Zuneca Pharmaceutical vs. Natrapharm,
GR No. 211850, September 8, 2020
[En Banc] [Caguioa, [J]]
Facts:
Petitioner Zuneca Pharmaceutical has been engaged in the importation, marketing, and sale of various kinds of medicines and drugs in the Philippines since 1999. Zuneca imports generic drugs from Pakistan and markets them in the Philippines using different brand names. Among the products it has been selling is a drug called carbamazepine under the brand name "ZYNAPS", which is an anti-convulsant used to control all types of seizure disorders of varied causes like epilepsy.
Natrapharm manufactured and sold by Natrapharm is citicoline under the trademark "ZYNAPSE", which is indicated for the treatment of cerebrovascular disease or stroke. The trademark "ZYNAPSE" was registered with the Intellectual Property Office of the Philippines (IPO) on September 24, 2007 and is covered by Certificate of Trademark Registration No. 4-2007-005596.
Natrapharm filed with the RTC a Complaint against Zuneca for Injunction, Trademark Infringement, Damages and Destruction with Prayer for TRO and/or Preliminary Injunction, alleging that Zuneca's "ZYNAPS" is confusingly similar to its registered trademark "ZYNAPSE" and the resulting likelihood of confusion is dangerous because the marks cover medical drugs intended for different types of illnesses. Consequently, Natrapharm sought to enjoin Zuneca from using "ZYNAPS" or other variations thereof, in addition to its demand for Zuneca's payment of Two Million Pesos (P2,000,000.00) in damages; Five Million Pesos (P5,000,000.00) in exemplary damages; and Three Hundred Thousand Pesos (P300,000.00) as attorney's fees, expenses of litigation, and costs of suit. Further, it prayed that all infringing goods, labels, signs, etc. of Zuneca be impounded and destroyed without compensation.
In its Answer (With Compulsory Counterclaim and Prayer for Preliminary Injunction), Zuneca claimed that it has been selling carbamazepine under the mark "ZYNAPS" since 2004 after securing a Certificate of Product Registration on April 15, 2003 from the Bureau of Food and Drugs. It alleged that it was impossible for Natrapharm not to have known the existence of "ZYNAPS" before the latter's registration of "ZYNAPSE" because Natrapharm had promoted its products, such as "Zobrixol" and "Zcure", in the same publications where Zuneca had advertised "ZYNAPS". Further, Zuneca pointed out that both Natrapharm and Zuneca had advertised their respective products in identical conventions. Despite its knowledge of prior use by Zuneca of "ZYNAPS", Natrapharm had allegedly fraudulently appropriated the "ZYNAPSE" mark by registering the same with the IPO. As the prior user, Zuneca argued that it is the owner of "ZYNAPS" and the continued use by Natrapharm of "ZYNAPSE" causes it grave and irreparable damage.
Zuneca argues that as the prior user, following Berris and E. Y. Industrial Sales, Inc., it had already owned the "ZYNAPS" mark prior to Natrapharm's registration of its confusingly similar mark, thus, its rights prevail over the rights of Natrapharm.
Subsequently, after a summary hearing, the prayer for TRO was denied. The preliminary injunction and counter preliminary injunction prayed for by the parties were likewise rejected.
RTC held favor of [Natrapharm] and against [Zuneca]. The RTC ruled that the first filer in good faith defeats a first user in good faith who did not file any application for registration. Hence, Natrapharm, as the first registrant, had trademark rights over "ZYNAPSE" and it may prevent others, including Zuneca, from registering an identical or confusingly similar mark. Moreover, the RTC ruled that there was insufficient evidence that Natrapharm had registered the mark "ZYNAPSE" in bad faith. The fact that "ZYNAPS" and Natrapharm's other brands were listed in the Philippine Pharmaceutical Directory (PPD) was not sufficient to show bad faith since Zuneca's own witness admitted to not having complete knowledge of the drugs listed in the PPD.
CA affirmed RTC stated that registration, not prior use, is the mode of acquiring ownership of a trademark.
Issue:
Whether Zuneca be held liable for trademark infringement.
Held:
No (as provided by prior user rule); under the law, the owner of the mark shall have the exclusive right to prevent all third parties not having the owner's consent from using identical or similar marks for identical or similar goods or services where such use would result in a likelihood of confusion.
In Prosource International, Inc. vs. Horphag Research Management, the Court held that, to establish trademark infringement, the following elements must be proven: (l)the trademark being infringed is registered in the IPO; (2) the trademark is reproduced, counterfeited, copied, or colorably imitated by the infringer; (3) the infringing mark is used in connection with the sale, offering for sale, or advertising of any goods, business, or services; or the infringing mark is applied to labels, signs, prints, packages, wrappers, receptacles, or advertisements intended to be used upon or in connection with such goods, business, or services; (4) the use or application of the infringing mark is likely to cause confusion or mistake or to deceive purchasers or others as to the goods or services themselves or as to the source or origin of such goods or services or the identity of such business; and (5) it is without the consent of the trademark owner or the assignee thereof.
How trademark ownership is acquired? - The Court holds that Zuneca's argument has no merit because: (i) the language of the IP Code provisions clearly conveys the rule that ownership of a mark is acquired through registration; (ii) the intention of the lawmakers was to abandon the rule that ownership of a mark is acquired through use; and (iii) the rule on ownership used in Berris and E.Y. Industrial Sales, Inc. is inconsistent with the IP Code regime of acquiring ownership through registration.
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NOTES:
è The Intellectual Property Code of the Philippines was signed into law and became effective on January 1, 1998.
èZuneca engage in marketing since 1999
èNatrapharm registered its product on September 2007
E.Y. Industrial Sales vs. Shen Dar Electricity and Machinery; G.R. No. 184850; October 20, 2010 [First Division] àHas been abandon in this case.
In Zuneca; SC held:
Likewise, the rule on acquiring ownership discussed in E. Y. Industrial Sales, Inc. is inconsistent with the current rule under the IP Code. In said case, E.Y. Industrial Sales, Inc. (EYIS) imported air compressors from Shen Dar from 1997 to 2004. In 1997, during the effectivity of the Trademark Law, as amended, Shen Dar filed a trademark application for "VESPA, Chinese Characters and Device" for use on air compressors and welding machines. Subsequently, in 1999, or already during the effectivity of the IP Code, EYIS filed a trademark application for "VESPA" for use on air compressors. On January 18, 2004, the IPO issued the certificate of registration for "VESPA" in favor of EYIS. Subsequently, on February 8, 2007, the certificate of registration for "VESPA, Chinese Characters and Device" was issued in favor of Shen Dar.
Claiming to be the owner of the mark, Shen Dar filed 9887 registration. The Bureau of Legal Affairs (BLA) and the Director General of the IPO both ruled that EYIS was the owner of the mark and likewise directed the cancellation of Shen Dar's certificate of registration.
Notably, the Court has ruled that the prior and continuous use of a mark may even overcome the presumptive ownership of the registrant and be held as the owner of the mark. As aptly stated by the Court in [Shangri-la]: Registration, without more, does not confer upon the registrant an absolute right to the registered mark. The certificate of registration is merely a prima facie proof that the registrant is the owner of the registered mark or trade name. Evidence of prior and continuous use of the mark or trade name by another can overcome the presumptive ownership of the registrant and may very well entitle the former to be declared owner in an appropriate case.
Berris Agricultural Co., vs. Norvy Abyadang, G.R. No. 183404; October 13, 2010 [Second Division] àHas been abandon in this case.
In Zuneca; SC held:
In Berris, despite the fact that Berris, Inc. was eventually decided to be the owner of the mark consistent with the rule on ownership under the IP Code, the Court mistakenly gave undue weight to the fact of prior use. To be sure, it was unnecessary to also anchor Berris, Inc.'s ownership of the mark on the fact that it was the prior user as this was inconsistent with the express provisions of the IP Code and the legislative intent behind the law. Stated differently, the Court's decision in Berris was correct based on the fact that Berris, Inc. was the first to file the application and register the mark.
Zuneca vs. Netrapharm àThis case is an En Banc decision
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Under the IP Code, ownership of a mark is acquired through registration:
To clarify, while it is the fact of registration which confers ownership of the mark and enables the owner thereof to exercise the rights expressed in Section 147 of the IP Code, the first-to-file rule nevertheless prioritizes the first filer of the trademark application and operates to prevent any subsequent applicants from registering marks described under Section 123.1(d) of the IP Code.
Reading together Sections 122 and 123. l(d) of the IP Code, therefore, a registered mark or a mark with an earlier filing or priority date generally bars the future registration of- and the future acquisition of rights in - an identical or a confusingly similar mark, in respect of the same or closely-related goods or services, if the resemblance will likely deceive or cause confusion.
The ownership of a trademark is acquired by its registration and its actual use by the manufacturer or distributor of the goods made available to the purchasing public. Section 122 of [the IP Code] provides that the rights in a mark shall be acquired by means of its valid registration with the IPO. A certificate of registration of a mark, once issued, constitutes prima facie evidence of the validity of the registration, of the registrant's ownership of the mark, and of the registrant's exclusive right to use the same in connection with the goods or services and those that are related thereto specified in the certificate. [The IP Code], however, requires the applicant for registration or the registrant to file a declaration of actual use (DAU) of the mark, with evidence to that effect, within three (3) years from the filing of the application for registration; otherwise, the application shall be refused or the mark shall be removed from the register. In other words, the prima facie presumption brought about by the registration of a mark may be challenged and overcome, in an appropriate action, by proof of the nullity of the registration or of non-use of the mark, except when excused. Moreover, the presumption may likewise be defeated by evidence of prior use by another person, i.e., it will controvert a claim of legal appropriation or of ownership based on registration by a subsequent user. This is because a trademark is a creation of use and belongs to one who first used it in trade or commerce.
To be sure, the rule used to resolve the issue of ownership in E. Y. Industrial Sales, Inc. and Shangri-la should not be made to apply in a situation involving marks which are both used and/or registered after the effectivity of the IP Code. In the case at bar, both "ZYNAPS" and "ZYNAPSE" have been used and/or registered after the IP Code became effective. Clearly, the use or citation of Trademark Law jurisprudence to resolve the question on acquisition of ownership of marks in the case at bar or in cases involving marks registered or first used under the IP Code will be irrelevant and inappropriate.
è The Intellectual Property Code of the Philippines was signed into law and became effective on January 1, 1998.
èZuneca engage in marketing since 1999
èNatrapharm registered its product on September 2007
In light of the foregoing, Zuneca thus erred in using Berris and E. Y. Industrial Sales, Inc. as bases for its argument that the prior user is the owner of the mark and its rights prevail over the rights of the first-to-file registrant. To emphasize, for marks that are first used and/or registered after the effectivity of the IP Code, ownership is no longer dependent on the fact of prior use in light of the adoption of the first-to-file rule and the rule that ownership is acquired through registration.
As to bad faith and good faith:
Resultantly - unlike the rule on acquisition of ownership - the pronouncements of the Court relative to registrations obtained in bad faith under the Trademark Law, as amended, still subsist even after the effectivity of the IP Code. Thus, the following cases where the Court defined bad faith and fraud, although decided under the regime of the Trademark Law, as amended, are still applicable.
What constitutes fraud or bad faith in trademark registration? Bad faith means that the applicant or registrant has knowledge of prior creation, use and/or registration by another of an identical or similar trademark. In other words, it is copying and using somebody else's trademark. Fraud, on the other hand, may be committed by making false claims in connection with the trademark application and registration, particularly, on the issues of origin, ownership, and use of the trademark in question, among other things.
The concept of fraud contemplated above is not a mere inaccurate claim as to the origin, ownership, and use of the trademark. In civil law, the concept of fraud has been defined as the deliberate intention to cause damage or prejudice. The same principle applies in the context of trademark registrations: fraud is intentionally making false claims to take advantage of another's goodwill thereby causing damage or prejudice to another. Indeed, the concepts of bad faith and fraud go hand-in-hand in this context. There is no distinction between the concepts of bad faith and fraud in trademark registrations because the existence of one necessarily presupposes the existence of the other.
Good faith is required in order to ensure that a second user may not merely take advantage of the goodwill established by the true owner."
Pagasa Industrial Corporation v. Court of Appeals likewise supports the definition of bad faith as prior knowledge. In said case, the Court found that Pagasa registered the "YKK" mark in bad faith because it had previously known that there was another person using the mark.
A perusal of the above cancellation provisions in the IP Code and the Trademark Law, as amended, would reveal that these two grounds differ from the others in the sense that, unlike the other grounds for cancellation, they both exist prior to the registration. That is, one can have a registration in bad faith only if he applied for the registration of the mark despite knowing that someone else has created, used, or registered that mark. In the same vein, an unregistrable mark which was mistakenly allowed to be registered was already inherently unregistrable even prior to its registration. Accordingly, because these marks should not have been registered in the first place, the presence of either of these grounds renders them void. Thus, even if these marks subsequently became registered, the registrations do not confer upon their owners the rights under Section 147.1 of the IP Code because the marks were registered contrary to the provisions of the same law.
To emphasize, the presence of bad faith alone renders void the trademark registrations. Accordingly, it follows as a matter of consequence that a mark registered in bad faith shall be cancelled by the IPO or the courts, as the case may be, after the appropriate proceedings.
Being the first-to-file registrant in good faith allows the registrant to acquire all the rights in a mark. This can be seen in Section 122 vis-a-vis the cancellation provision in Section 155.1 of the IP Code. Reading these two provisions together, it is clear that when there are no grounds for cancellation - especially the registration being obtained in bad faith or contrary to the provisions of the IP Code, which render the registration void - the first-to-file registrant acquires all the rights in a mark.
In light of these settled facts, it is clear that Natrapharm is the first-to-file registrant of "ZYNAPSE". Zuneca, on the other hand, is a prior user in good faith of a confusingly similar mark, "ZYNAPS". What remains contentious is Natrapharm's good or bad faith as Zuneca contends that the mark was registered in bad faith by Natrapharm. Indeed, if Zuneca's contention turns out to be true, Natrapharm would not be the owner of "ZYNAPSE" and it would not have the right under Section 147.1 of the IP Code to prevent other entities, including Zuneca, from using confusingly similar marks for identical or similar goods or services. Further, Natrapharm's infringement case would fail because its "ZYNAPSE" registration would then be voided.
Assuming, however, that the Court should still review this factual issue, it finds no reason to depart from the findings of facts of the RTC, which findings were affirmed by the CA. In fact, the Court also conducted a review of the testimonies and evidence presented by the parties and finds that the RTC and the CA were correct in their factual findings. The RTC ruled that there was no sufficient evidence to convince it that Natrapharm had acquired the registration in bad faith.
Zuneca's evidence clearly falls short of establishing that Natrapharm had knowledge of the prior creation or use by Zuneca of the "ZYNAPS" mark. Zuneca's evidence only tends to prove that there was a possibility that someone from Natrapharm might have known of Zuneca's use of "ZYNAPS" because Natrapharm and Zuneca attended the same conferences and that Zuneca had listed "ZYNAPS" in the PPD publication. Such possibility is not, however, sufficient to prove bad faith, especially when weighed against Natrapharm's evidence and explanation on how it coined "ZYNAPSE" and the steps it took to ensure that there were no other marks that were confusingly similar to it. Not only was Natrapharm able to explain the origin of the name, it was also able to show that it had checked the IMS-PPI, IPO, and BFAD databases and found that there was no brand name which was confusingly similar to "ZYNAPSE".
In any event, while Natrapharm is the owner of the "ZYNAPSE" mark, this does not, however, automatically mean that its complaint against Zuneca for injunction, trademark infringement, damages, and destruction with prayer for TRO and/or preliminary injunction should be granted. The application of Section 159.1 of the IP Code in the case at bar results in Zuneca's exemption from liability for trademark infringement.
Read as a whole, Section 159.1 of the IP Code clearly contemplates that a prior user in good faith may continue to use its mark even after the registration of the mark by the first-to-file registrant in good faith, subject to the condition that any transfer or assignment of the mark by the prior user in good faith should be made together with the enterprise or business or with that part of his enterprise or business in which the mark is used. The mark cannot be transferred independently of the enterprise and business using it.
From the provision itself, it can be gleaned that while the law recognizes the right of the prior user in good faith to the continuous use of its mark for its enterprise or business, it also respects the rights of the registered owner of the mark by preventing any future use by the transferee or assignee that is not in conformity with Section 159.1 of the IP Code. Notably, only the manner of use by the prior user in good faith - that is, the use of its mark tied to its current enterprise or business - is categorically mentioned as an exception to an action for infringement by the trademark owner. The proviso in Section 159.1 of the IP Code ensures that, despite the transfer or assignment of its mark, the future use by the assignee or transferee will not go beyond the specific confines of such exception. Without the proviso, the prior user in good faith would have the free hand to transfer or assign the "protected use" of its mark for any purpose to a third person who may subsequently use the same in a manner unduly curtailing the rights of the trademark owner. Indeed, this unilateral expansion of the exception by a third person could not have been intended, and is guarded against, by the legislature through the foregoing proviso.
Because Zuneca is not liable for trademark infringement under Section 159.1 of the IP Code, the Court finds that there is no basis for the above imposition of penalties.
While Section 147.1 of the IP Code provides that the owner of a registered mark shall have the exclusive right to prevent third parties' use of identical or similar marks for identical or similar goods where such use would result in a likelihood of confusion, this provision should be interpreted in harmony with Section 159.1 of the IP Code, especially the latter's proviso which allows the transfer or assignment of the mark together with the enterprise or business of the prior user in good faith or with that part of his enterprise or business in which the mark is used. The lawmakers intended for the rights of the owner of the registered mark in Section 147.1 to be subject to the rights of a prior user in good faith contemplated under Section 159.1. Essentially, therefore, Section 159.1 is an exception to the rights of the trademark owner in Section 147.1 of the IP Code.
While there is no issue as to the likelihood of confusion between "ZYNAPSE" and "ZYNAPS", the Court believes that the evil of medical switching will likely not arise, considering that the law requires the generic names of drugs to be written in prescriptions.
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