In Willaware Products Corporation v. Jesichris Manufacturing Corporation, the Supreme Court affirmed that deliberately copying a competitor’s products and hiring their employees constitutes unfair competition under Article 28 of the Civil Code. The Court emphasized that while competition is generally encouraged, using unjust or oppressive methods to gain an unfair advantage is prohibited. This ruling protects businesses from malicious acts intended to undermine their operations and secures fair market practices, ensuring that companies compete based on innovation and efficiency rather than deceitful tactics.

When Imitation Isn’t Flattery: Defining Unfair Competition in Manufacturing

The case arose from a complaint filed by Jesichris Manufacturing Corporation against Willaware Products Corporation, alleging unfair competition. Jesichris claimed that Willaware, a nearby manufacturer of kitchenware, began producing plastic-made automotive parts that were strikingly similar to Jesichris’s products. This was allegedly achieved by employing former Jesichris employees who were familiar with their designs and processes. Jesichris argued that Willaware was deliberately copying its products and selling them to the same customers at lower prices, thereby causing significant financial damage. The central legal question was whether Willaware’s actions constituted unfair competition under Article 28 of the Civil Code, which addresses unjust, oppressive, or high-handed methods in business.

The Regional Trial Court (RTC) initially ruled in favor of Jesichris, finding that Willaware had indeed engaged in unfair competition by deliberately copying Jesichris’s products and targeting its customers. The RTC awarded actual, exemplary, and attorney’s fees, and issued a permanent injunction against Willaware, preventing them from manufacturing similar plastic automotive parts. Willaware appealed to the Court of Appeals (CA), arguing that without intellectual property protection on Jesichris’s products, copying them did not amount to unfair competition. Willaware further contended that it had not lured away Jesichris’s employees to obtain trade secrets, but merely hired individuals with relevant skills. The CA affirmed the RTC’s finding of unfair competition but modified the award by deleting the actual damages and awarding nominal damages instead, while maintaining the awards for exemplary and attorney’s fees. The CA held that while Jesichris had not proven actual financial losses, Willaware’s dishonest actions warranted recognition and vindication of Jesichris’s rights.

The Supreme Court (SC) addressed the core issue of whether Willaware’s actions constituted unfair competition under Article 28 of the Civil Code. The SC clarified that the case fell under the realm of human relations rather than intellectual property law, as the products in question were not covered by patent registration. This distinction is crucial because Article 28 provides a broader scope for addressing unfair competition than intellectual property laws, encompassing actions that are contrary to good conscience or shocking to judicial sensibilities. According to the SC, “unfair competition in agricultural, commercial or industrial enterprises or in labor through the use of force, intimidation, deceit, machination or any other unjust, oppressive or high-handed method shall give rise to a right of action by the person who thereby suffers damage.“

The Court emphasized that the law aims to prevent the use of unjust, oppressive, or high-handed methods that deprive others of a fair chance to engage in business. The SC outlined two critical characteristics of unfair competition: injury to a competitor or trade rival and acts that are contrary to good conscience or otherwise unlawful. In this case, both characteristics were present. First, Willaware and Jesichris were clearly competitors in the manufacture of plastic automotive parts. Second, Willaware’s actions were deemed contrary to good conscience, as they deliberately copied Jesichris’s products, employed its former employees, and targeted its customers. The SC cited the CA’s observation that Willaware’s hiring of Jesichris’s former employees and copying of its products were indicative of bad faith and mischievous calculation. The testimonies of witnesses indicated that Willaware was intentionally trying to undermine Jesichris’s business.

The Supreme Court highlighted specific instances of Willaware’s questionable behavior. Willaware, previously engaged in manufacturing kitchenware, suddenly shifted to producing plastic automotive parts, coinciding with the hiring of former Jesichris employees. One such employee, De Guzman, was hired to adjust Willaware’s machinery, suggesting that Willaware was relying on his experience gained from working for Jesichris. Another employee, Yabut, was hired by Willaware shortly after being fired from Jesichris on suspicion of spying. These actions, according to the Court, demonstrated a deliberate effort to gain an unfair advantage over Jesichris. Furthermore, the SC noted that Willaware’s General Manager admitted that the company had not been involved in the plastic automotive parts business until recently and that they were familiar with Jesichris’s products. The SC also referenced testimony indicating that Willaware’s intention was to drive Jesichris out of business within two years.

The Court cited the principle that starting a business with the sole purpose of driving a competitor out of business, regardless of one’s own potential losses, constitutes a wanton wrong. The Court upheld the finding that Willaware was guilty of unfair competition under Article 28 of the Civil Code. While the SC affirmed the CA’s decision, it modified the award of attorney’s fees, reducing it to Fifty Thousand Pesos (P50,000.00) to align with the reduced award of nominal damages. The decision underscores the importance of ethical business practices and reinforces the legal protection against unfair competition under Philippine law. This case serves as a reminder that while competition is a cornerstone of a healthy market, it must be conducted fairly and without resorting to unjust or oppressive tactics.

FAQs

This case provides a clear precedent for defining and addressing unfair competition in the Philippines. It reinforces the importance of ethical business practices and provides recourse for businesses that suffer damages due to unjust or oppressive competitive tactics. Companies should ensure they compete fairly and avoid actions that could be construed as deliberately undermining their competitors.

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: Willaware Products Corporation v. Jesichris Manufacturing Corporation, G.R. No. 195549, September 03, 2014