has not been put in issue, the parties did not have the opportunity to ventilate their respective positions on the matter. Thus, a ruling would be violative of due process.

Second, the question calls for a factual investigation which this Court has generally not taken upon itself to undertake because it is not a trier of facts; and

Third, disregarding the above, the facts before this Court do not provide a sufficient basis for a fair and intelligent resolution of the question.

Moreover, our decision added that the Court sees no other insistence to keep the bottles, except for such continued use. This, to our mind, is rather speculative at this point; something which was never touched upon in the proceedings below.

We cannot also be oblivious of the fact that if La Tondeas thesis that every possession of the bottles without the requisite written consent is illegal, thousands upon thousands of buyers of Ginebra San Miguel would be exposed to criminal prosecution by the mere fact of possession of the empty bottles after consuming the content.

One last point. It may not be amiss to state that La Tondea is a big and established distillery which already has captured a big share of the gin market, estimated to be 90%. Distilleria Washington, on the other hand, together with other small distillers - around 40 in number; admittedly concedes that it cannot fight this giant but only asks a share of the market. It cannot afford to manufacture its own bottles and just have to rely on recycled bottles to sell its

products. To disallow the use of these recycled products would necessarily deprive it a share of the market which La Tondea seeks to monopolize.

We recognize the role of large industry in the growth of our nascent economy. However, small industries likewise play a vital role in economic growth, playing a significant part in the success of such tiger economies as Korea, Taiwan and Thailand. Industries, big and small, should adopt symbiotic relationship, not the animosity of Goliath and David. Our holding today merely recognizes that in the countrys march toward economic development and independence, it is essential that a balance protecting small industries and large scale businesses be maintained.

IN VIEW OF THE FOREGOING, the Court RESOLVED to RECONSIDER its Decision promulgated on October 17, 1996 and render another judgment REVERSING in toto the Decision of the Court of Appeals promulgated on January 11, 1995 and its Resolution of June 23, 1995. The decision of the Regional Trial Court of December 3, 1991 is REINSTATED.

SO ORDERED.

TWIN ACE HOLDINGS CORPORATION, petitioner, vs. COURT OF APPEALS and LORENZANA FOOD CORPORATION, respondents.

D E C I S I O N

BELLOSILLO, J.:

TWIN ACE HOLDINGS CORPORATION (TWIN ACE) is a manufacturer, distiller and bottler of distillery products, e.g., rhum, gin, brandy, whiskey, vodka, liquor and cordial under the name and style of Tanduay Distillers, Inc. (TANDUAY). Lorenzana Food Corporation (LORENZANA), on the other hand, manufactures and exports processed foods and other related products, e.g., patis, toyo, bagoong, vinegar and other food seasonings. On 16 January 1992 TWIN ACE filed a complaint for replevini[1] to recover three hundred eighty thousand (380,000) bottles of 350 ml., 375 ml. and 750 ml. allegedly owned by it but detained and used by LORENZANA as containers for native products without its express permission, in violation of RA No. 623.ii[2] This law prohibits the use of registered bottles and other containers for any purpose other than that for which they were registered without the express permission of the owner.

LORENZANA moved to dismiss the complaint on the ground that RA No. 623 could not be invoked by TWIN ACE because the law contemplated containers of non-alcoholic beverages only. But, assuming arguendo that the law applied in TWIN ACE's favor, the right of LORENZANA to use the bottles as containers for its patis and other native products was expressly sanctioned by Sec. 6iii[3] of the same law and upheld by this Court in Cagayan Valley Enterprises, Inc. v. Court of Appeals.iv[4]

On 16 March 1992 the Regional Trial Court of Manila dismissed the complaint.v[5] TWIN ACE appealed to respondent Court of Appeals which affirmed the action of the trial court. In its Decision dated 22 December 1995vi[6] respondent court ruled that while bottles and containers of alcoholic beverages were indeed covered within the protective mantle of RA No. 623, as correctly argued by TWIN ACE, nevertheless the Supreme Court in Cagayan Valley Enterprises, Inc. v. Court of Appeals expressly recognized the exception granted in Sec. 6 thereof to those who used the bottles as containers for sisi, bagoong, patis and other native products. Hence, no injunctive relief and damages could be obtained against LORENZANA for exercising what was precisely allowed by the law.

Petitioner TWIN ACE contends that Sec. 6 notwithstanding, respondent LORENZANA is obliged to pay just compensation for the use of the subject bottles because Sec. 6 exempts the user from criminal sanction only but does not shield him from civil liability arising from the use of the registered bottles without the express consent of the registered owner. Such civil liability arises from the fact that Sec. 5 of RA No 623 expressly reserves for the registered owner the ownership of the containers notwithstanding the sale of the beverage contained therein. Private respondent, on the other hand, contends that petitioner's bottles used as containers for hard liquor are not protected by RA No. 623. But even assuming the applicability of the law, LORENZANA invokes the exemption granted in Sec. 6 thereof.

We deny the petition. The question of whether registered containers of hard liquor such as rhum, gin, brandy and the like are protected by RA No. 623 has already been settled in Cagayan Valley Enterprises, Inc. v. Court of Appeals.vii

[7] In that case, the Court dealt squarely with the issue and ruled in the affirmative reasoning that hard liquor, although regulated, is not prohibited by law, hence, still within the purview of the phrase "other lawful beverages" protected by RA No. 623, as amended. Consequently petitioner therein Cagayan Valley Enterprises, Inc. was enjoined from using the 350 ml. white flint bottles of La Tondea, Inc., with the marks of ownership "La Tondea, Inc." and "Ginebra San Miguel" for its own liquor products.

But while we adopt the foregoing precedent and rule in accordance therewith, we will not decide this case in favor of petitioner because it is quite clear that respondent falls within the exemption granted in Sec. 6 which states: "The provisions of this Act shall not be interpreted as prohibiting the use of bottles as containers for "sisi," "bagoong," "patis," and similar native products."

Petitioner itself alleges that respondent LORENZANA uses the subject 350 ml., 375 ml. and 750 ml. bottles as containers for processed foods and other related products such as patis, toyo, bagoong, vinegar and other food seasonings. Hence, Sec. 6 squarely applies in private respondent's favor. Obviously, the contention of TWIN ACE that the exemption refers only to criminal liability but not to civil liability is without merit. It is inconceivable that an act specifically allowed by law, in other words legal, can be the subject of injunctive relief and damages. Besides, the interpretation offered by petitioner defeats the very purpose for which the exemption was provided.

Republic Act No. 623, "An Act to Regulate the Use of Duly Stamped or Marked Bottles, Boxes, Casks, Kegs, Barrels and Other Similar Containers," as amended by RA No. 5700,viii[8] was meant to protect the intellectual property rights of the registrants of the containers and prevent unfair trade practices and fraud on the public.ix[9] However, the exemption granted in Sec. 6 thereof was deemed extremely necessary to provide assistance and incentive to the backyard, cottage and small-scale manufacturers of indigenous native products such as patis, sisi and toyo who do not have the capital to buy brand new bottles as containers nor afford to pass the added cost to the majority of poor Filipinos who use the products as their daily condiments or viands.x[10] If the contention of petitioner is accepted, i.e., to construe the exemption as to apply to criminal liability only but not to civil liability, the very purpose for which the exemption was granted will be defeated. None of the small-scale manufacturers of the indigenous native products protected would possibly wish to use the registered bottles if they are vulnerable to civil suits. The effect is a virtual elimination of the clear and unqualified exemption embodied in Sec. 6. It is worthy to note that House Bill No. 20585xi[11] was completely rejected because it sought to expressly and directly eliminate that which petitioner indirectly proposes to do with this petition.

Petitioner cannot seek refuge in Sec. 5xii[12] of RA No. 623 to support its claim of continuing ownership over the subject bottles. In United States v. Manuelxiii[13] we held that since the purchaser at his discretion could either retain or return the bottles, the transaction must be regarded as a sale of the bottles when the purchaser actually exercised that discretion and decided not to return them to the vendor. We also take judicial notice of the standard practice today that the cost of the container is included in the selling price of the productxiv[14] such that the buyer of liquor or any such product from any store is not required to return the bottle nor is the liquor placed in a plastic container that possession of the bottle is retained by the store.xv[15]

WHEREFORE, the questioned decision and resolution of the Court of Appeals are AFFIRMED. Costs against petitioner.

SO ORDERED.

DEL MONTE CORPORATION-USA, PAUL E. DERBY, JR., DANIEL COLLINS and LUIS HIDALGO, petitioners, vs. COURT OF APPEALS, JUDGE BIENVENIDO L. REYES in his capacity as Presiding Judge, RTC-Br. 74, Malabon, Metro Manila, MONTEBUENO MARKETING, INC., LIONG LIONG C. SY and SABROSA FOODS, INC., respondents.

D E C I S I O N

BELLOSILLO, J.:

This Petition for Review on certiorari assails the 17 July 1998 Decisionxvi[1] of the Court of Appeals affirming the 11 November 1997 Orderxvii[2] of the Regional Trial Court which denied petitioners Motion to Suspend Proceedings in Civil Case No. 2637-MN. It also questions the appellate courts Resolutionxviii[3] of 30 October 1998 which denied petitioners Motion for Reconsideration.

On 1 July 1994, in a Distributorship Agreement, petitioner Del Monte Corporation-USA (DMC-USA) appointed private respondent Montebueno Marketing, Inc. (MMI) as the sole and exclusive distributor of its Del Monte products in the Philippines for a period of five (5) years, renewable for two (2) consecutive five (5) year periods with the consent of the parties. The Agreement provided, among others, for an arbitration clause which states -

12. GOVERNING LAW AND ARBITRATIONxix[4]

This Agreement shall be governed by the laws of the State of California and/or, if applicable, the United States of America. All disputes arising out of or relating to this Agreement or the parties relationship, including the termination thereof, shall be resolved by arbitration in the City of San Francisco, State of California, under the Rules of the American Arbitration Association. The arbitration panel shall consist of three members, one of whom shall be selected by DMC-USA, one of whom shall be selected by MMI, and third of whom shall be selected by the other two members and shall have relevant experience in the industry x x x x

In October 1994 the appointment of private respondent MMI as the sole and exclusive distributor of Del Monte products in the Philippines was published in several newspapers in the country. Immediately after its appointment, private respondent MMI appointed Sabrosa Foods, Inc. (SFI), with the approval of petitioner DMC-USA, as MMIs marketing arm to concentrate on its marketing and selling function as well as to manage its critical relationship with the trade.

On 3 October 1996 private respondents MMI, SFI and MMIs Managing Director Liong Liong C. Sy (LILY SY) filed a Complaintxx[5] against petitioners DMC-USA, Paul E. Derby, Jr.,xxi[6] Daniel Collinsxxii[7] and Luis Hidalgo,xxiii[8] and Dewey Ltd.xxiv[9] before the Regional Trial Court of Malabon, Metro Manila. Private respondents predicated their complaint on the alleged violations by petitioners of Arts. 20,xxv[10] 21xxvi[11] and 23xxvii[12] of the Civil Code. According to private respondents, DMC-USA products continued to be brought into the country by parallel importers despite the appointment of private respondent MMI as the sole and exclusive distributor of Del Monte products thereby causing them great embarrassment and substantial damage. They alleged that the products brought into the country by these importers were aged, damaged, fake or counterfeit, so that in March 1995 they had to cause, after prior consultation with Antonio Ongpin, Market Director for Special Markets of Del Monte Philippines, Inc., the publication of a "warning to the trade" paid advertisement in leading newspapers. Petitioners DMC-USA and Paul E. Derby, Jr., apparently upset with the publication, instructed private respondent MMI to stop coordinating with Antonio Ongpin and to communicate directly instead with petitioner DMC-USA through Paul E. Derby, Jr.

Private respondents further averred that petitioners knowingly and surreptitiously continued to deal with the former in bad faith by involving disinterested third parties and by proposing solutions which were entirely out of their control. Private respondents claimed that they had exhausted all possible avenues for an amicable resolution and settlement of their grievances; that as a result of the fraud, bad faith, malice and wanton attitude of petitioners, they should be held responsible for all the actual expenses incurred by private respondents in the delayed shipment of orders which resulted in the extra handling thereof, the actual expenses and cost of money for the unused Letters of Credit (LCs) and the substantial opportunity losses due to created out-of-stock situations and unauthorized shipments of Del Monte-USA products to the Philippine Duty Free Area and Economic Zone; that the bad faith, fraudulent acts and willful negligence of petitioners, motivated by their determination to squeeze private respondents out of the outstanding and ongoing Distributorship Agreement in favor of another party, had placed private respondent LILY SY on tenterhooks since then; and, that the shrewd and subtle manner with which petitioners concocted imaginary violations by private respondent MMI of the Distributorship Agreement in order to justify the untimely termination thereof was a subterfuge. For the foregoing, private respondents claimed, among other reliefs, the payment of actual damages, exemplary damages, attorneys fees and litigation expenses.

On 21 October 1996 petitioners filed a Motion to Suspend Proceedingsxxviii[13] invoking the arbitration clause in their Agreement with private respondents.

In a Resolutionxxix[14] dated 23 December 1996 the trial court deferred consideration of petitioners Motion to Suspend Proceedings as the grounds alleged therein did not constitute the suspension of the proceedings

considering that the action was for damages with prayer for the issuance of Writ of Preliminary Attachment and not on the Distributorship Agreement.

On 15 January 1997 petitioners filed a Motion for Reconsideration to which private respondents filed their Comment/Opposition. On 31 January 1997 petitioners filed their Reply. Subsequently, private respondents filed an Urgent Motion for Leave to Admit Supplemental Pleading dated 2 April 1997. This Motion was admitted, over petitioners opposition, in an Order of the trial court dated 27 June 1997.

As a result of the admission of the Supplemental Complaint, petitioners filed on 22 July 1997 a Manifestation adopting their Motion to Suspend Proceedings of 17 October 1996 and Motion for Reconsideration of 14 January 1997.

On 11 November 1997 the Motion to Suspend Proceedings was denied by the trial court on the ground that it "will not serve the ends of justice and to allow said suspension will only delay the determination of the issues, frustrate the quest of the parties for a judicious determination of their respective claims, and/or deprive and delay their rights to seek redress."xxx[15]

On appeal, the Court of Appeals affirmed the decision of the trial court. It held that the alleged damaging acts recited in the Complaint, constituting petitioners causes of action, required the interpretation of Art. 21 of the Civil Codexxxi[16] and that in determining whether petitioners had violated it "would require a full blown trial" making arbitration "out of the question."xxxii[17] Petitioners Motion for Reconsideration of the affirmation was denied. Hence, this Petition for Review.

The crux of the controversy boils down to whether the dispute between the parties warrants an order compelling them to submit to arbitration.

Petitioners contend that the subject matter of private respondents causes of action arises out of or relates to the Agreement between petitioners and private respondents. Thus, considering that the arbitration clause of the Agreement provides that all disputes arising out of or relating to the Agreement or the parties relationship, including the termination thereof, shall be resolved by arbitration, they insist on the suspension of the proceedings in Civil Case No. 2637-MN as mandated by Sec. 7 of RA 876xxxiii[18] -

Sec. 7. Stay of Civil Action. If any suit or proceeding be brought upon an issue arising out of an agreement providing for arbitration thereof, the court in which such suit or proceeding is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration, shall stay the action or proceeding until an arbitration has been had in accordance with the terms of the agreement. Provided, That the applicant for the stay is not in default in proceeding with such arbitration.

Private respondents claim, on the other hand, that their causes of action are rooted in Arts. 20, 21 and 23 of the Civil Code,xxxiv[19] the determination of which demands a full blown trial, as correctly held by the Court of Appeals. Moreover, they claim that the issues before the trial court were not joined so that the Honorable Judge was not given the opportunity to satisfy himself that the issue involved in the case was referable to arbitration. They submit that, apparently, petitioners filed a motion to suspend proceedings instead of sending a written demand to private respondents to arbitrate because petitioners were not sure whether the case could be a subject of arbitration. They maintain that had petitioners done so and private respondents failed to answer the demand, petitioners could have filed with the trial court their demand for arbitration that would warrant a determination by the judge whether to refer the case to arbitration. Accordingly, private respondents assert that arbitration is out of the question.

Private respondents further contend that the arbitration clause centers more on venue rather than on arbitration. They finally allege that petitioners filed their motion for extension of time to file this petition on the same datexxxv[20] petitioner DMC-USA filed a petition to compel private respondent MMI to arbitrate before the United States District Court in Northern California, docketed as Case No. C-98-4446. They insist that the filing of the petition to compel arbitration in the United States made the petition filed before this Court an alternative remedy and, in a way, an abandonment of the cause they are fighting for here in the Philippines, thus warranting the dismissal of the present petition before this Court.

There is no doubt that arbitration is valid and constitutional in our jurisdiction.xxxvi[21] Even before the enactment of RA 876, this Court has countenanced the settlement of disputes through arbitration. Unless the agreement is such as absolutely to close the doors of the courts against the parties, which agreement would be void, the courts will look with favor upon such amicable arrangement and will only interfere with great reluctance to anticipate or nullify the action of the arbitrator.xxxvii[22] Moreover, as RA 876 expressly authorizes arbitration of domestic disputes, foreign arbitration as a system of settling commercial disputes was likewise recognized when the Philippines adhered to the United Nations "Convention on the Recognition and the Enforcement of Foreign Arbitral Awards of 1958" under the 10 May 1965 Resolution No. 71 of the Philippine Senate, giving reciprocal recognition and allowing enforcement of international arbitration agreements between parties of different nationalities within a contracting state.xxxviii[23]

A careful examination of the instant case shows that the arbitration clause in the Distributorship Agreement between petitioner DMC-USA and private respondent MMI is valid and the dispute between the parties is arbitrable. However, this Court must deny the petition.

The Agreement between petitioner DMC-USA and private respondent MMI is a contract. The provision to submit to arbitration any dispute arising therefrom and the relationship of the parties is part of that contract and is itself a contract. As a rule, contracts are respected as the law between the contracting parties and produce effect as between them, their assigns and heirs.xxxix[24] Clearly, only parties to the Agreement, i.e., petitioners DMC-USA and its Managing Director for Export Sales Paul E. Derby, Jr., and private respondents MMI and its Managing Director LILY SY are bound by the Agreement and its arbitration clause as they are the only signatories thereto. Petitioners Daniel Collins and Luis Hidalgo, and private respondent SFI, not parties to the Agreement and cannot even be considered assigns or heirs of the parties, are not bound by the Agreement and the arbitration clause therein. Consequently, referral to arbitration in the State of California pursuant to the arbitration clause and the suspension of the proceedings in Civil Case No. 2637-MN pending the return of the arbitral award could be called forxl[25] but only as to petitioners DMC-USA and Paul E. Derby, Jr., and private respondents MMI and LILY SY, and not as to the other parties in this case, in accordance with the recent case of Heirs of Augusto L. Salas, Jr. v. Laperal Realty Corporation,xli[26] which superseded that of Toyota Motor Philippines Corp. v. Court of Appeals.xlii[27]

In Toyota, the Court ruled that "[t]he contention that the arbitration clause has become dysfunctional because of the presence of third parties is untenable ratiocinating that "[c]ontracts are respected as the law between the contracting parties"xliii[28] and that "[a]s such, the parties are thereby expected to abide with good faith in their contractual commitments."xliv[29] However, in Salas, Jr., only parties to the Agreement, their assigns or heirs have the right to arbitrate or could be compelled to arbitrate. The Court went further by declaring that in recognizing the right of the contracting parties to arbitrate or to compel arbitration, the splitting of the proceedings to arbitration as to some of the parties on one hand and trial for the others on the other hand, or the suspension of trial pending arbitration between some of the parties, should not be allowed as it would, in effect, result in multiplicity of suits, duplicitous procedure and unnecessary delay.xlv[30]

The object of arbitration is to allow the expeditious determination of a dispute.xlvi[31] Clearly, the issue before us could not be speedily and efficiently resolved in its entirety if we allow simultaneous arbitration proceedings and trial, or suspension of trial pending arbitration. Accordingly, the interest of justice would only be served if the trial court hears and adjudicates the case in a single and complete proceeding.xlvii[32]

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals affirming the Order of the Regional Trial Court of Malabon, Metro Manila, in Civil Case No. 2637-MN, which denied petitioners Motion to Suspend Proceedings, is AFFIRMED. The Regional Trial Court concerned is directed to proceed with the hearing of Civil Case No. 2637-MN with dispatch. No costs.

SO ORDERED.

PRO LINE SPORTS CENTER, INC., and QUESTOR CORPORATION, petitioners, vs. COURT OF APPEALS, UNIVERSAL ATHLETICS INDUSTRIAL PRODUCTS, INC., and MONICO SEHWANI, respondents.

D E C I S I O N

BELLOSILLO, J.:

This case calls for a revisit of the demesne of malicious prosecution and its implications.

This petition stemmed from a criminal case for unfair competition filed by Pro Line Sports Center, Inc. (PRO LINE) and Questor Corporation (QUESTOR) against Monico Sehwani, president of Universal Athletics and Industrial Products, Inc. (UNIVERSAL). In that case Sehwani was exonerated. As a retaliatory move, Sehwani and UNIVERSAL filed a civil case for damages against PRO LINE and QUESTOR for what they perceived as the wrongful and malicious filing of the criminal action for unfair competition against them.

But first, the dramatis personae. By virtue of its merger with A.G. Spalding Bros., Inc., on 31 December 1971,xlviii[1] petitioner QUESTOR, a US-based corporation, became the owner of the trademark "Spalding" appearing in sporting goods, implements and apparatuses. Co-petitioner PRO LINE, a domestic corporation, is the exclusive distributor of "Spalding" sports products in the Philippines.xlix[2] Respondent UNIVERSAL, on the other hand, is a domestic corporation engaged in the sale and manufacture of sporting goods while co-respondent Monico Sehwani is impleaded in his capacity as president of the corporation.

On 11 February 1981, or sixteen years ago, Edwin Dy Buncio, General Manager of PRO LINE, sent a letter-complaint to the National Bureau of Investigation (NBI) regarding the alleged manufacture of fake "Spalding" balls by UNIVERSAL. On 23 February 1981 the NBI applied for a search warrant with the then Court of First Instance, Br. 23, Pasig, Rizal, then presided over by Judge Rizalina Bonifacio Vera. On that same day Judge Vera issued Search Warrant No. 2-81 authorizing the search of the premises of UNIVERSAL in Pasig. In the course of the search, some 1,200 basketballs and volleyballs marked "Spalding" were seized and confiscated by the NBI. Three (3) days later, on motion of the NBI, Judge Vera issued another order, this time to seal and padlock the molds, rubber mixer, boiler and other instruments at UNIVERSAL's factory. All these were used to manufacture the fake "Spalding" products, but were simply too heavy to be removed from the premises and brought under the actual physical custody of the court. However, on 28 April 1981, on motion of UNIVERSAL, Judge Vera ordered the lifting of the seal and padlock on the machineries, prompting the People of the Philippines, the NBI, together with PRO LINE and QUESTOR, to file with the Court of Appeals a joint petition for certiorari and prohibition with preliminary injunction (CA G.R. No. 12413) seeking the annulment of the order of 28 April 1981. On 18 May 1981, the appellate court issued a temporary restraining order enjoining Judge Vera from implementing her latest order.

Meanwhile, on 26 February 1981, PRO LINE and QUESTOR filed a criminal complaint for unfair competition against respondent Monico Sehwani together with Robert, Kisnu, Arjan and Sawtri, all surnamed Sehwani, and Arcadio del los Reyes before the Provincial Fiscal of Rizal (I. S. No. 81-2040). The complaint was dropped on 24 June 1981 for the reason that it was doubtful whether QUESTOR had indeed acquired the registration rights over the mark "Spalding" from A. G. Spalding Bros., Inc., and complainants failed to adduce an actual receipt for the sale of "Spalding" balls by UNIVERSAL.l[3]

On 9 July 1981 a petition for review seeking reversal of the dismissal of the complaint was filed with the Ministry of Justice. While this was pending, the Court of Appeals rendered judgment on 4 August 1981 in CA G.R. No. 12413 affirming the order of Judge Vera which lifted the seal and padlock on the machineries of UNIVERSAL. The People, NBI, PRO LINE and QUESTOR challenged the decision of the appellate court before this Court in G.R. No. 57814. On 31 August 1981 we issued a temporary restraining order against the Court of Appeals vis-a-vis the aforesaid decision.

In connection with the criminal complaint for unfair competition, the Minister of Justice issued on 10 September 1981 a Resolution overturning the earlier dismissal of the complaint and ordered the Provincial Fiscal of Rizal to file an Information for unfair competition against Monico Sehwani. The Information was accordingly filed on 29 December 1981 with then Court of First Instance of Rizal, docketed as Crim. Case No. 45284, and raffled to Br. 21 presided over by Judge Gregorio Pineda.

Sehwani pleaded not guilty to the charge. But, while he admitted to having manufactured "Spalding" basketballs and volleyballs, he nevertheless stressed that this was only for the purpose of complying with the requirement of trademark registration with the Philippine Patent Office. He cited Chapter 1, Rule 43, of the Rules of Practice on Trademark Cases, which requires that the mark applied for be used on applicant's goods for at least sixty (60) days prior to the filing of the trademark application and that the applicant must show substantial investment in the use of the mark. He also disclosed that UNIVERSAL applied for registration with the Patent Office on 20 February 1981.

After the prosecution rested its case, Sehwani filed a demurrer to evidence arguing that the act of selling the manufactured goods was an essential and constitutive element of the crime of unfair competition under Art. 189 of the Revised Penal Code, and the prosecution was not able to prove that he sold the products. In its Order of 12 January 1981 the trial court granted the demurrer and dismissed the charge against Sehwani.

PRO LINE and QUESTOR impugned before us in G.R. No. 63055 the dismissal of the criminal case. In our Resolution of 2 March 1983 we consolidated G.R. No. 63055 with G.R. No. 57814 earlier filed. On 20 April 1983 we dismissed the petition in G.R. No. 63055 finding that the dismissal by the trial court of Crim. Case No. 45284 was based on the merits of the case which amounted to an acquittal of Sehwani. Considering that the issue raised in G.R. No. 58714 had already been rendered moot and academic by the dismissal of Crim. Case No. 45284 and the fact that the petition in G.R. No. 63055 seeking a review of such dismissal had also been denied, the Court likewise dismissed the petition in G.R. No. 58714. The dismissal became final and executory with the entry of judgment made on 10 August 1983.

Thereafter, UNIVERSAL and Sehwani filed a civil case for damages with the Regional Trial Court of Pasig li[4] charging that PRO LINE and QUESTOR maliciously and without legal basis committed the following acts to their damage and prejudice: (a) procuring the issuance by the Pasig trial court of Search Warrant No. 2-81 authorizing the NBI to raid the premises of UNIVERSAL; (b) procuring an order from the same court authorizing the sealing and padlocking of UNIVERSAL's machineries and equipment resulting in the paralyzation and virtual closure of its operations; (c) securing a temporary restraining order from the Court of Appeals to prevent the implementation of the trial court's order of 28 April 1981 which authorized the lifting of the seal and padlock on the subject machineries and equipment to allow UNIVERSAL to resume operations; (d) securing a temporary restraining order from the High Tribunal against the Court of Appeals and charging the latter with grave abuse of discretion for holding that the order of 28 April 1981 was judiciously issued, thus prolonging the continued closure of UNIVERSAL's business; (e) initiating the criminal prosecution of Monico Sehwani for unfair competition under Art. 189 of the Penal Code; and, (g) appealing the order of acquittal in Crim. Case No. 45284 directly to the Supreme Court with no other purpose than to delay the proceedings of the case and prolong the wrongful invasion of UNIVERSAL's rights and interests.

Defendants PRO LINE and QUESTOR denied all the allegations in the complaint and filed a counterclaim for damages based mainly on the unauthorized and illegal manufacture by UNIVERSAL of athletic balls bearing the trademark "Spalding."

The trial court granted the claim of UNIVERSAL declaring that the series of acts complained of were "instituted with improper, malicious, capricious motives and without sufficient justification." It ordered PRO LINE and QUESTOR jointly and severally to pay UNIVERSAL and Sehwani P676,000.00 as actual and compensatory damages, P250,000.00 as moral damages, P250,000.00 as exemplary damages.lii[5] and P50,000.00 as attorney's fees. The trial court at the same time dismissed the counterclaim of PRO LINE and QUESTOR.

The Court of Appeals affirmed the decision of the lower court but reduced the amount of moral damages to P150,000.00 and exemplary damages to P100,000.00.

Two (2) issues are raised before us: (a) whether private respondents Sehwani and UNIVERSAL are entitled to recover damages for the alleged wrongful recourse to court proceedings by petitioners PRO LINE and QUESTOR; and, (b) whether petitioners' counterclaim should be sustained.

PRO LINE and QUESTOR cannot be adjudged liable for damages for the alleged unfounded suit. The complainants were unable to prove two (2) essential elements of the crime of malicious prosecution, namely, absence of probable cause and legal malice on the part of petitioners.

UNIVERSAL failed to show that the filing of Crim. Case No. 45284 was bereft of probable cause. Probable cause is the existence of such facts and circumstances as would excite the belief in a reasonable mind, acting on the facts within the knowledge of the prosecutor, that the person charged was guilty of the crime for which he was prosecuted.liii[6] In the case before us, then Minister of Justice Ricardo C. Puno found probable cause when he reversed the Provincial Fiscal who initially dismissed the complaint and directed him instead to file the corresponding Information for unfair competition against private respondents herein.liv[7] The relevant portions of the directive are quoted hereunder:

The intent on the part of Universal Sports to deceive the public and to defraud a competitor by the use of the trademark "Spalding" on basketballs and volleyballs seems apparent. As President of Universal and as Vice President of the Association of Sporting Goods Manufacturers, Monico Sehwani should have known of the prior registration of the trademark "Spalding" on basketballs and volleyballs when he filed the application for registration of the same trademark on February 20, 1981, in behalf of Universal, with the Philippine Patent Office. He was even notified by the Patent Office through counsel on March 9, 1981, that "Spalding" was duly registered with said office in connection with sporting goods, implements and apparatus by A.G. Spalding & Bros., Inc. of the U.S.A.

That Universal has been selling these allegedly misbranded "Spalding" balls has been controverted by the firms allegedly selling the goods. However, there is sufficient proof that Universal manufactured balls with the trademark "Spalding" as admitted by Monico himself and as shown by the goods confiscated by virtue of the search warrant.

Jurisprudence abounds to the effect that either a seller or a manufacturer of imitation goods may be liable for violation of Section 29 of Rep. Act No. 166 (Alexander v. Sy Bok, 97 Phil. 57). This is substantially the same rule obtaining in statutes and judicial construction since 1903 when Act No. 666 was approved (Finlay Fleming vs. Ong Tan Chuan, 26 Phil. 579) x x x xlv[8]

The existence of probable cause for unfair competition by UNIVERSAL is derivable from the facts and circumstances of the case. The affidavit of Graciano Lacanaria, a former employee of UNIVERSAL, attesting to the illegal sale and manufacture of "Spalding" balls and seized "Spalding" products and instruments from UNIVERSAL's factory was sufficient prima facie evidence to warrant the prosecution of private respondents. That a corporation other than the certified owner of the trademark is engaged in the unauthorized manufacture of products bearing the same trademark engenders a reasonable belief that a criminal offense for unfair competition is being committed.

Petitioners PRO LINE and QUESTOR could not have been moved by legal malice in instituting the criminal complaint for unfair competition which led to the filing of the Information against Sehwani. Malice is an inexcusable intent to injure, oppress, vex, annoy or humiliate. We cannot conclude that petitioners were impelled solely by a desire to inflict needless and unjustified vexation and injury on UNIVERSAL's business interests. A resort to judicial processes is not per se evidence of ill will upon which a claim for damages may be based. A contrary rule would discourage peaceful recourse to the courts of justice and induce resort to methods less than legal, and perhaps even violent.lvi[9]

We are more disposed, under the circumstances, to hold that PRO LINE as the authorized agent of QUESTOR exercised sound judgment in taking the necessary legal steps to safeguard the interest of its principal with respect to the trademark in question. If the process resulted in the closure and padlocking of UNIVERSAL's factory and the cessation of its business operations, these were unavoidable consequences of petitioners' valid and lawful exercise of their right. One who makes use of his own legal right does no injury. Qui jure suo utitur nullum damnum facit. If damage results from a person's exercising his legal rights, it is damnum absque injuria.lvii[10]

Admittedly, UNIVERSAL incurred expenses and other costs in defending itself from the accusation. But, as Chief Justice Fernando would put it, "the expenses and annoyance of litigation form part of the social burden of living in a society which seeks to attain social control through law."lviii[11] Thus we see no cogent reason for the award of damages, exorbitant as it may seem, in favor of UNIVERSAL. To do so would be to arbitrarily impose a penalty on petitioners' right to litigate.

The criminal complaint for unfair competition, including all other legal remedies incidental thereto, was initiated by petitioners in their honest belief that the charge was meritorious. For indeed it was. The law brands business practices which are unfair, unjust or deceitful not only as contrary to public policy but also as inimical to private interests. In the instant case, we find quite aberrant Sehwani's reason for the manufacture of 1,200 "Spalding" balls, i.e., the pending application for trademark registration of UNIVERSAL with the Patent Office, when viewed in the light of his admission that the application for registration with the Patent Office was filed on 20 February 1981, a good nine (9) days after the goods were confiscated by the NBI. This apparently was an afterthought but nonetheless too late a remedy. Be that as it may, what is essential for registrability is proof of actual use in commerce for at least sixty (60) days and not the capability to manufacture and distribute samples of the product to clients.

Arguably, respondents' act may constitute unfair competition even if the element of selling has not been proved. To hold that the act of selling is an indispensable element of the crime of unfair competition is illogical because if the

law punishes the seller of imitation goods, then with more reason should the law penalize the manufacturer. In U. S. v. Manuel,lix[12] the Court ruled that the test of unfair competition is whether certain goods have been intentionally clothed with an appearance which is likely to deceive the ordinary purchasers exercising ordinary care. In this case, it was observed by the Minister of Justice that the manufacture of the "Spalding" balls was obviously done to deceive would-be buyers. The projected sale would have pushed through were it not for the timely seizure of the goods made by the NBI. That there was intent to sell or distribute the product to the public cannot also be disputed given the number of goods manufactured and the nature of the machinery and other equipment installed in the factory.

We nonetheless affirm the dismissal of petitioners' counterclaim for damages. A counterclaim partakes of the nature of a complaint and/or a cause of action against the plaintiffs.lx[13] It is in itself a distinct and independent cause of action, so that when properly stated as such, the defendant becomes, in respect to the matter stated by him, an actor, and there are two simultaneous actions pending between the same parties, where each is at the same time both a plaintiff and defendant.lxi[14] A counterclaim stands on the same footing and is to be tested by the same rules, as if it were an independent action.lxii[15]

Petitioners' counterclaim for damages based on the illegal and unauthorized manufacture of "Spalding" balls certainly constitutes an independent cause of action which can be the subject of a separate complaint for damages against UNIVERSAL. However, this separate civil action cannot anymore be pursued as it is already barred by res judicata, the judgment in the criminal case (against Sehwani) involving both the criminal and civil aspects of the case for unfair competition.lxiii[16] To recall, petitioners PRO LINE and QUESTOR, upon whose initiative the criminal action for unfair competition against respondent UNIVERSAL was filed, did not institute a separate civil action for damages nor reserve their right to do so. Thus the civil aspect for damages was deemed instituted in the criminal case. No better manifestation of the intent of petitioners to recover damages in the criminal case can be expressed than their active participation in the prosecution of the civil aspect of the criminal case through the intervention of their private prosecutor. Obviously, such intervention could only be for the purpose of recovering damages or indemnity because the offended party is not entitled to represent the People of the Philippines in the prosecution of a public offense.lxiv[17] Section 16, Rule 110, of the Rules of Court requires that the intervention of the offended party in the criminal action can be made only if he has not waived the civil action nor expressly reserved his right to institute it separately.lxv[18] In an acquittal on the ground that an essential element of the crime was not proved, it is fundamental that the accused cannot be held criminally nor civilly liable for the offense. Although Art. 28 of the New Civil Codelxvi[19] authorizes the filing of a civil action separate and distinct from the criminal proceedings, the right of petitioners to institute the same is not unfettered. Civil liability arising from the crime is deemed instituted and determined in the criminal proceedings where the offended party did not waive nor reserve his right to institute it separately.lxvii[20] This is why we now hold that the final judgment rendered therein constitutes a bar to the present counterclaim for damages based upon the same cause.lxviii[21]

WHEREFORE, the petition is partly GRANTED. The decision of respondent Court of Appeals is MODIFIED by deleting the award in favor of private respondents UNIVERSAL and Monico Sehwani of actual, moral and exemplary damages as well as attorney's fees.

The dismissal of petitioners' counterclaim is AFFIRMED. No pronouncement as to costs.

SO ORDERED.

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

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

Sycip, Salazar, Luna & Associates plaintiff-appellants.

Juan R. David for defendants-appellants.

BARREDO, J.:

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

Upon the foregoing, judgment is hereby rendered:

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

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

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

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

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

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

RE G. R. NO L-27425

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

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

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

In 1963, plaintiff Converse and defendant Jacinto entered into protracted negotiations for a licensing agreement whereby defendant Jacinto would be the exclusive license of plaintiff Converse in the Philippines for the manufacture and sale of "Chuck Taylor" shoes but with the right to continue manufacturing and selling its own products. One of the points taken up by parties was the design and general appearance of "Custombuilt" shoes. Plaintiff Converse insisted on the condition that defendant Jacinto change the design of "Custombuilt" shoes so as to give "Custombuilt" a general appearance different from "Chuck Taylor." After an extensive discussion, defendant Jacinto gave into to the demand of plaintiff Converse; it submitted to plaintiff Converse for the latter's approval a sketch of a new design for "Custombuilt". This design was accepted by plaintiff Converse. Defendant Jacinto Rubber then proposed that the licensing agreement be made in favor of its affiliates, defendant Ace Rubber. On January 22, 1965, defendant Ace Rubber signed the licensing agreement while defendant Jacinto Rubber and Arturo Jacinto signed the guarantee agreement to secure the performance by defendant Ace Rubber of its obligations under the licensing agreement. Both documents, it should be noted, contained the following covenants:

9. (a) Ace acknowledges that Converse is the exclusive owner of the said Converse - names and design, as used in connection with the manufacture, advertising and sale of footwear: that Converse has the exclusive right to use said Converse names in such connection throughout the world. subject to the terms of this Agreement; and that neither Ace nor any person acting by, through or under Ace will, at anytime, question or dispute said ownership or the exclusive rights of Converse with respect thereto

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

of litigation where necessary or advisable. Any award for damages which Ace may recover in such litigation shall accrue to the benefit of, and shall be owned and retained by Ace.

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

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

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

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

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

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

for infringement of trademark. The basis of an action for unfair competition is confusing and misleading similarity in general appearance, not similarity of trademarks.

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

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

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

Defendants-appellants have assigned the following alleged errors:

I

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

II

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

III

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

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

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

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

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

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

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

SEC. 29. Unfair competition, rights and remedies. - A person who has Identified in the mind of the public the goods he manufactures or deals in, his business or services from those of others, whether or not a mark or trade name is employed, has a property right in the goodwill of the said goods, business or services so Identified, which will be protected in the same manner as other property rights. Such a person shall have the remedies provided in section twenty-three, Chapter V hereof.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Western Equipment and Supply Co. v. Reyes, 51 Phil. 115, made clear that the disability of a foreign corporation from suing in the Philippines is limited to suits "to enforce any legal or contract rights arising from, or growing out, of any business which it has transacted in thePhilippine Islands." ... On the other hand, where the purpose of a suit is "to protect its reputation, its corporate name, its goodwill, whenever that reputation, corporate name or goodwill have, through the natural development of its trade, established themselves," an

unlicensed foreign corporation may sue in the Philippines (at page 128). So interpreted by the Supreme Court, it is clear that Section 69 of the Corporation Law does not disqualify plaintiff-appellee Converse Rubber, which does not have a branch office in any part of the Philippines and is not "doing business" in the Philippines (Record on Appeal, pp. 190-191), from filing and prosecuting this action for unfair competition.

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

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

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

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

Now, Section 23 reads:

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

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

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

We are of the considered opinion that the trial court was overly liberal to the defendants-appellants. The P160,000.00 awarded by His Honor as compensatory damages for the years 1962 to 1965 are utterly inadequate. Even the 5% of the gross sales of "Custombuilt" shoes from 1966 until its injunction is fully obeyed are short of what the law contemplates in cases of this nature. We hold that considering that the gross sales of defendants-appellants increased to P16,474,103.76, (as admitted in defendants-appellants' own brief, p. 2), only 75% of which, plaintiffs-appellants generously assert corresponded to Custombuilt sales, it would be but fair and just to award plaintiffs-appellants 15% of such 75% as compensatory damages from 1962 up to the finality of this decision. In other words, 75% of P16,474,103.76 would be P12,355,577.82 and 15% of this last amount would be P1,853,336.67, which should be awarded to plaintiffs-appellants for the whole period already stated, without any interest, without prejudice to plaintiffs-appellants seeking by motion in the trial court in this same case any further damage should defendants-appellants continue to disobey the injunction herein affirmed after the finality of this decision.

We feel that this award is reasonable. It is not farfetched to assume that the net profit of the imitator which, after all is what the law contemplates as basis for damages if it were only actually ascertainable, in the manufacture of rubber shoes should not be less than 20 to 25% of the gross sales. Regrettably, neither of the parties presented positive evidence in this respect, and the Court is left to use as basis its own projection in the light of usual business practices. We could, to be sure, return this case to the lower court for further evidence on this point, but, inasmuch as this litigation started way back about fourteen years ago and it would take more years before any final disposition is made hereof should take the course, We are convinced that the above straight computation, without any penalty of interest, is in accordance with the spirit of the law governing this case.

In re G. R. No. L-30505

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

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

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

But after mature deliberation, and in the light of Cia General de Tabacos de Filipinas vs. Alhambra Cigar & Cigarette Manufacturing Co., 33 Phil. 503, cited by appellant's counsel in his brief, We are convinced that the trial court in the case at bar had jurisdiction to entertain and decide the motion for contempt in question. Indeed, the enforcement of either final or preliminary-made-final injunctions in decisions of trial courts are immediately executory. The reason for this rule lies in the nature itself of the remedy. If a preliminary injunction, especially one issued after a hearing is

enforceable immediately to protect the rights of the one asking for it, independently of the pendency of the main action, there is no reason why when that preliminary injunction is made final after further and fuller hearing the merits of the plaintiff's cause of action, its enforceability should lesser, force. The same must be true with stronger basis in the case of a permanent injunction issued as part ot the judgment. The aim is to stop the act complained of immediately because the court has found it necessary to serve the interests of justice involved in the litigation already resolve by it after hearing and reception of the evidence of both parties.

As a matter ot fact, it is quite obvious that an action for unfair competition with prayer for an injunction partakes of the nature of an action for injunction within the contemplation of Section 4 of Rule 39, and this cited provision states explicitly that "unless otherwise ordered by the court, a judgment in an action for injunction - shall not be stayed after its rendition and before an appeal is taken or during the pendency of an appeal." In the above-mentioned case of Cia. General de Tabacos, the Court held:

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

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

xxx xxx xxx

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

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

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

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

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

Considering the substantial Identity of the responsible corporate officers of the defendant Jacinto Rubber and the Philippine Marketing and Management Corporation, the huge volume of alleged purchases of "Custombuilt" shoes by the Philippine Marketing and Management Corporation compared to its paid in capital, and the cessation of the sales operations of defendant Jacinto Rubber after the organization of the former, the Court is convinced beyond reasonable doubt that the Philippine Marketing and Management Corporation is the selling arm or branch of defendant Jacinto Rubber and that both corporations are controlled by substantially the same persons, the Jacinto family. The contention of the Philippine Marketing and Management Corporation that it sold the 12 pairs of "Custombuilt" shoes on December 14, 1966 without knowledge of the issuance of the injunction is belied by its conduct of continuing the sale and the advertisement of said shoes even during the pendency of the contempt proceedings. This conduct clearly reveals

the wilfulness and contumacy with which it had disregarded the injunction. Besides, it is inherently improbable that defendant Jacinto Rubber and Atty. Ramon B. Tupas did not inform the Philippine Marketing and Management Corporation of the issuance of the injunction, a fact which undoubtedly has a material adverse effect on its business.

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

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

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

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

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

Combining the three orders, it can be seen that the result is that the trial court found from the evidence that its injunction had been violated, but it erroneously considered itself devoid of authority to impose the appropriate penalty, for want of jurisdiction. Upon these premises, We hold that the factual findings of the trial court in its third order may well stand as basis tor the imposition of the proper penalty.

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

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

Concepcion Jr., Guerrero and De Castro, JJ., concur.

G.R. No. 103543 July 5, 1993

ASIA BREWERY, INC., petitioner, vs.THE HON. COURT OF APPEALS and SAN MIGUEL CORPORATION, respondents.

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

Roco, Bunag, Kapunan Law Office for private respondent.

GRIÑO-AQUINO, J.:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(3) Where there is grave abuse of discretion;

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

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

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

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

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

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

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

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

Infringement of trademark is a form of unfair competition (Clarke vs. Manila Candy Co., 36 Phil. 100, 106). Sec. 22 of Republic Act No. 166, otherwise known as the Trademark Law, defines what constitutes infringement:

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

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

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

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

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

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

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

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

Does ABI's BEER PALE PILSEN label or "design" infringe upon SMC's SAN MIGUEL PALE PILSEN WITH RECTANGULAR MALT AND HOPS DESIGN? The answer is "No."

Infringement is determined by the "test of dominancy" rather than by differences or variations in the details of one trademark and of another. The rule was formulated in Co Tiong Sa vs. Director of Patents, 95 Phil. 1, 4 (1954); reiterated in Lim Hoa vs. Director of Patents, 100 Phil. 214, 216-217 (1956), thus:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

"BEER NA BEER!"

Whereas SMC's bottle carries no slogan.

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

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

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

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

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

Sec. 4. . . .. The owner of trade-mark, trade-name or service-mark used to distinguish his goods, business or services from the goods, business or services of others shall have the right to register the same [on the principal register], unless it:

xxx xxx xxx

(e) Consists of a mark or trade-name which, when applied to or used in connection with the goods, business or services of the applicant is merely descriptive or deceptively misdescriptive of them, or when applied to or used in connection with the goods, business or services of the applicant is primarily geographically descriptive or deceptively misdescriptive of them, or is primarily merely a surname." (Emphasis supplied.)

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

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

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

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

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

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

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

Sec. 29. . . .

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

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

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

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

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

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

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

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

The petitioner's contention that bottle size, shape and color may not be the exclusive property of any one beer manufacturer is well taken. SMC's being the first to use the steinie bottle does not give SMC a vested right to use it

to the exclusion of everyone else. Being of functional or common use, and not the exclusive invention of any one, it is available to all who might need to use it within the industry. Nobody can acquire any exclusive right to market articles supplying simple human needs in containers or wrappers of the general form, size and character commonly and immediately used in marketing such articles (Dy Buncio vs. Tan Tiao Bok, 42 Phil. 190, 194-195.)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Petitioner ABI has neither infringed SMC's trademark nor committed unfair competition with the latter's SAN MIGUEL PALE PILSEN product. While its BEER PALE PILSEN admittedly competes with the latter in the open market, that competition is neither unfair nor fraudulent. Hence, we must deny SMC's prayer to suppress it.

WHEREFORE, finding the petition for review meritorious, the same is hereby granted. The decision and resolution of the Court of Appeals in CA-G.R. CV No. 28104 are hereby set aside and that of the trial court is REINSTATED and AFFIRMED. Costs against the private respondent.

SO ORDERED.

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

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

D E C I S I O N

KAPUNAN, J.:

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

The facts are set forth in the Decision of the Court of Appeals dated July 6, 1999:

x x x on January 28, 1999, Judge Apolinario D. Bruselas, Jr., Presiding Judge of RTC, Branch 93, Quezon City, upon application of the Economic Intelligence and Investigation Bureau (EIIB), issued Search Warrant No. 3324 (99) against Sanly Corporation (Sanly), respondent, for violation of Section 168 of R.A. No. 8293 (unfair competition).

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

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

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

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

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

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

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

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

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

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

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

Meanwhile, on April 20, 1999, Judge Bruselas issued the third assailed order, the dispositive portion of which reads:

WHEREFORE, the foregoing premises considered, the court directs

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

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

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

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

SO ORDERED.lxix[1]

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

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

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

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

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

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

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

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

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

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

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

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

Undisputedly, the seized goods from Sanly are genuine and not mere imitations. This is admitted by petitioners in their application for a search warrant and supporting affidavits, Annexes A to D, inclusive, in their April 27, 1999 Submission of Annexes to this Court. It bears stressing that there is no showing or allegation that Sanly has

presented, sold, or passed off its photographic paper as goods which come from Solid Triangle. There is no attempt on its part to deceive.

Both Sanly and Solid Triangle sell genuine Mitsubishi products. Solid Triangle acquires its goods from Japan on the basis of its exclusive distributorship with Mitsubishi Corporation. While Sanly buys its goods from Hongkong, claiming it is a parallel importer, not an unfair competitor. As defined, a parallel importer is one which imports, distributes, and sells genuine products in the market, independently of an exclusive distributorship or agency agreement with the manufacturer. And, this is precisely what Sanly states as its commercial status.

Records show that Sanly sold its photographic paper purchased from Hongkong without altering its appearance. It is distributed in the same Mitsubishi box with its logo and distinguishing marks as marketed in Japan. The same brown paper with the Mitsubishi seal is wrapped around its products. Copies of the importation documents and the certification on imports issued by the Philippine government recognized Societe Generale d Surveillance (SGS) were appended to the motion to quash search warrant.

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

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

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

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

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

x x x

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

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

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

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

On the contrary, it is the case of People vs. Court of Appeals [216 SCRA 101 (1992)] that governs, where the Supreme Court ruled that with the quashal of the search warrant, the seized goods could not be used as evidence for any purpose, in any proceeding.lxxii[4]

As regards the preliminary attachment, the appellate court found that there was no ground for the issuance of the writ because:

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

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

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

I.

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

II.

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

III.

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

IV.

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

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

The contention has no merit.

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

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

oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched and the persons or things to be seized. [Emphasis supplied.]

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

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

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

Sec. 3. Requisites for issuing search warrant. A search warrant shall not issue but upon probable cause in connection with one specific offense to be determined personally by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched and the things to be seized. [Emphasis supplied.]lxxix[11]

Note that probable cause is defined as:

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

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

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

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

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

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

(a) Provincial or city fiscals and their assistants;(b) Judges of the Municipal Trial Courts and Municipal Circuit Trial Courts;(c) National and Regional state prosecutors; and

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

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

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

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

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

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

Sec. 3. (1) x x x.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Petitioners further expound:

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

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

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

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

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

Similarly premature is whether petitioners failure to return the goods to respondents constituted indirect contempt. The assailed order dated April 20, 1999 was a show cause order. Before any hearing on the order could be held, petitioners promptly filed a petition for certiorari. Clearly, the trial court had yet to rule on the matter, and for this Court now to hold petitioners act contemptuous would preempt said court.

WHEREFORE, the petition is GRANTED IN PART. The Amendatory Decision of the Court of Appeals dated March 31, 2000, as well as its Resolution dated August 4, 2000, is AFFIRMED insofar as it holds that (1) the Quezon City Regional Trial Court, Branch 93, has the power to determine the existence of a crime in quashing a search warrant and, (2) the evidence does not support a finding that the crime of unfair competition has been committed by respondents; and REVERSED insofar as it holds that (1) there are no grounds to warrant the issuance of a writ of preliminary attachment and (2) petitioners are guilty of contempt. The case is remanded for further proceedings to the courts of origin, namely, Branch 91 of RTC, Quezon City for resolution of the application for a writ of attachment, and Branch 93 of the same court for resolution of the application to cite petitioners for contempt.

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

SO ORDERED.

G.R. No. 161823 March 22, 2007

SONY COMPUTER ENTERTAINMENT, INC., Petitioner, vs.SUPERGREEN, INCORPORATED, Respondent.

D E C I S I O N

QUISUMBING, J.:

This petition for review seeks to reverse the Decision1 dated June 30, 2003 of the Court of Appeals in CA-G.R. SP No. 67612 and the Resolution2 dated January 16, 2004, denying reconsideration. The Court of Appeals had denied the petition for certiorari assailing the trial court’s quashal of the search warrant.

The case stemmed from the complaint filed with the National Bureau of Investigation (NBI) by petitioner Sony Computer Entertainment, Inc., against respondent Supergreen, Incorporated. The NBI found that respondent engaged in the reproduction and distribution of counterfeit "PlayStation" game software, consoles and accessories in violation of Sony Computer’s intellectual property rights. Thus, NBI applied with the Regional Trial Court (RTC) of Manila, Branch 1 for warrants to search respondent’s premises in Parañaque City and Cavite. On April 24, 2001, the RTC of Manila issued Search Warrants Nos. 01-1986 to 01-1988 covering respondent’s premises at Trece-Tanza Road, Purok 7, Barangay de Ocampo, Trece Martires City, Cavite, and Search Warrants Nos. 01-1989 to 01-1991 covering respondent’s premises at Room 302, 3rd Floor Chateau de Baie Condominium, 149 Roxas Boulevard corner Airport Road, Parañaque City. The NBI simultaneously served the search warrants on the subject premises and seized a replicating machine and several units of counterfeit "PlayStation" consoles, joy pads, housing, labels and game software.

On June 11, 2001, respondent filed a motion to quash Search Warrants Nos. 01-1986 to 01-1988 and/or release of seized properties on the ground that the search warrant failed to particularly describe the properties to be seized. The trial court denied the motion for lack of merit.

On August 4, 2001, respondent filed another motion to quash, this time, questioning the propriety of the venue. Petitioner opposed the motion on the ground that it violated the omnibus motion rule wherein all objections not included shall be deemed waived. In an Order3 dated October 5, 2001, the trial court affirmed the validity of Search Warrants Nos. 01-1989 to 01-1991 covering respondent’s premises in Parañaque City, but quashed Search Warrants Nos. 01-1986 to 01-1988 covering respondent’s premises in Cavite. The trial court held that lack of jurisdiction is an exception to the omnibus motion rule and may be raised at any stage of the proceedings. The dispositive portion of the order read,

Accordingly, Search Warrants Nos. 01-1986, 01-1987 and 01-1988 are hereby ordered quashed and set aside.

The National Bureau of Investigation and/or any other person in actual custody of the goods seized pursuant thereto are hereby directed to return the same to the respondents.

SO ORDERED.4

Petitioner elevated the matter to the Court of Appeals, which dismissed the petition for certiorari. The appellate court ruled that under Section 2,5 Rule 126 of the Rules of Court, the RTC of Manila had no jurisdiction to issue a search warrant enforceable in Cavite, and that lack of jurisdiction was not deemed waived. Petitioner moved for reconsideration but the same was denied. The Court of Appeals disposed, as follows:

WHEREFORE, the instant Petition is hereby denied and accordingly DISMISSED.

SO ORDERED.6

Petitioner now comes before us raising the following issues:

I

WHETHER OR NOT VENUE IN SEARCH WARRANT APPLICATIONS INVOLVES TERRITORIAL JURISDICTION.

II

WHETHER OR NOT THE CORRECTNESS OF VENUE IN AN APPLICATION FOR SEARCH WARRANT IS DEEMED WAIVED IF NOT RAISED BY THE RESPONDENT IN ITS MOTION TO QUASH.

III

WHETHER OR NOT THE OFFENSES INVOLVED IN THE SUBJECT SEARCH WARRANTS ARE "CONTINUING CRIMES" WHICH MAY BE VALIDLY TRIED IN ANOTHER JURISDICTION WHERE THE OFFENSE WAS PARTLY COMMITTED.7

In sum, we are asked to resolve whether the quashal of Search Warrants Nos. 01-1986 to 01-1988 was valid.

Citing Malaloan v. Court of Appeals,8 where this Court clarified that a search warrant application is only a special criminal process and not a criminal action, petitioner contends that the rule on venue for search warrant application is not jurisdictional. Hence, failure to raise the objection waived it. Moreover, petitioner maintains that applying for search warrants in different courts increases the possibility of leakage and contradictory outcomes that could defeat the purpose for which the warrants were issued.

Petitioner further asserts that even granting that the rules on search warrant applications are jurisdictional, the application filed either in the courts of the National Capital Region or Fourth Judicial Region is still proper because the crime was continuing and committed in both Parañaque City and Cavite.

Respondent counters that Section 2 is explicit on where applications should be filed and provided the territorial limitations on search warrants. Respondent claims that Malaloan is no longer applicable jurisprudence with the promulgation of the 2000 Rules of Criminal Procedure. Even granting that petitioner has compelling reasons, respondent maintains that petitioner cannot file the application with the RTC of Manila because Cavite belongs to another judicial region. Respondent also argues that the doctrine on continuing crime is applicable only to the institution of a criminal action, not to search warrant applications which is governed by Rule 126, and in this case Section 2.

To start, we cautioned that our pronouncement in Malaloan should be read into the Judiciary Reorganization Act of 19809 conferring on the regional trial courts and their judges a territorial jurisdiction, regional in scope. Both the main decision and the dissent in Malaloan recognized this.

Now, in the present case, respondent’s premises in Cavite, within the Fourth Judicial Region, is definitely beyond the territorial jurisdiction of the RTC of Manila, in the National Capital Region. Thus, the RTC of Manila does not have the authority to issue a search warrant for offenses committed in Cavite. Hence, petitioner’s reliance in Malaloan is misplaced. Malaloan involved a court in the same judicial region where the crime was committed. The instant case involves a court in another region. Any other interpretation re-defining territorial jurisdiction would amount to judicial legislation.10

Nonetheless, we agree with petitioner that this case involves a transitory or continuing offense of unfair competition under Section 168 of Republic Act No. 8293,11 which provides,

SEC. 168. Unfair Competition, Rights, Regulation and Remedies. – …

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

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

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

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

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

Pertinent too is Article 189 (1) of the Revised Penal Code that enumerates the elements of unfair competition, to wit:

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

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

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

(d) That there is actual intent to deceive the public or defraud a competitor.12

Respondent’s imitation of the general appearance of petitioner’s goods was done allegedly in Cavite. It sold the goods allegedly in Mandaluyong City, Metro Manila. The alleged acts would constitute a transitory or continuing offense. Thus, clearly, under Section 2 (b) of Rule 126, Section 168 of Rep. Act No. 8293 and Article 189 (1) of the Revised Penal Code, petitioner may apply for a search warrant in any court where any element of the alleged offense was committed, including any of the courts within the National Capital Region (Metro Manila).13

WHEREFORE, the petition is GRANTED. The Decision dated June 30, 2003 and the Resolution dated January 16, 2004 of the Court of Appeals in CA-G.R. SP No. 67612 are SET ASIDE. The Order dated October 5, 2001 of the Regional Trial Court of Manila, Branch 1, is PARTLY MODIFIED. Search Warrants Nos. 01-1986 to 01-1988 are hereby declared valid.

SO ORDERED.

G.R. No. 202423 January 28, 2013

CHESTER UYCO, WINSTON UYCHIYONG, and CHERRY C. UYCO-ONG, Petitioners, vs.VICENTE LO, Respondent.

R E S O L U T I O N

BRION, J.:

We resolve the motion for reconsideration1 dated October 22, 2012 filed by petitioners Chester Uyco, Winston Uychiyong and Cherry C. Uyco-Ong to set aside the Resolution2 dated September 12, 2012 of this Court, which affirmed the decision3 dated March 9, 2012 and the resolution4 dated June 21, 2012 of the Court of Appeals (CA) in CA-G.R. SP No. 111964. The CA affirmed the resolution5 dated September 1, 2008 of the Department of Justice (DOJ). Both the CA and the DOJ found probable cause to charge the petitioners with false designation of origin, in violation of Section 169.1, in relation with Section 170, of Republic Act No. (RA) 8293, otherwise known as the "Intellectual Property Code of the Philippines."6

The disputed marks in this case are the "HIPOLITO & SEA HORSE & TRIANGULAR DEVICE," "FAMA," and other related marks, service marks and trade names of Casa Hipolito S.A. Portugal appearing in kerosene burners. Respondent Vicente Lo and Philippine Burners Manufacturing Corporation (PBMC) filed a complaint against the officers of Wintrade Industrial SalesCorporation (Wintrade), including petitioners Chester Uyco, Winston Uychiyong and Cherry Uyco-Ong, and of National Hardware, including Mario Sy Chua, for violation of Section 169.1, in relation to Section 170, of RA 8293.

Lo claimed in his complaint that Gasirel-Industria de Comercio e Componentes para Gass, Lda. (Gasirel), the owner of the disputed marks, executed a deed of assignment transferring these marks in his favor, to be used in all countries except for those in Europe and America.7 In a test buy, Lo purchased from National Hardware kerosene burners with the subject marks and the designations "Made in Portugal" and "Original Portugal" in the wrappers. These products were manufactured by Wintrade. Lo claimed that as the assignee for the trademarks, he had not authorized Wintrade to use these marks, nor had Casa Hipolito S.A. Portugal. While a prior authority was given to Wintrade’s predecessor-in-interest, Wonder Project & Development Corporation (Wonder), Casa Hipolito S.A. Portugal had already revoked this authority through a letter of cancellation dated May 31, 1993.8 The kerosene burners manufactured by Wintrade have caused confusion, mistake and deception on the part of the buying public. Lo stated that the real and genuine burners are those manufactured by its agent, PBMC.

In their Answer, the petitioners stated that they are the officers of Wintrade which owns the subject trademarks and their variants. To prove this assertion, they submitted as evidence the certificates of registration with the Intellectual Property Office. They alleged that Gasirel, not Lo, was the real party-in-interest. They allegedly derived their authority to use the marks from Casa Hipolito S.A. Portugal through Wonder, their predecessor-in-interest. Moreover, PBMC had already ceased to be a corporation and, thus, the licensing agreement between PBMC and Lo could not be given effect, particularly because the agreement was not notarized and did not contain the provisions required by Section 87 of RA 8293. The petitioners pointed out that Lo failed to sufficiently prove that the burners bought from National Hardware were those that they manufactured. But at the same time, they also argued that the marks "Made in Portugal" and "Original Portugal" are merely descriptive and refer to the source of the design and the history of manufacture.

In a separate Answer, Chua admitted that he had dealt with Wintrade for several years and had sold its products. He had not been aware that Wintrade had lost the authority to manufacture, distribute, and deal with products containing the subject marks, and he was never informed of Wintrade’s loss of authority. Thus, he could have not been part of any conspiracy.

After the preliminary investigation, the Chief State Prosecutor found probable cause to indict the petitioners for violation of Section 169.1, in relation with Section 170, of RA 8293. This law punishes any person who uses in commerce any false designation of origin which is likely to cause confusion or mistake as to the origin of the product. The law seeks to protect the public; thus, even if Lo does not have the legal capacity to sue, the State can still prosecute the petitioners to prevent damage and prejudice to the public.

On appeal, the DOJ issued a resolution affirming the finding of probable case. It gave credence to Lo’s assertion that he is the proper assignee of the subject marks. More importantly, it took note of the petitioners’ admission that they used the words "Made in Portugal" when in fact, these products were made in the Philippines. Had they intended to refer to the source of the design or the history of the manufacture, they should have explicitly said so in their packaging. It then concluded that the petitioners’ defenses would be better ventilated during the trial and that the admissions of the petitioners make up a sufficient basis for probable cause.

The CA found no grave abuse of discretion on the part of the DOJ and affirmed the DOJ’s ruling.

When the petitioners filed their petition before us, we denied the petition for failure to sufficiently show any reversible error in the assailed judgment to warrant the exercise of the Court’s discretionary power.

We find no reversible error on the part of the CA and the DOJ to merit reconsideration. The petitioners reiterate their argument that the products bought during the test buy bearing the trademarks in question were not manufactured by, or in any way connected with, the petitioners and/or Wintrade. They also allege that the words "Made in Portugal" and "Original Portugal" refer to the origin of the design and not to the origin of the goods.

The petitioners again try to convince the Court that they have not manufactured the products bearing the marks "Made in Portugal" and "Original Portugal" that were bought during the test buy. However, their own admission and the statement given by Chua bear considerable weight.

The admission in the petitioners’ Joint Affidavit is not in any way hypothetical, as they would have us believe. They narrate incidents that have happened. They refer to Wintrade’s former association with Casa Hipolito S.A. Portugal; to their decision to produce the burners in the Philippines; to their use of the disputed marks; and to their justification for their use. It reads as follows:

24. As earlier mentioned, the predecessor-in-interest of Wintrade was the former exclusive licensee of Casa Hipolito SA of Portugal since the 1970’s, and that Wintrade purchased all the rights on the said trademarks prior to the closure of said company. Indeed, the burners sold by Wintrade used to be imported from Portugal, but Wintrade later on discovered the possibility of obtaining these burners from other sources or of manufacturing the same in the Philippines.

Wintrade’s decision to procure these burners from sources other than Portugal is certainly its management prerogative. The presence of the words "made in Portugal" and "original Portugal" on the wrappings of the burners and on the burners themselves which are manufactured by Wintrade is an allusion to the fact that the origin of the design of said burners can be traced back to Casa Hipolito SA of Portugal, and that the history of the manufacture of said burners are rooted in Portugal. These words were not intended to deceive or cause mistake and confusion in the minds of the buying public.9

Chua, the owner of National Hardware — the place where the test buy was conducted — admits that Wintrade has been furnishing it with kerosene burners with the markings "Made in Portugal" for the past 20 years, to wit:

5. I hereby manifests (sic) that I had been dealing with Wintrade Industrial Sales Corporation (WINTRADE for brevity) for around 20 years now by buying products from it. I am not however aware that WINTRADE was no longer authorized to deal, distribute or sell kerosene burner bearing the mark HIPOLITO and SEA HORSE Device, with markings "Made in Portugal" on the wrapper as I was never informed of such by WINTRADE nor was ever made aware of any notices posted in the newspapers informing me of such fact. Had I been informed, I would have surely stopped dealing with WINTRADE.101âwphi1

Thus, the evidence shows that petitioners, who are officers of Wintrade, placed the words "Made in Portugal" and "Original Portugal" with the disputed marks knowing fully well — because of their previous dealings with the Portuguese company — that these were the marks used in the products of Casa Hipolito S.A. Portugal. More importantly, the products that Wintrade sold were admittedly produced in the Philippines, with no authority from Casa Hipolito S.A. Portugal. The law on trademarks and trade names precisely precludes a person from profiting from the business reputation built by another and from deceiving the public as to the origins of products. These facts support the consistent findings of the State Prosecutor, the DOJ and the CA that probable cause exists to charge the

petitioners with false designation of origin. The fact that the evidence did not come from Lo, but had been given by the petitioners, is of no significance.

The argument that the words "Made in Portugal" and "Original Portugal" refer to the origin of the design and not to the origin of the goods does not negate the finding of probable cause; at the same time, it is an argument that the petitioners are not barred by this Resolution from raising as a defense during the hearing of the case.

WHEREFORE, premises considered, we hereby DENY the motion for reconsideration for lack of merit.

SO ORDERED.

[G.R. No. 94285. August 31, 1999]

JESUS SY, JAIME SY, ESTATE OF JOSE SY, ESTATE OF VICENTE SY, HEIR OF MARCIANO SY represented by JUSTINA VDA. DE SY and WILLIE SY, petitioners, vs. THE COURT OF APPEALS, INTESTATE ESTATE OF SY YONG HU, SEC. HEARING OFFICER FELIPE TONGCO, SECURITIES AND EXCHANGE COMMISSION, respondents.

[G.R. No. 100313. August 31, 1999]

SY YONG HU & SONS, JOHN TAN, BACOLOD CANVAS AND UPHOLSTERY SUPPLY CO., AND NEGROS ISUZU SALES, petitioners, vs. HONORABLE COURT OF APPEALS (11th Division), INTESTATE ESTATE OF THE LATE SY YONG HU, JOSE FALSIS, JR., AND HON. BETHEL KATALBAS-MOSCARDON, RTC OF NEGROS OCCIDENTAL, Branch 51, respondents.

D E C I S I O N

PURISIMA, J.:

At bar are two consolidated petitions for review on certiorari under Rule 45 of the Revised Rules of Court, docketed as G. R. Nos. 94285 and G.R. No. 100313, respectively, seeking to reinstate the Resolution of the Court of Appeals in CA - G. R. SP No. 17070 and its Decision in CA-G. R. SP No. 24189.

In G. R. No. 94285, the petitioners assail the Resolutionlxxxix[1] dated June 27, 1990 of the Court of Appeals granting the Motion for Reconsideration interposed by the petitioners (now the private respondents) of its Decisionxc[2], promulgated on January 15, 1990, which affirmed the Orderxci[3] issued on January 16, 1989 by the Securities and Exchange Commission (SEC) en banc and the Orderxcii[4] of SEC Hearing Officer Felipe Tongco, dated October 5, 1988,

The facts that matter are as follows:

Sy Yong Hu & Sons is a partnership of Sy Yong Hu and his sons, Jose Sy, Jayme Sy, Marciano Sy, Willie Sy, Vicente Sy, and Jesus Sy, registered with the SEC on March 29, 1962, with Jose Sy as managing partner. The partners and their respective shares are reflected in the Amended Articles of Partnershipxciii[5] as follows:

NAMES AMOUNT CONTRIBUTED

SY YONG HU P 31, 000. 00

JOSE S. SY 205, 000. 00

JAYME S. SY 112, 000. 00

MARCIANO S. SY 143, 000. 00

WILLIE S. SY 85, 000. 00

VICENTE SY 85, 000. 00

JESUS SY 88, 000. 00

Partners Sy Yong Hu, Jose Sy, Vicente Sy, and Marciano Sy died on May 18, 1978, August 12, 1978, December 30, 1979 and August 7, 1987, respectively.xciv[6] At present, the partnership has valuable assets such as tracts of lands planted to sugar cane and commercial lots in the business district of Bacolod City.

Sometime in September, 1977, during the lifetime of all the partners, Keng Sian brought an action,xcv[7] docketed as Civil Case No. 13388 before the then Court of First Instance of Negros Occidental, against the partnership as well as against the individual partners for accounting of all the properties allegedly owned in common by Sy Yong Hu and the plaintiff (Keng Sian), and for the delivery or reconveyance of her one-half (1/2) share in said properties and in the fruits thereof. Keng Sian averred that she was the common law wife of partner Sy Yong Hu, that Sy Yong Hu, together with his children,xcvi[8] who were partners in the partnership, connived to deprive her of her share in the properties acquired during her cohabitation with Sy Yong Hu, by diverting such properties to the partnership.xcvii[9]

In their answer dated November 3, 1977, the defendants, including Sy Yong Hu himself, countered that Keng Sian is only a house helper of Sy Yong Hu and his wife, subject properties are exclusively owned by defendant partnership, and plaintiff has absolutely no right to or interest therein.xcviii[10]

On September 20, 1978, during the pendency of said civil case, Marciano Sy filed a petition for declaratory relief against partners Vicente Sy, Jesus Sy and Jayme Sy, docketed as SEC Case No. 1648, praying that he be appointed managing partner of the partnership, to replace Jose Sy who died on August 12, 1978. Answering the petition, Vicente Sy, Jesus Sy and Jaime Sy, who claim to represent the majority interest in the partnership, sought the dissolution of the partnership and the appointment of Vicente Sy as managing partner. In due time, Hearing Officer Emmanuel Sison came out with a decisionxcix[11] (Sison Decision) dismissing the petition, dissolving the partnership and naming Jesus Sy, in lieu of Vicente Sy who had died earlier, as the managing partner in charge of winding the affairs of the partnership.

The Sison decision was affirmed in toto by the SEC en banc in a decisionc[12] (Abello decision) dated June 8, 1982, disposing thus:

WHEREFORE, the Commission en banc affirms the dispositive portion of the decision of the Hearing Officer, but clarifies that: (1) the partnership was dissolved by express will of the majority and not ipso facto because of the death of any partner in view of the stipulation of Articles of Partnership and the provisions of the New Civil Code particularly Art. 1837 [2] and Art. 1841. (2) The Managing Partner designated by the majority, namely Jesus Sy, vice Vicente Sy (deceased) shall only act as a manager in liquidation and he shall submit to the Hearing Officer an accounting and a project of partition, within 90 days from receipt of this decision. (3) The petitioner is also required within the same period to submit his counter-project of partition, from date of receipt of the Managing Partners project of partition. (4) The case is remanded to the Hearing Officer for evaluation and approval of the accounting and project of partition.

On the basis of the above decision of the SEC en banc, Hearing Officer Sison approved a partial partition of certain partnership assets in an orderci[13] dated December 2, 1986. Therefrom, respondents seasonably appealed.

In 1982, the children of Keng Sian with Sy Yong Hu, namely, John Keng Seng, Carlos Keng Seng, Tita Sy, Yolanda Sy and Lolita Sy, filed a petition, docketed as SEC Case No 2338, to revoke the certificate of registration of Sy Yong Hu & Sons, and to have its assets reverted to the estate of the late Sy Yong Hu. After hearings, the petition was dismissed by Hearing Officer Bernardo T. Espejo in an Order, dated January 11, 1984, which Order became final since no appeal was taken therefrom.cii[14]

After the dismissal of SEC Case No. 2338, the children of Keng Sian sought to intervene in SEC Case No. 1648 but their motion to so intervene was denied in an Order dated May 9, 1985. There was no appeal from said order.ciii[15]

In the meantime, Branch 43 of the Regional Trial Court of Negros Occidental appointed one Felix Ferrer as a Special Administrator for the Intestate Estate of Sy Yong Hu in Civil Case No. 13388. Then, on August 30, 1985, Alex Ferrer moved to intervene in the proceedings in SEC Case No. 1648, for the partition and distribution of the partnership assets, on behalf of the respondent Intestate Estate.civ[16]

It appears that sometime in December, 1985, Special Administrator Ferrer filed an Amended Complaint on behalf of respondent Intestate Estate in Civil Case No. 13388, wherein he joined Keng Sian as plaintiff and thereby withdrew as defendant in the case. Special Administrator Ferrer adopted the theory of Keng Sian that the assets of the partnership belong to Keng Sian and Sy Yong Hu (now represented by the Estate of Sy Yong Hu) in co-ownership, which assets were wrongfully diverted in favor of the defendants.cv[17]

The motion to intervene in SEC Case No. 1648, filed by Special Administrator Alex Ferrer on behalf of the respondent Estate, was denied in the order issued on May 9, 1986 by Hearing Officer Sison. With the denial of the motion for reconsideration, private respondent Intestate Estate of Sy Yong Hu appealed to the Commission en banc.

In its decision (Sulit decision) on the aforesaid appeal from the Order dated May 9, 1986, and the Order dated December 2, 1986, the SEC en banccvi[18] ruled:

WHEREFORE, in the interest of Justice and equity, substantive rights of due process being paramount over the rules of procedure, and in order to avoid multiplicity of suits; the order of the hearing officer below dated May 9, 1986 denying the motion to intervene in SEC Case No. 1648 of appellant herein as well as the order dated December 2, 1986cvii[19] denying the motion for reconsideration are hereby reversed and the motion to intervene given due course. The instant case is hereby remanded to the hearing officer below for further proceeding on the aspect of partition and/or distribution of partnership assets. The urgent motion for the issuance of a restraining order is likewise hereby remanded to the hearing officer below for appropriate action.cviii[20]

The said decision of the SEC en banc reiterated that the Abello decision of June 8, 1982, which upheld the order of dissolution of the partnership, had long become final and executory. No further appeal was taken from the Sulit Decision.

During the continuation of the proceedings in SEC Case No. 1648, now presided over by Hearing Officer Felipe S. Tongco who had substituted Hearing Officer Sison, the propriety of placing the Partnership under receivership was taken up. The parties brought to the attention of the Hearing Officer the fact of existence of Civil Case No. 903 (formerly Civil Case No. 13388) pending before the Regional Trial Court of Negros Occidental. They also agreed that during the pendency of the aforesaid court case, there will be no disposition of the partnership assets.cix[21] On October 5, 1988, Hearing Officer Tongco came out with an Ordercx[22] (Tongco Order) incorporating the above submissions of the parties and placingcxi[23] the partnership under a receivership committee, explaining that it is the most equitable fair and just manner to preserve the assets of the partnership during the pendency of the civil case in the Regional Trial Court of Bacolod City.

On October 22, 1988, a joint Notice of Appeal to the SEC en banc was filed by herein petitioners Jayme Sy, Jesus Sy, Estate of Jose Sy, Estate of Vicente Sy, Heirs of Marciano Sy (represented by Justina Vda. de Sy), and Willie Sy, against the Intervenor (now private respondent). In an order (Lopez Order) dated January 16, 1989, the SEC en banccxii[24]affirmed the Tongco Order.

With the denial of their Motion for Reconsideration,cxiii[25] petitioners filed a special civil action for certiorari with the Court of Appeals.

On January 15, 1990, the Court of Appeals granted the petition and set aside the Tongco and Lopez Orders, and remanded the case for further execution of the 1982 Abello and 1988 Sulit Decisions, ordering the partition and distribution of the partnership properties.cxiv[26]

Private respondent seasonably interposed a motion for reconsideration of such decision of the Court of Appeals.

Acting thereupon on June 27, 1990, the Court of Appeals issued its assailed Resolution, reversing its Decision of January 15, 1990, and remanding the case to the SEC for the formation of a receivership committee, as envisioned in the Tongco Order.

G. R. No. 100313 came about in view of the dismissal by the Court of Appealscxv[27] of the Petition for Certiorari with a Prayer for Preliminary Injunction, docketed as CA-G. R. SP No. 24189, seeking to annul and set aside the orders, dated January 24, 1991 and April 19, 1989, respectively, in Civil Case No. 5326 before the Regional Trial Court of Bacolod City.

The antecedent facts are as follows:

Sometime in June of 1988, petitioner Sy Yong Hu & Sons through its Managing Partner, Jesus Sy, applied for a building permit to reconstruct its building called Sy Yong Hu & Sons Building, located in the central business district of Bacolod City, which had been destroyed by fire in the late 70s. On July 5, 1988, respondent City Engineer issued Building Permit No. 4936 for the reconstruction of the first two floors of the building. Soon thereafter, reconstruction work began. In January, 1989, upon completion of its reconstruction, the building was occupied by the herein petitioners, Bacolod and Upholstery Supply Company and Negros Isuzu Sales, which businesses are owned by successors-in-interest of the deceased partners Jose Sy and Vicente Sy. Petitioner John Tan, who is also an occupant of the reconstructed building, is the brother-in-law of deceased partner Marciano Sy.cxvi[28]

From the records on hand, it can be gleaned that the Tongco Ordercxvii[29], dated October 5, 1988, in SEC Case No. 1648, had, among others, denied a similar petition of the intervenors therein (now private respondents) for a restraining order and/or injunction to enjoin the reconstruction of the same building. However, on October 10, 1988, respondent Intestate Estate sent a letter to the City Engineer claiming that Jesus Sy is not authorized to act for petitioners Sy Yong Hu & Sons with respect to the reconstruction or renovation of the property of the partnership. This was followed by a letter dated November 11, 1988, requesting the revocation of Building Permit No. 4936.

Respondent City Engineer inquiredcxviii[30] later from Jesus Sy for an authority to sign for and on behalf of Sy Yong Hu & Sons to justify the latters signature in the application for the building permit, informing him that absent any proof of his authority, he would not be issued an occupancy permit.cxix[31] On December 27, 1988, respondent Intestate Estate reiterated its objection to the authority of Jesus Sy to apply for a building permit and pointing out that in view of the creation of a receivership committee, Jesus Sy no longer had any authority to act for the partnership.cxx

[32]

In reply, Jesus Sy informed the City Engineer that the Tongco Order had been elevated to the SEC en banc, making him still the authorized manager of the partnership. He then requested that an occupancy permit be issued as Sy Yong Hu & Sons had complied with the requirements of the City Engineers Office and the National Building Code.cxxi

[33]

Unable to convince the respondent City Engineer to revoke subject building permit, respondent Intestate Estate brought a Petition for Mandamus with prayer for a Writ of Preliminary Injunction, docketed as Civil Case No 5326 before the Regional Trial Court of Bacolod City and entitled Intestate Estate of the Late Sy Yong Hu vs. Engineer Jose P. Falsis, Jr.cxxii[34] The Complaint concluded with the following prayer:

WHEREFORE PREMISES CONSIDERED, it is respectfully prayed of the Honorable Court that:

1. A writ of Preliminary Injunction be issued to the respondent, after preliminary hearing is had. compelling his office to padlock the premises occupied, without the requisite Certificate of Occupancy; to stop all construction activities, and barricade the same premises so that the unwary public will not be subject to undue hazards due to lack of requisite safety precaution;

2. The Respondent be ordered to enforce without exemption every requisite provision of the Building Code as so mandated by it.cxxiii[35]

Petitioners Sy Yong Hu & Sons, the owners of the building sought to be padlocked were not impleaded as party to the petition dated February 22, 1989. Neither were the lessees-occupants thereon so impleaded. Thus, they were

not notified of the hearing scheduled for April 5, 1989, on which date the Petition was heard. Subsequently, however, the Regional Trial Court issued an order dated April 19, 1989 for the issuance of a Writ of Preliminary Mandatory Injunction ordering the City Engineer to padlock the building.cxxiv[36]

On May 9, 1989, upon learning of the issuance of the Writ of Preliminary Injunction, dated May 4, 1989, petitioners immediately filed the: (1) Motion for Intervention; (2) Answer in Intervention; and (3) Motion to set aside order of mandatory injunction. In its order dated June 22, 1989, the Motion for Intervention was granted by the lower court through Acting Presiding Judge Porfirio A. Parian.

On August 3, 1989, respondent Intestate Estate presented a Motion to cite Engineer Jose Falsis, Jr. in contempt of court for failure to implement the injunctive relief.

On August 15, 1989, petitioners submitted an Amended Answer in Intervention. Reacting thereto, respondent Intestate Estate filed a Motion to Strike or Expunge from the Record the Amended Answer in Intervention.cxxv[37]

On January 25, 1990, petitioner Sy Yong Hu & Sons again wrote the respondent City Engineer to reiterate its request for the immediate issuance of a certificate of occupancy, alleging that the Court of Appeals in its Decision of January 15, 1990 in CA-G. R. No. 17070 had reversed the SEC decision which approved the appointment of a receivership committee. However, the City Engineer refused to issue the Occupancy Permit without the conformity of the respondent Intestate Estate and one John Keng Seng who claims to be an Illegitimate son of the Late Sy Yong Hu.cxxvi[38]

In an order issued on January 24, 1991 upon an Ex Parte Motion to Have All Pending Incidents Resolved filed by respondent Intestate Estate, Judge Bethel Katalbas-Moscardon issued an order modifying the Writ of Preliminary Mandatory Injunction, and directing the respondent City Engineer to:

x x x immediately order stoppage of any work affecting the construction of the said building under Lot 259-A-2 located at Gonzaga Street adjacent to the present Banco de Oro Building, BACOLOD City, to cancel or cause to be cancelled the Building Permit it had issued; to order the discontinuance of the occupancy or use of said building or structure or portion thereof found to be occupied or used, the same being contrary and violative of the provisions of the Code; and to desist from issuing any certificate of Occupancy until the merits of this case can finally be resolved by this Court. x x x

Again, it is emphasized that the issue involved is solely question of law and the Court cannot see any logical reason that the intervenors should be allowed to intervene as earlier granted in the Order of the then Presiding Judge Porfirio A. Parian, of June 22, 1989. Much less for said intervenors to move for presentation of additional parties, only on the argument of Intervenors that any restraining order to be issued by this Court upon the respondent would prejudice their present occupancy which is self serving, whimsical and in fact immoral. It is axiomatic that the means would not justify the end nor the end justify the means. Assuming damage to the present occupants will occur and assuming further that they are entitled, the same should be ventilated in a different action against the lessor or landlord, and the present petition cannot be the proper forum, otherwise, while it maybe argued that there is a multiplicity of suit which actually is groundless, on the other hand, there will be only confusion of the issues to be resolved by the Court. Well valid enough is to reiterate that the present petition is not the proper forum for the intervenors to shop for whatever relief.

In view of the above, the Order allowing the intervenors in this case is likewise hereby withdrawn for the purposes above discussed. Consequently, the Motion to present additional parties is deemed denied, and the Motion to Strike Or Expunge From The Records the Amended Answer In Intervention is deemed granted as in fact the same become moot and academic with the elimination of the Intervenors in this case.cxxvii[39]

Pursuant to the above Order of January 24, 1991, respondent City Engineer served a notice upon petitioners revoking Building Permit No. 4936, ordering the stoppage of all construction work on the building, and commanding discontinuance of the occupancy thereof.

On February 15, 1991, the aggrieved petitioners filed a Petition for Certiorari with Prayer for Preliminary Injunction with the Court of Appeals, docketed as CA-G. R. SP No. 24189.

On February 27, 1991, the Court of Appeals issued a Temporary Restraining Order enjoining the respondent Judge from implementing the questioned orders dated January 24, 1991 and April 19, 1989.cxxviii[40]

After the respondents had sent in their answer, petitioners filed a Reply with a prayer for the issuance of a writ of mandamus directing the respondent City Engineer to reissue the building permit previously issued in favor of petitioner Sy Yong Hu & Sons, and to issue a certificate of occupancy on the basis of the admission by respondent City Engineer that petitioner had complied with the provisions of the National Building Code.cxxix[41]

On May 31, 1991, the Court of Appeals rendered its questioned decision denying the petition.cxxx[42]

From the Resolution of the Court of Appeals granting the motion for reconsideration in CA-G. R. SP No. 17070 and the Decision in CA-G. R. SP No. 24189, petitioners have come to this Court for relief.

In G. R. No. 94285, petitioners contend by way of assignment of errors,cxxxi[43] that:

I

RESPONDENT COURT OF APPEALS ERRED IN REVERSING ITS MAIN DECISION IN CA-G. R. No. 17070, WHICH DECISION HAD REMANDED TO THE SEC THE CASE FOR THE PROPER IMPLEMENTATION OF THE 1982 ABELLO AND 1988 SULIT DECISIONS WHICH IN TURN ORDERED THE DISTRIBUTION AND PARTITION OF THE PARTNERSHIP PROPERTIES.

II

RESPONDENT COURT OF APPEALS ERRED IN REINSTATING THE TONGCO ORDER, WHICH HAD SUSPENDED THE DISSOLUTION OF THE PARTNERSHIP AND THE DISTRIBUTION OF ITS ASSETS, AND IN PLACING THE PARTNERSHIP PROPERTIES UNDER RECEIVERSHIP PENDING THE RESOLUTION OF CIVIL CASE NO. 903 (13388), ON A GROUND NOT MADE THE BASIS OF THE SEC RESOLUTION UNDER REVIEW, I. E., THE DISPOSITION BY A PARTNER OF SMALL PROPERTIES ALREADY ADJUDICATED TO HIM BY A FINAL SEC ORDER DATED DECEMBER 2, 1986 AND MADE LONG BEFORE THE AGREEMENT OF JUNE 28, 1988 OF THE PETITIONERS NOT TO DISPOSE OF THE PARTNERSHIP ASSETS.

In G. R. No. 100313, Petitioners assign as errors, that:cxxxii[44]

I

THE HONORABLE COURT OF APPEALS (ELEVENTH DIVISION) ERRED IN HOLDING THAT RESPONDENT JUDGE DID NOT ACT WITHOUT JURISDICTION AND WITH GRAVE ABUSE OF JURISDICTION IN ISSUING THE WRIT OF PRELIMINARY MANDATORY INJUNCTION.

II

THE HONORABLE COURT OF APPEALS (ELEVENTH DIVISION) ERRED IN HOLDING THAT THE RESPONDENT JUDGE DID NOT ACT WITHOUT JURISDICTION AND WITH GRAVE ABUSE OF DISCRETION IN DISALLOWING THE INTERVENTION OF PETITIONERS IN CIVIL CASE NO. 5326.

III

THE LOWER COURT ACTED WITH GRAVE ABUSE OF DISCRETION IN ISSUING AND ORDERING THE IMPLEMENTATION OF THE WRIT OF PRELIMINARY MANDATORY INJUNCTION DESPITE THE ABSENCE OR LACK OF AN INJUNCTION BOND.cxxxiii[45]

On the two (2) issues raised in G. R. No. 94285, the Court rules for respondents.

Petitioners fault the Court of Appeals for affirming the 1989 Decision of the SEC which approved the appointment of a receivership committee as ordered by Hearing Officer Felipe Tongco. They theorize that the 1988 Tongco Decision varied the 1982 Abello Decision affirming the dissolution of the partnership, contrary to the final and executory tenor of the said judgment. To buttress their theory, petitioners offer the 1988 Sulit Decision which, among others, expressly confirmed the finality of the Abello Decision.

On the same premise, petitioners aver that when Hearing Officer Tongco took over from Hearing Officer Sison, he was left with no course of action as far as the proceedings in the SEC Case were concerned other than to continue with the partition and distribution of the partnership assets. Thus, the Order placing the partnership under a receivership committee was erroneous and tainted with excess of jurisdiction.

The contentions are untenable. Petitioners fail to recognize the basic distinctions underlying the principles of dissolution, winding up and partition or distribution. The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated in the carrying on, as might be distinguished from the winding up, of its business. Upon its dissolution, the partnership continues and its legal personality is retained until the complete winding up of its business culminating in its termination.cxxxiv[46]

The dissolution of the partnership did not mean that the juridical entity was immediately terminated and that the distribution of the assets to its partners should perfunctorily follow. On the contrary, the dissolution simply effected a change in the relationship among the partners. The partnership, although dissolved, continues to exist until its termination, at which time the winding up of its affairs should have been completed and the net partnership assets are partitioned and distributed to the partners.cxxxv[47]

The error, therefore, ascribed to the Court of Appeals is devoid of any sustainable basis. The Abello Decision though, indeed, final and executory, did not pose any obstacle to the Hearing Officer to issue orders not inconsistent therewith. From the time a dissolution is ordered until the actual termination of the partnership, the SEC retained jurisdiction to adjudicate all incidents relative thereto. Thus, the disputed order placing the partnership under a receivership committee cannot be said to have varied the final order of dissolution. Neither did it suspend the dissolution of the partnership. If at all, it only suspended the partition and distribution of the partnership assets pending disposition of Civil Case No. 903 on the basis of the agreement by the parties and under the circumstances of the case. It bears stressing that, like the appointment of a manager in charge of the winding up of the affairs of the partnership, said appointment of a receiver during the pendency of the dissolution is interlocutory in nature, well within the jurisdiction of the SEC.

Furthermore, having agreed with the respondents not to dispose of the partnership assets, petitioners effectively consented to the suspension of the winding up or, more specifically, the partition and distribution of subject assets. Petitioners are now estopped from questioning the order of the Hearing Officer issued in accordance with the said agreement.cxxxvi[48]

Petitioners also assail the propriety of the receivership theorizing that there was no necessity therefor, and that such remedy should be granted only in extreme cases, with respondent being duty-bound to adduce evidence of the grave and irremediable loss or damage which it would suffer if the same was not granted. It is further theorized that, at any rate, the rights of respondent Intestate Estate are adequately protected since notices of lis pendens of the aforesaid civil case have been annotated on the real properties of the partnership.cxxxvii[49]

To bolster petitioners' contention, they maintain that they are the majority partners of the partnership Sy Yong Hu & Sons controlling Ninety Six per cent (96%) of its equity. As such, they have the greatest interest in preserving the partnership properties for themselves,cxxxviii[50] and therefore, keeping the said properties in their possession will not bring about any feared damage or dissipation of such properties, petitioners stressed.

Sec. (6) of Presidential Decree No. 902-A, as amended, reads:

SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers:

xxx xxx xxx

(c) To appoint one or more receivers of the property, real or personal, which is the subject of the action pending before the commission in accordance with the pertinent provisions of the Rules of Court, and in such other cases, whenever necessary in order to preserve the rights of parties-litigants and/or protect the interest of the investing public and creditors; xxx.

The findings of the Court of Appeals accord with existing rules and jurisprudence on receivership. Conformably, it stated that:cxxxix[51]

x x x From a reexamination of the issues and the evidences involved, We find merit in respondents motion for reconsideration.

This Court notes with special attention the order dated June 28, 1988 issued by Hearing Officer Felipe S. Tongco in SEC Case No. 1648 (Annex to Manifestation, June 16, 1990) wherein all the parties agreed on the following:

1. That there is a pending case in court wherein the plaintiffs are claiming in their complaint that all the assets of the partnership belong to Sy Yong Hu;

2. That the parties likewise agreed that during the pendency of the court case, there will be no disposition of the partnership assets and further hearing is suspended. x x x

As observed by the SEC Commission (sic) in its Order dated January 16, 1989:

Ordinarily, appellants contention would be correct, except that the en banc order of April 29th appears to have been overtaken, and accordingly, rendered inappropriate, by subsequent developments in SEC Case No. 1648, particularly the entry in that proceedings, as of April 29, 1988, of an intervenor who claims a superior and exclusive ownership right to all the partnership assets and property. This claim of superior ownership right is presently pending adjudication before the Regional Trial Court of Negros Occidental, And precisely because if this supervening development, it would appear that the parties in SEC Case No. 1648 agreed among themselves, as of June 28, 1988, that during the pendency of the Negros Occidental case just mentioned, there should be no disposition of partnership assets or property, and further, that the proceedings in SEC Case No. 1648 should be suspended in the meantime (p. 2, Order; p. 12, Rollo)

As alleged by the respondents and as shown by the records there is now pending civil case entitled Keng Sian and Intestate of Sy Yong Hu vs. Jayme Sy, Jesus Sy, Marciano Sy, Willy Sy, Intestate of Jose Sy, Intestate of Vicente Sy, Sy Yong Hu & co and Sy Yong Hu & Sons denominated as Civil Case No. 903 before Branch 50 of the Regional Trial Court of Bacolod City.

Moreover, a review of the records reveal that certain properties in question have already been sold as of 1987, as evidenced by deeds of absolute sale executed by Jesus in favor of Reynaldo Navarro (p. 331, Rollo), among others.

To ensure that no further disposition shall be made of the questioned assets and in view of the pending civil case in the lower court, there is a compelling necessity to place all these properties and assets under the management of a receivership committee. The receivership committee, which will provide active participation, through a designated representative, on the part of all interested parties, can best protect the properties involved and assure fairness and equity for all.

Receivership, which is admittedly a harsh remedy, should be granted with extreme caution.cxl[52] Sound bases therefor must appear on record, and there should be a clear showing of its necessity.cxli[53] The need for a

receivership in the case under consideration can be gleaned from the aforecited disquisition by the Court of Appeals finding that the properties of the partnership were in danger of being damaged or lost on account of certain acts of the appointed manager in liquidation.

The dispositions of certain properties by the said manager, on the basis of an order of partial partition, dated December 2, 1986, by Hearing Officer Sison, which was not yet final and executory, indicated that the feared irreparable injury to the properties of the partnership might happen again. So also, the failure of the manager in liquidation to submit to the SEC an accounting of all the partnership assets as required in its order of April 29, 1988, justified the SEC in placing the subject assets under receivership.

Moreover, it has been held by this Court that an order placing the partnership under receivership so as to wind up its affairs in an orderly manner and to protect the interest of the plaintiff (herein private respondent) was not tainted with grave abuse of discretion.cxlii[54] The allegation that respondents rights are adequately protected by the notices of lis pendens in Civil Case 903 is inaccurate. As pointed out in their Comment to the Petition, the private respondents claim that the partnership assets include the income and fruits thereof. Therefore, protection of such rights and preservation of the properties involved are best left to a receivership committee in which the opposing parties are represented.

What is more, as held in Go Tecson vs. Macaraig: cxliii[55]

The power to appoint a receiver pendente lite is discretionary with the judge of the court of first instance; and once the discretion is exercised, the appellate court will not interfere, except in a clear case of abuse thereof, or an extra limitation of jurisdiction.

Here, no clear abuse of discretion in the appointment of a receiver in the case under consideration can be discerned.

With respect to G. R. No. 100313.cxliv[56]

Petitioners argue in this case that the failure of the private respondents to implead them in Civil Case No. 5326 constituted a violation of due process. It is their submission that the ex parte grant of said petition by the trial court worked to their prejudice as they were deprived of an opportunity to be heard on the allegations of the petition concerning subject property and assets. The recall of the order granting their Motion to Intervene was done without the observance of due process and consequently without jurisdiction on the part of the lower court.

Commenting on the Petition, private respondents maintain that the only issue in the present case is whether or not there was a violation of the Building Code. They contend that after due and proper hearing before the lower court, it was fully established that the provisions of the said Code had been violated, warranting issuance of the Writ of Preliminary Injunction dated April 19, 1989. They further asseverate that the petitioners, who are the owner and lessees in the building under controversy, have nothing to do with the case for mandamus since it is directed against the respondent building official to perform a specific duty mandated by the provisions of the Building Code.

In his Comment, the respondent City Engineer, relying on the validity of the order of the trial court to padlock the building, denied any impropriety in his compliance with the said order.

After a careful examination of the records on hand, the Court finds merit in the petition.

In opposing the petition, respondent intestate estate anchors its stance on the existence of violations of pertinent provisions of the aforesaid Code. As regards due process, however, a distinction must be made between matters of substance.cxlv[57] In essence, procedural due process refers to the method or manner by which the law is enforced, while substantive due process requires that the law itself, not merely the procedure by which the law would be enforced, is fair, reasonable, and just.cxlvi[58] Although private respondent upholds the substantive aspect of due process, it, in the same breath, brushes aside its procedural aspect, which is just as important, if the constitutional injunction against deprivation of property without due process is to be observed.

Settled is the rule that the essence of due process is the opportunity to be heard. Thus, in Legarda vs. Court of Appeals et al.,cxlvii[59] the Court held that as long as a party was given the opportunity to defend her interest in due course, he cannot be said to have been denied due process of law.

Contrary to these basic tenets, the trial court gave due course to the petition for mandamus, and granted the prayer for the issuance of a writ of preliminary injunction on May 4, 1989, notwithstanding the fact that the owner (herein petitioner Sy Yong Hu) of the building and its occupantscxlviii[60] were not impleaded as parties in the case. Affirming the same, the Court of Appeals acknowledged that the lower court came out with the said order upon the testimony of the lone witness for the respondent, in the person of the City Engineer, whose testimony was not effectively traversed by the petitioners. This conclusion arrived at by the Court of Appeals is erroneous in the face of the irrefutable fact that the herein petitioners were not made parties in the said case and, consequently, had absolutely no opportunity to cross examine the witness of private respondent and to present contradicting evidence.

To be sure, the petitioners are indispensable parties in Civil Case No. 5326, which sought to close subject building. Such being the case, no final determination of the claims thereover could be had.cxlix[61] That the petition for mandamus with a prayer for the issuance of a writ of preliminary mandatory injunction was only directed against the City Engineer is of no moment. No matter how private respondent justifies its failure to implead the petitioners, the alleged violation of the provisions of the Building Code relative to the reconstruction of the building in question, by petitioners, did not warrant an ex parte and summary resolution of the petition. The violation of a substantive law should not be confused with punishment of the violator for such violation. The former merely gives rise to a cause of action while the latter is its effect, after compliance with the requirements of due process.

The trial court failed to give petitioners their day in court to be heard before they were condemned for the alleged violation of certain provisions of the Building Code. Being the owner of the building in question and lessees thereon, petitioners possess property rights entitled to be protected by law. Their property rights cannot be arbitrarily interfered with without running afoul with the due process rule enshrined in the Bill of Rights.

For failure to observe due process, the herein respondent court acted without jurisdiction. As a result, petitioners cannot be bound by its orders. Generally accepted is the principle that no man shall be affected by any proceeding to which he is a stranger, and strangers to a case are not bound by judgment rendered by the court.cl[62]

In similar fashion, the respondent court acted with grave abuse of discretion when it disallowed the intervention of petitioners in Civil Case No. 5326. As it was, the issuance of the Writ of Preliminary Injunction directing the padlocking of the building was improper for non-conformity with the rudiments of due process.

Parenthetically, the trial court, in issuing the questioned order, ignored established principles relative to the issuance of a Writ of Preliminary Injunction. For the issuance of the writ of preliminary injunction to be proper, it must be shown that the invasion of the right sought to be protected is material and substantial, that the right of complainant is clear and unmistakable and that there is an urgent and paramount necessity for the writ to prevent serious damage.cli[63]

In light of the allegations supporting the prayer for the issuance of a writ of preliminary injunction, the Court is at a loss as to the basis of the respondent judge in issuing the same. What is clear is that complainant (now private respondent) therein, which happens to be a juridical person (Estate of Sy Yong Hu), made general allegations of hazard and serious damage to the public due to violations of various provisions of the Building Code, but without any showing of any grave damage or injury it was bound to suffer should the writ not issue.

Finally, the Court notes, with disapproval, what the respondent court did in ordering the ejectment of the lawful owner and the occupants of the building, and disposed of the case before him even before it was heard on the merits by the simple expedient of issuing the said writ of preliminary injunction. In Ortigas & Company Limited Partnership vs. Court of Appeals et al. this Court held that courts should avoid issuing a writ of preliminary injunction which in effect disposes of the main case without trial.clii[64]

Resolution of the third issue has become moot and academic in view of the Courts finding of grave abuse of discretion tainting the issuance of the Writ of Preliminary Injunction in question.

WHEREFORE, the Resolution of the Court of Appeals in CA-G. R. No. 17070 is AFFIRMED and its Decision in CA-G. R. No. 24189 REVERSED. No pronouncement as to costs.

SO ORDERED.

MANOLO P. SAMSON, petitioner, vs. HON. REYNALDO B. DAWAY, in his capacity as Presiding Judge, Regional Trial Court of Quezon City, Branch 90, PEOPLE OF THE PHILIPPINES and CATERPILLAR, INC., respondents.

D E C I S I O N

YNARES-SANTIAGO, J.:

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

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

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

CONTRARY TO LAW.[3]

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

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

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

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

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

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

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

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

SEC. 163. Jurisdiction of Court. All actions under Sections 150, 155, 164 and 166 to 169 shall be brought before the proper courts with appropriate jurisdiction under existing laws. (Emphasis supplied)

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

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

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

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

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

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

In the case at bar, R.A. No. 8293 and R.A. No. 166 are special laws9 conferring jurisdiction over violations of intellectual property rights to the Regional Trial Court. They should therefore prevail over R.A. No. 7691, which is a

general law.10 Hence, jurisdiction over the instant criminal case for unfair competition is properly lodged with the Regional Trial Court even if the penalty therefor is imprisonment of less than 6 years, or from 2 to 5 years and a fine ranging from P50,000.00 to P200,000.00.

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

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

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

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

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

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

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

x x x x x x x x x

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

While the pendency of a petition for review is a ground for suspension of the arraignment, the aforecited provision limits the deferment of the arraignment to a period of 60 days reckoned from the filing of the petition with the reviewing office. It follows, therefore, that after the expiration of said period, the trial court is bound to arraign the accused or to deny the motion to defer arraignment.

In the instant case, petitioner failed to establish that respondent Judge abused his discretion in denying his motion to suspend. His pleadings and annexes submitted before the Court do not show the date of filing of the petition for review with the Secretary of Justice.15 Moreover, the Order dated August 9, 2002 denying his motion to suspend

was not appended to the petition. He thus failed to discharge the burden of proving that he was entitled to a suspension of his arraignment and that the questioned orders are contrary to Section 11 (c), Rule 116 of the Revised Rules on Criminal Procedure. Indeed, the age-old but familiar rule is that he who alleges must prove his allegations.

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

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

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

x x x x x x x x x

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

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

SO ORDERED.

G.R. No. L-27897 December 2, 1927

WESTERN EQUIPMENT AND SUPPLY COMPANY, WESTERN ELECTRIC COMPANY, INC., W. Z. SMITH and FELIX C. REYES, plaintiffs-appellees, vs.FIDEL A. REYES, as Director of the Bureau of Commerce and Industry, HENRY HERMAN, PETER O'BRIEN, MANUEL B. DIAZ, FELIPE MAPOY and ARTEMIO ZAMORA, defendants-appellants.

J. W. Ferrier for appellants.DeWitt, Perkins and Bradly for appellees.

STATEMENT

October 23, 1926, in the Court of First Instance of Manila, plaintiffs filed the following complaint against the defendants:

Now come the plaintiffs in the above entitled case, by the undersigned their attorneys, and to this Honorable Court respectfully show:

I. That the Western Equipment and Supply Company is a foreign corporation organized under the laws of the State of Nevada, United States of America; that the Western Electric Company, Inc., is likewise a foreign corporation organized under the laws of the State of New York, United States of America; and that the plaintiffs W. Z. Smith and Felix C. Reyes are both of lawful age and residents of the City of Manila, Philippine Islands.

II. That the defendant Fidel A. Reyes is the duly appointed and qualified Director of the Bureau of Commerce and Industry and as such Director is charged with the duty of issuing and denying the issuance of certificates of incorporation to persons filing articles of incorporation with the Bureau of Commerce and Industry.

III. That the defendants Henry Herman, Peter O' Brien, Manuel B. Diaz, Felipe Mapoy and Artemio Zamora are all of lawful age and are residents of the City of Manila, Philippines Islands.

IV. That on or about May 4, 1925, the plaintiff the Western Equipment and Supply Company applied to the defendant Director of the Bureau of Commerce and Industry for the issuance of a license to engage in business in the Philippine Islands and, accordingly, on May 20, 1926, a provisional license was by said defendant issued in its favor, which license was made permanent on August 23, 1926.

V. That from and since the issuance of said provisional license of May 20,. 1926, said plaintiff Western Equipment and Supply Company has been and still is engaged in importing and selling in the Philippine Islands the electrical and telephone apparatus and supplies manufactured by the plaintiff Western Electric Company, Inc., its offices in the City of Manila being at No. 600 Rizal Avenue, in the charge and management of the plaintiff Felix C. Reyes, its resident agent in the Philippine Islands.

VI. That the electric and telephone apparatus and supplies manufactured by the plaintiff Western Electric Company, Inc., have been sold in foreign and interstate commerce and have become well and thoroughly known to the trade in all countries of the world for the past fifty years; that at present time the greater part of all telephone equipment used in Manila and elsewhere in the Philippine Islands was manufactured by the said Western Electric Company, Inc., and sold by it in commerce between the United States and the Philippine Islands; that about three fourths of such equipment in use throughout the world are of the manufacture of said "Western Electric Company, Inc.," and bear its corporate name; and that these facts are well known to the defendant Henry Herman who for many years up to May 20, 1926, has himself been buying said products from the plaintiff Western Electric Company, Inc., and selling them in the Philippine Islands.

VII. That the name `Western Electric Company, Inc., has been registered as a trade-mark under the provisions of the Act of Congress of February 20, 1905, in the office of the Commissioner of Patents, at Washington, District of Columbia, and said trade-mark remains in force to this date.

VIII. That on or about . . ., the defendants Henry Herman, Peter O' Brien, Manuel B. Diaz, Felipe Mapoy and Artemio Zamora filed articles of incorporation with the defendant Director of the Bureau of Commerce and Industry with the intention of organizing a domestic corporation to be known as the "Western Electric Company, Inc.," for the purpose principally of manufacturing, buying, selling and generally dealing in electrical and telephone apparatus and supplies.

IX. That the purpose of said defendant in attempting to incorporate under the corporate name of plaintiff Western Electric Company, Inc., is to profit and trade upon the plaintiff's business and reputation, by misleading and deceiving the public into purchasing the goods manufactured or sold by them as those of plaintiff Western Electric Company, Inc., in violation of the provisions of Act No. 666 of the Philippine Commission, particularly section 4 thereof.

X. That on October 20, 1926, plaintiff W. Z. Smith was authorized by the Board of Directors of the Western Electric Company, Inc., to take all necessary steps for the issuance of a license to said company to engage in business in the Philippine Islands and to accept service of summons and process in all legal proceedings against said company, and on October 21, 1926, said plaintiff W. Z. Smith filed a written application for the issuance of such license with the defendant Director of Bureau of Commerce and Industry, which application, however, has not yet been acted upon by said defendant.

XI. That on October 18, 1926, the plaintiff W. Z. Smith formally lodged with the defendant Director of the Bureau of Commerce and Industry his protest, and opposed said attempted incorporation, by the defendants Henry Herman, Peter O'Brien, Manuel B. Diaz, Felipe Mapoy and Artemio Zamora, of the `Western Electric Company, Inc.,' as a domestic corporation, upon the ground among others, that the

corporate name by which said defendants desire to be known, being identical with that of the plaintiff Western Equipment and Supply Company, will deceive and mislead the public purchasing electrical and telephone apparatus and supplies. A copy of said protest is hereunto annexed, and hereby made a part hereof, marked Exhibit A.

XII. That the defendant Fidel A. Reyes, Director of the Bureau of Commerce and Industry has announced to these plaintiffs his intention to overrule the protest of plaintiffs, and to issue to the other defendants a certificate of incorporation constituting said defendants a body politic and corporate under the name "Western Electric Company, Inc.," unless restrained by this Honorable Court.

XIII. That the issuance of a certificate of incorporation in favor of said defendants under said name of "Western Electric Company, Inc.," would, under the circumstances hereinbefore stated, constitute a gross abuse of the discretionary powers conferred by law upon the defendant Director of the Bureau of Commerce and Industry.

XIV. That the issuance of said certificate of incorporation would, if carried out, be in violation of plaintiff's rights and would cause them irreparable injury which could not be compensated in damages, and from which petitioner would have no appeal or any plain, speedy and adequate remedy at law, other than that herein prayed for.

They prayed for a temporary injunction, pending the final decision of the court when it should be made permanent, restraining the issuance of the certificate of incorporation in favor of the defendants under the name of Western Electric Company, Inc., or the use of that name for any purpose in the exploitation and sale of electric apparatus and supplies. The preliminary writ was issued.

For answer the defendant Fidel A. Reyes, as Director of the Bureau of Commerce and Industry, admits the allegations of paragraphs 1, 2, 3 and 4 of the complaint, and as to paragraphs 5, 6 and 7, he alleges that he has no information upon which to form a belief, and therefore denies them. He admits the allegations of paragraph 8, and denies paragraph 9. He denies the first part of paragraph 10, but admits that an application for a license to do business was filed by the Western Electric Company, Inc., as alleged. He admits paragraphs 11 and 12, and denies paragraphs 13 and 14, and further alleges that the present action is prematurely brought, in that it is an attempt to coerce his discretion, and that the mere registration of the articles of incorporation of the locally organized Western Electric Company, Inc., cannot in any way injure the plaintiffs, and prays that the complaint be dismissed.

For answer the defendants Herman, O' Brien, Diaz, Mapoy and Zamora admit the allegations of paragraphs 1, 2, 3, 4 and 5 of the complaint, and deny paragraph 7, but allege that on October 15, 1926, the articles of incorporation in question were presented to the Director of the Bureau of Commerce and Industry for registration. They deny paragraphs 9 and 10, except as to the filing of the application. They admit the allegations made in paragraph 11, but alleged that W. Z. Smith was without any right or authority. Admit the allegations of paragraph 12, but deny the allegations of paragraphs 13 and 14, and allege that the Western Electric Company, Inc., has never transacted business in the Philippine Islands; that its foreign business has been turned over to the International Standard Electric Corporation; that the action is prematurely brought; and that the registration of the articles of incorporation in question cannot in any way injure plaintiffs.

Wherefore, such defendants pray that the preliminary injunction be dissolved, and plaintiffs' cause of action be dismissed, with costs.

The case was tried and submitted upon the following stipulated facts:

Now come the parties plaintiff and defendants in the above entitled cause, by their respective undersigned attorneys, and for the purpose of this action, agree that the following facts are true:

I. That the Western Equipment and Supply Company is a foreign corporation, organized under the laws of the State of Nevada, United States of America; that the Western Electric Company, Inc., is likewise a foreign corporation organized under the laws of the State of New York, United States of America; and

that the plaintiff W. Z. Smith and Felix C. Reyes, are both of lawful age and residents of the City of Manila, Philippine Islands.

II. That the defendant Fidel A. Reyes is the duly appointed and qualified Director of the Bureau of Commerce and Industry and as such Director is charge with the duty of issuing and/or denying the issuance of certificates of incorporation to persons filing articles of incorporation with the Bureau of Commerce and Industry.

III. That the defendants, Henry Herman, Peter O' Brien, Manuel B. Diaz, Felipe Mapoy and Artemio Zamora are all of lawful age and all residents of the City of Manila, Philippine Islands.

IV. That on or about May 4, 1925, the plaintiff, the Western Equipment and Supply Company, through its duly authorized agent, the plaintiff, Felix C. Reyes, applied to the defendant Director of the Bureau of Commerce and Industry for the issuance of a license to engage in business in the Philippine Islands and on May 20, 1926, said defendant issued in favor of said plaintiff a provisional license for that purpose which was permanent on August 23, 1926.

V. That the plaintiff, Western Electric Company, Inc., has ever been licensed to engage in business in the Philippine Islands, and has never engaged in business therein.

VI. That from and since the issuance of said provisional license of May 20, 1926, to the plaintiff, Western Equipment and Supply Company, said plaintiff has been and still is engaged in importing and selling in the Philippine Islands electrical and telephone apparatus and supplies manufactured by the plaintiff Western Electric Company, Inc. (as well as those manufactured by other factories), said Western Equipment and Supply Company's offices in the City of Manila being at No. 600 Rizal Avenue, and at the time of the filing of the complaint herein was under the charge and management of the plaintiff, Felix C. Reyes, its then resident agent in the Philippine Islands.

VII. That the electrical and telephone apparatus and supplies manufactured by the plaintiff, Western Electric Company, Inc., have been sold in foreign and interstate commerce for the past fifty years, and have acquired high trade reputation throughout the world; that at the present time the greater part of all telephone equipment used in Manila, and elsewhere in the Philippine Islands, was manufactured by the said plaintiff, Western Electric Company, Inc., and sold by it for exportation to the Philippine Islands; that such equipment, manufactured by the said Western Electric Company, Inc., and bearing its trade-mark "Western Electric" or its corporate name is generally sold and used throughout the world; that a Philippine Corporation known as the `Electric Supply Company, Inc.,' has been importing the manufactures of the plaintiff, Western Electric Company, Inc., into the Philippine Islands for the purpose of selling the same therein, and that the defendant Henry Herman, is the President and General Manager of said corporation.

VIII. That the words `Western Electric' have been registered by the plaintiff, Electric Company, Inc., as a trade-mark under the provisions of the Act of Congress of February 20, 1905, in the office of the Commissioner of the Patents at Washington, District of Columbia, and said trade-mark remains in force as the property of said plaintiff to this date.

IX. That the plaintiff, Western Electric Company, Inc., is advertising its manufacturers in its own name by means of advertising its manufactures in its own name by means of advertisements inserted in periodicals which circulate generally throughout the English and Spanish speaking portions of the world, and has never abandoned its corporate name or trade-mark, but, on the contrary, all of its output bears said corporate name and trade-mark, either directly upon the manufactured article or upon its container, including that sold and used in the Philippine Islands.

X. That on October 15, 1926, the defendants Henry Herman, Peter O'Brien, Manuel B. Diaz, Felipe Mapoy and Artemio Zamora signed and filed articles of incorporation with the defendant, Fidel A. Reyes, as Director of the Bureau of Commerce and Industry, with the intention of organizing a domestic corporation under the Philippine Corporation Law to be known as the "Western Electric Company, Inc.," for the purpose, among other things or manufacturing, buying, selling and dealing generally in electrical

and telephone apparatus and supplies; that said defendants Peter O'Brien, Felipe Mapoy and Artemio Zamora are employees of the said Electrical Supply Company, of which said defendant, Henry Herman, is and has been, during the period covered by this stipulation, the president and principal stockholder; and that they, together with the said defendant Herman, signed said articles of incorporation for the incorporation of a domestic company to be known and the "Western Electric Company, Inc.," with full knowledge of the existence of the plaintiff Western Electric Company, Inc., of its corporate name, of its trade-mark, "Western Electric," and of the fact that the manufactures of said plaintiff bearing its trade-mark or corporate name are in general use in the Philippine Islands and in the United States.

XI. That on October 20, 1926, the plaintiff, W. Z. Smith, was authorized by the Board of Directors of the plaintiff, Western Electric Company, Inc., to take all necessary steps for the issuance of a license to said company to engage in business in the Philippine Islands, and to accept service of summons and process in all legal proceedings against said company, and on October 21, 1926, said plaintiff, W. Z. Smith, filed a written application for the issuance of such license with the defendant Director of the Bureau of Commerce and Industry, which application, however, has not yet been acted upon by said defendant.

XII. That on October 18, 1926, the Philippine Telephone and Telegraph Co., by its general manager, the plaintiff W. Z. Smith. lodged with the defendant Director of the registration of the proposed corporation by the defendants Henry Herman, Peter O'Brien, Manuel B. Diaz, Felipe Mapoy and Artemio Zamora, to be known as the Western Electric Company, Inc., as a domestic corporation under the Philippine Corporation Law. A copy of said protest, marked Exhibit A, hereunto attached and is hereby made a part of this stipulation.

XIII. That the defendant, Fidel A. Reyes, Director of the Bureau of Commerce and Industry, announced his intention of overrule said protest and will, unless judicially restrained therefrom, issue to the other defendants herein a certificate of incorporation, constituting said defendants a Philippine body politic and corporate under the name of "Western Electric Company, Inc."

XIV. That the defendant, Henry Herman, acting in behalf of said corporation, Electrical Supply Company, Inc., has written letters to Messrs. Fisher, DeWitt, Perkins & Brady, acting as attorneys for plaintiff, Western Electric Company, Inc., copies of which are hereunto annexed and hereby made a part hereof, marked Exhibits B, C and D.

XV. That the defendants, while admitting the facts set out in paragraph VII and IX regarding the business done, merchandise sold and advertisements made throughout the world by the plaintiff Western Electric Company, Inc., insist and maintain that said allegations of fact are immaterial and irrelevant to the issues in the present case, contending that such issued should be determined upon the facts as they exist in the Philippine Islands alone.

To which were attached Exhibits A, B, C and D.

The lower court rendered judgment for the plaintiffs as prayed for in their complaint, and made the temporary injunction permanent, from which the defendants appeal and assign the following errors:

The lower court erred:

(1) When it granted the writ of preliminary injunction (pages 9 and 10, record; 12 to 14, B. of E.).

(2) When it held that the Western Electric Co., Inc., a foreign corporation, had a right to bring the present suit in courts of the Philippine Islands, wherein it is unregistered and unlicensed, as was done in the decision upon the petition for a preliminary injunction (pages 97 to 115 record), and in repeating such holding in the final decision herein (pages 51 and 52, B. of E.), as well as in basing such holding upon the decision of this Honorable Supreme Court in Marshall-Wells Co. vs. Henry W. Elser & Co. (46 Phil., 70.)

(3) When it found that the plaintiff, the Western Electric Co., Inc., has any such standing in the Philippine Islands or before the courts thereof as to authorize it to maintain an action therein under the present case.

(4) When it found that the other plaintiffs herein have any rights in the present controversy or any legal standing therein.lawphi1.net

(5) In ordering the issuance of a permanent injunction restraining the defendant Fidel A. Reyes, as Director of the Bureau of Commerce and Industry, from issuing a certificate of incorporation in favor of the other defendants under the name of "Western Electric Co., Inc.," or any similar name, and restraining the other defendants from using the name "Western Electric Co., Inc.," or any like name, in the manufacture of sale of electrical and telephone apparatus and supplies or as a business name or style in the Philippine Islands.

(6) In finding that the purpose of the defendants, other than the defendant Fidel A. Reyes, in seeking to secure the registration of a local corporation under the name of "Western Electric Co., Inc.," was "certainly not an innocent one," thereby imputing to said defendants a fraudulent and wrongful intent.

(7) In failing to dismiss plaintiffs' complaint with costs against the plaintiffs.

(8) In overruling and denying defendants' motion for a new trial.

JOHNS, J.:

The appellants say that the two questions presented are:

Has a foreign corporation, which has never done business in the Philippine Islands, and which is unlicensed and unregistered therein, any right to maintain an action to restrain residents and inhabitants of the Philippine Islands from organizing a corporation therein bearing the same name as such foreign corporation?

Has such foreign corporation a legal right to restrain an officer of the Government of the Philippine Islands, i. e., the Director of the Bureau of Commerce and Industry from exercising his discretion, and from registering a corporation so organized by residents and inhabitants of the Philippine Islands?

As to the first question, the appellees say that it should be revised, so as to read as follows:

Has a foreign corporation which has never done business in the Philippine Islands, and which is unlicensed and unregistered therein, any right to maintain an action to restrain residents and inhabitants of the Philippine Islands from organizing a corporation therein bearing the same name as such foreign corporation, when said residents and inhabitants have knowledge of the existence of such foreign corporation, having dealt with it, and sold its manufactures, and when said foreign corporation is widely and favorably known in the Philippine Islands through the use therein of its products bearing its corporate and trade name, and when the purpose of the proposed domestic corporation is to deal in precisely the same goods as those of the foreign corporation?

As to the second, the appellees say that the question as propounded by the appellants is not fully and fairly stated, in that it overlooks and disregards paragraphs 12 and 13 of the stipulation of facts, and that the second question should be revised to read as follows:

Has an unregistered corporation which has not transacted business in the Philippine Islands, but which has acquired a valuable goodwill and high reputation therein, through the sale, by importers, and the

extensive use within the Islands of products bearing either its corporate name, or trade-mark consisting of its corporate name, a legal right to restrain an officer of the Commerce and Industry, with knowledge of those facts, from issuing a certificate of incorporation to residents of the Philippine Islands who attempt to organize a corporation for the purpose of pirating the corporate name of such foreign corporation, of engaging in the same business as such foreign corporation, and of defrauding the public into thinking that its goods are those of such foreign corporation, and of defrauding such foreign corporation and its local dealers of their legitimate trade?

We agree with the revisions of both questions as made by the appellees, for the reason that they are more in accord with the stipulated facts. First, it is stipulated that the Western Electric Company, Inc., "has never engaged in business in the Philippine Islands."

In the case of Marshall-Wells Co. vs. Henry W. Elser & Co. (46 Phil., 70, 76), this court held:

The noncompliance of a foreign corporation with the statute may be pleaded as an affirmative defense. Thereafter, it must appear from the evidence, first, that the plaintiff is a foreign corporation, second, that it is doing business in the Philippines, and third, that it has not obtained the proper license as provided by the statute.

If it had been stipulated that the plaintiff, Western Electric Company, Inc., had been doing business in the Philippine Islands without first obtaining a license, another and a very different question would be presented. That company is not here seeking to enforce any legal or contract rights arising from, or growing out of, any business which it has transacted in the Philippine Islands. The sole purpose of the action:

"Is to protect its reputation, its corporate name, its goodwill, whenever that reputation, corporate name or goodwill have, through the natural development of its trade, established themselves." And it contends that its rights to the use of its corporate and trade name:

Is a property right, a right in rem, which may assert and protect against all the world, in any of the courts of the world — even in jurisdictions where it does not transact business — just the same as it may protect its tangible property, real or personal, against trespass, or conversion. Citing sec. 10, Nims on Unfair Competition and Trade-Marks and cases cited; secs. 21-22, Hopkins on Trade-Marks, Trade Names and Unfair Competition and cases cited." That point is sustained by the authorities, and is well stated in Hanover Star Milling Co. vs. Allen and Wheeler Co. (208 Fed., 513), in which they syllabus says:

Since it is the trade and not the mark that is to be protect, a trade-mark acknowledges no territorial boundaries of municipalities or states or nations, but extends to every market where the trader's goods have become known and identified by the use of the mark.

In Walter E. Olsen & Co. vs. Lambert (42 Phil., 633, 640), this court said:

In order that competition in business should be unfair in the sense necessary to justify the granting of an injunction to restrain such competition it must appear that there has been, or is likely to be, a diversion of trade from the business of the complainant to that of the wrongdoer, or methods generally recognized as unfair; . . . In most, if not all, of the cases in which relief has hitherto been granted against unfair competition the means and methods adopted by the wrongdoer in order to divert the coveted trade from his rival have been such as were calculated to deceive and mislead the public into thinking that the goods or business of the wrongdoer are the goods or business of the rival. Diversion of trade is really the fundamental thing here, and if diversion of trade be accomplished by any means which according to accepted legal canons are unfair, the aggrieved party is entitled to relief.

In Shaver vs. Heller & Merz Co. (48 C.C. A., 48; 108 Fed., 821; 65 L. R. A., 878,. 881), it is said:

The contention of counsel for the appellants here is a confusion of the bases of two classes of suits, — those for infringements of trade-marks, and those for unfair competition in trade. . . . In the former, title to the trade-marks is indispensable to a good cause of action; in the latter, no proprietary interest in the

words, names, or means by which the fraud is perpetrated is requisite to maintain a suit to enjoin it. It is sufficient that the complainant is entitled to the custom — the goodwill — of a business, and that this goodwill is injured, or is about to be injured, by the palming off of the goods of another as his.

The remaining question as to the jurisdiction of the courts over the defendant Reyes, as Director of the Bureau of Commerce and Industry, has been adversely decided to his contention in the case of Asuncion vs. De Yriarte (28 Phil., 67), in which, among other things, it is said:

If, therefore, the defendant erred in determining the question presented when the articles were offered for registration, then that error will be corrected by this court in this action and he will be compelled to register the articles as offered. If, however, he did not commit an error, but decided that question correctly, then, of course, his action will be affirmed to the extent that we will deny the relief prayed for.

It is very apparent that the purpose and intent of Herman and his associates in seeking to incorporate under the name of Western Electric Company, Inc., was to unfairly and unjustly compete in the Philippine Islands with the Western Electric Company, Inc., in articles which are manufactured by, and bear the name of, that company, all of which is prohibited by Act No. 666, and was made known to the defendant Reyes by the letter known in the record to the defendant Reyes by the letter known in the record as Exhibit A.

As appellees say:

These defendant, Herman and his associates, are actually asking the Government of the Philippine Island to permit them to pirate the name of the Western Electric Company, Inc., by incorporating thereunder, so that they may deceive the people of the Philippine Islands into thinking that the goods they propose to sell are goods of the manufacture of the real Western Electric Company. It would be a gross prostitution of the powers of government to utilize those powers in such a way as to authorize such a fraud upon the people governed. It would be the grossest abuse of discretion to permit these defendants to usurp the corporate mane of the plaintiff, and to trade thereupon in these Islands, in fraud of the Philippine public and of the true owners of the name and the goodwill incidental thereto.

The plaintiff, Western Electric Company, Inc., has been in existence as a corporation for over fifty years, during which time it has established a reputation all over the world including the Philippine Islands, for the kind and quality of its manufactured articles, and it is very apparent that the whole purpose and intent of Herman and his associates in seeking to incorporate another corporation under the identical name of Western Electric Company, Inc., and for the same identical purpose as that of the plaintiff, is to trespass upon and profit by its good name and business reputation. The very fact that Herman and his associates have sought the use of that particular name for that identical purpose is conclusive evidence of the fraudulent intent with which it is done.

The judgment of the lower court is affirmed, with costs. So ordered.

Avanceña, C.J., Johnson, Street, Malcolm, Villamor, Ostrand and Villa-Real, JJ., concur.

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