THE APEC TRAINING PROGRAM ON COMPETITION POLICY

FOR APEC MEMBER ECONOMIES

DEVELOPMENTS IN COMPETITION POLICY/LAW

THE PHILIPPINE SCENARIO

August 5-7, 2003

Melai Hotel Hanoi, Vietnam

Under the Aegis of the

Ministry of Trade, Vietnam and Fair Trade Commission, Japan

Presented by: Atty. RODOLFO B. GILBANG

DEPARTMENT OF TRADE & INDUSTRY

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DEVELOPMENTS IN COMPETITION POLICY/LAW The Philippine Scenario

INTRODUCTION

A. The State of Competition Policy in the Philippines.

During the past several years the Philippines has pursued a vigorous policy to

develop a business climate that would entice foreign investments into the country. We have laws to promote competition and prevent monopolies. And in the implementation of the rules on competition and restrictive business practices, including the protection of foreign investors, the Philippines adopts the generally accepted principles of international law as part of the law of the land. The Philippine Constitution mandates the State to protect Philippine enterprises against “unfair” competition and trade practices. It also orders the prohibition of monopolies and combinations in restraint of trade or unfair competition liable to administrative sanctions and criminal prosecutions subject under the Revised Penal Code and related statutes. The law on Monopolies and Combinations under Republic Act 3247, as amended, and the Revised Penal Code, as amended by Republic Act 1956, make up the basic stature which prohibits unfair trade practices, monopolies and combinations in restraint of trade. The law deters any person, firm or entity from monopolizing or attempting to monopolize, or from taking part in any conspiracy or combination in the form of trust in restraint of trade or commerce or from restraining free competition in the market. Its objective is to promote efficiency by effectively promoting desirable competition resulting in increased output, faster growth and lower prices of goods and services. Laws on competition of the Philippines, however have been criticized as largely ineffective. Three observations can be made of the present laws that serve to make them virtually ineffective.

1. Antitrust provisions have not been compiled and collated into a comprehensive antitrust legislation. Furthermore, the acts which are prohibited and considered illegal are too broad, general, and not very specific; aside from being archaic in character to prevent present day Unfair Trade Practices;

2. Very few cases have been heard/adjudicated by the regular Philippine

Courts on monopolies and unfair competition;

3. While specific implementing rules and regulations of the different antitrust and unfair competition laws are scattered under various categories,

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several government agencies appear to have been mandated to implement violations of unfair competition, trademark infringement and other related laws;

B. Pending Bills

Despite the Philippine government’s desire to pass pertinent competition laws, recognizing in effect the importance of promoting free and fair competition and in creating a favorable business environment with a view to strengthening the legal and institutional framework to combat monopolies that are harmful to the public interest, several measures proposed in both Houses of Congress, remain pending as the present concern was particularly more on economic measures, anti dangerous-drugs, anti terrorism and anti-money-laundering bills. Below is a list of pending bills on Competition issues, viz:

House Bill No. 183 An Act Penalizing Unfair Trade Practices and Combinations in Restraint of Trade, Creating the Fair trade Commission, Appropriating Funds Therefor and For Other Purposes. (Author: Congressman Rolando Briones)

House Bill No. 271 An Act Providing for Anti-Trust Penalties. (Author:

Congressman Roilo Golez) House Bill No. 1373 An Act Penalizing Unfair Trade Practices and

Combinations in Restraint of Trade, Creating the Fair Trade Commission, Appropriating Funds Therefor, and For Other Purposes. (Author: Congressman Gerardo Espina)

House Bill No. 5281 An Act Creating a Special Body that Shall Regulate and

Exercise Authority over Monopolistic Practices, Combination in Restraint of Trade and Unfair Competition as Hereinafter Defined and Appropriating Funds Therefor. (Author: Congressman Monfort and Parcon)

Senate Bill No. 150 An Act Creating the Fair Trade Commission, Prescribing

Its Powers and Functions in Regulating Trade Competition and Monopolies and For Other Purposes. (Author: Senator Sergio Osmeña III)

Senate Bill No. 488 An Act Increasing the Penalty for Illegal Act of Price

Manipulation Committed by a Cartel, Amending for this Purpose Republic Act No. 7581, Otherwise known as the Price Act and For Other Purposes. (Author: Senator Blas Ople)

Senate Bill No. 889 An Act to Strengthen the Prohibition Against Monopolies

and Cartels of Basic Necessities or Prime Commodities, Amending for Other Purpose Republic Act Numbered Seventy Eight Hundred and Fifty One, Otherwise known as the Price Act. (Author: Senator Sergio Osmeña III)

Senate Bill No. 1792 An Act Prohibiting Monopolies, Attempt to

Monopolize an Industry or line of Commerce,

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Manipulation of Prices of Commodities, Asset Acquisition and Interlocking memberships in the Board of Directors of Competing Corporate Bodies, and Prices Discrimination Among Customers, etc. Providing Penalties therefor and for Other Purposes (Sponsored by Sen. Juan Ponce Enrile).

To ensure the enforcement and effective administration of antitrust legislation

these measures proposed the creation of an independent Fair Trade Commission that shall administer and enforce all laws and regulations governing monopolies, combinations in restraint of trade and unfair competition, including laws on consumer protection, among others.

Increasingly, competition law administration and enforcement rely heavily on

economic thought, techniques of analysis, and value preferences as tools in the determination of whether a given market conduct impedes competition and is, therefore, proscribed. Hence the need to entrust the enforcement of the law to a collegial body that has the requisite technical and specialized knowledge and expertise to respond to impermissible business conduct with the least risk of interfering with legitimate business operations. The Fair Trade Commission shall have original and exclusive jurisdiction in the enforcement of the law except, in respect to regulated industries where the function of enforcement shall continue to be exercised by the specialized government administrative agency exercising supervision and control over such regulated industry.

Other competition policy bills define the prescribed restrictive business practices, including monopolies, cartels, price fixing, price discrimination, tie-in arrangements including anti-competitive practices with respect to mergers, consolidation or asset acquisition.

During the period from January to November 2001 alone, under E.O. 913 (An Act

Strengthening the Adjudicatory Powers of the Secretary of Trade and Industry in the Prosecution of cases In Violation of Trade and Industry Laws) the Office of Legal Affairs (OLA) of the Department of Trade and Industry has prosecuted/adjudicated voluminous cases of unfair competition, trademark infringement, patent and copyright infringement, violation of Act 3883 as amended, (R.A. 7394 and IP Code) aside from unrecorded out-of-court settlement via voluntary arbitration and/or compromise agreement.

B. LAWS INVOLVED IN ADJUDICATION Before the enactment of R.A.No. 8293, otherwise known as the Intellectual Property Code of the Philippines, it was Executive Order 913 entitled, “Strengthening the Rule-Making and Adjudicatory Powers of the Minister of Trade and Industry In Order To Further Protect Consumers, the law that was enacted and promulgated by the then President Marcos, to address problems confronting the general public, consumers, creditors, holders of intellectual property rights, legitimate businessmen, and even the interests of the National Government with emphasis on the adjudication of cases in violation of trade and industry laws. In the original draft, the category of this law was “Presidential Decree”. But during that time President Marcos had a standing promise to the Batasang Pambansa (Congress of the Philippines) that he will use his decree-making power sparingly, hence

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the words “Presidential Decree” were erased and substituted with the words “Executive Order”. Nevertheless, the repealing clause (Section 20) was not touched. It says “all laws, decrees x x x x x x are hereby repealed or amended accordingly”, and this shows that E.O. 913 is a law; that the words “Executive Order” were used merely to camouflage it so as not to offend the Batasang Pambansa (Congress of the Philippines). Prior to E.O. 913, for regulatory laws being implemented by DTI’s attached entities, the one authorized to prescribe the IRRs for said laws are the respective boards and counsels. The Secretary of Trade and Industry cannot unilaterally issue the IRR for the said laws, even if he was the Chairman of some of said boards/councils. Neither can the Secretary adjudicate violations of those laws. It is not easy to convene a board/council. There was therefore the need to give the Secretary that concurrent power to issue IRR for those laws and to adjudicate violations of those laws and IRRs. The above problem have been addressed and solved with the issuance of E.O. 913. CONSTITUTIONALITY OF E.O. 913. Since the issuance of E.O. 913 on October 7, 1983, the constitutionality of the E.O. has not been contested in court. In the case of LA CHEMISE LACOSTE vs. JUDGE FERNANDEZ (Nos. L-637-96-97) and case of SUJANANI vs. MIN. ROBERTO V. ONGPIN, et.al. (Nos. 65659) (consolidated cases) 129 SCRA, 373, the Philippine Supreme Court cited with approval E.O. 913, as follows:

“One final point. It is essential that we stress our concern at the seeming inability of law enforcement officials to stem the tide of fake and counterfeit consumer items flooding the Philippine market or exported abroad from our country. The greater victim is not so much the manufacturer whose product is being faked but the Filipino consuming public and in the case of exportations, our image abroad. No less than the President, in issuing Executive Order No. 913 dated October 7, 1983 to strengthen the powers of the Minister of Trade and Industry for the protection of consumers, stated that, among other acts, the dumping of substandard, imitated, hazardous, and cheap goods, the infringement of internationally known tradenames and trademarks, and the unfair trade practices of business firms has reached such proportions as to constitute economic sabotage. We buy a kitchen appliance, a household tool, perfume, face powder, other toilet articles, watches, brandy or whisky, and items of clothing like jeans, T-shirts, neckties, etc. - the list is quite lengthy – and pay good money relying on the brand name as guarantee of its quality and genuine nature only to explode in bitter frustration and helpless anger because the purchased item turns out to be a shoddy imitation, albeit a clever looking counterfeit, of the quality product. Judges all over the country are well advised to remember that court processes should not be used as instruments to, unwittingly or otherwise, aid counterfeiters and intellectual pirates, tie the hands of the law as it seeks to protect the Filipino consuming public and frustrate executive and administrative implementation of solemn commitments pursuant to international conventions and treaties.”

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EXAMPLE OF THE APPLICATION OF E.O. 913. Suppose a store is selling fake T-shirts, jeans, shoes, and watches bearing famous brands like Lacoste, Levis, Lee, Seiko, Gucci, Guess and Reebok, among others, what can the owners of the said TMs’ do? Prior to the enactment of the Intellectual Property Code the trademark owner cannot file a criminal case for unfair competition against the store, because at that time Article 189 of the Revised Penal Code did not include the store owner. But the trademark owner can file a civil case under R.A. 166. When E.O. 913 was issued, the Department of Trade and Industry was able to administratively adjudicate cases like this Relatedly, the newly enacted R.A. 7394, (Consumer Act of the Philippines) adjudication system applies only when the complainant is a “consumer”. If the complainant is a juridical person or the violation was discovered only by DTI enforcement team/task force (and hence the Complainant is DTI acting motu proprio), the case can not be filed under R.A. 7394’s procedure. The case should be filed under E.O. 913’s procedure. Under E.O. 913, the term “adjudication” covers the “mediation stage” as well as the “hearing-deciding stage”. PENALTIES IMPOSABLE

1. Issuance of cease and desist order or final injunction. 2. Acceptance of voluntary assurance of compliance (consent of

complainant is not necessary). This is not a case of Compromise Agreement where both parties have to agree (Art 2028, Civil Code).

3. Condemnation (destruction) of the goods.

4. Forfeiture of the goods subject of the offense, including the paraphernalia

and proceeds of the offense in favor of the government. 5. Imposition of an administrative fine in the maximum amount of

P/150,000.00. When EO 913 was issued, it was the highest administrative fine in the whole national government. Q. Can a fine higher than P/150,000.00 be imposed? A. Yes, if the respondent will agree to that in a Voluntary Undertaking. This was applied by Minister Roberto V. Ongpin, then (Minister) Secretary of DTI, when he imposed a million peso fine to a trader who was found in flagrante delicto, of hoarding basic goods.

6. The cancellation of any permit, license, authority or registration which

may have been granted by Department of Trade and Industry (DTI).

7. The suspension of the validity of the said permit, license, etc.

8. If the respondent has a pending application with DTI for said permit, license, etc., said application may be withheld.

9. The imposition of damages. The present practice of Office of Legal

Affairs, the office under the DTI mandated by law to adjudicate cases in

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violation of trade and industry laws, is to limit this to actual damages and to attorney’s fees. The reason is that the determination of the other kinds of damages is laborious and it can be better handled by the regular court.

10. Censure.

11. Other analogous penalties.

a. Closure of the store factory, warehouse, etc. This is analogous to

cancellation/suspension of permit/license, etc. b. Ordering the Respondent to recall replace, repair or referred

defective products distributed in commerce. This is analogous to “voluntary undertaking”.

LAWS THAT INDIRECTLY AMENDED EO 913.

1. The Consumer Act of the Philippines (R.A. 7394) provides for its own administrative adjudication procedure and penalties. Maximum administrative fine is P/300,000.00.

2. The Price Act (RA 7581) provides for a maximum administrative fine of

P/1M.

3. The new Intellectual Property Code of the Philippines (RA 8293) authorizes the Bureau of Legal Affairs, Intellectual Property Office to adjudicate certain IPR cases.

In the adjudication of trade and industry laws cases E.O. 913, specifically in TM Infringement and Unfair Competition the following pertinent provisions have been the focal points, to wit:

1. R.A. No. 166 (“the old Trademark Law”), Section 21-A thereof clearly provides for the right of foreign complainants to sue in the Philippines, viz:

“SEC. 21-A. Any foreign corporation or juristic

person to which a mark or trademark has been registered or assigned under this Act may bring an action hereunder for infringement or for unfair competition or false designation of origin and false description whether or not it has been licensed to do business in the Philippines under Act Numbered Fourteen Hundred and Fifty-Nine, as amended, otherwise known as the Corporation Law, at the time it brings complaint: Provided that the country of which the said foreign corporation or juristic person is a citizen or in which it is domiciled, by treaty, convention or law; grants similar privilege to corporate or juristic persons of the Philippines (Underscoring for emphasis).

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2. Corollary hereto. Article 2 of the Paris Convention, to which the Philippines and the U.S. are parties, provides:

ARTICLE 2

“(1) Nationals of any country of the Union shall, as regards the protection of industrial property, enjoy in all the other countries of the Union the advantages that their respective laws now grant or may hereafter grant, to nationals, all without prejudice to the rights specially provided for by this Convention. Consequently, they shall have the same protection as the latter, and the same legal remedy against any infringement of their rights provided that the conditions and formalities imposed upon nationals are complied with”.

“(2) However, no requirement as to domicile or

establishment in the country where protection is claimed may be imposed upon nationals of countries of the Union for the enjoyment of any industrial property rights”.

3. Amidst the backdrop of an internationally famous mark and the issues

correlated thereto, Article 6 bis of the Paris Convention is quoted:

ARTICLE 6 bis

“The countries of the Union undertake, either administratively if their registration so permits, or at the request of an interested party, to refuse or to cancel the registration and to prohibit the use of a TM which constitutes a reproduction, imitation or translation, liable to create confusion, of a mark considered by the competent authority of the country of registration or use to be well-known on that country as being already the mark or a person entitled to the benefits of the present Convention and used for identical or similar goods. There provision shall also apply when the essential part of the mark constitutes a reproduction or any such well-known mark or an imitation liable to create confusion therewith”.

In determining whether the Trade mark ™ is well-known in the Philippines or is

a mark already belonging to a person entitled to the benefits of the Paris Convention, criteria was set in the case of LA CHEMISE LACOSTE, S.A. vs. FERNANDEZ (129 SCRA 373). viz:

a. A declaration by the Minister (now Secretary) of Trade and Industry that the TM being considered is already well-known in the Philippines such that permission for its use by other, than its original owner, will constitute a reproduction, imitation, translation or other infringement;

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b. That the TM is used in commerce internationally, supported by proof that goods bearing the TM are noted on an international scale, advertisements, the establishment of factor sales offices, distributorships, and the like, in different countries, including volume or other measure of international trade and commerce;

c. That the TM is duly registered in the industrial property office(s) of

another country or countries taking into consideration the dates of such registration;

d. That the TM has been long established and obtained goodwill and

general international consumer recognition as belonging to one owner or source;

e. That the TM actually belongs to a party claiming ownerships and has the

right of registration under the provisions of the aforestated PARIS CONVENTION

In another leading Philippine case, entitled, MIRPURI vs. Court of Appeals (348

SCRA vs, (1999), the Philippine Supreme Court clarifies the nature of the Paris Convention, the Philippine obligations under the same and its legal implications upon the rights of the owners in this country, thus:

“Article 6 bis of the Paris Convention governs protection to well-known Trademarks. Under the first paragraph, each country of the Union bound itself to undertake to refuse or cancel the registration, and prohibit the use of a trademark which is a reproduction, imitation or translation, or any essential part of which trademark constitutes a reproduction, liable to create confusion, or a mark considered by the competent authority of the country where protection is sought, to be well known in the country as being already the mark of a person entitled to the benefits of the Convention, and used for identical or similar goods.”

“Pursuant to Article 6 bis, on November 20, 1980,

Minister Luis Villafuerte of the Ministry of Trade and Industry issued a Memorandum to the Director of Patents. The Minister ordered the Director of Patents to reject all pending applications for Philippine registration of signature and other world-famous trademarks by applicants other than its original owners or users. The Memorandum also directed Philippine registrants of such trademarks of some world-famous marks to surrender their certificates of registration to avoid suits for damages and other legal action by the trademarks foreign or local owners or original users.”

“Three years later, on October 25, 1983, the Minister Roberto V. Ongpin issued another Memorandum to the Director of Patents in the exercise of its authority under Executive Order No. 913 directing the Director of patents to implement measures necessary to effect

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compliance with our obligations under the said (Paris Convention).” “Both the Villafuerte and Ongpin Memoranda were sustained by the Supreme Court in the 1984 landmark case of La Chemise Lacoste S.A. vs. Fernandez (129 SCRA 373 [1984]). This court ruled therein that under the provision of Article 6 bis of the Paris Convention, the Minister of Trade and Industry was the competent authority to determine whether a trademark is well-known in this country.”

The protection of intellectual property rights in the Philippines has had a relatively

long history, dating back to 1947, when Republic Act 165, the old Patent Law-went into effect.

The Intellectual Property Code of the Philippines R.A. No. 8293 (“or IP Code”) took effect on January 1, 1998. Its provisions not merely codified the various IPR protection laws in force up to the time of its emergence, but substantially revised the old Trademark Law and Patent Law which were in effect from 1946 to 1997 and those of the Intellectual Property Decree, which was effective from 1972. However, it is worth stressing that the Philippine Supreme Court has not yet promulgated any decision interpreting and applying the new IP Code provisions. The decisions recently issued by the Supreme Court still involved the interpretation of the provisions of the old Trademark Law, Patent Law and the Intellectual Property Decree.

The provisions of the Intellectual Property Code (or IP Code) have implemented the mandate of the Philippine Constitution to protect and secure the exclusive rights of scientists, inventors, artists, and other gifted citizens to their intellectual property and creations, particularly when beneficial to the people and its own precept that “the use of intellectual property bears a social function.

In the context of the Philippines accession to and ratification of treaties on

Intellectual property that require it to comply with certain minimum obligations imposed upon member countries, R.A. 8294 (or IP Code) was enacted albeit the presence of antiquated law on competition. Adherence to these treaties has placed pressure upon developing countries, including the Philippines, to effectively enforce the intellectual property rights of nationals of other member countries of these treaties, at the same time that it bound itself to recognize that the “use of intellectual property bears a social functions”.

The IP Code literally implements the Agreement on Trade Related Aspects of Intellectual Property Rights (“THE TRIPS AGREEMENT”) provision on the protection of well-known marks. This it does not only by barring the registration of marks that are confusingly similar to well-known marks, whether or not registered in the Philippines but also by extending the protection of, such mark, where it is registered in the country, even to goods or services which are not similar to those with respect to which registration is applied for, if the use of the mark in relation to those goods or services would indicate a connection between those goods and services and the owner of the registered mark and if the interests of the owner of the registered mark are likely to be damaged by such use.

The TRIPS Agreement is the first successful attempt to treat protection of intellectual property as an item of trade negotiations among nations. This may have

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resulted from the issues and concerns expressed by intellectual property right holders in industrialized countries that ineffective protection of intellectual property rights is a disincentive to the entry of foreign investments in the countries with lax enforcement mechanisms.

While trade treaties like the General Agreement on Tariff and Trade are intended

to ensure open trade among members countries, the TRIPS Agreement is not directly aimed at liberalizing market access and free markets.

In fact, it has been a long standing criticisms from a perspective of competition law that intellectual property rights hinder rather than promote competition and market access and thus amount to an antithesis of free trade envisaged by the overall system of World Trade Organization rules.

The preamble of the TRIPS Agreement recognizes the tension between

monopoly rights in intellectual property and free competition and market access that it seeks to encourage and promote, viz:

“DESIRING TO REDUCE DISTORTIONS AND

IMPEDIMENTS TO INTERNATIONAL TRADE, AND TAKING INTO ACCOUNT THE NEED TO PROMOTE EFFECTIVE AND ADEQUATE PROTECTION OF INTELLECTUAL PROPERTY RIGHTS, AND TO ENSURE THAT MEASURES AND PROCEDURES TO ENFORCE INTELLECTUAL PROPERTY RIGHTS DO NOT THEMSELVES BECOME BARRIERS TO LEGITIMATE TRADE”.

The TRIPS AGREEMENT broadens the scope of ARTICLE 6 bis of the PARIS

CONVENTION (1967) on protection of well-known marks. This it does by making such protection available not only to goods and services identical or similar to those for which a well-known mark is registered but also to goods or services which are not similar to those in respect of which a trademark is registered. However, it requires that the use of the trademark in relation to those goods or services would indicate a connection between those goods and/or services and the owner of the registered trademark and that the interests of the owner of the registered trademark are likely to be damaged by such use.

The most significant provision of the TRIPS AGREEMENT relating to protection

of trademarks owners is the explicit recognition that the owner of a registered trademark shall have the exclusive right to prevent all third parties not having his consent from using in the course of trade identical or similar signs for goods or services which are identical or similar to those in respect of which the trademark is registered where such use would result in a likelihood of confusion.

Additionally, while Article 6 bis of the Paris Convention is silent on the criteria for

well-known marks beyond implying that such determination is to be made “by the competent authority of the country of registration or use, “the TRIPS AGREEMENT recognizes that renown of a mark may transcend national boundaries. Hence, TRIPS AGREEMENT so provides that in determining whether a TM is well-known, members shall take account of the knowledge of the TM in the relevant sector of the public, including knowledge in the member concerned which has been obtained as a result of the promotion of the TM.

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ISSUE ON

IDENTICAL & CONFUSION The IP Code recognizes the right of the registered TM owner-proprietor to its exclusive use in commerce but this exclusivity only applies against the use by others in the course of trade and identical or similar signs for goods or services which are identical or similar to those in respect of which the TM is registered. Furthermore, this subsequent use becomes actionable only if it causes a likelihood of confusion among consumers.

In granting exclusive rights to TM owners -proprietors, the statute intends to serve the broader social objective of creating consumers who can make informed judgment when they purchase branded products or services. The law of unfair competition also serves the same purpose, while the prohibition against unfair competition works to the benefit of the trader who has gained goodwill among consumers for his products or services, it is equally intended to protect consumers against deception by unscrupulous traders or other manufacturers. In brief, the law on TMs ensures that traders compete for consumer patronage by means of fair and square because the state has an interest in the efficient conduct of business and avoiding ruinous competition among traders and manufactures. Since trademarks are protected only to the extent that they have acquired the goodwill of consumers, TM applications cannot mature into registration if the trademarks are not used in commerce within 3 years from the filing date of the application. In the field of PATENTS, the most significant changes involved a shift from the “FIRST TO INVENT” system under the old Patents Law, to the “FIRST-TO-FILE” mode under the IP Code. In the case of inventions, the period of the grant now runs 20 years from the date of filing instead of the 17 years under RA 165, while utility models are now protected for only 7 years without renewal instead of 5 years with 5 years renewals. As far as penalties go, infringement is now meted the penalty of P/ 100,000 Pesos to P/300,000 and/or 6 months to 3 years of imprisonment. This changes reflects a recognition of the extent of economic damage infringement causes. The offense now prescribes only after 3 year instead of 2, thus giving the properly right holders more opportunity to go after the infringers.

As Between TREATY vis-à-vis NATIONAL LAW

Prior to the IP Code, at least one case raised the following issue: in the event

Philippine law imposes certain requirements for TM protection, which may not be required under a treaty to which the Philippines adheres, may a foreign right holder enforce his rights under the treaty provisions alone? While the Supreme Court reached a negative conclusion in an earlier case the IP Code appears to have significantly reinforced the legal capacity of foreign TM owners who are nationals of countries that are members of international conventions and treaties to which the Philippines adheres by explicitly considering treaty provisions as part of national law.

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This renders treaty obligations enforceable before Philippine courts in contrast to a prior limited enforceability of treaty provisions under a Supreme Court precedent when these provisions conflict with national law.

The IP Code afforded foreign trademark owners, who are nationals of countries that are members of an international convention or a treaty relating to intellectual property rights to while the Philippine also adheres, the benefits “necessary to give effect to any provision of such convention, treaty or reciprocal law, in addition to the rights to which any owner of an intellectual property rights is otherwise entitled by this Act. Effectively, therefore, these national may sue for the enforcement of their rights under an applicable treaty or under the IP Code.

Accordingly and pursuant to Section 168 of R.A. 8293, it specifically provides:

“Sec. 168. Unfair Competition, Rights, Regulation 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 registered mark is employed has a proprietary right in the goodwill of the said goods business or services identified which will be protected in the name manner as other property rights.”

“Sec. 168.2. Any person who shall apply deception or

any other means contrary to good faith by which he shall pass off the goods manufactured by him or on 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.’

“Sec. 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 agent of any vendor engaged in selling such goods with 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

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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.

Sec. 169. Designation of origin: False Description or

representation. - 169.1. Any person who, or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any consideration thereof, or any false designation of origin, false or misleading description of fact, or false is misleading representation of fact which:

a) Is likely to confuse, or to cause mistake, or to

deceive as to the affiliation connection or association of such person with another person or as to the origin, sponsorship or approval of his or her goods, services, or commercial activities of another;

b) In commercial advertising or promotion,

misrepresents the nature, characteristics, qualities or geographic origin of his or her or another person’s goods, service or commercial activities. x x x x x x

Note however that regardless of treaty provisions, foreign right holders

may be unable to enforce their intellectual or industrial property rights in the Philippines, if they transact business in the Philippines without the required license to do business in the Philippines.

Under the IP Code, such a foreign national may sue for infringement or

unfair competition only if it “does not engage in business in the Philippines.” Foreign corporations that do business in the Philippines without a license may be sued but are disqualified from suing before Philippine courts.

However, in consolidated cases, Philippine Supreme Court held that a

foreign corporation, whose products are sold in the Philippines by an independent distributor selling the goods in his own name and for its own account is not deemed doing business in the Philippines:

“In the present case, however, the Petitioner is a foreign

corporation not doing business in the Philippines. The marketing of its products in the Philippines is done through an exclusive distributor, RUSTAN COMMERCIAL Corporation. The latter is an independent entity which buys and then markets not only products of the petitioner but also mainly other products bearing equally well-known and established

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trademarks and tradenames. In other words, RUSTAN is not a mere agent or conduit of the Petitioner.”

The Petitioner in that case, therefore, may sue in the Philippines. An independent distributor, as in the La Chemise Lacoste case, takes title to the goods bearing the foreign mark and sells them in its own name and for its own account. Where the foreign TM owner retains title to the goods bearing its TM notwithstanding delivery to the distributor, the arrangement may be considered a mere consignment of the goods rather than an outright sale. The distributor then may be considered an agent of the foreign TM owner, who may be disqualified from enforcing its trademark rights unless it has obtained a license to do business in the Philippines.

PROVISION ON TM INFRINGEMENT

Under Sec 155 of the IP Code the following acts constitute infringement when

undertaken without the consent of the owner of a registered trademark:

“Use in commerce of 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, 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 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 advertisement intended to be used in commerce upon or in connection with the sale, offering for sale, distribution, or advertising of goods or services or in connection with which such use is likely to cause confusion or to cause mistake or to deceive.”

INFRINGEMENT is committed at the moment the above criteria are met

regardless of whether or not there is any actual sale of goods or services using the infringing material. REGISTRATION of the mark is an essential requirement for a cause of action for TM Infringement because it is constructive proof of the registrant’s ownership of the mark. Colorable imitation is sufficient for infringement. Similarity is the test for infringement of trademark. However, if an exact reproduction, counterfeit, copy or imitation of the genuine trademark were required, it would make the remedy available in very few cases because most traders desirous of filching the trade of others in this way will use colorable imitation or suggestive reproduction of the trademark that they intend to appropriate rather than exact counterfeits.

ISSUE ON UNFAIR COMPETITION

It has been the gauge that if the TM or trade dress is not registered, the trademark owner’s cause of action against the unauthorized user is unfair competition.

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Under Section 168.3 of the IP Code it enumerates the acts which 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.

It may be stressed, however, that no inflexible rule can be laid down as to what

will constitute unfair competition. Each case is, in a sense, a law unto itself. Unfair competition is always a question of fact. The universal test is whether

the public is likely to be deceived. The question to be determined, however, in every case is whether or not, as a matter of fact, the name or mark used by the defendant has previously come to indicate and designate plaintiff’s goods.

LIKELIHOOD OF CONFUSION STANDARD Whether the action is for trademark infringement or unfair competition, the TM owner must show that consumers are likely to be confused by unauthorized use of its colorable imitations of its trademark and trade dress. The Supreme Court has summarized, in dealing with likelihood of confusion, these considerations:

“It has been correctly held that side-by-side comparison is not the final test of similarity. Such comparison requires a careful scrutiny to determine in what points the labels of the products differ. The ordinary buyer does not usually make such a scrutiny nor does he usually have the time to do so. The average shopper is usually in a hurry and does not inspect every product on the shelf as if he were browsing in a library. Where the housewife has to return home as soon as possible to her baby or the working woman has to make quick purchases during her off hours she is apt to be confused by similar labels even if they do have minute differences. The male shopper is worse as he usually does not bother about such distinctions.

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The question is not whether the two articles are distinguishable by their label when set side by side but whether the general confusion made by the article upon the eye of the casual purchaser who is unsuspicious and off his guard in such as to likely result in his confounding it with the original.

A number of courts have held that to determine whether a TM

has been infringed, we must consider the mark as a whole and not as dissected. If the buyer is deceived it is attributable to the marks as a totality, not usually to any part of it. The court therefore should be guided by its first impression for a buyer acts quickly and is governed by a casual glance the value of which may be dissipated as soon as the court assumes to analyze carefully the respective features of the mark.

It has also been held that it is not the function of the court in

cases of infringement and unfair competition to educate purchases but rather to take their carelessness for granted, and to be ever conscious of the fact that marks need not be identical. A confusing similarity will justify the intervention of capacity. The judge must also be aware of the fact that usually a defendant in cases of infringement does not normally copy but makes only colorable changes well has it been said that 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.

“DOMINANT FEATURE” TEST

In applying the above considerations to specific cases, the courts have examined whether or not the unauthorized TM or trade dress carries the “dominant feature” of the owner’s TM or trade dress. If the competing TM contains the main or essential or dominant features of another and confusion and deception are 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. For one trade name to be an infringement upon another, it need not be exactly like it in form and sound, It is enough if the one so resembles the other as to deceive or mislead persons of ordinary caution into the belief that they are dealing with the one concern when in fact they are dealing with the other. The IP Code however rejected the “holistic test” in favor of the “dominant feature” of a registered mark is an infringement of the owner’s right.

FUNCTIONALITY OF TRADE DRESS The IP Code grants protection to TM because they enable consumers to distinguish the goods and services of one manufacturer or trader from those of others. This way, trademark help prevent consumer confusion.

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The IP Code provision that protects “features” of products may be applied only to

features that serves as Trademarks, not features that serve functional purposes. By exceeding these functional features from registrability as marks or industrial designs, the law makes them available for use by competitors without risk of liability for infringement of marks or industrial designs. The net effect is encouragement of competition by making functional features freely available for use by competing manufacturers.

The Supreme Court has decided at least one case where it declared that the

features of the trade dress of a product that serve functional purposes may be imitated by competitors without any risk of liability for TM infringement or unfair competition.

Asia Brewery Inc. v. San Miguel Corporation involved an action for trademark

infringement and unfair competition by SMC, which is the registered owner of the trademark SAN MIGUEL PALE PILSEN, against Asia Brewery, which manufactured and sold a rival beer product bearing the generic mark BEER PALE PILSEN and using the same kind of steinie bottle. The Supreme Court held that these similarities do not amount to an actionable infringement and unfair competition, reasoning:

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 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 but 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 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 from the others.

TRADEMARK EXHAUSTION UNDER THE IP CODE

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Under a regime of regional exhaustion as applied to TM rights, once goods have been placed on the relevant market by the TM owner or under his sponsorship, the owner’s rights are exhausted. Third parties may resell the marked goods and use the mark in promoting such sales, without interference from the owner of the mark –provided the good have not undergone any change, such as being with other goods or being repackaged.

The IP Code prohibits the use of a trademark, which is reproduction, counterfeit

copy, or colorable imitation on the registered trademark without the consent of the registrant, where such use is likely to cause confusion or deception among purchasers. Parallel importation cannot be considered an act of infringement under this provision, since the TM on the goods is genuine and has been affixed with the consent or authority of the TM owner. Infringement exists only if the TM has been affixed to the goods without the consent of the TM owner.

The IP Code allows a TM owner to record his registered TM with the Bureau of

Customs and t hen to ban the importation of goods bearing a copy or simulation of such registered mark. This implies that the provision cannot be used to prevent the importation of goods bearing authentic Trademarks.

In a policy statement of the International Chamber of Commerce entitled,

Exhaustion of Intellectual Property Rights, it took the position that the concept of exhaustion of intellectual property rights is of great importance to companies the reason is that “it influences the extent to which the distribution of goods protected by their intellectual property rights can be controlled”. Under the exhaustion concept, after an intellectual property right holder has sold a product to which its intellectual property rights are attached, it can not prevent the subsequent resale of that product because its intellectual property right in it are considered exhausted by the first sale.

The IP Code still follows the general rule of TM exhaustion since only counterfeit

products are banned/barred from being imported into the country. The TM provisions of the IP Code therefore are not trade-restricted and serve to encourage competition by allowing parallel imports of branded products.

COPYRIGHT EXHAUSTION The WIPO Copyright Treaty was adopted during the diplomatic conference on certain copyright and Neighboring Rights Questions in Geneva on December 20, 1996. Under Philippine Senate Resolution No. 244, the Philippine Senate ratified the Philippine accession to the treaty earlier this year. The IP Code adopts an uncircumscribed rule of exhaustion in Section 177.3 thereof, which conform that the author shall have, among others, the right to carry out, authorize or prevent” the first public distribution of the original and each copy of the work by sale of other forms of transfer of ownership.” Section 177.3 embodies the first sale doctrine in copyright law. Under this doctrine, the copyright holder has the exclusive right to control the first public distribution of the original and each copy of the work by sale or other forms of transfer of ownership. The copyright owner’s distribution right is therefore exhausted by the first authorized sale of the original or copies of the work. The owner of the lawfully acquired original or

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copies of the work may then dispose of the original or copies in any manner by sale, donation or destruction without any liability to the copyright proprietor. The first sale of the work therefore exhausts only the distribution right, not to the rights of copyright, and exhaustion occurs only when the possessor has lawfully acquired the original or copies of the work. Hence the possession of a lawful copy may only distribute the work without liability for violation of the copyright proprietors distribution right but may not reproduce it or create a derivative work from it. If the possessor acquired a piratical copy of a novel, the copyright proprietor’s distribution right is not exhausted and the possessor of such copies may not further reproduce the work or adopt it to motion picture version, except under pain of copyright infringement liability. As in the exhaustion of patent rights, copyright exhaustion serves the primordial objective for granting copyright protection. This protection is granting copyright protection. This protection is grant to authors only as an incident of the state objective of promoting the progress of science and the useful arts.

Similarly in this score the TRIPS AGREEMENT expands protection for copyright works by explicitly providing that computer programs, whether in source or object mode shall be protected as literary works under the Berne Convention. It also creates for owners of copyright in computer programs and cinematographic works the right to authorize or to prohibit the commercial rental to the public of originals or copies of their copyright works. Thus, it has been held “the immediate effect of our copyright law is to secure a fair return for an authors creative labor. But the ultimate aim is, by this incentive, to stimulate artistic creativity for the general public good. This sole interest of the state and the primary objects in conferring the monopoly lie in the general benefit s derived by the public from the labors of authors. The IP Code grants effective protection to nationals of member countries in respect of their intellectual property rights, consistent with the minimum obligation imposed by the TRIPS Agreement upon member countries. The IP Code may be interpreted to have recognized the right of such foreign national to enforce their rights under current treaties in addition to their rights under the IP Code. It may also have reinforced the protection for well-known marks by recognizing that renown of a mark may be acquired through knowledge of the relevant sector of the public, rather than the public at large, including knowledge in the Philippines which has been obtained as a result of the promotion of the mark. This may have the effect of dispensing with the prior requirement of actual use of the mark in the Philippines or the protection of well known-marks.

C O N C L U S I O N In conclusion, with the advent of high technology and sophisticated means of unfair competition practices, we reiterate therefore the enactment of an improved antitrust legislation to promote fair competition. We recognize that:

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1) Legitimate monopolies can exist and should not be penalized; 2) The best remedy to prevent that abuse of monopolistic power is the

promotion of contestability in markets through deregulation and other such measures; and

3) That to plug loopholes, inspite of open markets, antitrust legislation is still

very much necessary.

4) Protection of Intellectual property creators and investors must be amply made by strict implementation of pertinent laws on Anti-Piracy; Unfair Competition and other related Intellectual Property Rights Infringement;

5) Institutionalization, through Educational incorporation Competition Laws

in the school curricula for elementary and high schools levels must be instituted.

In a new publication entitled “INTELLECTUAL PROPERTY: A Power Tool for Economic Growth,” World Intellectual Property Organization (WIPO) Director-General Kamil Idris proposes the following, taking into consideration on the importance of intellectual property creation and its protection therefor:

a) Intellectual property is a “power tool” for economic growth that is not yet being used to optimal effect in all countries, particularly in the developing world;

b) Strategic use of the intellectual property system can add value of these

(intangible) assets which include inventiveness, creativity and knowledge;

c) Intellectual assets as a “force that can be used to enrich the lives of individuals and the future of nations materially culturally and socially;

d) Patents, trademarks, geographical indications, and copyright and related

rights can be used to promote business development and economic growth;

e) In the area of enforcement, Mr. Idris-cautioned against relying solely on

the police, Customs officials, and the courts. Instead, a development of an intellectual property culture” built on an awareness of the importance of Intellectual property and respect for the rights of innovators and creator”.

f) Enforcement is a multi-layered concept it can not be approached only

through the police, customs and courts. Without political will, the appropriate legislative framework and an intellectual property culture there can be no enforcement, and ultimately, the country and its economy will suffer

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