Hospitality Law

Common Legal Issues that Confront Hotel Operators

By Dan Brown, Partner, Sheppard Mullin Richter & Hampton LLP

The ultimate responsibility and goal of a hotel manager is to achieve a profit for the
hotel's owner and ensure that the hotel's guests are happy with their stay. To that
end, a hotel manager acts behind the scenes at a hotel like a puppeteer with
numerous day-to-day responsibilities for nearly all aspects of a hotel's operations,
including, but not limited to, supervising and managing personnel, marketing, sales,
security, maintenance, and food and beverage operations. In addition to attending
to these numerous tasks to create a positive guest experience, a hotel manager
must also be aware that managing a hotel includes the potential for the manager to
be subject to a variety of legal liabilities to the hotel's guests and its owner. A
thorough analysis of all of the potential legal issues that attach to a hotel's
operations would require an expansive treatise that covered everything from, inter
alia, common law contract, negligence, and tort claims, to federal and state
securities and antitrust laws. However, the basic legal duties that apply to a hotel
manager, and which have formed the basis for most of the claims asserted against
hotel managers, are those that concern the hotel manager's role as an innkeeper to
its guests and fiduciary to its owner.

Liabilities to Guests: The Hotel Manager As Innkeeper

The earliest explicit legal principles applicable to a hotel manager are those of the
"innkeeper." Indeed, "[t]he duties of innkeepers have developed over centuries. By
Chaucer's time, English law recognized the responsibilities of innkeepers to their
customers. At common law, the innkeeper was required, among other things, to
provide food, lodging and a safe harbor for its guests. These principles were carried
across the Atlantic and, by and large, helped shape our formulations of innkeepers'
duties." Darby v. Compagnie National Air France, 96 N.Y.2d 343, 347 (2001) (internal
citations omitted). Today's hotel managers are still liable as innkeepers. See
generally Fabend v. Rosewood Hotels & Resorts, L.L.C., 381 F.3d 152 (3d Cir. 2004)
(applying an "innkeeper" analysis to a management company that operated hotel
on United States Park land); Clayman v. Starwood Hotels & Resorts Worldwide, 343
F. Supp. 2d 1037 (D. Kan. 2004) (holding Starwood Hotels & Resorts Worldwide, the
owner and manager of the hotel, liable under the principles stated in Restatement
(Second) of Torts SS 314A).

In addition to innkeeper laws existing under the common law, many states have
codified innkeeper laws into state statutes, which generally require that an
innkeeper provide food and lodging to guests in a non-discriminatory manner.
Moreover, while an innkeeper is not an insurer of the safety of its guests, the
innkeeper laws impose a duty on a hotel manager to use reasonable care in
promoting their safety. See, e.g., Shiv-Ram, Inc. v. McCaleb, 892 So. 2d 299 (Ala.
2003), as clarified on denial of reh'g, (Apr. 2, 2004) (A hotel keeper must furnish
safe premises for the guest, which they may use in the ordinary and reasonable way
without danger; and if any guest, while using the building where she is reasonably
expected to go, is injured by a defective condition of the building, the manager is
liable for the injuries to his guest that are approximately caused by his negligence in
the defective condition).

These basic innkeeper principles have been tested by disgruntled hotel guests in
numerous cases. For example, lawsuits asserting tort and negligence claims have
been filed as a result of injuries caused by defects in guest room furnishings or
other conditions, including, but not limited to, claims for injuries resulting from slips
and falls, falling ceiling fans, defective chairs, faucet burns, intoxication of guests,
gas stove explosions, hot water, and insects. In these cases, courts generally hold
that an innkeeper owes its guests a duty of maintaining the hotel premises in a
reasonably safe condition so that guests may enjoy the hotel without exposing
themselves to danger. Morell v. Peekskill Ranch, Inc., 64 N.Y.2d 859, 860 (failure to
warn of dangerous condition on resort walking path); DiSalvo v. Armae, Inc., 41
N.Y.2d 80, 82-83 (1985) (failure to protect children at play on resort grounds from
traffic on private resort road); Orlick v. Granit Hotel & Country Club, 30 N.Y.2d 246,
249-50 (1972) (failure to properly construct and light stairways in hotel); Buchaca v.
Colgate Inn, Inc., 296 N.Y. 790, 791 (1947) (failure to keep inn sidewalk free of ice);
Allon v. Park Central Hotel Co., Inc., 272 N.Y. 631, 632 (1936) (failure to supervise
hotel swimming pool); Clark v. New York Hotel Statler Co., Inc., 253 N.Y. 583, 584
(1930) (failure to maintain hotel's revolving door entrance); Maloney v. Hearst
Hotels Corp., 274 N.Y. 106, 109 (1937) (failure to safeguard against fire inside
hotel); Manahan v. N.W.A., 821 F. Supp. 1105, 1108 (D.V.I. 1991) (citing Restatement
(Second) of Torts SS 314A), aff'd, 995 F.2d 218 (3d Cir. 1993) (An innkeeper owes its
guests a "duty to take reasonable action to protect them against unreasonable risk
of physical harm.").

Liabilities to Owners: The Woolley Case and Its Progeny

In contrast to the early and defined laws relating to a hotel manager's duties and
potential liabilities to its guests, there was not a similar set of guidelines relating to
the potential liabilities of a hotel manager to its owner until the early 1990s.

However, the seminal case of Woolley v. Embassy Suites, Inc., 227 Cal. App. 3d
1520 (Cal. App. 1st Dist. 1991) forever changed the industry's understanding of the
legal relationship between a hotel manager and the hotel's owner. In Woolley, a
California state court** **established that, as a matter of law, the nature of the
relationship between a hotel owner and its manager is akin to that of a principal and
its agent and, therefore, the hotel manager (the agent) owes the owner fiduciary
duties, which include the duties of good faith, loyalty, fair dealing, and full
disclosure. Moreover, Woolley held that, because a principal always has the power
to terminate its agent, a hotel owner always has the power to terminate its hotel
manager no matter the terms of their management agreement. The manager could,
however, claim damages resulting from such an early termination provided that the
manager has not breached its fiduciary duties. Conversely, the fiduciary nature of
the relationship allows an owner to terminate a management agreement without
penalty based if a breach of fiduciary duties is proved and seek damages relating to
those breaches, including, but not limited to, disgorgement of all profits. See
Restatement Agency SS 401, com. b ("A failure of the agent to perform his duties
which results in no loss to the principal may subject the agent to liability for ... any
profits he has thereby made ...").

In the wake of Woolley, a number of high profile lawsuits were filed in which owners
sought to terminate their hotel management agreements based on the principalagent fiduciary duty principles. That is, those owners sought to terminate their
management agreements prior to the end of their terms without having to
compensate the manager for early termination by asserting breaches of fiduciary
duties, and sought damages for those alleged breaches. High profile cases asserting
breaches of fiduciary duties included Pacific Landmark Hotel, Ltd. v. Marriott Hotels,
Inc., 19 Cal. App. 4th 615 (Cal. App. 4th Dist. 1991), Government Guar. Fund of the
Republic of Finland v. Hyatt Corp., 166 F.R.D. 321, 323, 34 V.I. 257 (D.V.I. 1996), and
2660 Woodley Road Joint Venture v. ITT Sheraton Corp., 2002 WL 53913 (D. Del.
2002), aff'd in part, vacated in part, remanded by 369 F.3d 732 (3rd Cir. 2004).

Claims of breaches of fiduciary duties by owner's against their hotel managers now
cover the gamut of the hotel manager's services and practices, ranging from
failures to account, group purchasing programs, guest loyalty programs, and any
other potential breach of the manager's contractual or common law obligations that
could potentially be construed as breach of the fiduciary duties of good faith, loyalty
and full disclosure. Woodley Road was the first case in which a jury rendered a
verdict on a claim that a hotel manager failing to meet its fiduciary duties to the
hotel's owner. That jury awarded the owner $51.8 million in damages against the
manager, and permitted the owner to terminate the hotel's long-term management
contract without penalty even though there were more than thirty years remaining
in its term. Although the Woodley Road jury verdict was significantly reduced by the
trial judge and on appeal, it undoubtedly sent a shockwave through the hotel

industry and caused managers to take notice of their fiduciary duties and related
potential liabilities to their owners.

Conclusion

On top of its day-to-day responsibilities, nearly every aspect of managing a hotel

has the potential to create legal liabilities for the manager to guests and owners. In
fact, hotel managers have faced claims based on countless laws and regulations,
including, but not limited to, zoning laws, privacy laws, intellectual property laws,
the American's with Disabilities Act, federal and state antitrust laws, consumer
protection laws, and, recently federal and state securities laws. While the laws and
duties that apply to innkeepers and fiduciaries are not the sole basis for potential
legal liabilities for hotel managers, abiding by the guiding principles of reasonable
care to hotel guests and duties of good faith, loyalty, and full disclosure to hotel
owners is a necessary and critical first step that a hotel manager must understand
in order to minimize the potential for legal liabilities.

Daniel Brown is a Partner at Sheppard Mullin Richter & Hampton LLP. He counsels on
high stake, complex, commercial litigations and arbitrations. He has appeared in
federal and state courts in New York and in other jurisdictions pro hac vice, and has
argued cases before the Appellate Division, First Department, and Second Circuit
Court of Appeals. Mr. Brown's casework has been reported in the New York Law
Journal, New York Times, and Wall Street Journal. Mr. Brown has appeared on CNN,
NBC and Court TV. He also has presented at hospitality and other Continuing Legal
Education conferences. Mr. Brown can be contacted at 212-332-3879 or
dlbrown@sheppardmullin.com Extended Bio...

HotelExecutive.com retains the copyright to the articles published in the Hotel

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HotelExecutive.com

Termination of Employment

1. What is the right to security of tenure?

The right to security of tenure means that a regular employee shall remain
employed unless his or her services are terminated for just or authorized cause and
after observance of procedural due process.

2. May an employer dismiss an employee? What are the grounds?

Yes. An employer may dismiss an employee on the following just causes:

a) serious misconduct;

b) willful disobedience;

c) gross and habitual neglect of duty;

d) fraud or breach of trust;

e) commission of a crime or offense against the employer, his family or

representative;

f) other similar causes.

3. Are there other grounds for terminating an employment? What are they?

Yes. The other grounds are authorized causes:

a) installation of labor-saving devices;

b) redundancy;

c) retrenchment to prevent losses;

d) closure and cessation of business; and

e) disease / illness.

4. Before terminating the services of an employee, what procedure should the

employer observe?

An employer shall observe procedural due process before terminating ones

employment.

5. What are the components of procedural due process?

A. In a termination for just cause, due process involves the two-notice rule:

a) A notice of intent to dismiss specifying the ground for termination, and giving
said employee reasonable opportunity within which to explain his or her side;

b) A hearing or conference where the employee is given opportunity to respond to

the charge, present evidence or rebut the evidence presented against him or her;

c) A notice of dismissal indicating that upon due consideration of all the

circumstances, grounds have been established to justify termination.

B. In a termination for an authorized cause, due process means a written notice of

dismissal to the employee specifying the grounds at least 30 days before the date
of termination. A copy of the notice shall also be furnished the Regional Office of the
Department of Labor and Employment (DOLE) where the employer is located.

6. What is the sanction if the employer failed to observe procedural due process in
cases of legal and authorized termination?

In cases of termination for just causes, the employee is entitled to payment of

indemnity or nominal damages in a sum of not more than 30,000 pesos (Agabon vs.

NLRC, 442 SCRA 573); in case of termination for authorized causes, 50,000 pesos
(Jaka Food Processing vs. Darwin Pacot, 454 SCRA 119).

7. May an employee question the legality of his or her dismissal?

Yes. The legality of a dismissal may be questioned before the Labor Arbiter of a
Regional Arbitration Branch of the National Labor Relations Commission (NLRC),
through a complaint for illegal dismissal. In establishments with a collective
bargaining agreement (CBA), the dismissal may be questioned through the
grievance machinery established under the CBA. If the complaint is not resolved at
this level, it may be submitted to voluntary arbitration.

8. In cases of illegal dismissal, who has the duty of proving that the dismissal is
valid?

The employer.

9. Suppose the employer denies dismissing the employee, who has the duty to
prove that the dismissal is without valid cause?

The employee must elaborate, support or substantiate his or her complaint that he
or she was dismissed without valid cause (Ledesma, Jr. vs. NLRC, 537 SCRA 358,
October 19, 2007).

10. On what grounds may an employee question his or her dismissal?

An employee may question his or her dismissal based on substantive or procedural

grounds.

The substantive aspect pertains to the absence of a just or authorized cause

supporting the dismissal.

The procedural aspect refers to the failure of the employer to give the employee the
opportunity to explain his or her side.

11. What are the rights afforded to an unjustly dismissed employee?

An employee who is dismissed without just cause is entitled to any or all of the
following:

a) reinstatement without loss of seniority rights;

b) in lieu of reinstatement, an employee may be given separation pay of one month

pay for every year of service (Golden Ace Builders, et. al vs. Jose Talde, May 5, 2010,
GR No. 187200);

c) full backwages, inclusive of allowances and other benefits or their monetary

equivalent from the time compensation was withheld up to the time of
reinstatement;

d) damages if the dismissal was done in bad faith (Aurora Land Project Corp. vs
NLRC, 266 SCRA 48).

12. What is reinstatement?

Reinstatement means restoration of the employee to the position from which he or

she has been unjustly removed.

Reinstatement without loss of seniority rights means that the employee, upon
reinstatement, should be treated in matter involving seniority and continuity of
employment as though he or she had not been dismissed from work.

When a Labor Arbiter rules for an illegal dismissal, reinstatement is immediately

executory even pending appeal by the employer (Article 223 of the Labor Code, as
amended).

13. In what forms may reinstatement pending appeal be effected?

Reinstatement pending appeal may be actual or by payroll, at the option of the

employer.

14. What is meant by full backwages?

Full backwages refer to all compensations, including allowances and other benefits
with monetary equivalent that should have been earned by the employee but was
not collected by him or her because of unjust dismissal. It includes all the amounts
he or she could have earned starting from the date of dismissal up to the time of
reinstatement.

15. What is separation pay?

In termination for authorized causes, separation pay is the amount given to an

employee terminated due to installation of labor-saving devices, redundancy,
retrenchment, closure or cessation of business or incurable disease.

Separation pay may also be granted to an illegally dismissed employee in lieu of

reinstatement.

16. How much is the separation pay?

In cases of installation of labor-saving devices or redundancy, the employee is

entitled to receive the equivalent of one month pay or one month for every year of
service, whichever is higher.

In cases of retrenchment, closure or cessation of business or incurable disease, the

employee is entitled to receive the equivalent of one month pay or one-half month
pay for every year of service, whichever is higher.

In case of separation pay in lieu of reinstatement, the employee is entitled to

receive the equivalent of one month pay for every year of service.

17. Is proof of financial losses necessary to justify retrenchment?

Yes. Proof of actual or imminent financial losses that are substantive in character
must be proven by the employer to justify retrenchment (Lopez Sugar Central vs.
NLRC, 189 SCRA 179).

18. Are there other conditions before an employee may be dismissed on the ground
of redundancy?

Yes. It must be shown that there is:

a) Good faith in abolishing redundant position; and

b) Fair and reasonable criteria in selecting employees to be dismissed, such as but

not limited to less preferred status (e.g. temporary employee), efficiency and
seniority (Asian Alcohol Corp. vs. NLRC, 305 SCRA 416);

c) A one-month prior notice is given to the employee and DOLE Regional Office as
prescribed by law.

19. May the services of an employee be terminated due to disease?

Yes. The employer may terminate employment on ground of disease only upon the
issuance of a certification by a competent public health authority that the disease is
of such nature or at such stage that it cannot be cured within a period of six months
even with proper medical treatment.

20. What is constructive dismissal?

Constructive dismissal refers to an involuntary resignation resorted to when

continued employment becomes impossible, unreasonable or unlikely; when there is
a demotion in rank or a diminution in pay; or when a clear discrimination,
insensibility or disdain by an employer becomes unbearable to an employee or an
unwarranted transfer or demotion of a employee, or other unjustified action
prejudicial to the employee. The employer has to prove that such managerial
actions do not constitute constructive dismissal (Blue Dairy Corp. vs. NLRC, 314
SCRA 401)

21. May an employee be placed on floating status?

Yes, provided it is permitted under circumstances for a period of not more than six
(6) months. Beyond this period, floating status becomes constructive dismissal
which entitles the employee to separation pay (Phil. Industrial Security Agency
Corp. vs. Virgilio Dapiton and NLRC, 320 SCRA 124)

22. When an employee resigned voluntarily, is he or she entitled to separation pay?

No. An employee is not entitled to separation pay when he or she resigns

voluntarily, unless it is a company practice or provided in the CBA (Hanford
Philippines Inc. vs. Shirley Joseph, 454 SCRA 786, March 31, 2005).

23. Are quitclaims valid?

Yes, provided that these are voluntarily signed and the consideration is reasonable
and is not against the law or public policy. (More Maritime Agencies vs. NLRC, 307
SCRA 189)

Quitclaims entered into by union officers and some members do not bind those who
did not sign it (Lianas Supermarket vs. NLRC, 257 SCRA 186).

FIRST DIVISION

McDONALDS CORPORATION,

G.R. No. 166115

Petitioner,
Present:

PUNO, C.J., Chairperson,

SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA,
- versus GARCIA, JJ.

Promulgated:

February 2, 2007
MACJOY FASTFOOD CORPORATION,
Respondent.

x----------------------------------------------------------------------------------------x
DECISION
GARCIA, J.:

In this petition for review on certiorari under Rule 45 of the Rules of Court, herein petitioner
McDonalds Corporation seeks the reversal and setting aside of the following issuances of the Court of
Appeals (CA) in CA-G.R. SP No. 57247, to wit:

1.

Decision dated 29 July 2004 1 reversing an earlier decision of the Intellectual

Property Office (IPO) which rejected herein respondent MacJoy FastFood
Corporations application for registration of the trademark MACJOY & DEVICE;
and

2. Resolution dated 12 November 20042 denying the petitioners motion for

reconsideration.
As culled from the record, the facts are as follows:

On 14 March 1991, respondent MacJoy Fastfood Corporation, a domestic corporation engaged in

the sale of fast food products in Cebu City, filed with the then Bureau of Patents, Trademarks and
Technology Transfer (BPTT), now the Intellectual Property Office (IPO), an application, thereat
identified as Application Serial No. 75274, for the registration of the trademark MACJOY& DEVICE for
fried chicken, chicken barbeque, burgers, fries, spaghetti, palabok, tacos, sandwiches, halo-halo and
steaks under classes 29 and 30 of the International Classification of Goods.

Petitioner McDonalds Corporation, a corporation duly organized and existing under the laws of
the State of Delaware, USA, filed a verified Notice of Opposition3 against the respondents application
claiming that the trademark MACJOY & DEVICE so resembles its corporate logo, otherwise known as
the Golden Arches or M design, and its marks McDonalds, McChicken, MacFries, BigMac, McDo,
McSpaghetti, McSnack, and Mc, (hereinafter collectively known as the MCDONALDS marks) such that
when used on identical or related goods, the trademark applied for would confuse or deceive purchasers
into believing that the goods originate from the same source or origin. Likewise, the petitioner alleged
that the respondents use and adoption in bad faith of the MACJOY & DEVICE mark would falsely tend
to suggest a connection or affiliation with petitioners restaurant services and food products, thus,
constituting a fraud upon the general public and further cause the dilution of the distinctiveness of
petitioners registered and internationally recognized MCDONALDS marks to its prejudice and
irreparable damage. The application and the opposition thereto was docketed as Inter Partes Case No.
3861.

Respondent denied the aforementioned allegations of the petitioner and averred that it has used the mark
MACJOY for the past many years in good faith and has spent considerable sums of money for said marks
extensive promotion in tri-media, especially in Cebu City where it has been doing business long before
the petitioner opened its outlet thereat sometime in 1992; and that its use of said mark would not confuse
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affiliation with the petitioners restaurant services and food products because of the differences in the
design and detail of the two (2) marks.

In a decision4 dated December 28, 1998, the IPO, ratiocinating that the predominance of the letter
M, and the prefixes Mac/Mc in both the MACJOY and the MCDONALDS marks lead to the conclusion
that there is confusing similarity between them especially since both are used on almost the same
products falling under classes 29 and 30 of the International Classification of Goods, i.e., food and
ingredients of food, sustained the petitioners opposition and rejected the respondents application, viz:

WHEREFORE, the Opposition to the registration of the mark MACJOY & DEVICE
for use in fried chicken and chicken barbecue, burgers, fries, spaghetti, palabok, tacos,
sandwiches, halo-halo, and steaks is, as it is hereby, SUSTAINED. Accordingly,
Application Serial No. 75274 of the herein Respondent-Applicant is REJECTED.
Let the filewrapper of MACJOY subject matter of this case be sent to the Administrative,
Financial and Human Resources Development Bureau for appropriate action in
accordance with this Decision, with a copy to be furnished the Bureau of Trademarks for
information and to update its record.
SO ORDERED.

In time, the respondent moved for a reconsideration but the IPO denied the motion in its Order 5 of
January 14, 2000.

Therefrom, the respondent went to the CA via a Petition for Review with prayer for Preliminary
Injunction6 under Rule 43 of the Rules of Court, whereat its appellate recourse was docketed as CA-G.R.
SP No. 57247.

Finding no confusing similarity between the marks MACJOY and MCDONALDS, the CA, in its herein
assailed Decision7 dated July 29, 2004, reversed and set aside the appealed IPO decision and order, thus:

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6

WHEREFORE, in view of the foregoing, judgment is hereby rendered by us

REVERSING and SETTING ASIDE the Decision of the IPO dated 28 December 1998
and its Order dated 14 January 2000 and ORDERING the IPO to give due course to
petitioners Application Serial No. 75274.

SO ORDERED.

Explains the CA in its decision:

xxx, it is clear that the IPO brushed aside and rendered useless the glaring and
drastic differences and variations in style of the two trademarks and even decreed that
these pronounced differences are miniscule and considered them to have been
overshadowed by the appearance of the predominant features such as M, Mc, and Mac
appearing in both MCDONALDS and MACJOY marks. Instead of taking into account
these differences, the IPO unreasonably shrugged off these differences in the device,
letters and marks in the trademark sought to be registered. The IPO brushed aside and
ignored the following irrefutable facts and circumstances showing differences between
the marks of MACJOY and MCDONALDS. They are, as averred by the petitioner [now
respondent]:

1.

The word MacJoy is written in round script while the word

McDonalds is written in single stroke gothic;

2.

The word MacJoy comes with the picture of a chicken head with
cap and bowtie and wings sprouting on both sides, while the
word McDonalds comes with an arches M in gold colors, and
absolutely without any picture of a chicken;

3.

The word MacJoy is set in deep pink and white color scheme
while McDonalds is written in red, yellow and black color
combination;

4.

The faade of the respective stores of the parties are entirely

different. Exhibits 1 and 1-A, show that [respondents] restaurant
is set also in the same bold, brilliant and noticeable color scheme
as that of its wrappers, containers, cups, etc., while [petitioners]
restaurant is in yellow and red colors, and with the mascot of

Ronald McDonald being prominently displayed therein. (Words

in brackets supplied.)

Petitioner promptly filed a motion for reconsideration. However, in its similarly challenged Resolution8
of November 12, 2004, the CA denied the motion, as it further held:

Whether a mark or label of a competitor resembles another is to be determined by an

inspection of the points of difference and resemblance as a whole, and not merely the
points of resemblance. The articles and trademarks employed and used by the
[respondent] Macjoy Fastfood Corporation are so different and distinct as to preclude any
probability or likelihood of confusion or deception on the part of the public to the injury
of the trade or business of the [petitioner] McDonalds Corporation. The Macjoy &
Device mark is dissimilar in color, design, spelling, size, concept and appearance to the
McDonalds marks. (Words in brackets supplied.)

Hence, the petitioners present recourse on the following grounds:

I.
THE COURT OF APPEALS ERRED IN RULING THAT RESPONDENTS MACJOY &
DEVICE MARK IS NOT CONFUSINGLY SIMILAR TO PETITIONERS
McDONALDS MARKS. IT FAILED TO CORRECTLY APPLY THE DOMINANCY
TEST WHICH HAS BEEN CONSISTENTLY APPLIED BY THIS HONORABLE
COURT IN DETERMINING THE EXISTENCE OF CONFUSING SIMILARITY
BETWEEN COMPETING MARKS.

A.The McDonalds Marks belong to a well-known and established family

of marks distinguished by the use of the prefix Mc and/or Mac
and the corporate M logo design.

B.

The prefix Mc and/or Mac is the dominant portion of both

Petitioners McDonalds Marks and the Respondents Macjoy &
Device mark. As such, the marks are confusingly similar under
the Dominancy Test.

C.

Petitioners McDonalds Marks are well-known and world-famous

marks which must be protected under the Paris Convention.

II.

THE COURT OF APPEALS ERRED IN RULING THAT THE DECISION OF THE IPO
DATED 28 DECEMBER 1998 AND ITS ORDER DATED 14 JANUARY 2000 WERE
NOT BASED ON SUBSTANTIAL EVIDENCE.

In its Comment,9 the respondent asserts that the petition should be dismissed outright for being
procedurally defective: first, because the person who signed the certification against forum shopping in
behalf of the petitioner was not specifically authorized to do so, and second, because the petition does not
present a reviewable issue as what it challenges are the factual findings of the CA. In any event, the
respondent insists that the CA committed no reversible error in finding no confusing similarity between
the trademarks in question.

The petition is impressed with merit.

Contrary to respondents claim, the petitioners Managing Counsel, Sheila Lehr, was specifically
authorized to sign on behalf of the petitioner the Verification and Certification 10 attached to the petition.
As can be gleaned from the petitioners Board of Directors Resolution dated December 5, 2002, as
embodied in the Certificate of the Assistant Secretary dated December 21, 2004, 11 Sheila Lehr was one of
those authorized and empowered to execute and deliver for and on behalf of [the petitioner] all
documents as may be required in connection with x x x the protection and maintenance of any foreign
patents, trademarks, trade-names, and copyrights owned now or hereafter by [the petitioner], including,
but not limited to, x x x documents required to institute opposition or cancellation proceedings against
9
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conflicting trademarks, and to do such other acts and things and to execute such other documents as may
be necessary and appropriate to effect and carry out the intent of this resolution. Indeed, the afore-stated
authority given to Lehr necessarily includes the authority to execute and sign the mandatorily required
certification of non-forum shopping to support the instant petition for review which stemmed from the
opposition proceedings lodged by the petitioner before the IPO. Considering that the person who executed
and signed the certification against forum shopping has the authority to do so, the petition, therefore, is
not procedurally defective.

As regards the respondents argument that the petition raises only questions of fact which are not
proper in a petition for review, suffice it to say that the contradictory findings of the IPO and the CA
constrain us to give due course to the petition, this being one of the recognized exceptions to Section 1,
Rule 45 of the Rules of Court. True, this Court is not the proper venue to consider factual issues as it is
not a trier of facts. 12 Nevertheless, when the factual findings of the appellate court are mistaken, absurd,
speculative, conjectural, conflicting, tainted with grave abuse of discretion, or contrary to the findings
culled by the court of origin,13 as here, this Court will review them.

The old Trademark Law, Republic Act (R.A.) No. 166, as amended, defines a trademark as any
distinctive word, name, symbol, emblem, sign, or device, or any combination thereof adopted and used by
a manufacturer or merchant on his goods to identify and distinguish them from those manufactured, sold,
or dealt in by others.14

Under the same law, the registration of a trademark is subject to the provisions of Section 4
thereof, paragraph (d) of which is pertinent to this case. The provision reads:

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14

Section 4. Registration of trademarks, trade-names and service-marks on the

principal register. There is hereby established a register of trademarks, tradenames and
service-marks which shall be known as the principal register. The owner of the trademark, trade-name or service-mark used to distinguish his goods, business or services of
others shall have the right to register the same on the principal register, unless it:
xxxxxx xxx
(d) Consists of or comprises a mark or trade-name which so
resembles a mark or trade-name registered in the Philippines or a mark or
trade-name previously used in the Philippines by another and not
abandoned, as to be likely, when applied to or used in connection with
the goods, business or services of the applicant, to cause confusion or
mistake or to deceive purchasers;

xxx

xxx

xxx

Essentially, the issue here is whether there is a confusing similarity between the MCDONALDS
marks of the petitioner and the respondents MACJOY & DEVICE trademark when applied to Classes 29
and 30 of the International Classification of Goods, i.e., food and ingredients of food.

In determining similarity and likelihood of confusion, jurisprudence has developed two tests, the
dominancy test and the holistic test.15 The dominancy test focuses on the similarity of the prevalent
features of the competing trademarks that might cause confusion or deception. 16 In contrast, the holistic
test requires the court to consider the entirety of the marks as applied to the products, including the labels
and packaging, in determining confusing similarity. 17 Under the latter test, a comparison of the words is
not the only determinant factor.18

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Here, the IPO used the dominancy test in concluding that there was confusing similarity between the two
(2) trademarks in question as it took note of the appearance of the predominant features M, Mc and/or
Mac in both the marks. In reversing the conclusion reached by the IPO, the CA, while seemingly applying
the dominancy test, in fact actually applied the holistic test. The appellate court ruled in this wise:

Applying the Dominancy test to the present case, the IPO should have taken into
consideration the entirety of the two marks instead of simply fixing its gaze on the single
letter M or on the combinations Mc or Mac. A mere cursory look of the subject marks
will reveal that, save for the letters M and c, no other similarity exists in the subject
marks.
We agree with the [respondent] that it is entirely unwarranted for the IPO to
consider the prefix Mac as the predominant feature and the rest of the designs in
[respondents] mark as details. Taking into account such paramount factors as color,
designs, spelling, sound, concept, sizes and audio and visual effects, the prefix Mc will
appear to be the only similarity in the two completely different marks; and it is the prefix
Mc that would thus appear as the miniscule detail. When pitted against each other, the
two marks reflect a distinct and disparate visual impression that negates any possible
confusing similarity in the mind of the buying public. (Words in brackets supplied.)

Petitioner now vigorously points out that the dominancy test should be the one applied in this case.

We agree.

In trademark cases, particularly in ascertaining whether one trademark is confusingly similar to another,
no set rules can be deduced because each case must be decided on its merits. 19 In such cases, even more
than in any other litigation, precedent must be studied in the light of the facts of the particular case. 20 That
is the reason why in trademark cases, jurisprudential precedents should be applied only to a case if they
are specifically in point.21

While we agree with the CAs detailed enumeration of differences between the two (2) competing
trademarks herein involved, we believe that the holistic test is not the one applicable in this case, the
dominancy test being the one more suitable. In recent cases with a similar factual milieu as here, the
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Court has consistently used and applied the dominancy test in determining confusing similarity or
likelihood of confusion between competing trademarks. 22

Notably, in McDonalds Corp. v. LC Big Mak Burger, Inc.,23 a case where the trademark Big Mak was
found to be confusingly similar with the Big Mac mark of the herein the petitioner, the Court explicitly
held:

This Court, xxx, has relied on the dominancy test rather than the holistic test. The
dominancy test considers the dominant features in the competing marks in determining
whether they are confusingly similar. Under the dominancy test, courts give greater
weight to the similarity of the appearance of the product arising from the adoption of the
dominant features of the registered mark, disregarding minor differences. Courts will
consider more the aural and visual impressions created by the marks in the public mind,
giving little weight to factors like prices, quality, sales outlets and market segments.

Moreover, in Societe Des Produits Nestle, S.A. v. CA24 the Court, applying the dominancy test, concluded
that the use by the respondent therein of the word MASTER for its coffee product FLAVOR MASTER
was likely to cause confusion with therein petitioners coffee products MASTER ROAST and MASTER
BLEND and further ruled:

xxx, the totality or holistic test is contrary to the elementary postulate of the law on
trademarks and unfair competition that confusing similarity is to be determined on the
basis of visual, aural, connotative comparisons and overall impressions engendered by
the marks in controversy as they are encountered in the marketplace. The totality or
holistic test only relies on visual comparisons between two trademarks whereas the
dominancy test relies not only on the visual but also on the aural and connotative
comparisons and overall impressions between the two trademarks.

Applying the dominancy test to the instant case, the Court finds that herein petitioners MCDONALDS
and respondents MACJOY marks are confusingly similar with each other such that an ordinary purchaser
can conclude an association or relation between the marks.

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To begin with, both marks use the corporate M design logo and the prefixes Mc and/or Mac as dominant
features. The first letter M in both marks puts emphasis on the prefixes Mc and/or Mac by the similar way
in which they are depicted i.e. in an arch-like, capitalized and stylized manner.25

For sure, it is the prefix Mc, an abbreviation of Mac, which visually and aurally catches the attention of
the consuming public. Verily, the word MACJOY attracts attention the same way as did McDonalds,
MacFries, McSpaghetti, McDo, Big Mac and the rest of the MCDONALDS marks which all use the
prefixes Mc and/or Mac.

Besides and most importantly, both trademarks are used in the sale of fastfood products. Indisputably, the
respondents trademark application for the MACJOY & DEVICE trademark covers goods under Classes
29 and 30 of the International Classification of Goods, namely, fried chicken, chicken barbeque, burgers,
fries, spaghetti, etc. Likewise, the petitioners trademark registration for the MCDONALDS marks in the
Philippines covers goods which are similar if not identical to those covered by the respondents
application.

Thus, we concur with the IPOs findings that:

In the case at bar, the predominant features such as the M, Mc, and Mac appearing in
both McDonalds marks and the MACJOY & DEVICE easily attract the attention of
would-be customers. Even non-regular customers of their fastfood restaurants would
readily notice the predominance of the M design, Mc/Mac prefixes shown in both marks.
Such that the common awareness or perception of customers that the trademarks
McDonalds mark and MACJOY & DEVICE are one and the same, or an affiliate, or
under the sponsorship of the other is not far-fetched.
The differences and variations in styles as the device depicting a head of chicken
with cap and bowtie and wings sprouting on both sides of the chicken head, the heartshaped M, and the stylistic letters in MACJOY & DEVICE; in contrast to the arch-like M
and the one-styled gothic letters in McDonalds marks are of no moment. These minuscule
variations are overshadowed by the appearance of the predominant features mentioned
hereinabove.
Thus, with the predominance of the letter M, and prefixes Mac/Mc found in both
marks, the inevitable conclusion is there is confusing similarity between the trademarks
Mc Donalds marks and MACJOY AND DEVICE especially considering the fact that
both marks are being used on almost the same products falling under Classes 29 and 30
of the International Classification of Goods i.e. Food and ingredients of food.

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With the existence of confusing similarity between the subject trademarks, the resulting issue to
be resolved is who, as between the parties, has the rightful claim of ownership over the said marks.

We rule for the petitioner.

A mark is valid if it is distinctive and hence not barred from registration under the Trademark
Law. However, once registered, not only the marks validity but also the registrants ownership thereof is
prima facie presumed.26

Pursuant to Section 3727 of R.A. No. 166, as amended, as well as the provision regarding the
protection of industrial property of foreign nationals in this country as embodied in the Paris Convention 28
under which the Philippines and the petitioners domicile, the United States, are adherent-members, the
petitioner was able to register its MCDONALDS marks successively, i.e., McDonalds in 04 October,
197129; the corporate logo which is the M or the golden arches design and the McDonalds with the M or
golden arches design both in 30 June 197730; and so on and so forth.31

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On the other hand, it is not disputed that the respondents application for registration of its
trademark MACJOY& DEVICE was filed only on March 14, 1991 albeit the date of first use in the
Philippines was December 7, 1987.32

Hence, from the evidence on record, it is clear that the petitioner has duly established its
ownership of the mark/s.

Respondents contention that it was the first user of the mark in the Philippines having used
MACJOY & DEVICE on its restaurant business and food products since December, 1987 at Cebu City
while the first McDonalds outlet of the petitioner thereat was opened only in 1992, is downright
unmeritorious. For the requirement of actual use in commerce x x x in the Philippines before one may
register a trademark, trade-name and service mark under the Trademark Law 33 pertains to the territorial
jurisdiction of the Philippines and is not only confined to a certain region, province, city or barangay.

Likewise wanting in merit is the respondents claim that the petitioner cannot acquire ownership
of the word Mac because it is a personal name which may not be monopolized as a trademark as against
others of the same name or surname. As stated earlier, once a trademark has been registered, the validity
of the mark is prima facie presumed. In this case, the respondent failed to overcome such presumption.
We agree with the observations of the petitioner regarding the respondents explanation that the word
MACJOY is based on the name of its presidents niece, Scarlett Yu Carcell. In the words of the petitioner:

First of all, Respondent failed to present evidence to support the foregoing claim which,
at best, is a mere self-serving assertion. Secondly, it cannot be denied that there is
absolutely no connection between the name Scarlett Yu Carcel and MacJoy to merit the
coinage of the latter word. Even assuming that the word MacJoy was chosen as a term of
endearment, fondness and affection for a certain Scarlett Yu Carcel, allegedly the niece of
Respondents president, as well as to supposedly bring good luck to Respondents
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business, one cannot help but wonder why out of all the possible letters or combinations
of letters available to Respondent, its president had to choose and adopt a mark with the
prefix Mac as the dominant feature thereof. A more plausible explanation perhaps is that
the niece of Respondents president was fond of the food products and services of the
Respondent, but that is beside the point. 34

By reason of the respondents implausible and insufficient explanation as to how and why out of
the many choices of words it could have used for its trade-name and/or trademark, it chose the word
MACJOY, the only logical conclusion deducible therefrom is that the respondent would want to ride high
on the established reputation and goodwill of the MCDONALDs marks, which, as applied to petitioners
restaurant business and food products, is undoubtedly beyond question.

Thus, the IPO was correct in rejecting and denying the respondents application for registration of
the trademark MACJOY & DEVICE. As this Court ruled in Faberge Inc. v. IAC,35 citing Chuanchow Soy
& Canning Co. v. Dir. of Patents and Villapanta:36

When one applies for the registration of a trademark or label which is almost the same or
very closely resembles one already used and registered by another, the application should
be rejected and dismissed outright, even without any opposition on the part of the owner
and user of a previously registered label or trademark, this not only to avoid confusion on
the part of the public, but also to protect an already used and registered trademark and an
established goodwill.
WHEREFORE, the instant petition is GRANTED. Accordingly, the assailed Decision and Resolution of
the Court of Appeals in CA-G.R. SP NO. 57247, are REVERSED and SET ASIDE and the Decision of
the Intellectual Property Office in Inter Partes Case No. 3861 is REINSTATED.

No pronouncement as to costs.

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SO ORDERED.

CANCIO C. GARCIA
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chief Justice
Chairperson

ANGELINA SANDOVAL-GUTIERREZ

RENATO C. CORONA

Associate Justice

Associate Justice

ADOLFO S. AZCUNA
Associate Justice

C E R T I F I C AT I O N

Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions
in the above decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice