In the Philippines, trademark disputes often arise between parties claiming rights to the same mark. This Supreme Court decision clarifies that while registration is important, it doesn’t automatically guarantee ownership. The Court emphasized that prior use and good faith play crucial roles in determining who has the right to a trademark, protecting the original creators of brands from those who might try to take advantage of their established reputation.

The Battle Over ‘FARLIN’: When a Distributor Tries to Claim the Brand

This case revolves around a long-standing trademark dispute between Cymar International, Inc. (Cymar), a Philippine corporation, and Farling Industrial Company, Ltd. (Farling), a Taiwanese corporation. Cymar sought to register several trademarks containing the name “FARLIN,” used for baby products. Farling opposed these registrations, arguing that it was the original owner of the FARLIN trademark and that Cymar was merely a distributor of its products. The central legal question is: Who has the right to use and register the FARLIN mark and its derivatives in the Philippines?

The legal framework for resolving this dispute involves both the old Trademark Law (Republic Act No. 166) and the Intellectual Property Code (IPC). Under the old Trademark Law, ownership of a trademark was primarily based on actual use in commerce within the Philippines. The IPC, however, shifts the focus to registration as the operative act for acquiring trademark rights. Even under the IPC, registration only creates a prima facie presumption of ownership, which can be overturned by evidence of prior use and bad faith.

The Supreme Court meticulously reviewed the evidence presented by both parties. Key to Farling’s case was demonstrating that it had been exporting FARLIN-branded products to the Philippines through Cymar since 1982. This was supported by a vast collection of shipping documents, invoices, and correspondence between the two companies. Farling also presented evidence of its trademark registration in Taiwan and other countries, as well as promotional materials predating Cymar’s claimed first use.

On the other hand, Cymar argued that it was the first to register the FARLIN mark in the Philippines and that it had invested significant resources in building the brand’s reputation. However, the Court found that Cymar’s registration was obtained in bad faith, given its knowledge of Farling’s prior use and the existence of a distribution agreement between the parties. This distribution agreement, in fact, proved critical to the Court’s decision.

The Court cited numerous precedents establishing that a mere distributor does not acquire ownership rights to its principal’s trademark. The use of a trademark by a distributor inures to the benefit of the foreign manufacturer whose goods are identified by the trademark. Moreover, the Court emphasized that Cymar could not claim prior use of the FARLIN mark because its use was pursuant to the distribution agreement with Farling. As the Court stated in Superior Commercial Enterprises, Inc. v. Kunnan Enterprises Ltd.:

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

Adding to Cymar’s difficulties was a document titled “Authorization,” which Cymar claimed constituted a waiver by Farling of its trademark rights. The Court rejected this argument, finding that the Authorization pertained only to the copyright over the design of the FARLIN mark, not the trademark itself. Trademark and copyright are distinct intellectual property rights, and a waiver of copyright does not automatically transfer trademark rights. This is because trademark law protects brand names and logos used to identify products, while copyright law protects original artistic and literary works. Here, Farling had only agreed to let Cymar use the design, but not the underlying trademark.

Furthermore, the Court addressed several procedural issues raised by Cymar. Cymar argued that Farling had committed forum shopping by filing multiple cases involving the same trademark. The Court found that while the cases involved similar issues and parties, they were based on different causes of action. Each application for a distinct trademark, even if derivative of another, constitutes a distinct cause of action. This approach contrasts with a situation where a party files multiple cases based on the same set of facts and legal claims, hoping to obtain a favorable outcome in at least one forum.

The Court also addressed the admissibility of Farling’s evidence, particularly its Taiwanese trademark registration. Cymar argued that the registration was not properly authenticated and therefore had no probative value. The Court noted that proceedings before the Intellectual Property Office (IPO) are administrative in nature and not bound by the strict technical rules of evidence. This is a well-established principle in administrative law, allowing agencies to consider a wider range of evidence than would be admissible in a court of law. Additionally, the documents had already been submitted to the IPO for purposes of the 1994 Cancellation Case, making it unnecessary to resubmit the original documents each time. The Supreme Court echoed this principle:

These requirements notwithstanding, the Intellectual Property Office’s own Regulations on Inter Partes Proceedings (which governs petitions for cancellations of a mark, patent, utility model, industrial design, opposition to registration of a mark and compulsory licensing, and which were in effect when respondent filed its appeal) specify that the Intellectual Property Office “shall not be bound by the strict technical rules of procedure and evidence.”

In light of these findings, the Supreme Court upheld the IPO’s decision to deny Cymar’s trademark applications. The Court emphasized that while registration is important, it is not the sole determinant of trademark ownership. Prior use, good faith, and the circumstances of the commercial relationship between the parties are also critical factors to be considered. Here, Farling demonstrated that it was the original owner of the FARLIN trademark, and Cymar’s attempt to register the mark was tainted by bad faith and a violation of its fiduciary duty as a distributor.

FAQs

What was the key issue in this case?	The central issue was determining who had the right to use and register the FARLIN trademark in the Philippines: the original foreign manufacturer (Farling) or its local distributor (Cymar).
What is the difference between trademark and copyright?	A trademark protects brand names and logos used to identify goods or services, while copyright protects original artistic and literary works. A waiver of copyright does not automatically transfer trademark rights.
What is the significance of ‘prior use’ in trademark law?	Prior use refers to the first commercial use of a trademark in a particular territory. Under the old Trademark Law, prior use was a key factor in determining trademark ownership.
What is the ‘first-to-file’ rule?	The “first-to-file” rule, as implemented by the IPC, generally grants trademark rights to the first party to register a mark. However, this presumption can be overcome by evidence of bad faith or prior rights.
What does ‘bad faith’ mean in trademark registration?	Bad faith in trademark registration means that the applicant knew about another party’s prior use of an identical or similar mark when filing the application. This implies an intent to take advantage of another’s goodwill.
How does a distribution agreement affect trademark rights?	Generally, a distributor does not acquire ownership rights to its principal’s trademark. The use of the trademark by the distributor typically inures to the benefit of the principal (the manufacturer or owner of the mark).
What is ‘forum shopping,’ and did it occur in this case?	Forum shopping is filing multiple lawsuits based on the same cause of action, hoping one court will rule favorably. The Court found no forum shopping because each case involved a distinct trademark application.
Why were photocopies of documents allowed as evidence in this case?	Proceedings before the IPO are administrative and not bound by strict rules of evidence. The original documents were also already part of IPO records, making resubmission unnecessary.
How does the Intellectual Property Code (IPC) affect this case?	The IPC emphasizes registration as the primary means of acquiring trademark rights. However, prior use and bad faith remain relevant factors in determining trademark ownership, especially in cases initiated before the IPC’s enactment.

This case underscores the importance of conducting thorough due diligence before attempting to register a trademark. Companies should ensure that they are not infringing on the rights of others, particularly those who have a history of prior use. The Supreme Court’s decision serves as a reminder that trademark rights are not solely determined by registration but also by equitable principles of good faith and fair dealing.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: CYMAR INTERNATIONAL, INC. VS. FARLING INDUSTRIAL CO., LTD., G.R. Nos. 177974, 206121, 219072 and 228802, August 17, 2022