INTELLECTUAL PROPERTY OFFICE OF THE PHILIPPINES

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IN-N-OUT BURGER, INC., APPEAL NO. 10-05-01Complainant-Appellant,

- versus -

SEHWANI INC. and/orBENITA'S FRITES, INC .,

Respondents-Appellees .x----------------------------------------------x

IPV No. 10-2001-00004Administrative Complaint for

Violation of Laws involvingIntellectual Property Rights

DECISIO N

This concerns the appeal from Decision No. 2003-02 dated 22 December 2003

rendered by the Director of the Bureau of Legal Affairs (Director), the dispositive

portion of which reads, as follows :

"With the foregoing disquisition, Certificate of Registration No . 56666dated 17 December 1993 for the mark: `IN-N-OUT' (the inside of the letter `O'formed like a star) issued in favor of Sehwani, Incorporated, is herebyCANCELLED . Consequently, Respondents Sehwani, Inc . and Benita's Frites arehereby ordered to permanently cease and desist from using the mark 'IN-N-OUTand IN-N-OUT BURGER LOGO' on its goods and in its business . With regardsthe mark `Double-Double', considering that as earlier discussed, the mark has beenapproved by this Office for publication and that as shown by the evidence,Complainant is the owner of the said mark, Respondents are also hereby orderedto permanently cease and desist from using the mark Double-Double . NOCOSTS ."

This case involves the determination of whether or not Respondents-Appellees

SEHWANI, INC. and/or BENITA'S FRITES, INC . (Appellees) are liable for unfair

competition .

Records show that on 04 June 2001, Complainant-Appellant IN-N-OUT

BURGER, INC. (Appellant), a foreign corporation duly organized and exis ting under the

laws of the State of California, United States of America, filed in the Bureau of Legal

in-n- out vs rehwampage t of lfi

IPO Building. 351 Sen . Gil Puyat Avenue, Makati City, Philippines 1200 Website : http ://ipophil.gov.ph

Affairs (BLA), an administrative complaint for violation of laws involving intellectual

property rights against the Appellees,' alleging the following:

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1 . It is the owner of the trade name IN-N-OUT and the following marks: IN-N-

OUT, IN-N-OUT Burger & Arrow Design and IN-N-OUT Burger Logo ;

2. Its marks are internationally well-known marks and have become distinctive of

its business and/or goods through its long and exclusive commercial use;

3. Its marks are duly registered in the Trademark Office of the United States of

America and in various parts of the world . 2

4. On 02 June 1997, it filed in the IPO trademark and service mark applications

for IN-N-OUT Burger & Arrow Design and IN-N-OUT;

5 . On 31 May 2000, the IPO issued Official Action Papers, which disclosed that

Appellee SEHWANI, INC. had obtained Trademark Registra tion for the mark IN N

OUT;

6. It sent a demand letter to Appellees to cease and desist from claiming

ownership of the mark IN-N-OUT and to voluntarily cancel its trademark registration ;

7 . On 23 October 2000, it received a response from Appe llees stating refusal to

accede to its demand but "are wi lling to buy peace" and "are wi lling to surrender (their)

trademark registra tion over IN-N-OUT in exchange for a fair and reasonable

consideration";

'Both domestic corporations, with principal address at 172 C . Raymundo Avenue, Maybunga, Pasig City .2 Appellant claimed that its marks are duly registered and/or applied for in the trademark or inte llectualproperty offices of other countries which are signatories to the Pari s Convention including, but not limitedto: Australia, Benelux, Canada, Denmark, France, Germany, Hong Kong, Japan, Mexico, New Zealand,Spain, South Korea, Switzerland, and the United Kingdom.

in-n-out vs. sehwa rupage 2of1 6

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8. Its internationa lly well-known trademarks and the mark of Appe llees, which

was registered for restauran t business, are clearly identical and confusingly similar as they

all contain the words "IN" and "OUT" and the letter "N" in the middle; and

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9. Appellees, in bad faith, employed deception in making it appear that their

goods and services are those of the Appellant, misleading ordinary and unsuspecting

purchasers and consumers into believing that Appellees' restaurant is that of the

Appellant.

Appellant also applied for the issuance of a temporary restraining order (TRO)

and/or a writ of preliminary injunction and an order to impound sales documents .

In their Answer with Counterclaim, Appellees alleged that :

1 . They first used the mark IN N OUT in the Philippines on 15 October 1982 ;

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2. On 15 November 1991, Appellee SEHWANI, INC . filed an application with

the then Bureau of Patents, Trademarks and Technology Transfer (BPTTT)' for the

registration of the mark IN N OUT (the inside of the "0" formed like a star) ;

3. On 17 December 1993, a certificate of registration was issued in favor of

Appellee SEHWANI, INC . ;

4. On 30 August 2000, Appellee SEHWANI, INC . licensed Appellee BENITA'S

FRITES, INC. to use its mark;

5. Appellant has no legal capacity to sue as it has never been in operation in the

Philippines, the complaint states no cause of action, and, Appellant does not have any

against it as the mark IN N OUT is registered in the name of Appellee SEHWANI,

INC.;

3 On 01 January 1998, Republic Act No. 8293, otherwise known as the Intellectual Property Code of thePhilippines took effect. Said Act, among other things, abolished the BPTIT and transferred its functionsto the newly created Intellectual Property Office (IPO) .

i n-n-out vs. schwanipage 3of1G

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6. Appellee SEHWANI, INC . being the registered owner of the mark IN N

OUT has in its favor the presumption that it has acquired a valid registration, that it is

the owner of the mark subject of registration, and, that it has the exclusive right to use

the mark; and

7. Republic Act No. 8293, otherwise known as the Inte llectual Property Code of

the Philippines, provides for the grounds when a certificate of registration may be

cancelled and that not one of such grounds exists in this case .

On 09 August 2001, the Director issued an Order denying the Appellants'

application for the issuance of a TRO. Appellant filed a Motion for Reconsideration,

which was denied by the Director per Resolution No . 2001-02 dated 27 November 2001 .

Thereafter, on 22 December 2003, the Director rendered the assailed Decision, which

includes a finding that the Appellees are not guilty of unfair competition .

Consequently, the Appellant moved for the partial reconsideration of the

decision on 13 February 2004. Appellant asked the Director to declare the Appellees

guilty of unfair competition and order them to pay attorney's fees, damages (double of

whatever amount to be awarded) and costs of suit, and the condemnation or seizure of

the products subject of the offense and forfeiture of paraphernalia and all real and

personal properties, which have been used in the commission of the offense .

On 25 April 2005, the Director issued Resolution No. 2005-05 denying the

Motion for Partial Reconsideration filed by the Appellant. Obviously not satisfied, the

Appellant elevated the case to this Office on appeal .

Stripped of non-essentials, the instant appeal reiterates the Appe llant's arguments

in the earlier proceedings in the BLA that the evidence on record clearly shows that

Appellees are passing off their business, goods and services for those of IN-N-OUT

Burger and are, thus, liable for unfair competition . Appellant contends that the ruling

that there cannot be passing off of goods in the absence of any transaction cove ring the

sale of food items and/or res taurant services in the Philippines is patently without meri t

in-n-out vs . sehwanipage4of1G

as sale is not an element of unfair competition . Appellant, thus, argues that Appellees

should be held liable for damages and award of attorney's fees .

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Commenting on the appeal, Appellees argue that no fraudulent intent could be

imputed to them as would make them liable for unfair competition . Appellees contend

that Appellant cannot claim that it has already identified in the mind of the public its

goods and/or services because the latter has never entered into any transaction involving

the same in the Philippines. Appellees also assert that they have openly and continuously

used the subject mark in good faith since 1982 . Appellees, thus, claim that they cannot

be held liable for damages, expenses of litigation and attorney's fees, there being no

fraudulent intent or bad faith on their part.

This Office's Ruling.

After due consideration of the foregoing and the evidence on record, this Office

finds the appeal meritorious .

On the Issue of Unfair Competition

Section 168 of Republic Act No . 8293 provides that:

"SEC. 168 . Unfair Competition, Rights, Regulations and Remedies .-168 .1 . A person who has identified in the mind of the public the goods hemanufactnres or deals in, his business or services from those of others, whether ornot a registered mark is employed, has a property right in the goodwill of the saidgoods, business or services so identified, which will be protected in the samemanner as other property rights .

"168.2 . Any person who shall employ deception or any other meanscontrary to good faith by which he shall pass off the goods manufactured by himor in which he deals, or his business, or services for those of the one havingestablished such goodwill, or who shall commit any acts calculated to produce saidresult, shall be guilty of unfair competition, and shall be subject to an actiontherefore .

"168 .3. In particular, and without in any way limiting the scope ofprotection against unfair competition, the following shall be deemed guilty ofunfair competition :

(a) Any person, who is selling his goods and gives them the generalappearance of goods of another manufacturer or dealer, either as to the goodsthemselves or in the wrapping of the packages in which they are contained, or thedevices or words thereon, or in any other feature of their appearance, which wouldbe likely to influence purchasers to believe that the goods offered are those of amanufacturer or dealer, other than the actual manufacturer or dealer, or wh o

in-n-out vs schwampage5of16

otherwise clothes the goods with such appearance as sha ll deceive the public anddefraud another of his legitimate trade, or any subsequent vendor of such goods orany 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 othermeans calculated to induce the false belief that such person is offering the servicesof another who has identified such services in the mind of the public ; o r

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

"168.4 . The remedies provided by Sections 156, 157 and 161 shall applymutatis mutandis ."

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Unfair competition concerns the passing-off or attempting to pass-off the public

the goods or business of one person as and for the goods or business of another. The

concept is to give protection to a person who has earned goodwill on his goods, business

or services. Unfair competition is a question of fact and the determination of the

existence thereof rests on the issue of whether or not, as a matter of fact, a defendant, is,

by conduct, passing off defendant's goods as plaintiff's goods or defendant's business as

plaintiff's business . The universal test is whether the public is likely to be deceived .; In

unfair competition, fraudulent intent is essential . '

In this case, there is substantial evidence that proves that Appellees are guilty of

unfair competition.

This Office does not agree with the Director's findings that the Appellees cannot

be held guilty of unfair competition because they were supposedly using their registered

trademark in good faith. The function of a trademark is to point out distinctly the origin

or ownership of the goods to which it is affixed ; to secure to him, who has been

instrumental in bringing into the market a superior article of merchandise, the fruit of his

industry and skill; to assure the public that they are procuring the genuine article ; to

prevent fraud and imposition; and to protect the manufacturer against substitution and

sale of an inferior and different article as his product . "

The evidence on record shows that the Appellees were not using their registered

trademark but that of the Appellant . Appellee SEHWANI, INC . was issued a Certificat e

4 G.R. No . 8937, 21 March 1914, Alhambra Cigar and Cigarette Manufacturing Co . vs. Pedro N . Mojica .5 Del Monte Corporation vs . Court of Appeals, G. R . No. L-78325, 25 January 1990.6 Pribadas J . Mirpuri vs. CA, G .R . No. 114508, 19 November 1999, citing Etepha vs, Director of Patents,16 SCRA 495 (1966), Gabriel V. Perez, 55 SCRA 406 (1974) .

in-n-out vs. sehwampage 6of16

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of Registration for IN N OUT (with the Inside of the Letter `O' Formed like a Star) for

restaurant business in 1993. The restaurant opened only in 2000 but under the name IN-

N-OUT BURGER'. Apparently, the Appellees started constructing the restaurant only

after the Appellant demanded that the latter desist from claiming ownership of the mark

IN-N-OUT and voluntarily cancel their trademark registration ." Moreover, Appellees are

also using Appellant's registered mark Double-Double' for use on hamburger products .

In fact, the burger wrappers and the french fries receptacles the Appellees are using do

not bear the mark registered by the Appellee, but the Appellant's IN-N-OUT Burger's

name and trademark IN-N-OUT with Arrow design . "

There is no evidence also that the Appellees were authorized by the Appellant to

use the latter's marks in their business . Appellees' explanation that they are not using

their own registered trademark due to the difficulty in printing the "star" does not justify

the unauthorized use of the Appellant's trademark instead .

Further, Appellees are giving their products the general appearance that would

likely influence purchasers to believe that these products are those of the Appellant. The

intention to deceive may be inferred from the similarity of the goods as packed and

offered for sale, and, thus, action will he to restrain such unfair competition ." As held by

the Supreme Cou rt in the case of Rueda Hermanos & Co. vs . Felix Paglinawan & Co.'',

"If the contents of the two packages are same commodity, it is no defenseto an action for unfair competition to show minor differences in the size or shapeof the packages or in the color or wording of the labels or wrappers of thepackages . If the exterior size, shape, color, and description, in other words, thosethings which go to make up the general outside appearance of the article are sosubstantially similar, as to likely deceive the ordinary purchaser, exercising ordinarycare, the defendant is guilty of unfair competition . "

And in the case of McDonalds Corp. et al vs. L.C. Big Mak Burger", the

Supreme Court held that:

7 See Exhibit GG and KKs Exhibit CC.9 Certificate of Registration No . 4-1997-12114610 See Exhibits SS, TT, UU, and VV.11 See Jonas Brook Bros . vs . Froelich & Kuttner, G. R. No . L-3369, 24 September 1907 .12G.R. No. 10738,14 January 1916.1 3 G.R. No. 143993,18 August 2004 .

in-n-out vs. sehwanipage7of16

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"Passing off (or palming off) takes place where the defendant, byimitative devices on the general appearance of the goods, misleadc prospectivepurchasers into buying his merchandise under the impression that they are buyingthat of his competitors. Thus, the defendant gives his goods the generalappearance of the goods of his competitor with the intention of deceiving thepublic that the goods are those of his competitor . "

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Appellees' use of IN-N-OUT BURGER in business signages reveals fraudulent

intent to deceive purchasers. Exhibit "GG", which shows the business establishment of

Appellees illustrates the imitation of Appe llant's corporate name IN-N-OUT and signage

IN-N-OUT BURGER." Even the Director noticed it and held:

"We also note that In-N-Out Burger is likewise, complainant's[Appe llant's] corporate name . It has used the 'IN-N-OUT' Burger name in itsrestaurant business in Baldwin Park, California in the United States of Ame ricasince 1948. Thus, it has the exclusive right to use the tradename 'In-N-Out' Burgerin the Philippines and the respondents [Appellees] are unlawfully using andapprop riating the same ."I s

This Office cannot give credence to the Appellees' claim of good faith and that

they have openly and continuously used the subject mark since 1982 and is in the process

of expanding their business. They contend that assuming that there is value in the

foreign registrations presented as evidence by the Appellant, the purported exclusive

right to the use of the subject mark based on such foreign registrations is not essential to

a right of action for unfair competition . Appellees also claim that actual or probable

deception and confusion on the part of customers by reason of respondents' practices

must always appear, and in the present case, the BLA has found none . This Office finds

the arguments untenable .

In contrast, the Appellees have the burden of evidence to prove that they do not

have fraudulent intent in using the mark IN-N-OUT.16 To prove their good faith,

Appellees could have easily offered evidence of use of their registered trademark, which

they claimed to be using as early as 1982,' 7 but did not.

"See also Exhibits HH and II .15 DECISION, p .14.16 Exhibits GG to KK, QQ to VV, and YY to ZZ, all inclusive of submarkings .17 Exhibit I

tn-n-out vs . schwaniPage8of1fi

Appellees also failed to explain why they are using the marks of Appellant,

particularly DOUBLE DOUBLE, and the mark IN-N-OUT Burger and Arrow Design .

Even in their listing of menus", Appellees used Appellant's marks of DOUBLE

DOUBLE and IN-N-OUT Burger and Arrow Design." In addition, in the wrappers

and receptacles being used by the Appellees which also contained the marks of the

Appellant,2' there is no notice in such wrappers and receptacles that the hamburger and

french fries are products of the Appellees. Furthermore, the receipts issued by the

Appellees even indicate "representing IN-N-OUT'2' . These acts cannot be considered

acts in good faith.

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There is no doubt that the Appellant has acquired goodwill on the trade name

IN-N-OUT and its marks IN-N-OUT Burger and Arrow Design and DOUBLE-

DOUBLE being the owner thereof. Appellant has also caused the registration of these

name and marks in other countries' and the filing of trademark and service marks

applications here in the Philippines.' The Director in fact ruled that:

"In this regard, this Office would like to emphasize that goodwill can beobtained even when there is no existing business in a certain jurisdiction. In thisregard, Complainant's [Appellant's] witness, Raymund Villanueva testified :

`Atty . Villanueva :Q: And Mr. Witness, you mentioned you sell t-shirts and other collectibles

which is enumerated in your catalog . Where did you sell such shirts andother products .

•Witness:A: If you open the internet and go to our website, anybody from around the

world could buy those products . During the list year, we sold productsthroughout the different states, in the United States and at least in fourcontinents globally.

Q~ And what are these continents, Mr . Witness?

A: Australia, Europe, North America and (paused) Australia, Asia , Europeand North America .'21

1e See Exhibits 00 and PP, inclusive of submarkings .19 Exhibit PP-1 .2" See Exhibits SS, IT, UU and VV.21 See Exhibits YY and ZZ.22 Ibid .23 See Exhibits G to K and NN, inclusive of submarkings .34( Transc ript of Stenographic Notes, March 4, 2002, page 35) .

in-n-out vs aehwanipage 9of1(i

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Furthermore, witness, Mr . Raymund Villanueva testified on 5 March 2005that IN-N-OUT restaurants are located in areas were there were many Filipino-American population (Refer to page 7, 5 March 2002 Transcript of Stenographicnotes) . Annex `G' of his affidavit is a letter from the mayor of Daly City . In theletter, Mayor Michael Guingona said Daly City has 32,720 Filipino residents andthat IN-N-OUT Burger is a popular dining destination there . Exhibit `H' ofRaymund Villanueva's affidavit are letter offers' from different persons to openIN-N-OUT stores in other countries including the Philippines . Thesecircumstances more than sufficiently show that the complainant has acquiredgoodwill and thus, provides it with a solid basis to enforce its right to use itstradename and mark 4N-N-OUT' in the Philippines to the exclusion ofothers"25 (emphasis supplied)

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Goodwill is protected by law on unfair competition . 26 One who has built up a

goodwill and reputation for his goods or business is entitled to all the benefits therefrom

since goodwill is property and like any other property, is protected against invasion . '-' In

this case, to permit the Appellees to continue using the trade name and mark IN-N-OUT

would be to countenance the unlawful appropriation of the benefit of a goodwill, which

Appellant has acquired, and would be tantamount to permitting the Appellees to grab the

reputation or goodwill of the business of Appellant's

The Director, thus, is in error when it did not hold Appellees liable for unfair

competition . Neither the Director was correct when she held that the Appellants are not

engaged in the sale, manufacturing nor importation of their products in the Philippines .'

It is not in accord with jurisprudence to include sale, as the Director would want

to impress upon, as an element of unfair competition . While indeed the cases of unfair

competition cited by the Director cover situations where the products bearing the

contested marks were sold in the Philippines, these do not imply that sale is an clement

of unfair competition . Again, in the case of McDonalds Corp. et al vs . L.C. Big Mak

Burger,30 the Supreme Court enumerated the essential elements of an action for unfair

competition .

u DECISION, page 16.26 De La Rama Steamship Co. vs . National Development Co., G. R . No. L-26966, 30 October 1970 .27 Alhambra Cigar and Cigare tte Manufacturing Co. vs . Pedro N. Mojica, G. R. No . 8937, 21 March 1914.28 See also De La Rama case .r' Resolution No. 2005-05 dated 25 April 2005, page 3 .3" See footnote 12 .

in•n•out vs. schwanipaW 10 of 16

"The essential elements of an action for unfair competition are (1)confusing similarity in the general appearance of the goods, and (2) intent to deceivethe public and defraud a competitor. The confusing similarity may or may notresult form similarity in the marks, but may result from other external factors in thepackaging or presentation of the goods. The intent to deceive and defraud may beinferred from the similar appearnce of the goods as offered `for sale to the public .Actual fraudulent intent need not be shown. "

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Further, in the case of Converse Rubber Corporation and Edwardson

Manufacturing Corporation vs. Jacinto Rubber & Plastics Co ., Inc. and Ace Rubber &

Plastic Corporation," the Supreme Court had the occasion to rule in the issue of sale as

an element of unfair competition, to wit:

To read such conditions, as defendants-appellants seek to do, in theplain prescription of the law is to re-construct it . Indeed, goodwill established inother than a competitive milieu is no less a property right that deserves protectionfrom unjust appropriation or injury. This, to us, is precisely the clear sense of thelaw when it declares without equivocation that a`person who has identified in themind of the public the goods he manufactures or deals in, his business or servicesfrom those of others, has a property right in the goodwill of the said goods,business or services so identified, which will be protected in the same manner asother property rights.'

Tlaintiffs-appellees have established goodwill . This goodwill, the trialcourt found, defendants-appellants have pirated in clear bad faith to their unjustenrichment It is strange that defendants- appellants now say that they should bespared from the penalty of law, because they were not really in competition withplaintiffs-appellees ."'

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There, is therefore, no legal basis to conclude that sale is an element of unfair

competition .

On the Issue of Award of Damages

With respect to the Appellant's claim for damages and award of attorney's fees, it

is well-established that a complaint for unfair competition is basically a suit for injunction

and damages. Injunction, for the purpose of enjoying the unlawful competitor from

proceeding further, and damages, in order to allow the aggrieved party to recover the

damages he has suffered by reason of the said unlawful competition. 12 With the finding

that Appellees are guilty of unfair competition, this Office must grant the award for

damages in favor of Appellant .

3197 SCRA 158 (1980) .32 Foto-Quick, Inc . vs . Nicolas P . Lapena, Jr . et al, G . R. No. 76322, 11 March 1991 .

in-n-out vs. sehwampage 11of1fi

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Section 168.4 of the IP Code provides that the remedies provided by 156, 157,

and 161 shall apply mutatis mutandis. Sections 156 and 157 of the IP Code provide as

fo llows :

"Sec. 156. Actions, and Damages and Injunction for Infringement .- 156 .1The owner of a registered mark may recover damages from any person whoinfringes his rights, and the measure of the damages suffered shall be either thereasonable profit which the complaining party would have made, had thedefendant not infringed his rights, or the profit which the defendant actually madeout of the infringement, or in the event such measure of damages cannot be readilyascertained with reasonable certainty, then the court may award as damages areasonable percentage based upon the amount of gross sales of the defendant orthe value of the services in connection with which the mark or trade name wasused in the infringement of the rights of the complainant .156.2 . On application of the complainant, the court may impound during thependency of the action, sales invoices and other documents evidencing sales .156.3 In cases where actual intent to mislead the public or to defraud thecomplainant is shown, in the discretion of the court, the damages may be doubled .156.4. The complainant, upon proper showing, may also be granted injunction .

Sec . 157. Power of Court to Order Infringing Material Destroyed. 157 .1In any action arising under this Act, in which a violation of any right of the ownerof the registered mark is established, the court may order that goods found to beinfringing be, without compensation of any sort, disposed of outside the channelsof commerce in such a manner as to avoid any harm caused to the right holder, ordestroyed; and all labels, signs, prints, packages, wrappers, receptacles andadvertisements in the possession of the defendant, bearing the registered mark ortrade name or any reproduction, counterfeit, copy or colorable imitation thereof, allplates, molds, matrices and other means of making the same, shall be delivered upand destroyed. "

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Under Section 168 in relation to Section 156, the remedies against an infringer

may also be applied against a person committing unfair competition . Accordingly, this

Office awards damages to the Appellant . However, since the amount of damages cannot

be readily ascertained with reasonable certain ty, this Office award as damages thirty

percent (30%) of the gross sales by the Appe llees. In the case of Converse Rubber

Corporation and Edwardson Manufacturing Corporation vs . Jacinto Rubber & Plastics

Co., Inc . and Ace Rubber & Plastic Corporation,33 the Supreme Court said that:

"It is not farfetched to assume that the net profit of the imitator which,after all is what the law contemplates as basis for damages if it were only actua llyascertainable, in the manufacture of rubber shoes should not be less than 20 to25% of the gross sales ."

33 See footnote 30 .

ruin-n-out vs. schwapage 12of16

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Appellant claims that Kishu Sehwani admitted that Appellee Sehwani, Inc . earned

Ten Million Pesos (P10,000,000.00) a year for ten years . However, in the absence of

substantial evidence to prove such claim and to corroborate this testimony, such

testimony cannot be given any credence and weight in this case. In fact, what was only

established is that Appellees are operating one (1) outlet in Pasig City.

The evidence adduced by both parties show that the sales of Appellee BENITA'S

FRIES, INC. from 23 December 2000 to 31 March 2002 is Three Hundred Fifty Four

Thousand Two Hundred Ninety Pesos and 46/100 (P354,290.46)34 Thirty percent of

this amount is One Hundred Six Thousand Two Hundred Eighty Seven Pesos and

14/100 (P106,287 .14) . Under Section 156 .3, in cases where actual intent to mislead the

public or to defraud the complainant is shown, in the discretion of the court, the

damages may be doubled. As actual intent to mislead the public or to defraud the

complainant is shown, the amount of P106,287.14 should be doubled . Double this

amount is two hundred twelve thousand five hundred seventy four and 28/100

(P212,574.28) . Appellant is, thus, entitled to the award of this amount of damages

This Office also finds that by way of example or correction for the public good,

with the objective of enhancing the protection of intellectual property and preventing

similar acts of unfair competition, Appellees should be liable to pay Appellant exemplary

damages in the amount of Five Hundred Thousand Pesos (P500,000.00) . Exemplary

damages are imposed not to enrich one party or impoverish another but to serve as a

deterrent against or as a negative incentive to curb socially deleterious actions.3 S

Regarding attorney's fees, Article 2208 of the New Civil Code provides that

attorney's fees may be recovered when exemplary damages are awarded or where the

court deems it just and equitable ."' It is well settled that in the recovery of attorney's

fees, whether as a main action or as an incident of another action, the determination of

the reasonableness is within the prerogative of the courts ." Moreover, in the case of Jose

K Exhibits GGGG to UUUU and Exhibits 19 to 33 .35 See G. R No. 118325, 29 January 1997 .36 Paragraph Nos. I and 11 .37 COMPANIA MARITIMA, INC . et at vs . COURT OF APPEALS and EXEQUIEL S . CONSULTA,G.R. No . 128452,16 November 1999 .

in-n-out vs. sehwampage 13of 1fi

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Abrogar, et al vs . Intermediate Appellate Court, et al .,'s it was held that the exercise of

judicial discretion in the award of attorneys fees demands factual, legal and equitable

justification .

In this case, this Office finds it just and equitable to award attorney's fees .

Appellant was constrained to engage the services of counsel and incur attorney's fees and

expenses of litigation . Testimonial and documentary evidence" have been presented and

offered showing that as of 2002, Appellant has already paid its counsel twenty seven

thousand one hundred sixty seven and 35/100 us dollars (US$ 27,167.35) . This evidence

was not disputed by the Appellees. Accordingly, this Office finds that the Appellant can

recover the amount of five hundred thousand pesos (P500,000 .00) as payment for

attorney's fees and expenses of litigation .

Concerning moral damages, in the case of Development Bank of the Philippines

vs. Court of Appeals, et. al 40, the Supreme Court ruled that:

"In a long line of decisions, this Court has held that the claimant formoral damages must present concrete proof to justify its award, thus :

. . . while no proof of pecuniary loss is necessary in order that moraldamages may be awarded, the amount of indemnity being left to the discretion ofthe court (Art. 2216), it is, nevertheless, essential that the claimant satisfactorilyprove the existence of the factual basis of the damage (Art . 2217) and its causalrelation to defendant's acts. This is so because moral damages, though incapable ofpecuniary estimation, are in the category of an award designed to compensate theclaimant for actual injury suffered and not to impose a penalty on the wrongdoer .

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• Moreover, as a general rule, moral damages cannot be granted in favor ofa corporation because, being an artificial person and having existence only in legalcontemplation, it has no feelings, no emotions, no senses . It cannot, therefore,experience physical suffering and mental anguish, which can be experienced onlyby one having a nervous system. "

In this instance, there is no factual claim that can be the basis of the grant of

moral damages . What the witnesses of the Appellant proved is the existence of unfair

competition and not the tarnished reputation of the Appellant. The Appellant should

have offered factual evidence proving that the acts of Appellees have besmirched

38 G.R. No . L-67970,15 Janua ry 1988.39 See Exhibit ZZZZ.4" G. R. No. 125838,10 June 2003 .

in -n-out vs, sehwanipaW 14 of1G

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Appellant's reputation resulting to actual injury to the Appellant . In the absence of such

evidence, this Office cannot just grant moral damages and is inclined to apply the general

rule that moral damages cannot be granted in favor of a corporation .

Finally, under Section 157, the products of Appellees including the labels, signs,

prints, packages, wrappers, receptacles and materials used by them in committing unfair

competition should be seized and disposed of outside the channels of commerce.

Wherefore, premises considered, the Appellees are held guilty of unfair

competition. Accordingly, Decision No. 2003-02 dated 22 December 2003 is hereby

MODIFIED as follows:

Appellees are hereby ordered to jointly and severally pay Appellant :

1 . Damages in the amount of TWO HUNDRED TWELVE

THOUSAND FIVE HUNDRED SEVENTY FOUR AND

28/100 (P212,574 .28) ;

2. Exemplary damages in the amount of FIVE HUNDRED

THOUSAND PESOS (P500,000.00).

• 3. Attorney's fees and expenses of litigation in the amount of

FIVE HUNDRED THOUSAND PESOS (P500,000.00) .

A ll products of Appellees including the labels, signs, prints, packages, wrappers,

receptacles and materials used by them in committing unfair competition should be

without compensation of any sort be seized and disposed of outside the channels of

commerce.

in-n-out vs. sehwanipage 15 of 16

Let a copy of this Decision be furnished the Director of Bureau of Legal Affairs

for appropriate action, and the records be returned to her for proper disposition .

Further, let a copy of this Decision be furnished the Documentation, Information and

Technology Transfer Bureau for their information and records purposes .

SO ORDERED.

11

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DEC 2 3 2005 Makati city .

in-n-out vs . sehwampage 16o1'16