Tag: Passing Off

Unfair Competition: Similarity in Packaging and Intent to Deceive

In San Miguel Pure Foods Company, Inc. v. Foodsphere, Inc., the Supreme Court addressed whether Foodsphere, Inc. engaged in unfair competition by marketing its “PISTA” ham in packaging similar to San Miguel Pure Foods Company, Inc.’s (“SMPFCI”) “FIESTA HAM.” The Court ruled in favor of SMPFCI, finding that Foodsphere’s packaging and marketing tactics created a confusing similarity between the products and demonstrated an intent to deceive consumers. This decision underscores the importance of protecting intellectual property rights and preventing businesses from unfairly capitalizing on the goodwill and established reputation of others.

Hamming It Up: When Packaging Mimicry Leads to Unfair Competition

The dispute began when SMPFCI, the maker of “PUREFOODS FIESTA HAM,” filed a complaint against Foodsphere, alleging trademark infringement and unfair competition. SMPFCI contended that Foodsphere’s “PISTA” ham, particularly its packaging and promotional materials, too closely resembled its own, leading to consumer confusion. SMPFCI claimed that Foodsphere’s actions were a deliberate attempt to capitalize on the goodwill it had established over decades. In response, Foodsphere denied these allegations, arguing that its products were clearly marked with its own brand, “CDO,” and that SMPFCI could not claim exclusive rights to elements such as red color schemes or images of sliced ham with fruit. The central legal question was whether Foodsphere’s actions constituted unfair competition under the Intellectual Property Code, specifically Section 168.

The Intellectual Property Code (IP Code) provides legal recourse against unfair competition. Section 168.2 states:

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.

The case made its way through the Intellectual Property Office (IPO), the Court of Appeals (CA), and ultimately to the Supreme Court (SC), with varying results. The Bureau of Legal Affairs (BLA) of the IPO initially dismissed SMPFCI’s complaint. However, the Office of the Director General reversed in part, finding Foodsphere liable for unfair competition but not trademark infringement. Both parties appealed to the CA, which affirmed the Director General’s finding of unfair competition. The CA initially awarded exemplary damages but later deleted this award, prompting SMPFCI to question the deletion before the SC.

The Supreme Court analyzed the elements of unfair competition, particularly the confusing similarity in the general appearance of the goods and the intent to deceive the public. The Court emphasized that unfair competition involves passing off one’s goods as those of another, thereby deceiving consumers. It cited the case of Shang Properties Realty Corporation, et al. v. St. Francis Development Corporation, which highlighted that unfair competition consists of “the passing off (or palming off) or attempting to pass off upon the public of the goods or business of one person as the goods or business of another with the end and probable effect of deceiving the public.”

The Court highlighted that the essential elements of an action for unfair competition are: (1) confusing similarity in the general appearance of the goods; and (2) intent to deceive the public and defraud a competitor. The intent to deceive and defraud may be inferred from the similarity of the appearance of the goods as offered for sale to the public. Actual fraudulent intent need not be shown.

In its analysis, the Supreme Court underscored the importance of examining the overall presentation of the products, including packaging. The Court took note of several factors. Firstly, both products utilized paper ham bags as containers. Secondly, both bags prominently featured the color red. Finally, both had a similar layout design displaying sliced ham and fruits on the front, and other ham varieties on the back. The Court agreed with the CA and Director General that this created a likelihood of consumers believing that the products were the same, thus pointing towards unfair competition.

The Court further emphasized that it is not enough that the products bear their brand names, as the intent to copy the packaging can still mislead consumers. The court stated that:

…why, of the millions of terms and combinations of letters, designs, and packaging available, Foodsphere had to choose those so closely similar to SMPFCI’s if there was no intent to pass off upon the public the ham of SMPFCI as its own with the end and probable effect of deceiving the public.

The Court found that Foodsphere’s change from a paper box to a paper ham bag—similar to SMPFCI’s—along with the consistent use of the same layout design, indicated an intention to deceive the public and capitalize on SMPFCI’s goodwill. The Court found Foodsphere’s intent to deceive, to defraud its competitor, and to ride on the goodwill of SMPFCI’s products, is evidenced by the fact that not only did Foodsphere switch from its old box packaging to the same paper ham bag packaging as that used by SMPFCI, it also used the same layout design printed on the same.

Regarding SMPFCI’s claim for exemplary damages, the Supreme Court upheld the CA’s decision to remove the award, stating that SMPFCI had failed to sufficiently prove its entitlement to such damages. The Court referenced Article 2234 of the Civil Code, noting that while the amount of exemplary damages need not be proven, the plaintiff must demonstrate entitlement to moral, temperate, or compensatory damages before exemplary damages can be considered. In this instance, SMPFCI’s claims of lost income and sales were not supported by sufficient evidence, leading to the denial of exemplary damages.

FAQs

What was the key issue in this case?	The key issue was whether Foodsphere engaged in unfair competition by marketing its “PISTA” ham in packaging similar to SMPFCI’s “FIESTA HAM,” leading to consumer confusion. The Court ultimately ruled in favor of SMPFCI.
What is unfair competition under the Intellectual Property Code?	Unfair competition involves employing deception or bad faith to pass off one’s goods as those of another, thereby harming the goodwill of the other’s business. This includes giving one’s goods a general appearance that is likely to mislead purchasers into believing they are buying the goods of another manufacturer.
What are the essential elements of unfair competition?	The essential elements are (1) confusing similarity in the general appearance of the goods, and (2) intent to deceive the public and defraud a competitor.
How did the Court determine that there was a confusing similarity in this case?	The Court focused on the packaging of the products, noting that both used paper ham bags, the color red, and a similar layout design featuring sliced ham and fruits.
What evidence did the Court use to infer Foodsphere’s intent to deceive?	The Court noted that Foodsphere switched from its original box packaging to a paper ham bag similar to SMPFCI’s and used the same layout design, suggesting a deliberate effort to mimic SMPFCI’s product.
Why was the award for exemplary damages removed?	The award was removed because SMPFCI failed to provide sufficient evidence to prove its entitlement to moral, temperate, or compensatory damages, which are prerequisites for awarding exemplary damages.
What is the significance of the packaging in determining unfair competition?	The packaging plays a crucial role in determining unfair competition because it contributes to the overall appearance of the product. If the packaging is designed to mimic another product, it can mislead consumers and harm the goodwill of the original manufacturer.
Can a company claim exclusive rights to certain colors or images in its packaging?	While a company cannot claim exclusive rights to general elements like colors or images of common items, using similar elements to create a confusingly similar overall appearance can be a factor in determining unfair competition.

The Supreme Court’s decision in San Miguel Pure Foods Company, Inc. v. Foodsphere, Inc. serves as a reminder of the importance of respecting intellectual property rights and avoiding deceptive marketing practices. Businesses must ensure that their products are packaged and presented in a way that does not mislead consumers into believing they are buying a competitor’s goods. This case demonstrates that the courts will scrutinize not only the trademarks used but also the overall appearance and presentation of products when determining whether unfair competition has occurred.

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: SAN MIGUEL PURE FOODS COMPANY, INC. VS. FOODSPHERE, INC., G.R. Nos. 217781 and 217788, June 20, 2018

June 20, 2018

Deceptive Imitation: Upholding Fair Competition and Protecting Businesses from Counterfeit Goods

In Roberto Co v. Keng Huan Jerry Yeung, the Supreme Court affirmed that Roberto Co was liable for unfair competition for conspiring to sell counterfeit Greenstone Medicated Oil. The court found that Co, along with others, intentionally deceived the public by selling imitation products packaged to resemble the original, causing financial loss to the legitimate distributors. This decision reinforces the importance of protecting businesses from unfair practices like the sale of counterfeit goods, ensuring fair competition in the marketplace. The ruling highlights the judiciary’s commitment to safeguarding intellectual property rights and preventing consumer deception. This case underscores the legal consequences for those who engage in deceptive business practices that undermine legitimate businesses and mislead consumers.

Passing Off: When Imitation Leads to Unfair Competition

The case revolves around Greenstone Medicated Oil, a product manufactured by Greenstone Pharmaceutical in Hong Kong, owned by Keng Huan Jerry Yeung, and exclusively imported and distributed in the Philippines by Taka Trading, owned by Yeung’s wife, Emma Yeung. The respondents, Sps. Yeung, filed a complaint against Roberto Co and others for trademark infringement and unfair competition, alleging that they conspired to sell counterfeit Greenstone products. The central question is whether Co’s actions constituted unfair competition, warranting liability for damages. This case highlights the legal boundaries businesses must respect when marketing products similar to those of competitors, especially concerning potential consumer deception.

The Sps. Yeung presented evidence that a bottle of Greenstone purchased from Royal Chinese Drug Store, owned by Ling Na Lau, was of dubious authenticity. Yeung, along with his son, discovered seven bottles of counterfeit Greenstone on display for sale. Pinky Lau, the store’s proprietor, identified Co as the source of the counterfeit items, which she referred to as “Tienchi Fong Sap Oil Greenstone.” This led to the complaint against Co, who denied supplying counterfeit items and claimed that his Greenstone stocks came exclusively from Taka Trading. The Laus, on the other hand, claimed that the items were left by an unidentified person and that Pinky was forced to sign the note implicating Co.

The Regional Trial Court (RTC) ruled in favor of Sps. Yeung, finding Co and the Laus guilty of unfair competition. The RTC highlighted the conspiracy to sell counterfeit products, which resulted in confusion and deception among consumers. However, the RTC did not find them liable for trademark infringement due to the lack of evidence that the “Greenstone” trademark was registered at the time of the complained acts. Co and the Laus appealed the RTC’s decision.

The Court of Appeals (CA) affirmed the RTC’s decision, emphasizing the trial court’s credibility in assessing witnesses. The CA sustained the finding of unfair competition, noting that Sps. Yeung’s evidence outweighed that of Co and the Laus. Consequently, the CA upheld the awards of damages in favor of Sps. Yeung. Co then filed a petition to the Supreme Court.

The Supreme Court upheld the CA’s decision, emphasizing that factual findings of the lower courts are generally not reviewable under Rule 45 of the Rules of Court. It was found that both the RTC and CA adequately considered the evidence presented and correctly concluded that Co committed unfair competition.

Unfair competition is legally defined as:

the passing off (or palming off) or attempting to pass off upon the public of the goods or business of one person as the goods or business of another with the end and probable effect of deceiving the public. This takes place where the defendant gives his goods the general appearance of the goods of his competitor with the intention of deceiving the public that the goods are those of his competitor.

In this case, Co was found to have conspired with the Laus in selling counterfeit Greenstone products, packaged identically to the original. This established a fraudulent intent, leading to liability for unfair competition. The Court deemed the award of P300,000.00 as temperate damages appropriate, recognizing the pecuniary loss suffered by Sps. Yeung due to damage to goodwill. Additionally, the awards for moral and exemplary damages, attorney’s fees, and costs of suit were sustained.

While liable for unfair competition, Co was cleared of trademark infringement. This distinction hinged on the absence of proof that the trademark “Greenstone” was registered when the acts occurred. This highlights the differences between trademark infringement and unfair competition, as detailed in Del Monte Corporation v. Court of Appeals:

(a) the former is the unauthorized use of a trademark, whereas the latter is the passing off of one’s goods as those of another; (b) fraudulent intent is unnecessary in the former, while it is essential in the latter; and (c) in the former, prior registration of the trademark is a pre-requisite to the action, while it is not necessary in the latter.

The case also refers to Section 6, Rule 18 of A.M. No. 10-3-10-SC, or the “Rules of Procedure for Intellectual Property Rights Cases,” which provides guidance on intent to defraud or deceive:

SEC. 6. Intent to defraud or deceive. – In an action for unfair competition, the intent to defraud or deceive the public shall be presumed:

a) when the defendant passes off a product as his by using imitative devices, signs or marks on the general appearance of the goods, which misleads prospective purchasers into buying his merchandise under the impression that they are buying that of his competitors;

b) when the defendant makes any false statement in the course of trade to discredit the goods and business of another; or

c) where the similarity in the appearance of the goods as packed and offered for sale is so striking.

Moreover, Article 2224 of the Civil Code regarding temperate damages provides:

Art. 2224. Temperate or moderate damages, which are more than nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount can not, from the nature of the case, be proved with certainty.

This legal framework underscores the importance of fair competition and the protection of intellectual property rights, emphasizing the consequences of deceptive practices that undermine legitimate businesses and mislead consumers. The Supreme Court’s ruling serves as a crucial reminder for businesses to respect intellectual property rights and avoid practices that deceive consumers.

FAQs

What was the key issue in this case?	The key issue was whether Roberto Co was liable for unfair competition for selling counterfeit Greenstone Medicated Oil. The Supreme Court ultimately affirmed his liability.
What is unfair competition as defined by law?	Unfair competition involves passing off one’s goods as those of another to deceive the public. It includes giving goods a similar appearance to a competitor’s with the intent to mislead consumers.
What evidence was presented against Roberto Co?	Evidence showed that Co supplied counterfeit Greenstone products to Royal Chinese Drug Store, which were then sold to the public. These products were packaged identically to the original.
Why was Roberto Co not found liable for trademark infringement?	Co was not found liable for trademark infringement because there was no proof that the “Greenstone” trademark was registered at the time of the complained acts. Registration is a prerequisite for trademark infringement claims.
What damages were awarded to Sps. Yeung?	Sps. Yeung were awarded P300,000.00 as temperate damages, along with moral and exemplary damages, attorney’s fees, and costs of suit. These damages were meant to compensate for the financial loss and damage to goodwill suffered.
What is the difference between trademark infringement and unfair competition?	Trademark infringement is the unauthorized use of a registered trademark, while unfair competition involves passing off one’s goods as those of another. Fraudulent intent is essential in unfair competition but not in trademark infringement.
What does it mean to “pass off” goods?	“Passing off” refers to the act of presenting one’s products as those of a competitor, misleading consumers into thinking they are buying the competitor’s goods. This often involves imitating the appearance or packaging of the original product.
What is the significance of the Supreme Court’s decision in this case?	The decision reinforces the importance of protecting businesses from unfair practices and deceptive acts that undermine fair competition. It highlights the legal consequences for those who engage in the sale of counterfeit goods.

The Supreme Court’s decision in Roberto Co v. Keng Huan Jerry Yeung underscores the critical importance of fair competition and consumer protection in the marketplace. By holding Co liable for unfair competition, the Court reaffirmed the legal consequences for businesses that engage in deceptive practices, ensuring a level playing field for legitimate enterprises and preventing consumer deception. This case serves as a vital precedent for future disputes involving intellectual property rights and unfair trade practices, reinforcing the need for businesses to uphold ethical standards and respect the rights of 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: ROBERTO CO VS. KENG HUAN JERRY YEUNG AND EMMA YEUNG, G.R. No. 212705, September 10, 2014

September 10, 2014

Protecting Trademarks: Unauthorized Refilling Constitutes Infringement and Unfair Competition

In Republic Gas Corporation v. Petron Corporation, the Supreme Court affirmed that refilling LPG containers bearing registered trademarks without the owner’s consent constitutes both trademark infringement and unfair competition. This decision clarifies that even without directly selling counterfeit products, unauthorized use of branded containers can mislead consumers and harm trademark owners, leading to potential criminal liability for corporate officers involved. This ruling protects the integrity of trademarks and ensures consumers are not deceived about the source and quality of the products they purchase.

LPG Wars: When Refilling Becomes Infringing

The case originated from a complaint filed by Petron Corporation and Pilipinas Shell Petroleum Corporation against Republic Gas Corporation (REGASCO) for allegedly engaging in the unauthorized refilling and sale of LPG cylinders bearing their registered trademarks. Acting on this complaint, the National Bureau of Investigation (NBI) conducted a test-buy operation, which revealed that REGASCO was indeed refilling LPG cylinders bearing the trademarks of SHELLANE and GASUL without authorization. Following the operation, the NBI lodged a complaint against REGASCO and its officers for violations of the Intellectual Property Code of the Philippines, specifically Sections 155 and 168, which pertain to trademark infringement and unfair competition.

Initially, the Department of Justice (DOJ) dismissed the complaint, reasoning that REGASCO was merely refilling the cylinders brought to them and not passing off the goods as those of the complainants. However, the Court of Appeals (CA) reversed the DOJ’s decision, leading REGASCO to elevate the matter to the Supreme Court. The central legal question before the Supreme Court was whether probable cause existed to hold REGASCO and its officers liable for trademark infringement and unfair competition under the Intellectual Property Code.

The Supreme Court, in its analysis, focused on the specific provisions of the Intellectual Property Code related to trademark infringement. Section 155 of R.A. No. 8293 defines trademark infringement as using a reproduction, counterfeit, copy, or colorable imitation of a registered mark without the consent of the owner. This use must be in connection with the sale, offering for sale, distribution, or advertising of any goods or services and is likely to cause confusion, mistake, or deception among consumers. The Court emphasized that the unauthorized use of a container bearing a registered trademark in connection with the sale or distribution of goods is sufficient to constitute trademark infringement.

Section 155. Remedies; Infringement. – Any person who shall, without the consent of the owner of the registered mark:

155.1 Use in commerce any reproduction, counterfeit, copy or colorable imitation of a registered mark of the same container or a dominant feature thereof in connection with the sale, offering for sale, distribution, advertising of any goods or services including other preparatory steps necessary to carry out the sale of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive; or

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

Building on this principle, the Court stated that REGASCO’s act of refilling LPG containers bearing the registered marks of Petron and Shell without their consent constituted trademark infringement. The Court reasoned that consumers would be misled into believing that the gas contained in these refilled tanks was indeed the product of Petron and Shell. This deception undermines the trademark owners’ rights and misleads the public regarding the source and quality of the LPG product.

Regarding the charge of unfair competition, the Supreme Court referenced Section 168.3 of the Intellectual Property Code. This section identifies the acts that constitute unfair competition, including giving goods the general appearance of goods of another manufacturer or dealer. This can relate to the goods themselves, the packaging, or any other feature of their appearance that would likely influence purchasers to believe they are buying the goods of a different manufacturer or dealer. The key element of unfair competition is the attempt to pass off one’s goods as those of another, deceiving the public and defrauding a competitor of legitimate trade.

In this context, the Court agreed with the CA’s observation that by refilling and selling LPG cylinders bearing the registered marks of Petron and Shell, REGASCO was effectively selling goods that gave the general appearance of being the products of those companies. This act created a likelihood that consumers would be misled into believing that the LPG contained in the cylinders was the product of Petron and Shell, leading to unfair competition. The Court emphasized that the mere use of LPG cylinders bearing trademarks like “GASUL” and “SHELLANE” would inherently give REGASCO’s LPG the appearance of being the products of Petron and Shell.

The Court also addressed the liability of the corporate officers of REGASCO. It clarified that a corporation has a separate and distinct personality from its officers, directors, and stockholders. However, corporate officers who directly participate in or authorize the commission of a crime by the corporation can be held individually liable. In this case, the Court found that the officers of REGASCO, being in direct control and supervision of the company’s operations, were aware of the unauthorized refilling of LPG cylinders bearing the trademarks of Petron and Shell. Therefore, they could not hide behind the corporate veil to escape criminal liability.

The Supreme Court ultimately ruled that there was sufficient evidence to warrant the prosecution of REGASCO and its officers for trademark infringement and unfair competition. The Court affirmed the CA’s decision, which reversed the DOJ’s dismissal of the complaint. This ruling underscores the importance of protecting intellectual property rights and preventing deceptive practices that harm both trademark owners and consumers. The decision serves as a reminder that corporate officers cannot shield themselves from liability when they knowingly cause the corporation to commit a crime.

FAQs

What was the key issue in this case?	The key issue was whether refilling LPG cylinders bearing registered trademarks without the owner’s consent constitutes trademark infringement and unfair competition under the Intellectual Property Code.
What did the NBI investigation reveal?	The NBI investigation revealed that REGASCO was engaged in the unauthorized refilling of LPG cylinders bearing the trademarks of SHELLANE and GASUL.
What was the initial decision of the Department of Justice?	The Department of Justice initially dismissed the complaint, reasoning that REGASCO was merely refilling cylinders and not passing off the goods as those of the complainants.
How did the Court of Appeals rule?	The Court of Appeals reversed the DOJ’s decision, finding that there was probable cause to hold REGASCO liable for trademark infringement and unfair competition.
What does trademark infringement entail according to the Supreme Court?	The Supreme Court clarified that trademark infringement includes the unauthorized use of a container bearing a registered trademark in connection with the sale or distribution of goods, likely causing consumer confusion.
How did the Court define unfair competition in this case?	The Court defined unfair competition as giving goods the general appearance of goods of another manufacturer, deceiving the public into believing they are buying the products of that manufacturer.
Can corporate officers be held liable for crimes committed by the corporation?	Yes, the Court stated that corporate officers who directly participate in or authorize the commission of a crime by the corporation can be held individually liable.
What was the final ruling of the Supreme Court?	The Supreme Court affirmed the CA’s decision, ruling that there was sufficient evidence to warrant the prosecution of REGASCO and its officers for trademark infringement and unfair competition.

This case reinforces the importance of protecting intellectual property rights and preventing deceptive practices that harm both trademark owners and consumers. It clarifies the scope of trademark infringement and unfair competition in the context of unauthorized refilling of branded containers. This ruling underscores that corporate officers cannot shield themselves from liability when their actions contribute to these violations.

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: REPUBLIC GAS CORPORATION vs. PETRON CORPORATION, G.R. No. 194062, June 17, 2013

June 17, 2013

Unfair Competition: Trademark Ownership and Dissolved Partnerships

The Supreme Court ruled that filing a criminal complaint for unfair competition cannot prosper if the elements of the crime, such as deception, passing off, and fraud upon the public, are not present. Furthermore, if a partnership has effectively dissolved and one partner has bought out the other’s share, the remaining partner(s) have the right to use the partnership’s brand. This decision emphasizes the importance of proving deception and clarifies rights after partnership dissolution in intellectual property disputes.

Dissolved Partnership, Disputed Brand: Who Owns the Trademark?

This case revolves around Shirley F. Torres, Imelda Perez, and Rodrigo Perez, former business partners embroiled in a legal battle over trademark ownership and unfair competition. The central question is whether Imelda and Rodrigo Perez committed unfair competition by using the trademark “Naturals” after their partnership with Torres, Sasay’s Closet Co. (SCC), dissolved. The Supreme Court’s decision hinged on whether the elements of unfair competition were present and whether the Perez spouses had legitimately acquired the rights to the trademark following the dissolution of the partnership.

The factual backdrop begins with Torres and Sunshine Perez forming SCC, which supplied products to Shoe Mart (SM) under the trademark “Naturals with Design.” After Sunshine left the partnership, her mother, Imelda, stepped in. Disputes arose, leading to Imelda’s decision to dissolve the partnership. Subsequently, Torres discovered products bearing the “Naturals” brand being sold in SM under RGP Footwear Manufacturing’s vendor code, owned by the Perez spouses. This prompted Torres to file a criminal complaint for unfair competition against the Perez spouses, alleging that they were passing off the “Naturals” brand as their own, prejudicing SCC’s rights.

The legal framework for this case is rooted in Section 168 of Republic Act No. 8293, the Intellectual Property Code of the Philippines, which defines unfair competition. It states:

Sec. 168. Unfair Competition, Rights, Regulation and Remedies. – 168.1. 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 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.

The key elements of unfair competition, as established in CCBPI v. Gomez, are “deception, passing off and fraud upon the public.” To successfully prosecute a case of unfair competition, the plaintiff must demonstrate that the defendant employed deception to pass off their goods as those of the plaintiff, thereby defrauding the public.

The Regional Trial Court (RTC) initially found probable cause to issue a warrant of arrest against the Perez spouses, but the Department of Justice (DOJ) reversed this decision, finding that SCC had effectively wound up its affairs and that the Perez spouses had the right to use the “Naturals” brand after buying out Torres’ share. The Court of Appeals (CA) initially nullified the RTC’s orders denying the motion to dismiss the information against the Perez spouses, but later affirmed the RTC’s order quashing the information. The Supreme Court, in consolidating the petitions, ultimately sided with the Perez spouses, finding no probable cause to indict them for unfair competition.

The Supreme Court emphasized that the determination of probable cause necessitates establishing whether a crime was committed in the first place. In this case, the Court found that the crime of unfair competition was not committed. The Court highlighted that respondents were the exclusive owners of SCC, of which she is no longer a partner. Based on the findings of fact of the CA and the DOJ, respondents have completed the payments of the share of petitioner in the partnership affairs. Having bought her out of SCC, respondents were already its exclusive owners who, as such, had the right to use the “Naturals” brand.

The Court also noted that the use of RGP’s vendor code was merely a practical measure to ensure that payments from SM would go to the actual suppliers, the Perez spouses. More importantly, the Court found that the essential elements of unfair competition – deception, passing off, and fraud upon the public – were not present. The Court reasoned that vendor codes, used internally by SM for identification, could not be construed as a means of deceiving the public.

The Court’s decision underscores the importance of establishing deception and fraud in cases of unfair competition. It also clarifies the rights of partners in dissolved partnerships concerning the use of trademarks. The ruling indicates that if one partner buys out the other’s share, they acquire the right to use the partnership’s brand, absent any contractual restrictions. Building on this principle, the Supreme Court held that the elements of unfair competition were not present, and there was no deception foisted on the public through the use of different vendor codes, which are used by SM only for the identification of suppliers’ products.

This ruling has practical implications for business owners and legal practitioners. It clarifies the importance of properly documenting the dissolution of partnerships and the transfer of intellectual property rights. It also serves as a reminder that the elements of unfair competition must be clearly established to successfully prosecute such a case. Furthermore, this case highlights the principle that the findings of the DOJ, while persuasive, are not binding on the court. A judge must exercise sound discretion and make an independent assessment of the records to determine the existence of probable cause.

FAQs

What was the key issue in this case?	The central issue was whether the Perez spouses committed unfair competition by using the trademark “Naturals” after their partnership with Torres, Sasay’s Closet Co. (SCC), dissolved. The Supreme Court examined if the elements of unfair competition were present.
What is unfair competition according to the Intellectual Property Code?	Section 168 of the Intellectual Property Code defines unfair competition as employing deception or any other means contrary to good faith to pass off one’s goods as those of another, thereby damaging the goodwill of the latter. Deception, passing off, and fraud upon the public are the key elements.
What did the Department of Justice (DOJ) decide?	The DOJ reversed the initial finding of probable cause, stating that SCC had effectively wound up its affairs and the Perez spouses had the right to use the “Naturals” brand after buying out Torres’ share. This decision was a significant factor in the Supreme Court’s final ruling.
Why did the Supreme Court rule in favor of the Perez spouses?	The Supreme Court ruled that the essential elements of unfair competition were not present. The Court also took into account the fact that the Perez spouses had bought out Torres’ share in SCC, giving them the right to use the “Naturals” brand.
What is the significance of the vendor codes in this case?	The vendor codes were used by SM for internal identification of suppliers’ products. The Court found that the use of different vendor codes did not constitute deception of the public, as they were not visible to consumers.
What is the practical implication of this ruling for partnerships?	This ruling underscores the importance of properly documenting the dissolution of partnerships and the transfer of intellectual property rights. If one partner buys out the other’s share, they generally acquire the right to use the partnership’s brand, absent any contractual restrictions.
What must be proven to successfully prosecute a case of unfair competition?	To successfully prosecute a case of unfair competition, the plaintiff must clearly establish the elements of deception, passing off, and fraud upon the public. Evidence must show that the defendant intentionally misled consumers to believe that their goods were those of the plaintiff.
Is a judge bound by the findings of the Department of Justice?	No, a judge is not bound by the findings of the Department of Justice. While the DOJ’s findings are persuasive, a judge must exercise sound discretion and make an independent assessment of the records to determine the existence of probable cause.

In conclusion, the Supreme Court’s decision in Torres v. Perez clarifies the elements necessary to prove unfair competition and the rights of partners after the dissolution of a partnership concerning intellectual property. This ruling underscores the importance of establishing deception and fraud in unfair competition cases and provides guidance on trademark ownership in dissolved partnerships.

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: Shirley F. Torres v. Imelda Perez and Rodrigo Perez, G.R. No. 198728, November 28, 2012

November 28, 2012