TANADA VS ANGARA

DECISION
PANGANIBAN, J.:

The emergence on January 1, 1995 of the World Trade Organization,

abetted by the membership thereto of the vast majority of countries has
revolutionized international business and economic relations amongst
states. It has irreversibly propelled the world towards trade liberalization and
economic globalization. Liberalization, globalization, deregulation and
privatization, the third-millennium buzz words, are ushering in a new
borderless world of business by sweeping away as mere historical relics the
heretofore traditional modes of promoting and protecting national economies
like tariffs, export subsidies, import quotas, quantitative restrictions, tax
exemptions and currency controls. Finding market niches and becoming the
best in specific industries in a market-driven and export-oriented global
scenario are replacing age-old beggar-thy-neighbor policies that unilaterally
protect weak and inefficient domestic producers of goods and services. In the
words of Peter Drucker, the well-known management guru, Increased
participation in the world economy has become the key to domestic economic
growth and prosperity.

Brief Historical Background

To hasten worldwide recovery from the devastation wrought by the

Second World War, plans for the establishment of three multilateral
institutions -- inspired by that grand political body, the United Nations -- were
discussed at Dumbarton Oaks and Bretton Woods. The first was the World
Bank (WB) which was to address the rehabilitation and reconstruction of war-
ravaged and later developing countries; the second, the International
Monetary Fund (IMF) which was to deal with currency problems; and the third,
the International Trade Organization (ITO), which was to foster order and
predictability in world trade and to minimize unilateral protectionist policies
that invite challenge, even retaliation, from other states. However, for a variety
of reasons, including its non-ratification by the United States, the ITO, unlike
the IMF and WB, never took off. What remained was only GATT -- the
General Agreement on Tariffs and Trade. GATT was a collection of treaties
governing access to the economies of treaty adherents with no
institutionalized body administering the agreements or dependable system of
dispute settlement.
 After half a century and several dizzying rounds of negotiations, principally
the Kennedy Round, the Tokyo Round and the Uruguay Round, the world
finally gave birth to that administering body -- the World Trade Organization --
with the signing of the Final Act in Marrakesh, Morocco and the ratification of
the WTO Agreement by its members. [1]

Like many other developing countries, the Philippines joined WTO as a

founding member with the goal, as articulated by President Fidel V. Ramos in
two letters to the Senate (infra), of improving Philippine access to foreign
markets, especially its major trading partners, through the reduction of tariffs
on its exports, particularly agricultural and industrial products. The
President also saw in the WTO the opening of new opportunities for the
services sector x x x, (the reduction of) costs and uncertainty associated with
exporting x x x, and (the attraction of) more investments into the
country. Although the Chief Executive did not expressly mention it in his letter,
the Philippines - - and this is of special interest to the legal profession - - will
benefit from the WTO system of dispute settlement by judicial adjudication
through the independent WTO settlement bodies called (1) Dispute
Settlement Panels and (2) Appellate Tribunal. Heretofore, trade disputes were
settled mainly through negotiations where solutions were arrived at frequently
on the basis of relative bargaining strengths, and where naturally, weak and
underdeveloped countries were at a disadvantage.

The Petition in Brief

Arguing mainly (1) that the WTO requires the Philippines to place
nationals and products of member-countries on the same footing as Filipinos
and local products and (2) that the WTO intrudes, limits and/or impairs the
constitutional powers of both Congress and the Supreme Court, the instant
petition before this Court assails the WTO Agreement for violating the
mandate of the 1987 Constitution to develop a self-reliant and independent
national economy effectively controlled by Filipinos x x x (to) give preference
to qualified Filipinos (and to) promote the preferential use of Filipino labor,
domestic materials and locally produced goods.
Simply stated, does the Philippine Constitution prohibit Philippine
participation in worldwide trade liberalization and economic
globalization? Does it prescribe Philippine integration into a global economy
that is liberalized, deregulated and privatized? These are the main questions
raised in this petition for certiorari, prohibition and mandamus under Rule 65
of the Rules of Court praying (1) for the nullification, on constitutional grounds,
of the concurrence of the Philippine Senate in the ratification by the President
of the Philippines of the Agreement Establishing the World Trade Organization
(WTO Agreement, for brevity) and (2) for the prohibition of its implementation
and enforcement through the release and utilization of public funds, the
assignment of public officials and employees, as well as the use of
government properties and resources by respondent-heads of various
executive offices concerned therewith. This concurrence is embodied in
Senate Resolution No. 97, dated December 14, 1994.

The Facts

On April 15, 1994, Respondent Rizalino Navarro, then Secretary of

the Department of Trade and Industry (Secretary Navarro, for brevity),
representing the Government of the Republic of the Philippines, signed in
Marrakesh, Morocco, the Final Act Embodying the Results of the Uruguay
Round of Multilateral Negotiations (Final Act, for brevity).
By signing the Final Act, Secretary Navarro on behalf of the Republic of
[2]

the Philippines, agreed:

(a) to submit, as appropriate, the WTO Agreement for the consideration of their
respective competent authorities, with a view to seeking approval of the Agreement in
accordance with their procedures; and

(b) to adopt the Ministerial Declarations and Decisions.

On August 12, 1994, the members of the Philippine Senate received a

letter dated August 11, 1994 from the President of the Philippines, stating [3]

among others that the Uruguay Round Final Act is hereby submitted to the
Senate for its concurrence pursuant to Section 21, Article VII of the
Constitution.
On August 13, 1994, the members of the Philippine Senate received
another letter from the President of the Philippines likewise dated August 11,
[4]

1994, which stated among others that the Uruguay Round Final Act, the
Agreement Establishing the World Trade Organization, the Ministerial
Declarations and Decisions, and the Understanding on Commitments in
Financial Services are hereby submitted to the Senate for its concurrence
pursuant to Section 21, Article VII of the Constitution.
On December 9, 1994, the President of the Philippines certified the
necessity of the immediate adoption of P.S. 1083, a resolution entitled
Concurring in the Ratification of the Agreement Establishing the World Trade
Organization.[5]

On December 14, 1994, the Philippine Senate adopted Resolution No. 97

which Resolved, as it is hereby resolved, that the Senate concur, as it hereby
concurs, in the ratification by the President of the Philippines of the
Agreement Establishing the World Trade Organization. The text of the WTO
[6]

Agreement is written on pages 137 et seq. of Volume I of the 36-

volume Uruguay Round of Multilateral Trade Negotiations and includes
various agreements and associated legal instruments (identified in the said
Agreement as Annexes 1, 2 and 3 thereto and collectively referred to as
Multilateral Trade Agreements, for brevity) as follows:

ANNEX 1

Annex 1A: Multilateral Agreement on Trade in Goods

General Agreement on Tariffs and Trade 1994

Agreement on Agriculture

Agreement on the Application of Sanitary and

Phytosanitary Measures

Agreement on Textiles and Clothing

Agreement on Technical Barriers to Trade

Agreement on Trade-Related Investment Measures

Agreement on Implementation of Article VI of the General

Agreement on Tariffs and Trade 1994

Agreement on Implementation of Article VII of the General on

Tariffs and Trade 1994

Agreement on Pre-Shipment Inspection

Agreement on Rules of Origin

Agreement on Imports Licensing Procedures

 Agreement on Subsidies and Coordinating Measures

Agreement on Safeguards

Annex 1B: General Agreement on Trade in Services and Annexes

Annex 1C: Agreement on Trade-Related Aspects of Intellectual Property Rights

ANNEX 2

Understanding on Rules and Procedures Governing the Settlement

of Disputes

ANNEX 3

Trade Policy Review Mechanism

On December 16, 1994, the President of the Philippines signed the [7]

Instrument of Ratification, declaring:

NOW THEREFORE, be it known that I, FIDEL V. RAMOS, President of the

Republic of the Philippines, after having seen and considered the aforementioned
Agreement Establishing the World Trade Organization and the agreements and
associated legal instruments included in Annexes one (1), two (2) and three (3) of that
Agreement which are integral parts thereof, signed at Marrakesh, Morocco on 15
April 1994, do hereby ratify and confirm the same and every Article and Clause
thereof.

To emphasize, the WTO Agreement ratified by the President of the

Philippines is composed of the Agreement Proper and the associated legal
instruments included in Annexes one (1), two (2) and three (3) of that
Agreement which are integral parts thereof.
On the other hand, the Final Act signed by Secretary Navarro embodies
not only the WTO Agreement (and its integral annexes aforementioned) but
also (1) the Ministerial Declarations and Decisions and (2) the Understanding
on Commitments in Financial Services. In his Memorandum dated May 13,
1996, the Solicitor General describes these two latter documents as follows:
[8]

The Ministerial Decisions and Declarations are twenty-five declarations and decisions
on a wide range of matters, such as measures in favor of least developed countries,
notification procedures, relationship of WTO with the International Monetary Fund
(IMF), and agreements on technical barriers to trade and on dispute settlement.
The Understanding on Commitments in Financial Services dwell on, among other
things, standstill or limitations and qualifications of commitments to existing non-
conforming measures, market access, national treatment, and definitions of non-
resident supplier of financial services, commercial presence and new financial service.

On December 29, 1994, the present petition was filed. After careful
deliberation on respondents comment and petitioners reply thereto, the Court
resolved on December 12, 1995, to give due course to the petition, and the
parties thereafter filed their respective memoranda. The Court also requested
the Honorable Lilia R. Bautista, the Philippine Ambassador to the United
Nations stationed in Geneva, Switzerland, to submit a paper, hereafter
referred to as Bautista Paper, for brevity, (1) providing a historical
[9]

background of and (2) summarizing the said agreements.

During the Oral Argument held on August 27, 1996, the Court directed:

(a) the petitioners to submit the (1) Senate Committee Report on the matter in
controversy and (2) the transcript of proceedings/hearings in the Senate; and

(b) the Solicitor General, as counsel for respondents, to file (1) a list of Philippine
treaties signed prior to the Philippine adherence to the WTO Agreement, which
derogate from Philippine sovereignty and (2) copies of the multi-volume WTO
Agreement and other documents mentioned in the Final Act, as soon as possible.

After receipt of the foregoing documents, the Court said it would consider
the case submitted for resolution. In a Compliance dated September 16, 1996,
the Solicitor General submitted a printed copy of the 36-volume Uruguay
Round of Multilateral Trade Negotiations, and in another Compliance dated
October 24, 1996, he listed the various bilateral or multilateral treaties or
international instruments involving derogation of Philippine
sovereignty. Petitioners, on the other hand, submitted their Compliance dated
January 28, 1997, on January 30, 1997.

The Issues

In their Memorandum dated March 11, 1996, petitioners summarized the

issues as follows:

A. Whether the petition presents a political question or is otherwise not justiciable.

 B. Whether the petitioner members of the Senate who participated in the
deliberations and voting leading to the concurrence are estopped from
impugning the validity of the Agreement Establishing the World Trade
Organization or of the validity of the concurrence.

C. Whether the provisions of the Agreement Establishing the World Trade

Organization contravene the provisions of Sec. 19, Article II, and Secs. 10 and
12, Article XII, all of the 1987 Philippine Constitution.

D. Whether provisions of the Agreement Establishing the World Trade

Organization unduly limit, restrict and impair Philippine sovereignty
specifically the legislative power which, under Sec. 2, Article VI, 1987
Philippine Constitution is vested in the Congress of the Philippines;

E. Whether provisions of the Agreement Establishing the World Trade

Organization interfere with the exercise of judicial power.

F. Whether the respondent members of the Senate acted in grave abuse of

discretion amounting to lack or excess of jurisdiction when they voted for
concurrence in the ratification of the constitutionally-infirm Agreement
Establishing the World Trade Organization.

G. Whether the respondent members of the Senate acted in grave abuse of

discretion amounting to lack or excess of jurisdiction when they concurred
only in the ratification of the Agreement Establishing the World Trade
Organization, and not with the Presidential submission which included the
Final Act, Ministerial Declaration and Decisions, and the Understanding on
Commitments in Financial Services.

On the other hand, the Solicitor General as counsel for respondents

synthesized the several issues raised by petitioners into the following: [10]

1. Whether or not the provisions of the Agreement Establishing the World Trade
Organization and the Agreements and Associated Legal Instruments included in
Annexes one (1), two (2) and three (3) of that agreement cited by petitioners directly
contravene or undermine the letter, spirit and intent of Section 19, Article II and
Sections 10 and 12, Article XII of the 1987 Constitution.

2. Whether or not certain provisions of the Agreement unduly limit, restrict or impair
the exercise of legislative power by Congress.
3. Whether or not certain provisions of the Agreement impair the exercise of judicial
power by this Honorable Court in promulgating the rules of evidence.

4. Whether or not the concurrence of the Senate in the ratification by the President of
the Philippines of the Agreement establishing the World Trade Organization implied
rejection of the treaty embodied in the Final Act.

By raising and arguing only four issues against the seven presented by
petitioners, the Solicitor General has effectively ignored three, namely: (1)
whether the petition presents a political question or is otherwise not
justiciable; (2) whether petitioner-members of the Senate (Wigberto E. Taada
and Anna Dominique Coseteng) are estopped from joining this suit; and (3)
whether the respondent-members of the Senate acted in grave abuse of
discretion when they voted for concurrence in the ratification of the WTO
Agreement. The foregoing notwithstanding, this Court resolved to deal with
these three issues thus:

(1) The political question issue -- being very fundamental and vital, and being a
matter that probes into the very jurisdiction of this Court to hear and decide this case -
- was deliberated upon by the Court and will thus be ruled upon as the first issue;

(2) The matter of estoppel will not be taken up because this defense is waivable and
the respondents have effectively waived it by not pursuing it in any of their pleadings;
in any event, this issue, even if ruled in respondents favor, will not cause the petitions
dismissal as there are petitioners other than the two senators, who are not vulnerable
to the defense of estoppel; and

(3) The issue of alleged grave abuse of discretion on the part of the respondent
senators will be taken up as an integral part of the disposition of the four issues raised
by the Solicitor General.

During its deliberations on the case, the Court noted that the respondents
did not question the locus standi of petitioners. Hence, they are also deemed
to have waived the benefit of such issue. They probably realized that grave
constitutional issues, expenditures of public funds and serious international
commitments of the nation are involved here, and that transcendental public
interest requires that the substantive issues be met head on and decided on
the merits, rather than skirted or deflected by procedural matters. [11]

To recapitulate, the issues that will be ruled upon shortly are:

 (1) DOES THE PETITION PRESENT A JUSTICIABLE
CONTROVERSY? OTHERWISE STATED, DOES THE PETITION INVOLVE A
POLITICAL QUESTION OVER WHICH THIS COURT HAS NO JURISDICTION?
(2) DO THE PROVISIONS OF THE WTO AGREEMENT AND ITS THREE ANNEXES
CONTRAVENE SEC. 19, ARTICLE II, AND SECS. 10 AND 12, ARTICLE XII, OF
THE PHILIPPINE CONSTITUTION?
(3) DO THE PROVISIONS OF SAID AGREEMENT AND ITS ANNEXES LIMIT,
RESTRICT, OR IMPAIR THE EXERCISE OF LEGISLATIVE POWER BY
CONGRESS?
(4) DO SAID PROVISIONS UNDULY IMPAIR OR INTERFERE WITH THE EXERCISE
OF JUDICIAL POWER BY THIS COURT IN PROMULGATING RULES ON
EVIDENCE?
(5) WAS THE CONCURRENCE OF THE SENATE IN THE WTO AGREEMENT AND
ITS ANNEXES SUFFICIENT AND/OR VALID, CONSIDERING THAT IT DID NOT
INCLUDE THE FINAL ACT, MINISTERIAL DECLARATIONS AND DECISIONS,
AND THE UNDERSTANDING ON COMMITMENTS IN FINANCIAL SERVICES?

The First Issue: Does the Court Have Jurisdiction Over the Controversy?

In seeking to nullify an act of the Philippine Senate on the ground that it

contravenes the Constitution, the petition no doubt raises a justiciable
controversy. Where an action of the legislative branch is seriously alleged to
have infringed the Constitution, it becomes not only the right but in fact the
duty of the judiciary to settle the dispute. The question thus posed is judicial
rather than political. The duty (to adjudicate) remains to assure that the
supremacy of the Constitution is upheld. Once a controversy as to the
[12]

application or interpretation of a constitutional provision is raised before this

Court (as in the instant case), it becomes a legal issue which the Court is
bound by constitutional mandate to decide. [13]

The jurisdiction of this Court to adjudicate the matters raised in the

[14]

petition is clearly set out in the 1987 Constitution, as follows:

[15]

Judicial power includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to determine
whether or not there has been a grave abuse of discretion amounting to lack or excess
of jurisdiction on the part of any branch or instrumentality of the government.

The foregoing text emphasizes the judicial departments duty and power to
strike down grave abuse of discretion on the part of any branch or
instrumentality of government including Congress. It is an innovation in our
political law. As explained by former Chief Justice Roberto Concepcion, the
[16] [17]
judiciary is the final arbiter on the question of whether or not a branch of
government or any of its officials has acted without jurisdiction or in excess of
jurisdiction or so capriciously as to constitute an abuse of discretion
amounting to excess of jurisdiction. This is not only a judicial power but a duty
to pass judgment on matters of this nature.
As this Court has repeatedly and firmly emphasized in many cases, it will
[18]

not shirk, digress from or abandon its sacred duty and authority to uphold the
Constitution in matters that involve grave abuse of discretion brought before it
in appropriate cases, committed by any officer, agency, instrumentality or
department of the government.
As the petition alleges grave abuse of discretion and as there is no other
plain, speedy or adequate remedy in the ordinary course of law, we have no
hesitation at all in holding that this petition should be given due course and the
vital questions raised therein ruled upon under Rule 65 of the Rules of
Court. Indeed, certiorari, prohibition and mandamus are appropriate remedies
to raise constitutional issues and to review and/or prohibit/nullify, when proper,
acts of legislative and executive officials. On this, we have no equivocation.
We should stress that, in deciding to take jurisdiction over this petition, this
Court will not review the wisdom of the decision of the President and the
Senate in enlisting the country into the WTO, or pass upon the merits of trade
liberalization as a policy espoused by said international body. Neither will it
rule on the propriety of the governments economic policy of
reducing/removing tariffs, taxes, subsidies, quantitative restrictions, and other
import/trade barriers. Rather, it will only exercise its constitutional duty to
determine whether or not there had been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of the Senate in ratifying
the WTO Agreement and its three annexes.

Second Issue: The WTO Agreement and Economic Nationalism

This is the lis mota, the main issue, raised by the petition.
Petitioners vigorously argue that the letter, spirit and intent of the
Constitution mandating economic nationalism are violated by the so-called
parity provisions and national treatment clauses scattered in various parts not
only of the WTO Agreement and its annexes but also in the Ministerial
Decisions and Declarations and in the Understanding on Commitments in
Financial Services.
 Specifically, the flagship constitutional provisions referred to are Sec. 19,
Article II, and Secs. 10 and 12, Article XII, of the Constitution, which are
worded as follows:

Article II

DECLARATION OF PRINCIPLES AND STATE POLICIES

xx xx xx xx

Sec. 19. The State shall develop a self-reliant and independent national economy
effectively controlled by Filipinos.

xx xx xx xx

Article XII

NATIONAL ECONOMY AND PATRIMONY

xx xx xx xx

Sec. 10. x x x. The Congress shall enact measures that will encourage the formation
and operation of enterprises whose capital is wholly owned by Filipinos.

In the grant of rights, privileges, and concessions covering the national economy and
patrimony, the State shall give preference to qualified Filipinos.

xx xx xx xx

Sec. 12. The State shall promote the preferential use of Filipino labor, domestic
materials and locally produced goods, and adopt measures that help make them
competitive.

Petitioners aver that these sacred constitutional principles are desecrated

by the following WTO provisions quoted in their memorandum: [19]

a) In the area of investment measures related to trade in goods (TRIMS, for

brevity):

Article 2

National Treatment and Quantitative Restrictions.

 1. Without prejudice to other rights and obligations under GATT 1994. no
Member shall apply any TRIM that is inconsistent with the provisions of
Article III or Article XI of GATT 1994.

2. An Illustrative list of TRIMS that are inconsistent with the obligations of

general elimination of quantitative restrictions provided for in paragraph I of
Article XI of GATT 1994 is contained in the Annex to this
Agreement. (Agreement on Trade-Related Investment Measures, Vol. 27,
Uruguay Round, Legal Instruments, p.22121, emphasis supplied).

The Annex referred to reads as follows:

ANNEX

Illustrative List

1. TRIMS that are inconsistent with the obligation of national treatment

provided for in paragraph 4 of Article III of GATT 1994 include those
which are mandatory or enforceable under domestic law or under
administrative rulings, or compliance with which is necessary to obtain an
advantage, and which require:

(a) the purchase or use by an enterprise of products of domestic origin or from

any domestic source, whether specified in terms of particular products, in
terms of volume or value of products, or in terms of proportion of volume
or value of its local production; or

(b) that an enterprises purchases or use of imported products be limited to an

amount related to the volume or value of local products that it exports.

2. TRIMS that are inconsistent with the obligations of general elimination of

quantitative restrictions provided for in paragraph 1 of Article XI of GATT
1994 include those which are mandatory or enforceable under domestic laws or
under administrative rulings, or compliance with which is necessary to obtain
an advantage, and which restrict:

(a) the importation by an enterprise of products used in or related to the local

production that it exports;

(b) the importation by an enterprise of products used in or related to its local

production by restricting its access to foreign exchange inflows attributable
to the enterprise; or
 (c) the exportation or sale for export specified in terms of particular products,
in terms of volume or value of products, or in terms of a preparation of
volume or value of its local production. (Annex to the Agreement on
Trade-Related Investment Measures, Vol. 27, Uruguay Round Legal
Documents, p.22125, emphasis supplied).

The paragraph 4 of Article III of GATT 1994 referred to is quoted as follows:

The products of the territory of any contracting party imported into the territory of any
other contracting party shall be accorded treatment no less favorable than that
accorded to like products of national origin in respect of laws, regulations and
requirements affecting their internal sale, offering for sale, purchase, transportation,
distribution or use. The provisions of this paragraph shall not prevent the application
of differential internal transportation charges which are based exclusively on the
economic operation of the means of transport and not on the nationality of the
product. (Article III, GATT 1947, as amended by the Protocol Modifying Part II, and
Article XXVI of GATT, 14 September 1948, 62 UMTS 82-84 in relation to paragraph
1(a) of the General Agreement on Tariffs and Trade 1994, Vol. 1, Uruguay Round,
Legal Instruments p.177, emphasis supplied).

b) In the area of trade related aspects of intellectual property rights (TRIPS, for
brevity):

Each Member shall accord to the nationals of other Members treatment no less
favourable than that it accords to its own nationals with regard to the protection of
intellectual property... (par. 1, Article 3, Agreement on Trade-Related Aspect of
Intellectual Property rights, Vol. 31, Uruguay Round, Legal Instruments, p.25432
(emphasis supplied)

(c) In the area of the General Agreement on Trade in Services:

National Treatment

1. In the sectors inscribed in its schedule, and subject to any conditions and
qualifications set out therein, each Member shall accord to services and
service suppliers of any other Member, in respect of all measures affecting
the supply of services, treatment no less favourable than it accords to its
own like services and service suppliers.

2. A Member may meet the requirement of paragraph I by according to

services and service suppliers of any other Member, either formally
 identical treatment or formally different treatment to that it accords to its
own like services and service suppliers.

3. Formally identical or formally different treatment shall be considered to be

less favourable if it modifies the conditions of completion in favour of
services or service suppliers of the Member compared to like services or
service suppliers of any other Member. (Article XVII, General Agreement
on Trade in Services, Vol. 28, Uruguay Round Legal Instruments, p.22610
emphasis supplied).

It is petitioners position that the foregoing national treatment and parity

provisions of the WTO Agreement place nationals and products of member
countries on the same footing as Filipinos and local products, in contravention
of the Filipino First policy of the Constitution. They allegedly render
meaningless the phrase effectively controlled by Filipinos. The constitutional
conflict becomes more manifest when viewed in the context of the clear duty
imposed on the Philippines as a WTO member to ensure the conformity of its
laws, regulations and administrative procedures with its obligations as
provided in the annexed agreements. Petitioners further argue that these
[20]

provisions contravene constitutional limitations on the role exports play in

national development and negate the preferential treatment accorded to
Filipino labor, domestic materials and locally produced goods.
On the other hand, respondents through the Solicitor General counter (1)
that such Charter provisions are not self-executing and merely set out general
policies; (2) that these nationalistic portions of the Constitution invoked by
petitioners should not be read in isolation but should be related to other
relevant provisions of Art. XII, particularly Secs. 1 and 13 thereof; (3) that read
properly, the cited WTO clauses do not conflict with the Constitution; and (4)
that the WTO Agreement contains sufficient provisions to protect developing
countries like the Philippines from the harshness of sudden trade
liberalization.
We shall now discuss and rule on these arguments.

Declaration of Principles Not Self-Executing

By its very title, Article II of the Constitution is a declaration of principles

and state policies. The counterpart of this article in the 1935 Constitution is [21]

called the basic political creed of the nation by Dean Vicente Sinco. These [22]

principles in Article II are not intended to be self-executing principles ready for

enforcement through the courts. They are used by the judiciary as aids or as
[23]

guides in the exercise of its power of judicial review, and by the legislature in
its enactment of laws. As held in the leading case of Kilosbayan, Incorporated
vs. Morato, the principles and state policies enumerated in Article II and
[24]

some sections of Article XII are not self-executing provisions, the disregard of
which can give rise to a cause of action in the courts. They do not embody
judicially enforceable constitutional rights but guidelines for legislation.
In the same light, we held in Basco vs. Pagcor that broad constitutional
[25]

principles need legislative enactments to implement them, thus:

On petitioners allegation that P.D. 1869 violates Sections 11 (Personal Dignity) 12

(Family) and 13 (Role of Youth) of Article II; Section 13 (Social Justice) of Article
XIII and Section 2 (Educational Values) of Article XIV of the 1987 Constitution,
suffice it to state also that these are merely statements of principles and policies. As
such, they are basically not self-executing, meaning a law should be passed by
Congress to clearly define and effectuate such principles.

In general, therefore, the 1935 provisions were not intended to be self-executing

principles ready for enforcement through the courts. They were rather directives
addressed to the executive and to the legislature. If the executive and the legislature
failed to heed the directives of the article, the available remedy was not judicial but
political. The electorate could express their displeasure with the failure of the
executive and the legislature through the language of the ballot. (Bernas, Vol. II, p. 2).

The reasons for denying a cause of action to an alleged infringement of

broad constitutional principles are sourced from basic considerations of due
process and the lack of judicial authority to wade into the uncharted ocean of
social and economic policy making. Mr. Justice Florentino P. Feliciano in his
concurring opinion in Oposa vs. Factoran, Jr., explained these reasons as
[26]

follows:

My suggestion is simply that petitioners must, before the trial court, show a more
specific legal right -- a right cast in language of a significantly lower order of
generality than Article II (15) of the Constitution -- that is or may be violated by the
actions, or failures to act, imputed to the public respondent by petitioners so that the
trial court can validly render judgment granting all or part of the relief prayed for. To
my mind, the court should be understood as simply saying that such a more specific
legal right or rights may well exist in our corpus of law, considering the general policy
principles found in the Constitution and the existence of the Philippine Environment
Code, and that the trial court should have given petitioners an effective opportunity so
to demonstrate, instead of aborting the proceedings on a motion to dismiss.
It seems to me important that the legal right which is an essential component of a
cause of action be a specific, operable legal right, rather than a constitutional or
statutory policy, for at least two (2) reasons. One is that unless the legal right claimed
to have been violated or disregarded is given specification in operational terms,
defendants may well be unable to defend themselves intelligently and effectively; in
other words, there are due process dimensions to this matter.

The second is a broader-gauge consideration -- where a specific violation of law or

applicable regulation is not alleged or proved, petitioners can be expected to fall back
on the expanded conception of judicial power in the second paragraph of Section 1 of
Article VIII of the Constitution which reads:

Section 1. x x x

Judicial power includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to determine
whether or not there has been a grave abuse of discretion amounting to lack or excess
of jurisdiction on the part of any branch or instrumentality of the
Government. (Emphases supplied)

When substantive standards as general as the right to a balanced and healthy ecology
and the right to health are combined with remedial standards as broad ranging as a
grave abuse of discretion amounting to lack or excess of jurisdiction, the result will
be, it is respectfully submitted, to propel courts into the uncharted ocean of social and
economic policy making. At least in respect of the vast area of environmental
protection and management, our courts have no claim to special technical competence
and experience and professional qualification. Where no specific, operable norms and
standards are shown to exist, then the policy making departments -- the legislative and
executive departments -- must be given a real and effective opportunity to fashion and
promulgate those norms and standards, and to implement them before the courts
should intervene.

Economic Nationalism Should Be Read with Other Constitutional

Mandates to Attain Balanced Development of Economy

On the other hand, Secs. 10 and 12 of Article XII, apart from merely laying
down general principles relating to the national economy and patrimony,
should be read and understood in relation to the other sections in said article,
especially Secs. 1 and 13 thereof which read:
Section 1. The goals of the national economy are a more equitable distribution of
opportunities, income, and wealth; a sustained increase in the amount of goods and
services produced by the nation for the benefit of the people; and an expanding
productivity as the key to raising the quality of life for all, especially the
underprivileged.

The State shall promote industrialization and full employment based on sound
agricultural development and agrarian reform, through industries that make full and
efficient use of human and natural resources, and which are competitive in both
domestic and foreign markets. However, the State shall protect Filipino enterprises
against unfair foreign competition and trade practices.

In the pursuit of these goals, all sectors of the economy and all regions of the country
shall be given optimum opportunity to develop. x x x

xxxxxxxxx

Sec. 13. The State shall pursue a trade policy that serves the general welfare and
utilizes all forms and arrangements of exchange on the basis of equality and
reciprocity.

As pointed out by the Solicitor General, Sec. 1 lays down the basic goals
of national economic development, as follows:
1. A more equitable distribution of opportunities, income and wealth;
2. A sustained increase in the amount of goods and services provided by
the nation for the benefit of the people; and
3. An expanding productivity as the key to raising the quality of life for all
especially the underprivileged.
With these goals in context, the Constitution then ordains the ideals of
economic nationalism (1) by expressing preference in favor of qualified
Filipinos in the grant of rights, privileges and concessions covering the
national economy and patrimony and in the use of Filipino labor, domestic
[27]

materials and locally-produced goods; (2) by mandating the State to adopt

measures that help make them competitive; and (3) by requiring the State to
[28]

develop a self-reliant and independent national economy effectively controlled

by Filipinos. In similar language, the Constitution takes into account the
[29]

realities of the outside world as it requires the pursuit of a trade policy that
serves the general welfare and utilizes all forms and arrangements of
exchange on the basis of equality and reciprocity; and speaks of industries
[30]

which are competitive in both domestic and foreign markets as well as of the
protection of Filipino enterprises against unfair foreign competition and trade
practices.
It is true that in the recent case of Manila Prince Hotel vs. Government
Service Insurance System, et al., this Court held that Sec. 10, second par.,
[31]

Art. XII of the 1987 Constitution is a mandatory, positive command which is

complete in itself and which needs no further guidelines or implementing laws
or rules for its enforcement. From its very words the provision does not require
any legislation to put it in operation. It is per se judicially
enforceable. However, as the constitutional provision itself states, it is
enforceable only in regard to the grants of rights, privileges and concessions
covering national economy and patrimony and not to every aspect of trade
and commerce. It refers to exceptions rather than the rule. The issue here is
not whether this paragraph of Sec. 10 of Art. XII is self-executing or
not. Rather, the issue is whether, as a rule, there are enough balancing
provisions in the Constitution to allow the Senate to ratify the Philippine
concurrence in the WTO Agreement. And we hold that there are.
All told, while the Constitution indeed mandates a bias in favor of Filipino
goods, services, labor and enterprises, at the same time, it recognizes the
need for business exchange with the rest of the world on the bases of equality
and reciprocity and limits protection of Filipino enterprises only against foreign
competition and trade practices that are unfair. In other words, the
[32]

Constitution did not intend to pursue an isolationist policy. It did not shut out
foreign investments, goods and services in the development of the Philippine
economy. While the Constitution does not encourage the unlimited entry of
foreign goods, services and investments into the country, it does not prohibit
them either. In fact, it allows an exchange on the basis of equality and
reciprocity, frowning only on foreign competition that is unfair.

WTO Recognizes Need to Protect Weak Economies

Upon the other hand, respondents maintain that the WTO itself has some
built-in advantages to protect weak and developing economies, which
comprise the vast majority of its members. Unlike in the UN where major
states have permanent seats and veto powers in the Security Council, in the
WTO, decisions are made on the basis of sovereign equality, with each
members vote equal in weight to that of any other. There is no WTO
equivalent of the UN Security Council.
WTO decides by consensus whenever possible, otherwise, decisions of the Ministerial
Conference and the General Council shall be taken by the majority of the votes cast,
except in cases of interpretation of the Agreement or waiver of the obligation of a
member which would require three fourths vote. Amendments would require two
thirds vote in general. Amendments to MFN provisions and the Amendments
provision will require assent of all members. Any member may withdraw from the
Agreement upon the expiration of six months from the date of notice of withdrawals. [33]

Hence, poor countries can protect their common interests more effectively
through the WTO than through one-on-one negotiations with developed
countries. Within the WTO, developing countries can form powerful blocs to
push their economic agenda more decisively than outside the
Organization. This is not merely a matter of practical alliances but a
negotiating strategy rooted in law. Thus, the basic principles underlying the
WTO Agreement recognize the need of developing countries like the
Philippines to share in the growth in international trade commensurate with
the needs of their economic development. These basic principles are found in
the preamble of the WTO Agreement as follows:
[34]

The Parties to this Agreement,

Recognizing that their relations in the field of trade and economic endeavour should
be conducted with a view to raising standards of living, ensuring full employment and
a large and steadily growing volume of real income and effective demand, and
expanding the production of and trade in goods and services, while allowing for the
optimal use of the worlds resources in accordance with the objective of sustainable
development, seeking both to protect and preserve the environment and to enhance the
means for doing so in a manner consistent with their respective needs and concerns at
different levels of economic development,

Recognizing further that there is need for positive efforts designed to ensure that
developing countries, and especially the least developed among them, secure a share
in the growth in international trade commensurate with the needs of their economic
development,

Being desirous of contributing to these objectives by entering into reciprocal and

mutually advantageous arrangements directed to the substantial reduction of tariffs
and other barriers to trade and to the elimination of discriminatory treatment in
international trade relations,

Resolved, therefore, to develop an integrated, more viable and durable multilateral

trading system encompassing the General Agreement on Tariffs and Trade, the results
of past trade liberalization efforts, and all of the results of the Uruguay Round of
Multilateral Trade Negotiations,

Determined to preserve the basic principles and to further the objectives underlying
this multilateral trading system, x x x. (underscoring supplied.)

Specific WTO Provisos Protect Developing Countries

So too, the Solicitor General points out that pursuant to and consistent
with the foregoing basic principles, the WTO Agreement grants developing
countries a more lenient treatment, giving their domestic industries some
protection from the rush of foreign competition. Thus, with respect to tariffs in
general, preferential treatment is given to developing countries in terms of
the amount of tariff reduction and the period within which the reduction is to be
spread out. Specifically, GATT requires an average tariff reduction rate of
36% for developed countries to be effected within a period of six (6)
years while developing countries -- including the Philippines -- are required to
effect an average tariff reduction of only 24% within ten (10) years.
In respect to domestic subsidy, GATT requires developed countries to
reduce domestic support to agricultural products by 20% over six (6) years, as
compared to only 13% for developing countries to be effected within ten (10)
years.
In regard to export subsidy for agricultural products, GATT requires
developed countries to reduce their budgetary outlays for export subsidy by
36% and export volumes receiving export subsidy by 21% within a period of
six (6) years. For developing countries, however, the reduction rate is
only two-thirds of that prescribed for developed countries and a longer period
of ten (10) years within which to effect such reduction.
Moreover, GATT itself has provided built-in protection from unfair foreign
competition and trade practices including anti-dumping measures,
countervailing measures and safeguards against import surges. Where local
businesses are jeopardized by unfair foreign competition, the Philippines can
avail of these measures. There is hardly therefore any basis for the statement
that under the WTO, local industries and enterprises will all be wiped out and
that Filipinos will be deprived of control of the economy. Quite the contrary,
the weaker situations of developing nations like the Philippines have been
taken into account; thus, there would be no basis to say that in joining the
WTO, the respondents have gravely abused their discretion. True, they have
made a bold decision to steer the ship of state into the yet uncharted sea of
economic liberalization. But such decision cannot be set aside on the ground
of grave abuse of discretion, simply because we disagree with it or simply
because we believe only in other economic policies. As earlier stated, the
Court in taking jurisdiction of this case will not pass upon the advantages and
disadvantages of trade liberalization as an economic policy. It will only
perform its constitutional duty of determining whether the Senate committed
grave abuse of discretion.

Constitution Does Not Rule Out Foreign Competition

Furthermore, the constitutional policy of a self-reliant and independent

national economy does not necessarily rule out the entry of foreign
[35]

investments, goods and services. It contemplates neither economic seclusion

nor mendicancy in the international community. As explained by Constitutional
Commissioner Bernardo Villegas, sponsor of this constitutional policy:

Economic self-reliance is a primary objective of a developing country that is keenly

aware of overdependence on external assistance for even its most basic needs. It does
not mean autarky or economic seclusion; rather, it means avoiding mendicancy in the
international community. Independence refers to the freedom from undue foreign
control of the national economy, especially in such strategic industries as in the
development of natural resources and public utilities.
[36]

The WTO reliance on most favored nation, national treatment, and trade
without discrimination cannot be struck down as unconstitutional as in fact
they are rules of equality and reciprocity that apply to all WTO
members. Aside from envisioning a trade policy based on equality and
reciprocity, the fundamental law encourages industries that are competitive
[37]

in both domestic and foreign markets, thereby demonstrating a clear policy

against a sheltered domestic trade environment, but one in favor of the
gradual development of robust industries that can compete with the best in the
foreign markets. Indeed, Filipino managers and Filipino enterprises have
shown capability and tenacity to compete internationally. And given a free
trade environment, Filipino entrepreneurs and managers in Hongkong
have demonstrated the Filipino capacity to grow and to prosper against the
best offered under a policy of laissez faire.

Constitution Favors Consumers, Not Industries or Enterprises

 The Constitution has not really shown any unbalanced bias in favor of any
business or enterprise, nor does it contain any specific pronouncement that
Filipino companies should be pampered with a total
proscription of foreign competition. On the other hand, respondents claim that
WTO/GATT aims to make available to the Filipino consumer the best goods
and services obtainable anywhere in the world at the most reasonable
prices. Consequently, the question boils down to whether WTO/GATT will
favor the general welfare of the public at large.
Will adherence to the WTO treaty bring this ideal (of favoring the general
welfare) to reality?
Will WTO/GATT succeed in promoting the Filipinos general welfare
because it will -- as promised by its promoters -- expand the countrys exports
and generate more employment?
Will it bring more prosperity, employment, purchasing power and quality
products at the most reasonable rates to the Filipino public?
The responses to these questions involve judgment calls by our policy
makers, for which they are answerable to our people during appropriate
electoral exercises. Such questions and the answers thereto are not subject to
judicial pronouncements based on grave abuse of discretion.

Constitution Designed to Meet Future Events and Contingencies

No doubt, the WTO Agreement was not yet in existence when the
Constitution was drafted and ratified in 1987. That does not mean however
that the Charter is necessarily flawed in the sense that its framers might not
have anticipated the advent of a borderless world of business. By the same
token, the United Nations was not yet in existence when the 1935 Constitution
became effective. Did that necessarily mean that the then Constitution might
not have contemplated a diminution of the absoluteness of sovereignty when
the Philippines signed the UN Charter, thereby effectively surrendering part of
its control over its foreign relations to the decisions of various UN organs like
the Security Council?
It is not difficult to answer this question. Constitutions are designed to
meet not only the vagaries of contemporary events. They should be
interpreted to cover even future and unknown circumstances. It is to the credit
of its drafters that a Constitution can withstand the assaults of bigots and
infidels but at the same time bend with the refreshing winds of change
necessitated by unfolding events. As one eminent political law writer and
respected jurist explains:
[38]

The Constitution must be quintessential rather than superficial, the root and not the
blossom, the base and framework only of the edifice that is yet to rise. It is but the
core of the dream that must take shape, not in a twinkling by mandate of our
delegates, but slowly in the crucible of Filipino minds and hearts, where it will in time
develop its sinews and gradually gather its strength and finally achieve its
substance. In fine, the Constitution cannot, like the goddess Athena, rise full-grown
from the brow of the Constitutional Convention, nor can it conjure by mere fiat an
instant Utopia. It must grow with the society it seeks to re-structure and march apace
with the progress of the race, drawing from the vicissitudes of history the dynamism
and vitality that will keep it, far from becoming a petrified rule, a pulsing, living law
attuned to the heartbeat of the nation.

Third Issue: The WTO Agreement and Legislative Power

The WTO Agreement provides that (e)ach Member shall ensure the
conformity of its laws, regulations and administrative procedures with its
obligations as provided in the annexed Agreements. Petitioners maintain that
[39]

this undertaking unduly limits, restricts and impairs Philippine sovereignty,

specifically the legislative power which under Sec. 2, Article VI of the 1987
Philippine Constitution is vested in the Congress of the Philippines. It is an
assault on the sovereign powers of the Philippines because this means that
Congress could not pass legislation that will be good for our national interest
and general welfare if such legislation will not conform with the WTO
Agreement, which not only relates to the trade in goods x x x but also to the
flow of investments and money x x x as well as to a whole slew of agreements
on socio-cultural matters x x x. [40]

More specifically, petitioners claim that said WTO proviso derogates from
the power to tax, which is lodged in the Congress. And while the Constitution
[41]

allows Congress to authorize the President to fix tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or imposts, such
authority is subject to specified limits and x x x such limitations and restrictions
as Congress may provide, as in fact it did under Sec. 401 of the Tariff and
[42]

Customs Code.

Sovereignty Limited by International Law and Treaties

 This Court notes and appreciates the ferocity and passion by which
petitioners stressed their arguments on this issue. However, while sovereignty
has traditionally been deemed absolute and all-encompassing on the
domestic level, it is however subject to restrictions and limitations voluntarily
agreed to by the Philippines, expressly or impliedly, as a member of the family
of nations. Unquestionably, the Constitution did not envision a hermit-type
isolation of the country from the rest of the world. In its Declaration of
Principles and State Policies, the Constitution adopts the generally accepted
principles of international law as part of the law of the land, and adheres to the
policy of peace, equality, justice, freedom, cooperation and amity, with all
nations." By the doctrine of incorporation, the country is bound by generally
[43]

accepted principles of international law, which are considered to be

automatically part of our own laws. One of the oldest and most fundamental
[44]

rules in international law is pacta sunt servanda -- international agreements

must be performed in good faith. A treaty engagement is not a mere moral
obligation but creates a legally binding obligation on the parties x x x. A state
which has contracted valid international obligations is bound to make in its
legislations such modifications as may be necessary to ensure the fulfillment
of the obligations undertaken. [45]

By their inherent nature, treaties really limit or restrict the absoluteness of

sovereignty. By their voluntary act, nations may surrender some aspects of
their state power in exchange for greater benefits granted by or derived from a
convention or pact. After all, states, like individuals, live with coequals, and in
pursuit of mutually covenanted objectives and benefits, they also commonly
agree to limit the exercise of their otherwise absolute rights. Thus, treaties
have been used to record agreements between States concerning such
widely diverse matters as, for example, the lease of naval bases, the sale or
cession of territory, the termination of war, the regulation of conduct of
hostilities, the formation of alliances, the regulation of commercial relations,
the settling of claims, the laying down of rules governing conduct in peace and
the establishment of international organizations. The sovereignty of a state
[46]

therefore cannot in fact and in reality be considered absolute. Certain

restrictions enter into the picture: (1) limitations imposed by the very nature of
membership in the family of nations and (2) limitations imposed by treaty
stipulations. As aptly put by John F. Kennedy, Today, no nation can build its
destiny alone. The age of self-sufficient nationalism is over. The age of
interdependence is here. [47]

UN Charter and Other Treaties Limit Sovereignty

 Thus, when the Philippines joined the United Nations as one of its 51
charter members, it consented to restrict its sovereign rights under the
concept of sovereignty as auto-limitation.47-A Under Article 2 of the UN
Charter, (a)ll members shall give the United Nations every assistance in any
action it takes in accordance with the present Charter, and shall refrain from
giving assistance to any state against which the United Nations is taking
preventive or enforcement action. Such assistance includes payment of its
corresponding share not merely in administrative expenses but also in
expenditures for the peace-keeping operations of the organization. In its
advisory opinion of July 20, 1961, the International Court of Justice held that
money used by the United Nations Emergency Force in the Middle East and
in the Congo were expenses of the United Nations under Article 17,
paragraph 2, of the UN Charter. Hence, all its members must bear their
corresponding share in such expenses. In this sense, the Philippine Congress
is restricted in its power to appropriate. It is compelled to appropriate funds
whether it agrees with such peace-keeping expenses or not. So too, under
Article 105 of the said Charter, the UN and its representatives enjoy
diplomatic privileges and immunities, thereby limiting again the exercise of
sovereignty of members within their own territory. Another example: although
sovereign equality and domestic jurisdiction of all members are set forth as
underlying principles in the UN Charter, such provisos are however subject to
enforcement measures decided by the Security Council for the maintenance
of international peace and security under Chapter VII of the Charter. A final
example: under Article 103, (i)n the event of a conflict between the obligations
of the Members of the United Nations under the present Charter and their
obligations under any other international agreement, their obligation under the
present charter shall prevail, thus unquestionably denying the Philippines -- as
a member -- the sovereign power to make a choice as to which of conflicting
obligations, if any, to honor.
Apart from the UN Treaty, the Philippines has entered into many other
international pacts -- both bilateral and multilateral -- that involve limitations on
Philippine sovereignty. These are enumerated by the Solicitor General in his
Compliance dated October 24, 1996, as follows:

(a) Bilateral convention with the United States regarding taxes on income, where
the Philippines agreed, among others, to exempt from tax, income received in
the Philippines by, among others, the Federal Reserve Bank of the United
States, the Export/Import Bank of the United States, the Overseas Private
Investment Corporation of the United States. Likewise, in said convention,
wages, salaries and similar remunerations paid by the United States to its
 citizens for labor and personal services performed by them as employees or
officials of the United States are exempt from income tax by the Philippines.

(b) Bilateral agreement with Belgium, providing, among others, for the avoidance
of double taxation with respect to taxes on income.

(c) Bilateral convention with the Kingdom of Sweden for the avoidance of double
taxation.

(d) Bilateral convention with the French Republic for the avoidance of double
taxation.

(e) Bilateral air transport agreement with Korea where the Philippines agreed to
exempt from all customs duties, inspection fees and other duties or taxes
aircrafts of South Korea and the regular equipment, spare parts and supplies
arriving with said aircrafts.

(f) Bilateral air service agreement with Japan, where the Philippines agreed to
exempt from customs duties, excise taxes, inspection fees and other similar
duties, taxes or charges fuel, lubricating oils, spare parts, regular equipment,
stores on board Japanese aircrafts while on Philippine soil.

(g) Bilateral air service agreement with Belgium where the Philippines granted
Belgian air carriers the same privileges as those granted to Japanese and
Korean air carriers under separate air service agreements.

(h) Bilateral notes with Israel for the abolition of transit and visitor visas where
the Philippines exempted Israeli nationals from the requirement of obtaining
transit or visitor visas for a sojourn in the Philippines not exceeding 59 days.

(I) Bilateral agreement with France exempting French nationals from the
requirement of obtaining transit and visitor visa for a sojourn not exceeding 59
days.

(j) Multilateral Convention on Special Missions, where the Philippines agreed that
premises of Special Missions in the Philippines are inviolable and its agents
can not enter said premises without consent of the Head of Mission
concerned. Special Missions are also exempted from customs duties, taxes and
related charges.
 (k) Multilateral Convention on the Law of Treaties. In this convention, the
Philippines agreed to be governed by the Vienna Convention on the Law of
Treaties.

(l) Declaration of the President of the Philippines accepting compulsory

jurisdiction of the International Court of Justice. The International Court of
Justice has jurisdiction in all legal disputes concerning the interpretation of a
treaty, any question of international law, the existence of any fact which, if
established, would constitute a breach of international obligation.

In the foregoing treaties, the Philippines has effectively agreed to limit the
exercise of its sovereign powers of taxation, eminent domain and police
power. The underlying consideration in this partial surrender of sovereignty is
the reciprocal commitment of the other contracting states in granting the same
privilege and immunities to the Philippines, its officials and its citizens. The
same reciprocity characterizes the Philippine commitments under WTO-
GATT.

International treaties, whether relating to nuclear disarmament, human rights, the

environment, the law of the sea, or trade, constrain domestic political sovereignty
through the assumption of external obligations. But unless anarchy in international
relations is preferred as an alternative, in most cases we accept that the benefits of the
reciprocal obligations involved outweigh the costs associated with any loss of political
sovereignty. (T)rade treaties that structure relations by reference to durable, well-
defined substantive norms and objective dispute resolution procedures reduce the risks
of larger countries exploiting raw economic power to bully smaller countries, by
subjecting power relations to some form of legal ordering. In addition, smaller
countries typically stand to gain disproportionately from trade liberalization. This is
due to the simple fact that liberalization will provide access to a larger set of potential
new trading relationship than in case of the larger country gaining enhanced success
to the smaller countrys market. [48]

The point is that, as shown by the foregoing treaties, a portion of

sovereignty may be waived without violating the Constitution, based on the
rationale that the Philippines adopts the generally accepted principles of
international law as part of the law of the land and adheres to the policy of x x
x cooperation and amity with all nations.

Fourth Issue: The WTO Agreement and Judicial Power

 Petitioners aver that paragraph 1, Article 34 of the General Provisions and
Basic Principles of the Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS) intrudes on the power of the Supreme Court to
[49]

promulgate rules concerning pleading, practice and procedures. [50]

To understand the scope and meaning of Article 34, TRIPS, it will be [51]

fruitful to restate its full text as follows:

Article 34

Process Patents: Burden of Proof

1. For the purposes of civil proceedings in respect of the infringement of the rights
of the owner referred to in paragraph 1(b) of Article 28, if the subject matter of a
patent is a process for obtaining a product, the judicial authorities shall have the
authority to order the defendant to prove that the process to obtain an identical
product is different from the patented process. Therefore, Members shall provide,
in at least one of the following circumstances, that any identical product when
produced without the consent of the patent owner shall, in the absence of proof to
the contrary, be deemed to have been obtained by the patented process:

(a) if the product obtained by the patented process is new;

(b) if there is a substantial likelihood that the identical product was made by
the process and the owner of the patent has been unable through
reasonable efforts to determine the process actually used.

2. Any Member shall be free to provide that the burden of proof indicated in
paragraph 1 shall be on the alleged infringer only if the condition referred to in
subparagraph (a) is fulfilled or only if the condition referred to in subparagraph
(b) is fulfilled.

3. In the adduction of proof to the contrary, the legitimate interests of defendants

in protecting their manufacturing and business secrets shall be taken into account.

From the above, a WTO Member is required to provide a rule of disputable

(note the words in the absence of proof to the contrary) presumption that a
product shown to be identical to one produced with the use of a patented
process shall be deemed to have been obtained by the (illegal) use of the said
patented process, (1) where such product obtained by the patented product is
new, or (2) where there is substantial likelihood that the identical product was
made with the use of the said patented process but the owner of the patent
could not determine the exact process used in obtaining such identical
product. Hence, the burden of proof contemplated by Article 34 should
actually be understood as the duty of the alleged patent infringer to overthrow
such presumption. Such burden, properly understood, actually refers to the
burden of evidence (burden of going forward) placed on the producer of the
identical (or fake) product to show that his product was produced without the
use of the patented process.
The foregoing notwithstanding, the patent owner still has the burden of
proof since, regardless of the presumption provided under paragraph 1 of
Article 34, such owner still has to introduce evidence of the existence of the
alleged identical product, the fact that it is identical to the genuine one
produced by the patented process and the fact of newness of the genuine
product or the fact of substantial likelihood that the identical product was
made by the patented process.
The foregoing should really present no problem in changing the rules of
evidence as the present law on the subject, Republic Act No. 165, as
amended, otherwise known as the Patent Law, provides a similar presumption
in cases of infringement of patented design or utility model, thus:

SEC. 60. Infringement. - Infringement of a design patent or of a patent for utility

model shall consist in unauthorized copying of the patented design or utility model for
the purpose of trade or industry in the article or product and in the making, using or
selling of the article or product copying the patented design or utility model. Identity
or substantial identity with the patented design or utility model shall constitute
evidence of copying. (underscoring supplied)

Moreover, it should be noted that the requirement of Article 34 to provide a

disputable presumption applies only if (1) the product obtained by the
patented process is NEW or (2) there is a substantial likelihood that the
identical product was made by the process and the process owner has not
been able through reasonable effort to determine the process used. Where
either of these two provisos does not obtain, members shall be free to
determine the appropriate method of implementing the provisions of TRIPS
within their own internal systems and processes.
By and large, the arguments adduced in connection with our disposition of
the third issue -- derogation of legislative power - will apply to this fourth issue
also. Suffice it to say that the reciprocity clause more than justifies such
intrusion, if any actually exists. Besides, Article 34 does not contain an
unreasonable burden, consistent as it is with due process and the concept of
adversarial dispute settlement inherent in our judicial system.
 So too, since the Philippine is a signatory to most international
conventions on patents, trademarks and copyrights, the adjustment in
legislation and rules of procedure will not be substantial. [52]

Fifth Issue: Concurrence Only in the WTO Agreement and Not in Other
Documents Contained in the Final Act

Petitioners allege that the Senate concurrence in the WTO Agreement and
its annexes -- but not in the other documents referred to in the Final Act,
namely the Ministerial Declaration and Decisions and the Understanding on
Commitments in Financial Services -- is defective and insufficient and thus
constitutes abuse of discretion. They submit that such concurrence in the
WTO Agreement alone is flawed because it is in effect a rejection of the Final
Act, which in turn was the document signed by Secretary Navarro, in
representation of the Republic upon authority of the President. They contend
that the second letter of the President to the Senate which enumerated what
[53]

constitutes the Final Act should have been the subject of concurrence of the
Senate.
A final act, sometimes called protocol de clture, is an instrument which
records the winding up of the proceedings of a diplomatic conference and
usually includes a reproduction of the texts of treaties, conventions,
recommendations and other acts agreed upon and signed by the
plenipotentiaries attending the conference. It is not the treaty itself. It is
[54]

rather a summary of the proceedings of a protracted conference which may

have taken place over several years. The text of the Final Act Embodying the
Results of the Uruguay Round of Multilateral Trade Negotiations is contained
in just one page in Vol. I of the 36-volume Uruguay Round of Multilateral
[55]

Trade Negotiations. By signing said Final Act, Secretary Navarro as

representative of the Republic of the Philippines undertook:

"(a) to submit, as appropriate, the WTO Agreement for the consideration of their
respective competent authorities with a view to seeking approval of the
Agreement in accordance with their procedures; and

(b) to adopt the Ministerial Declarations and Decisions."

The assailed Senate Resolution No. 97 expressed concurrence in exactly

what the Final Act required from its signatories, namely, concurrence of the
Senate in the WTO Agreement.
 The Ministerial Declarations and Decisions were deemed adopted without
need for ratification. They were approved by the ministers by virtue of Article
XXV: 1 of GATT which provides that representatives of the members can
meet to give effect to those provisions of this Agreement which invoke joint
action, and generally with a view to facilitating the operation and furthering the
objectives of this Agreement. [56]

The Understanding on Commitments in Financial Services also approved

in Marrakesh does not apply to the Philippines. It applies only to those 27
Members which have indicated in their respective schedules of commitments
on standstill, elimination of monopoly, expansion of operation of existing
financial service suppliers, temporary entry of personnel, free transfer and
processing of information, and national treatment with respect to access to
payment, clearing systems and refinancing available in the normal course of
business. [57]

On the other hand, the WTO Agreement itself expresses what multilateral
agreements are deemed included as its integral parts, as follows:
[58]

Article II

Scope of the WTO

1. The WTO shall provide the common institutional framework for the conduct of
trade relations among its Members in matters to the agreements and associated
legal instruments included in the Annexes to this Agreement.

2. The Agreements and associated legal instruments included in Annexes 1, 2, and

3 (hereinafter referred to as Multilateral Agreements) are integral parts of this
Agreement, binding on all Members.

3. The Agreements and associated legal instruments included in Annex 4

(hereinafter referred to as Plurilateral Trade Agreements) are also part of this
Agreement for those Members that have accepted them, and are binding on those
Members. The Plurilateral Trade Agreements do not create either obligation or
rights for Members that have not accepted them.

4. The General Agreement on Tariffs and Trade 1994 as specified in annex 1A

(hereinafter referred to as GATT 1994) is legally distinct from the General
Agreement on Tariffs and Trade, dated 30 October 1947, annexed to the Final Act
adopted at the conclusion of the Second Session of the Preparatory Committee of
the United Nations Conference on Trade and Employment, as subsequently
rectified, amended or modified (hereinafter referred to as GATT 1947).
 It should be added that the Senate was well-aware of what it was
concurring in as shown by the members deliberation on August 25,
1994. After reading the letter of President Ramos dated August 11, 1994, the [59]

senators of the Republic minutely dissected what the Senate was concurring
in, as follows:[60]

THE CHAIRMAN: Yes. Now, the question of the validity of the submission came up
in the first day hearing of this Committee yesterday. Was the observation made by
Senator Taada that what was submitted to the Senate was not the agreement on
establishing the World Trade Organization by the final act of the Uruguay Round
which is not the same as the agreement establishing the World Trade
Organization?And on that basis, Senator Tolentino raised a point of order which,
however, he agreed to withdraw upon understanding that his suggestion for an
alternative solution at that time was acceptable. That suggestion was to treat the
proceedings of the Committee as being in the nature of briefings for Senators until the
question of the submission could be clarified.

And so, Secretary Romulo, in effect, is the President submitting a new... is he making
a new submission which improves on the clarity of the first submission?

MR. ROMULO: Mr. Chairman, to make sure that it is clear cut and there should be no
misunderstanding, it was his intention to clarify all matters by giving this letter.

THE CHAIRMAN: Thank you.

Can this Committee hear from Senator Taada and later on Senator Tolentino since
they were the ones that raised this question yesterday?

Senator Taada, please.

SEN. TAADA: Thank you, Mr. Chairman.

Based on what Secretary Romulo has read, it would now clearly appear that what is
being submitted to the Senate for ratification is not the Final Act of the Uruguay
Round, but rather the Agreement on the World Trade Organization as well as the
Ministerial Declarations and Decisions, and the Understanding and Commitments in
Financial Services.

I am now satisfied with the wording of the new submission of President Ramos.

SEN. TAADA. . . . of President Ramos, Mr. Chairman.

THE CHAIRMAN. Thank you, Senator Taada. Can we hear from Senator
Tolentino? And after him Senator Neptali Gonzales and Senator Lina.

SEN TOLENTINO, Mr. Chairman, I have not seen the new submission actually
transmitted to us but I saw the draft of his earlier, and I think it now complies with the
provisions of the Constitution, and with the Final Act itself. The Constitution does not
require us to ratify the Final Act. It requires us to ratify the Agreement which is now
being submitted. The Final Act itself specifies what is going to be submitted to with
the governments of the participants.

In paragraph 2 of the Final Act, we read and I quote:

By signing the present Final Act, the representatives agree: (a) to submit as
appropriate the WTO Agreement for the consideration of the respective competent
authorities with a view to seeking approval of the Agreement in accordance with their
procedures.

In other words, it is not the Final Act that was agreed to be submitted to the
governments for ratification or acceptance as whatever their constitutional procedures
may provide but it is the World Trade Organization Agreement. And if that is the one
that is being submitted now, I think it satisfies both the Constitution and the Final Act
itself.

Thank you, Mr. Chairman.

THE CHAIRMAN. Thank you, Senator Tolentino, May I call on Senator Gonzales.

SEN. GONZALES. Mr. Chairman, my views on this matter are already a matter of
record. And they had been adequately reflected in the journal of yesterdays session
and I dont see any need for repeating the same.

Now, I would consider the new submission as an act ex abudante cautela.

THE CHAIRMAN. Thank you, Senator Gonzales. Senator Lina, do you want to make
any comment on this?

SEN. LINA. Mr. President, I agree with the observation just made by Senator
Gonzales out of the abundance of question. Then the new submission is, I believe,
stating the obvious and therefore I have no further comment to make.

Epilogue
 In praying for the nullification of the Philippine ratification of the WTO
Agreement, petitioners are invoking this Courts constitutionally imposed duty
to determine whether or not there has been grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of the Senate in giving
its concurrence therein via Senate Resolution No. 97. Procedurally, a writ
of certiorari grounded on grave abuse of discretion may be issued by the
Court under Rule 65 of the Rules of Court when it is amply shown that
petitioners have no other plain, speedy and adequate remedy in the ordinary
course of law.
By grave abuse of discretion is meant such capricious and whimsical
exercise of judgment as is equivalent to lack of jurisdiction. Mere abuse of
[61]

discretion is not enough. It must be grave abuse of discretion as when the

power is exercised in an arbitrary or despotic manner by reason of passion or
personal hostility, and must be so patent and so gross as to amount to an
evasion of a positive duty or to a virtual refusal to perform the duty enjoined or
to act at all in contemplation of law. Failure on the part of the petitioner to
[62]

show grave abuse of discretion will result in the dismissal of the petition.
[63]

In rendering this Decision, this Court never forgets that the Senate, whose
act is under review, is one of two sovereign houses of Congress and is thus
entitled to great respect in its actions. It is itself a constitutional body
independent and coordinate, and thus its actions are presumed regular and
done in good faith. Unless convincing proof and persuasive arguments are
presented to overthrow such presumptions, this Court will resolve every doubt
in its favor. Using the foregoing well-accepted definition of grave abuse of
discretion and the presumption of regularity in the Senates processes, this
Court cannot find any cogent reason to impute grave abuse of discretion to
the Senates exercise of its power of concurrence in the WTO Agreement
granted it by Sec. 21 of Article VII of the Constitution.
[64]

It is true, as alleged by petitioners, that broad constitutional principles

require the State to develop an independent national economy effectively
controlled by Filipinos; and to protect and/or prefer Filipino labor, products,
domestic materials and locally produced goods. But it is equally true that such
principles -- while serving as judicial and legislative guides -- are not in
themselves sources of causes of action. Moreover, there are other equally
fundamental constitutional principles relied upon by the Senate which
mandate the pursuit of a trade policy that serves the general welfare and
utilizes all forms and arrangements of exchange on the basis of equality and
reciprocity and the promotion of industries which are competitive in both
domestic and foreign markets, thereby justifying its acceptance of said
treaty. So too, the alleged impairment of sovereignty in the exercise of
legislative and judicial powers is balanced by the adoption of the generally
accepted principles of international law as part of the law of the land and the
adherence of the Constitution to the policy of cooperation and amity with all
nations.
That the Senate, after deliberation and voting, voluntarily and
overwhelmingly gave its consent to the WTO Agreement thereby making it a
part of the law of the land is a legitimate exercise of its sovereign duty and
power. We find no patent and gross arbitrariness or despotism by reason of
passion or personal hostility in such exercise. It is not impossible to surmise
that this Court, or at least some of its members, may even agree with
petitioners that it is more advantageous to the national interest to strike down
Senate Resolution No. 97. But that is not a legal reason to attribute grave
abuse of discretion to the Senate and to nullify its decision. To do so would
constitute grave abuse in the exercise of our own judicial power and
duty.Ineludably, what the Senate did was a valid exercise of its authority. As
to whether such exercise was wise, beneficial or viable is outside the realm of
judicial inquiry and review. That is a matter between the elected policy makers
and the people. As to whether the nation should join the worldwide march
toward trade liberalization and economic globalization is a matter that our
people should determine in electing their policy makers. After all, the WTO
Agreement allows withdrawal of membership, should this be the political
desire of a member.
The eminent futurist John Naisbitt, author of the best seller Megatrends,
predicts an Asian Renaissance where the East will become the dominant
[65]

region of the world economically, politically and culturally in the next

century. He refers to the free market espoused by WTO as the catalyst in this
coming Asian ascendancy. There are at present about 31 countries including
China, Russia and Saudi Arabia negotiating for membership in the
WTO. Notwithstanding objections against possible limitations on national
sovereignty, the WTO remains as the only viable structure for multilateral
trading and the veritable forum for the development of international trade
law. The alternative to WTO is isolation, stagnation, if not economic self-
destruction. Duly enriched with original membership, keenly aware of the
advantages and disadvantages of globalization with its on-line experience,
and endowed with a vision of the future, the Philippines now straddles the
crossroads of an international strategy for economic prosperity and stability in
the new millennium. Let the people, through their duly authorized elected
officers, make their free choice.
WHEREFORE, the petition is DISMISSED for lack of merit.
 SO ORDERED.
PRIBHDAS J. MIRPURI, petitioner, vs. COURT OF APPEALS, DIRECTOR
OF PATENTS and the BARBIZON CORPORATION, respondents.

DECISION
PUNO, J.:

The Convention of Paris for the Protection of Industrial Property is a multi-lateral

treaty which the Philippines bound itself to honor and enforce in this country. As to
whether or not the treaty affords protection to a foreign corporation against a
Philippine applicant for the registration of a similar trademark is the principal issue in
this case.
On June 15, 1970, one Lolita Escobar, the predecessor-in-interest of petitioner
Pribhdas J. Mirpuri, filed an application with the Bureau of Patents for the registration
of the trademark "Barbizon" for use in brassieres and ladies undergarments. Escobar
alleged that she had been manufacturing and selling these products under the firm
name "L & BM Commercial" since March 3, 1970.
Private respondent Barbizon Corporation, a corporation organized and doing
business under the laws of New York, U.S.A., opposed the application. It claimed
that:

"The mark BARBIZON of respondent-applicant is confusingly similar to the

trademark BARBIZON which opposer owns and has not abandoned.

That opposer will be damaged by the registration of the mark BARBIZON and its
business reputation and goodwill will suffer great and irreparable injury.

That the respondent-applicant's use of the said mark BARBIZON which resembles the trademark
used and owned by opposer, constitutes an unlawful appropriation of a mark previously used in
the Philippines and not abandoned and therefore a statutory violation of Section 4 (d) of
Republic Act No. 166, as amended."[1]

This was docketed as Inter Partes Case No. 686 (IPC No. 686). After filing of
the pleadings, the parties submitted the case for decision.
On June 18, 1974, the Director of Patents rendered judgment dismissing the
opposition and giving due course to Escobar's application, thus:

"WHEREFORE, the opposition should be, as it is hereby, DISMISSED. Accordingly,

Application Serial No. 19010 for the registration of the trademark BARBIZON, of
respondent Lolita R. Escobar, is given due course.
IT IS SO ORDERED."[2]

This decision became final and on September 11, 1974, Lolita Escobar was issued
a certificate of registration for the trademark "Barbizon." The trademark was "for use
in "brassieres and lady's underwear garments like panties."[3]
Escobar later assigned all her rights and interest over the trademark to petitioner
Pribhdas J. Mirpuri who, under his firm name then, the "Bonito Enterprises," was the
sole and exclusive distributor of Escobar's "Barbizon" products.
In 1979, however, Escobar failed to file with the Bureau of Patents the Affidavit
of Use of the trademark required under Section 12 of Republic Act (R.A.) No. 166,
the Philippine Trademark Law. Due to this failure, the Bureau of Patents cancelled
Escobar's certificate of registration.
On May 27, 1981, Escobar reapplied for registration of the cancelled
trademark. Mirpuri filed his own application for registration of Escobar's
trademark. Escobar later assigned her application to herein petitioner and this
application was opposed by private respondent. The case was docketed as Inter
Partes Case No. 2049 (IPC No. 2049).
In its opposition, private respondent alleged that:

"(a) The Opposer has adopted the trademark BARBIZON (word), sometime in June
1933 and has then used it on various kinds of wearing apparel. On August 14, 1934,
Opposer obtained from the United States Patent Office a more recent registration of
the said mark under Certificate of Registration No. 316,161. On March 1, 1949,
Opposer obtained from the United States Patent Office a more recent registration for
the said trademark under Certificate of Registration No. 507,214, a copy of which is
herewith attached as Annex `A.' Said Certificate of Registration covers the following
goods-- wearing apparel: robes, pajamas, lingerie, nightgowns and slips;

(b) Sometime in March 1976, Opposer further adopted the trademark BARBIZON
and Bee design and used the said mark in various kinds of wearing apparel. On March
15, 1977, Opposer secured from the United States Patent Office a registration of the
said mark under Certificate of Registration No. 1,061,277, a copy of which is herein
enclosed as Annex `B.' The said Certificate of Registration covers the following
goods: robes, pajamas, lingerie, nightgowns and slips;

(c) Still further, sometime in 1961, Opposer adopted the trademark BARBIZON and a
Representation of a Woman and thereafter used the said trademark on various kinds of
wearing apparel. Opposer obtained from the United States Patent Office registration
of the said mark on April 5, 1983 under Certificate of Registration No. 1,233,666 for
the following goods: wearing apparel: robes, pajamas, nightgowns and lingerie. A
copy of the said certificate of registration is herewith enclosed as Annex `C.'

(d) All the above registrations are subsisting and in force and Opposer has not
abandoned the use of the said trademarks. In fact, Opposer, through a wholly-owned
Philippine subsidiary, the Philippine Lingerie Corporation, has been manufacturing
the goods covered by said registrations and selling them to various countries, thereby
earning valuable foreign exchange for the country. As a result of respondent-
applicant's misappropriation of Opposer's BARBIZON trademark, Philippine Lingerie
Corporation is prevented from selling its goods in the local market, to the damage and
prejudice of Opposer and its wholly-owned subsidiary.

(e) The Opposer's goods bearing the trademark BARBIZON have been used in many
countries, including the Philippines, for at least 40 years and has enjoyed international
reputation and good will for their quality. To protect its registrations in countries
where the goods covered by the registrations are being sold, Opposer has procured the
registration of the trademark BARBIZON in the following countries:Australia,
Austria, Abu Dhabi, Argentina, Belgium, Bolivia, Bahrain, Canada, Chile, Colombia,
Denmark, Ecuador, France, West Germany, Greece, Guatemala, Hongkong,
Honduras, Italy, Japan, Jordan, Lebanon, Mexico, Morocco, Panama, New Zealand,
Norway, Sweden, Switzerland, Syria, El Salvador, South Africa, Zambia, Egypt, and
Iran, among others;

(f) To enhance its international reputation for quality goods and to further promote
goodwill over its name, marks and products, Opposer has extensively advertised its
products, trademarks and name in various publications which are circulated in the
United States and many countries around the world, including the Philippines;

(g) The trademark BARBIZON was fraudulently registered in the Philippines by one
Lolita R. Escobar under Registration No. 21920, issued on September 11, 1974, in
violation of Article 189 (3) of the Revised Penal Code and Section 4 (d) of the
Trademark Law. Herein respondent applicant acquired by assignment the `rights' to
the said mark previously registered by Lolita Escobar, hence respondent-applicant's
title is vitiated by the same fraud and criminal act. Besides, Certificate of Registration
No. 21920 has been cancelled for failure of either Lolita Escobar or herein
respondent-applicant, to seasonably file the statutory affidavit of use. By applying for
a re-registration of the mark BARBIZON subject of this opposition, respondent-
applicant seeks to perpetuate the fraud and criminal act committed by Lolita Escobar.

(h) Opposer's BARBIZON as well as its BARBIZON and Bee Design and BARBIZON and
Representation of a Woman trademarks qualify as well-known trademarks entitled to protection
under Article 6bisof the Convention of Paris for the Protection of Industrial Property and further
amplified by the Memorandum of the Minister of Trade to the Honorable Director of Patents
dated October 25, 1983 [sic],[4]Executive Order No. 913 dated October 7, 1963 and the
Memorandum of the Minister of Trade and Industry to the Honorable Director of Patents dated
October 25, 1983.

(i) The trademark applied for by respondent applicant is identical to Opposer's BARBIZON
trademark and constitutes the dominant part of Opposer's two other marks namely, BARBIZON
and Bee design and BARBIZON and a Representation of a Woman. The continued use by
respondent-applicant of Opposer's trademark BARBIZON on goods belonging to Class 25
constitutes a clear case of commercial and criminal piracy and if allowed registration will violate
not only the Trademark Law but also Article 189 of the Revised Penal Code and the commitment
of the Philippines to an international treaty."[5]

Replying to private respondent's opposition, petitioner raised the defense of res

judicata.
On March 2, 1982, Escobar assigned to petitioner the use of the business name
"Barbizon International." Petitioner registered the name with the Department of Trade
and Industry (DTI) for which a certificate of registration was issued in 1987.
Forthwith, private respondent filed before the Office of Legal Affairs of the DTI a
petition for cancellation of petitioner's business name.
On November 26, 1991, the DTI, Office of Legal Affairs, cancelled petitioner's
certificate of registration, and declared private respondent the owner and prior user of
the business name "Barbizon International." Thus:

"WHEREFORE, the petition is hereby GRANTED and petitioner is declared the owner and prior
user of the business name "BARBIZON INTERNATIONAL" under Certificate of Registration
No. 87-09000 dated March 10, 1987 and issued in the name of respondent, is [sic] hereby
ordered revoked and cancelled. x x x."[6]

Meanwhile, in IPC No. 2049, the evidence of both parties were received by the
Director of Patents. On June 18, 1992, the Director rendered a decision declaring
private respondent's opposition barred by res judicata and giving due course to
petitioner's application for registration, to wit:

"WHEREFORE, the present Opposition in Inter Partes Case No. 2049 is hereby
DECLARED BARRED by res judicata and is hereby DISMISSED. Accordingly,
Application Serial No. 45011 for trademark BARBIZON filed by Pribhdas J. Mirpuri
is GIVEN DUE COURSE.

SO ORDERED."[7]
 Private respondent questioned this decision before the Court of Appeals in CA-
G.R. SP No. 28415. On April 30, 1993, the Court of Appeals reversed the Director of
Patents finding that IPC No. 686 was not barred by judgment in IPC No. 2049 and
ordered that the case be remanded to the Bureau of Patents for further
proceedings, viz:

"WHEREFORE, the appealed Decision No. 92-13 dated June 18, 1992 of the Director of Patents
in Inter Partes Case No. 2049 is hereby SET ASIDE; and the case is hereby remanded to the
Bureau of Patents for further proceedings, in accordance with this pronouncement. No costs."[8]

In a Resolution dated March 16, 1994, the Court of Appeals denied

reconsideration of its decision.[9] Hence, this recourse.
Before us, petitioner raises the following issues:

"1. WHETHER OR NOT THE DECISION OF THE DIRECTOR OF PATENTS IN

INTER PARTES CASE NO. 686 RENDERED ON JUNE 18, 1974, ANNEX C
HEREOF, CONSTITUTED RES JUDICATA IN SO FAR AS THE CASE BEFORE
THE DIRECTOR OF PATENTS IS CONCERNED;

2. WHETHER OR NOT THE DIRECTOR OF PATENTS CORRECTLY APPLIED

THE PRINCIPLE OF RES JUDICATA IN DISMISSING PRIVATE RESPONDENT
BARBIZON'S OPPOSITION TO PETITIONER'S APPLICATION FOR
REGISTRATION FOR THE TRADEMARK BARBIZON, WHICH HAS SINCE
RIPENED TO CERTIFICATE OF REGISTRATION NO. 53920 ON NOVEMBER
16, 1992;

3. WHETHER OR NOT THE REQUISITE THAT A 'JUDGMENT ON THE

MERITS' REQUIRED A 'HEARING WHERE BOTH PARTIES ARE SUPPOSED
TO ADDUCE EVIDENCE' AND WHETHER THE JOINT SUBMISSION OF THE
PARTIES TO A CASE ON THE BASIS OF THEIR RESPECTIVE PLEADINGS
WITHOUT PRESENTING TESTIMONIAL OR DOCUMENTARY EVIDENCE
FALLS WITHIN THE MEANING OF 'JUDGMENT ON THE MERITS' AS ONE
OF THE REQUISITES TO CONSTITUTE RES JUDICATA;

4. WHETHER A DECISION OF THE DEPARTMENT OF TRADE AND

INDUSTRY CANCELLING PETITIONER'S FIRM NAME 'BARBIZON
INTERNATIONAL' AND WHICH DECISION IS STILL PENDING
RECONSIDERATION NEVER OFFERED IN EVIDENCE BEFORE THE
DIRECTOR OF PATENTS IN INTER PARTES CASE NO. 2049 HAS THE RIGHT
TO DECIDE SUCH CANCELLATION NOT ON THE BASIS OF THE BUSINESS
NAME LAW (AS IMPLEMENTED BY THE BUREAU OF DOMESTIC TRADE)
BUT ON THE BASIS OF THE PARIS CONVENTION AND THE TRADEMARK
LAW (R.A. 166) WHICH IS WITHIN THE ORIGINAL AND EXCLUSIVE
JURISDICTION OF THE DIRECTOR OF PATENTS."[10]

Before ruling on the issues of the case, there is need for a brief background on the
function and historical development of trademarks and trademark law.
A "trademark" is defined under R.A. 166, the Trademark Law, as including "any
word, name, symbol, emblem, sign or device or any combination thereof adopted and
used by a manufacturer or merchant to identify his goods and distinguish them from
those manufactured, sold or dealt in by others."[11] This definition has been simplified
in R.A. No. 8293, the Intellectual Property Code of the Philippines, which defines a
"trademark" as "any visible sign capable of distinguishing goods." [12] In Philippine
jurisprudence, 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.[13]
Modern authorities on trademark law view trademarks as performing three distinct
functions: (1) they indicate origin or ownership of the articles to which they are
attached; (2) they guarantee that those articles come up to a certain standard of
quality; and (3) they advertise the articles they symbolize.[14]
Symbols have been used to identify the ownership or origin of articles for several
centuries.[15] As early as 5,000 B.C., markings on pottery have been found by
archaeologists. Cave drawings in southwestern Europe show bison with symbols on
their flanks.[16] Archaeological discoveries of ancient Greek and Roman inscriptions on
sculptural works, paintings, vases, precious stones, glassworks, bricks, etc. reveal
some features which are thought to be marks or symbols. These marks were affixed
by the creator or maker of the article, or by public authorities as indicators for the
payment of tax, for disclosing state monopoly, or devices for the settlement of
accounts between an entrepreneur and his workmen.[17]
In the Middle Ages, the use of many kinds of marks on a variety of goods was
commonplace. Fifteenth century England saw the compulsory use of identifying
marks in certain trades. There were the baker's mark on bread, bottlemaker's marks,
smith's marks, tanner's marks, watermarks on paper, etc.[18] Every guild had its own
mark and every master belonging to it had a special mark of his own. The marks were
not trademarks but police marks compulsorily imposed by the sovereign to let the
public know that the goods were not "foreign" goods smuggled into an area where the
guild had a monopoly, as well as to aid in tracing defective work or poor
craftsmanship to the artisan.[19] For a similar reason, merchants also used merchants'
marks. Merchants dealt in goods acquired from many sources and the marks enabled
them to identify and reclaim their goods upon recovery after shipwreck or piracy.[20]
With constant use, the mark acquired popularity and became voluntarily
adopted. It was not intended to create or continue monopoly but to give the customer
an index or guarantee of quality.[21] It was in the late 18th century when the industrial
revolution gave rise to mass production and distribution of consumer goods that the
mark became an important instrumentality of trade and commerce.[22] By this time,
trademarks did not merely identify the goods; they also indicated the goods to be of
satisfactory quality, and thereby stimulated further purchases by the consuming
public.[23] Eventually, they came to symbolize the goodwill and business reputation of
the owner of the product and became a property right protected by law. [24] The
common law developed the doctrine of trademarks and tradenames "to prevent a
person from palming off his goods as another's, from getting another's business or
injuring his reputation by unfair means, and, from defrauding the
public."[25] Subsequently, England and the United States enacted national legislation on
trademarks as part of the law regulating unfair trade.[26] It became the right of the
trademark owner to exclude others from the use of his mark, or of a confusingly
similar mark where confusion resulted in diversion of trade or financial injury. At the
same time, the trademark served as a warning against the imitation or faking of
products to prevent the imposition of fraud upon the public.[27]
Today, the trademark is not merely a symbol of origin and goodwill; it is often the
most effective agent for the actual creation and protection of goodwill. It imprints
upon the public mind an anonymous and impersonal guaranty of satisfaction, creating
a desire for further satisfaction. In other words, the mark actually sells the
goods.[28] The mark has become the "silent salesman," the conduit through which direct
contact between the trademark owner and the consumer is assured. It has invaded
popular culture in ways never anticipated that it has become a more convincing selling
point than even the quality of the article to which it refers. [29] In the last half century,
the unparalleled growth of industry and the rapid development of communications
technology have enabled trademarks, tradenames and other distinctive signs of a
product to penetrate regions where the owner does not actually manufacture or sell the
product itself. Goodwill is no longer confined to the territory of actual market
penetration; it extends to zones where the marked article has been fixed in the public
mind through advertising.[30] Whether in the print, broadcast or electronic
communications medium, particularly on the Internet,[31]advertising has paved the way
for growth and expansion of the product by creating and earning a reputation that
crosses over borders, virtually turning the whole world into one vast marketplace.
This is the mise-en-scene of the present controversy. Petitioner brings this action
claiming that "Barbizon" products have been sold in the Philippines since
1970. Petitioner developed this market by working long hours and spending
considerable sums of money on advertisements and promotion of the trademark and
its products. Now, almost thirty years later, private respondent, a foreign corporation,
"swaggers into the country like a conquering hero," usurps the trademark and invades
petitioner's market.[32] Justice and fairness dictate that private respondent be prevented
from appropriating what is not its own. Legally, at the same time, private respondent
is barred from questioning petitioner's ownership of the trademark because of res
judicata.[33]
Literally, res judicata means a matter adjudged, a thing judicially acted upon or
decided; a thing or matter settled by judgment.[34] In res judicata, the judgment in the
first action is considered conclusive as to every matter offered and received therein, as
to any other admissible matter which might have been offered for that purpose, and all
other matters that could have been adjudged therein.[35] Res judicata is an absolute bar
to a subsequent action for the same cause; and its requisites are: (a) the former
judgment or order must be final; (b) the judgment or order must be one on the merits;
(c) it must have been rendered by a court having jurisdiction over the subject matter
and parties; (d) there must be between the first and second actions, identity of parties,
of subject matter and of causes of action.[36]
The Solicitor General, on behalf of respondent Director of Patents, has joined
cause with petitioner. Both claim that all the four elements of res judicata have been
complied with: that the judgment in IPC No. 686 was final and was rendered by the
Director of Patents who had jurisdiction over the subject matter and parties; that the
judgment in IPC No. 686 was on the merits; and that the lack of a hearing was
immaterial because substantial issues were raised by the parties and passed upon by
the Director of Patents.[37]
The decision in IPC No. 686 reads as follows:

"x x x.

Parties neither took testimony nor adduced documentary evidence. They submitted the
case for decision based on the pleadings which, together with the pertinent records,
have all been carefully considered.

Accordingly, the only issue for my disposition is whether or not the herein opposer
would probably be damaged by the registration of the trademark BARBIZON sought
by the respondent-applicant on the ground that it so resembles the trademark
BARBIZON allegedly used and owned by the former to be `likely to cause confusion,
mistake or to deceive purchasers.'

On record, there can be no doubt that respondent-applicant's sought-to-be-registered

trademark BARBIZON is similar, in fact obviously identical, to opposer's alleged
trademark BARBIZON, in spelling and pronunciation. The only appreciable but very
negligible difference lies in their respective appearances or manner of
presentation. Respondent-applicant's trademark is in bold letters (set against a black
background), while that of the opposer is offered in stylish script letters.

It is opposer's assertion that its trademark BARBIZON has been used in trade or
commerce in the Philippines prior to the date of application for the registration of the
identical mark BARBIZON by the respondent-applicant. However, the allegation of
facts in opposer's verified notice of opposition is devoid of such material
information. In fact, a reading of the text of said verified opposition reveals an
apparent, if not deliberate, omission of the date (or year) when opposer's alleged
trademark BARBIZON was first used in trade in the Philippines (see par. No. 1, p. 2,
Verified Notice of Opposition, Rec.).Thus, it cannot here and now be ascertained
whether opposer's alleged use of the trademark BARBIZON could be prior to the use
of the identical mark by the herein respondent-applicant, since the opposer attempted
neither to substantiate its claim of use in local commerce with any proof or
evidence. Instead, the opposer submitted the case for decision based merely on the
pleadings.

On the other hand, respondent-applicant asserted in her amended application for

registration that she first used the trademark BARBIZON for brassiere (or 'brasseire')
and ladies underwear garments and panties as early as March 3, 1970. Be that as it
may, there being no testimony taken as to said date of first use, respondent-applicant
will be limited to the filing date, June 15, 1970, of her application as the date of first
use (Rule 173, Rules of Practice in Trademark Cases).

From the foregoing, I conclude that the opposer has not made out a case of probable
damage by the registration of the respondent-applicant's mark BARBIZON.

WHEREFORE, the opposition should be, as it is hereby, DISMISSED. Accordingly, Application

Serial No. 19010, for the registration of the trademark BARBIZON of respondent Lolita R.
Escobar, is given due course."[38]

The decision in IPC No. 686 was a judgment on the merits and it was error for the
Court of Appeals to rule that it was not. A judgment is on the merits when it
determines the rights and liabilities of the parties based on the disclosed facts,
irrespective of formal, technical or dilatory objections. [39] It is not necessary that a trial
should have been conducted. If the court's judgment is general, and not based on any
technical defect or objection, and the parties had a full legal opportunity to be heard
on their respective claims and contentions, it is on the merits although there was no
actual hearing or arguments on the facts of the case.[40] In the case at bar, the Director
of Patents did not dismiss private respondent's opposition on a sheer
technicality. Although no hearing was conducted, both parties filed their respective
pleadings and were given opportunity to present evidence. They, however, waived
their right to do so and submitted the case for decision based on their pleadings. The
lack of evidence did not deter the Director of Patents from ruling on the case,
particularly on the issue of prior use, which goes into the very substance of the relief
sought by the parties. Since private respondent failed to prove prior use of its
trademark, Escobar's claim of first use was upheld.
The judgment in IPC No. 686 being on the merits, petitioner and the Solicitor
General allege that IPC No. 686 and IPC No. 2049 also comply with the fourth
requisite of res judicata, i.e., they involve the same parties and the same subject
matter, and have identical causes of action.
Undisputedly, IPC No. 686 and IPC No. 2049 involve the same parties and the
same subject matter. Petitioner herein is the assignee of Escobar while private
respondent is the same American corporation in the first case. The subject matter of
both cases is the trademark "Barbizon." Private respondent counter-argues, however,
that the two cases do not have identical causes of action. New causes of action were
allegedly introduced in IPC No. 2049, such as the prior use and registration of the
trademark in the United States and other countries worldwide, prior use in the
Philippines, and the fraudulent registration of the mark in violation of Article 189 of
the Revised Penal Code. Private respondent also cited protection of the trademark
under the Convention of Paris for the Protection of Industrial Property, specifically
Article 6bis thereof, and the implementation of Article 6bis by two Memoranda dated
November 20, 1980 and October 25, 1983 of the Minister of Trade and Industry to the
Director of Patents, as well as Executive Order (E.O.) No. 913.
The Convention of Paris for the Protection of Industrial Property, otherwise
known as the Paris Convention, is a multilateral treaty that seeks to protect industrial
property consisting of patents, utility models, industrial designs, trademarks, service
marks, trade names and indications of source or appellations of origin, and at the same
time aims to repress unfair competition.[41] The Convention is essentially a compact
among various countries which, as members of the Union, have pledged to accord to
citizens of the other member countries trademark and other rights comparable to those
accorded their own citizens by their domestic laws for an effective protection against
unfair competition.[42] In short, foreign nationals are to be given the same treatment in
each of the member countries as that country makes available to its own
citizens.[43] Nationals of the various member nations are thus assured of a certain
minimum of international protection of their industrial property.[44]
The Convention was first signed by eleven countries in Paris on March 20,
1883.[45] It underwent several revisions-- at Brussels in 1900, at Washington in 1911,
at The Hague in 1925, at London in 1934, at Lisbon in 1958,[46] and at Stockholm in
1967. Both the Philippines and the United States of America, herein private
respondent's country, are signatories to the Convention. The United States acceded on
May 30, 1887 while the Philippines, through its Senate, concurred on May 10,
1965.[47] The Philippines' adhesion became effective on September 27, 1965,[48] and
from this date, the country obligated itself to honor and enforce the provisions of the
Convention.[49]
In the case at bar, private respondent anchors its cause of action on the first
paragraph of Article 6bis of the Paris Convention which reads as follows:

"Article 6bis

(1) The countries of the Union undertake, either administratively if their

legislation so permits, or at the request of an interested party, to refuse or to
cancel the registration and to prohibit the use, of a trademark which constitutes
a reproduction, an imitation, or a translation, liable to create confusion, of a
mark considered by the competent authority of the country of registration or use
to be well-known in that country as being already the mark of a person entitled
to the benefits of this Convention and used for identical or similar goods. These
provisions shall also apply when the essential part of the mark constitutes a
reproduction of any such well-known mark or an imitation liable to create
confusion therewith.

(2) A period of at least five years from the date of registration shall be allowed for
seeking the cancellation of such a mark. The countries of the Union may provide for a
period within which the prohibition of use must be sought.

(3) No time limit shall be fixed for seeking the cancellation or the prohibition of
the use of marks registered or used in bad faith."[50]
This Article governs protection of well-known trademarks. Under the first
paragraph, each country of the Union bound itself to undertake to refuse or cancel the
registration, and prohibit the use of a trademark which is a reproduction, imitation or
translation, or any essential part of which trademark constitutes a reproduction, liable
to create confusion, of a mark considered by the competent authority of the country
where protection is sought, to be well-known in the country as being already the mark
of a person entitled to the benefits of the Convention, and used for identical or similar
goods.
Article 6bis was first introduced at The Hague in 1925 and amended in Lisbon in
1952.[51] It is a self-executing provision and does not require legislative enactment to
give it effect in the member country.[52] It may be applied directly by the tribunals and
officials of each member country by the mere publication or proclamation of the
Convention, after its ratification according to the public law of each state and the
order for its execution.[53]
The essential requirement under Article 6bis is that the trademark to be protected
must be "well-known" in the country where protection is sought. The power to
determine whether a trademark is well-known lies in the "competent authority of the
country of registration or use." This competent authority would be either the
registering authority if it has the power to decide this, or the courts of the country in
question if the issue comes before a court.[54]
Pursuant to Article 6bis, on November 20, 1980, then Minister Luis Villafuerte of
the Ministry of Trade issued a Memorandum to the Director of Patents. The Minister
ordered the Director that:

"Pursuant to the Paris Convention for the Protection of Industrial Property to which
the Philippines is a signatory, you are hereby directed to reject all pending
applications for Philippine registration of signature and other world-famous
trademarks by applicants other than its original owners or users.

The conflicting claims over internationally known trademarks involve such name
brands as Lacoste, Jordache, Vanderbilt, Sasson, Fila, Pierre Cardin, Gucci, Christian
Dior, Oscar de la Renta, Calvin Klein, Givenchy, Ralph Lauren, Geoffrey Beene,
Lanvin and Ted Lapidus.

It is further directed that, in cases where warranted, Philippine registrants of such

trademarks should be asked to surrender their certificates of registration, if any, to
avoid suits for damages and other legal action by the trademarks' foreign or local
owners or original users.

You are also required to submit to the undersigned a progress report on the matter.

For immediate compliance."[55]

Three years later, on October 25, 1983, then Minister Roberto Ongpin issued
another Memorandum to the Director of Patents, viz:

"Pursuant to Executive Order No. 913 dated 7 October 1983 which strengthens the rule-making
and adjudicatory powers of the Minister of Trade and Industry and provides inter alia, that `such
rule-making and adjudicatory powers should be revitalized in order that the Minister of Trade
and Industry can x x x apply more swift and effective solutions and remedies to old and new
problems x x x such as infringement of internationally-known tradenames and trademarks x x x'
and in view of the decision of the Intermediate Appellate Court in the case of LA CHEMISE
LACOSTE, S.A., versus RAM SADWHANI [AC-G.R. SP NO. 13359 (17) June 1983][56] which
affirms the validity of the MEMORANDUM of then Minister Luis R. Villafuerte dated 20
November 1980 confirming our obligations under the PARIS CONVENTION FOR THE
PROTECTION OF INDUSTRIAL PROPERTY to which the Republic of the Philippines is a
signatory, you are hereby directed to implement measures necessary to effect compliance with
our obligations under said Convention in general, and, more specifically, to honor our
commitment under Section 6bis[57] thereof, as follows:

1. Whether the trademark under consideration is well-known in the Philippines or is a

mark already belonging to a person entitled to the benefits of the CONVENTION, this
should be established, pursuant to Philippine Patent Office procedures in inter partes
and ex parte cases, according to any of the following criteria or any combination
thereof:

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

(b) that the trademark is used in commerce internationally, supported by proof that
goods bearing the trademark are sold on an international scale, advertisements, the
establishment of factories, sales offices, distributorships, and the like, in different
countries, including volume or other measure of international trade and commerce;

(c) that the trademark is duly registered in the industrial property office(s) of another
country or countries, taking into consideration the date of such registration;

(d) that the trademark has long been established and obtained goodwill and
international consumer recognition as belonging to one owner or source;

(e) that the trademark actually belongs to a party claiming ownership and has the right
to registration under the provisions of the aforestated PARIS CONVENTION.

2. The word trademark, as used in this MEMORANDUM, shall include tradenames,

service marks, logos, signs, emblems, insignia or other similar devices used for
identification and recognition by consumers.

3. The Philippine Patent Office shall refuse all applications for, or cancel the
registration of, trademarks which constitute a reproduction, translation or imitation of
a trademark owned by a person, natural or corporate, who is a citizen of a country
signatory to the PARIS CONVENTION FOR THE PROTECTION OF
INDUSTRIAL PROPERTY.

4. The Philippine Patent Office shall give due course to the Opposition in cases
already or hereafter filed against the registration of trademarks entitled to protection
of Section 6 bis of said PARIS CONVENTION as outlined above, by remanding
applications filed by one not entitled to such protection for final disallowance by the
Examination Division.

5. All pending applications for Philippine registration of signature and other world-
famous trademarks filed by applicants other than their original owners or users shall
be rejected forthwith. Where such applicants have already obtained registration
contrary to the abovementioned PARIS CONVENTION and/or Philippine Law, they
shall be directed to surrender their Certificates of Registration to the Philippine Patent
Office for immediate cancellation proceedings.

x x x."[58]

In the Villafuerte Memorandum, the Minister of Trade instructed the Director of

Patents to reject all pending applications for Philippine registration of signature and
other world-famous trademarks by applicants other than their original owners or
users. The Minister enumerated several internationally-known trademarks and ordered
the Director of Patents to require Philippine registrants of such marks to surrender
their certificates of registration.
In the Ongpin Memorandum, the Minister of Trade and Industry did not
enumerate well-known trademarks but laid down guidelines for the Director of
Patents to observe in determining whether a trademark is entitled to protection as a
well-known mark in the Philippines under Article 6bis of the Paris Convention. This
was to be established through Philippine Patent Office procedures in inter
partesand ex parte cases pursuant to the criteria enumerated therein. The Philippine
Patent Office was ordered to refuse applications for, or cancel the registration of,
trademarks which constitute a reproduction, translation or imitation of a trademark
owned by a person who is a citizen of a member of the Union. All pending
applications for registration of world-famous trademarks by persons other than their
original owners were to be rejected forthwith. The Ongpin Memorandum was issued
pursuant to Executive Order No. 913 dated October 7, 1983 of then President Marcos
which strengthened the rule-making and adjudicatory powers of the Minister of Trade
and Industry for the effective protection of consumers and the application of swift
solutions to problems in trade and industry.[59]
Both the Villafuerte and Ongpin Memoranda were sustained by the Supreme
Court in the 1984 landmark case of La Chemise Lacoste, S.A. v. Fernandez.[60] This
court ruled therein that under the provisions of Article 6bis of the Paris Convention,
the Minister of Trade and Industry was the "competent authority" to determine
whether a trademark is well-known in this country.[61]
 The Villafuerte Memorandum was issued in 1980, i.e., fifteen (15) years after the
adoption of the Paris Convention in 1965. In the case at bar, the first inter partes case,
IPC No. 686, was filed in 1970, before the Villafuerte Memorandum but five (5)
years after the effectivity of the Paris Convention. Article 6bis was already in effect
five years before the first case was instituted. Private respondent, however, did not
cite the protection of Article 6bis, neither did it mention the Paris Convention at all. It
was only in 1981 when IPC No. 2049 was instituted that the Paris Convention and the
Villafuerte Memorandum, and, during the pendency of the case, the 1983 Ongpin
Memorandum were invoked by private respondent.
The Solicitor General argues that the issue of whether the protection of Article
6bis of the Convention and the two Memoranda is barred by res judicata has already
been answered in Wolverine Worldwide, Inc. v. Court of Appeals.[62] In this case,
petitioner Wolverine, a foreign corporation, filed with the Philippine Patent Office a
petition for cancellation of the registration certificate of private respondent, a Filipino
citizen, for the trademark "Hush Puppies" and "Dog Device." Petitioner alleged that it
was the registrant of the internationally-known trademark in the United States and
other countries, and cited protection under the Paris Convention and the Ongpin
Memorandum. The petition was dismissed by the Patent Office on the ground of res
judicata. It was found that in 1973 petitioner's predecessor-in-interest filed two
petitions for cancellation of the same trademark against respondent's predecessor-in-
interest. The Patent Office dismissed the petitions, ordered the cancellation of
registration of petitioner's trademark, and gave due course to respondent's application
for registration. This decision was sustained by the Court of Appeals, which decision
was not elevated to us and became final and executory.[63]
Wolverine claimed that while its previous petitions were filed under R.A. No.
166, the Trademark Law, its subsequent petition was based on a new cause of action,
i.e., the Ongpin Memorandum and E.O. No. 913 issued in 1983, after finality of the
previous decision. We held that the said Memorandum and E.O. did not grant a new
cause of action because it did "not amend the Trademark Law," x x x "nor did it
indicate a new policy with respect to the registration in the Philippines of world-
famous trademarks."[64] This conclusion was based on the finding that Wolverine's two
previous petitions and subsequent petition dealt with the same issue of ownership of
the trademark.[65] In other words, since the first and second cases involved the same
issue of ownership, then the first case was a bar to the second case.
In the instant case, the issue of ownership of the trademark "Barbizon" was not
raised in IPC No. 686. Private respondent's opposition therein was merely anchored
on:

(a) "confusing similarity" of its trademark with that of Escobar's;

(b) that the registration of Escobar's similar trademark will cause damage to private
respondent's business reputation and goodwill; and

(c) that Escobar's use of the trademark amounts to an unlawful appropriation of a

mark previously used in the Philippines which act is penalized under Section 4 (d) of
the Trademark Law.

In IPC No. 2049, private respondent's opposition set forth several issues
summarized as follows:

(a) as early as 1933, it adopted the word "BARBIZON" as trademark on its products
such as robes, pajamas, lingerie, nightgowns and slips;

(b) that the trademark "BARBIZON" was registered with the United States Patent
Office in 1934 and 1949; and that variations of the same trademark, i.e.,
"BARBIZON" with Bee design and "BARBIZON" with the representation of a
woman were also registered with the U.S. Patent Office in 1961 and 1976;

(c) that these marks have been in use in the Philippines and in many countries all over
the world for over forty years. "Barbizon" products have been advertised in
international publications and the marks registered in 36 countries worldwide;

(d) Escobar's registration of the similar trademark "BARBIZON" in 1974 was based
on fraud; and this fraudulent registration was cancelled in 1979, stripping Escobar of
whatsoever right she had to the said mark;

(e) Private respondent's trademark is entitled to protection as a well-known mark

under Article 6bis of the Paris Convention, Executive Order No. 913, and the two
Memoranda dated November 20, 1980 and October 25, 1983 of the Minister of Trade
and Industry to the Director of Patents;

(f) Escobar's trademark is identical to private respondent's and its use on the same
class of goods as the latter's amounts to a violation of the Trademark Law and Article
189 of the Revised Penal Code.

IPC No. 2049 raised the issue of ownership of the trademark, the first registration and
use of the trademark in the United States and other countries, and the international
recognition and reputation of the trademark established by extensive use and
advertisement of private respondent's products for over forty years here and
abroad. These are different from the issues of confusing similarity and damage in IPC
No. 686. The issue of prior use may have been raised in IPC No. 686 but this claim
was limited to prior use in the Philippines only. Prior use in IPC No. 2049 stems from
private respondent's claim as originator of the word and symbol "Barbizon,"[66] as the
first and registered user of the mark attached to its products which have been sold and
advertised worldwide for a considerable number of years prior to petitioner's first
application for registration of her trademark in the Philippines. Indeed, these are
substantial allegations that raised new issues and necessarily gave private respondent
a new cause of action.
Res judicata does not apply to rights, claims or demands, although growing out of the
same subject matter, which constitute separate or distinct causes of action and were
not put in issue in the former action.[67]
Respondent corporation also introduced in the second case a fact that did not exist
at the time the first case was filed and terminated. The cancellation of petitioner's
certificate of registration for failure to file the affidavit of use arose only after IPC No.
686. It did not and could not have occurred in the first case, and this gave respondent
another cause to oppose the second application. Res judicata extends only to facts and
conditions as they existed at the time judgment was rendered and to the legal rights
and relations of the parties fixed by the facts so determined. [68] When new facts or
conditions intervene before the second suit, furnishing a new basis for the claims and
defenses of the parties, the issues are no longer the same, and the former judgment
cannot be pleaded as a bar to the subsequent action.[69]
It is also noted that the oppositions in the first and second cases are based on
different laws. The opposition in IPC No. 686 was based on specific provisions of the
Trademark Law, i.e., Section 4 (d)[70]on confusing similarity of trademarks and Section
8[71] on the requisite damage to file an opposition to a petition for registration. The
opposition in IPC No. 2049 invoked the Paris Convention, particularly Article
6bis thereof, E.O. No. 913 and the two Memoranda of the Minister of Trade and
Industry. This opposition also invoked Article 189 of the Revised Penal Code which is
a statute totally different from the Trademark Law.[72] Causes of action which are
distinct and independent from each other, although arising out of the same contract,
transaction, or state of facts, may be sued on separately, recovery on one being no bar
to subsequent actions on others.[73] The mere fact that the same relief is sought in the
subsequent action will not render the judgment in the prior action operative as res
judicata, such as where the two actions are based on different statutes.[74] Res
judicata therefore does not apply to the instant case and respondent Court of Appeals
did not err in so ruling.
Intellectual and industrial property rights cases are not simple property
cases. Trademarks deal with the psychological function of symbols and the effect of
these symbols on the public at large.[75]Trademarks play a significant role in
communication, commerce and trade, and serve valuable and interrelated business
functions, both nationally and internationally. For this reason, all agreements
concerning industrial property, like those on trademarks and tradenames, are
intimately connected with economic development.[76] Industrial property encourages
investments in new ideas and inventions and stimulates creative efforts for the
satisfaction of human needs. They speed up transfer of technology and
industrialization, and thereby bring about social and economic progress. [77] These
advantages have been acknowledged by the Philippine government itself. The
Intellectual Property Code of the Philippines declares that "an effective intellectual
and industrial property system is vital to the development of domestic and creative
activity, facilitates transfer of technology, it attracts foreign investments, and ensures
market access for our products."[78] The Intellectual Property Code took effect on
January 1, 1998 and by its express provision,[79] repealed the Trademark Law,[80] the
Patent Law,[81] Articles 188 and 189 of the Revised Penal Code, the Decree on
Intellectual Property,[82] and the Decree on Compulsory Reprinting of Foreign
Textbooks.[83] The Code was enacted to strengthen the intellectual and industrial
property system in the Philippines as mandated by the country's accession to the
Agreement Establishing the World Trade Organization (WTO).[84]
The WTO is a common institutional framework for the conduct of trade relations
among its members in matters related to the multilateral and plurilateral trade
agreements annexed to the WTO Agreement.[85] The WTO framework ensures a
"single undertaking approach" to the administration and operation of all agreements
and arrangements attached to the WTO Agreement. Among those annexed is the
Agreement on Trade-Related Aspects of Intellectual Property Rights or
TRIPs.[86] Members to this Agreement "desire to reduce distortions and impediments to
international trade, taking into account the need to promote effective and adequate
protection of intellectual property rights, and to ensure that measures and procedures
to enforce intellectual property rights do not themselves become barriers to legitimate
trade." To fulfill these objectives, the members have agreed to adhere to minimum
standards of protection set by several Conventions.[87] These Conventions are: the
Berne Convention for the Protection of Literary and Artistic Works (1971), the Rome
Convention or the International Convention for the Protection of Performers,
Producers of Phonograms and Broadcasting Organisations, the Treaty on Intellectual
Property in Respect of Integrated Circuits, and the Paris Convention (1967), as
revised in Stockholm on July 14, 1967.[88]
A major proportion of international trade depends on the protection of intellectual
property rights.[89] Since the late 1970's, the unauthorized counterfeiting of industrial
property and trademarked products has had a considerable adverse impact on
domestic and international trade revenues.[90] The TRIPs Agreement seeks to grant
adequate protection of intellectual property rights by creating a favorable economic
environment to encourage the inflow of foreign investments, and strengthening the
multi-lateral trading system to bring about economic, cultural and technological
independence.[91] The Philippines and the United States of America have acceded to
the WTO Agreement. This Agreement has revolutionized international business and
economic relations among states, and has propelled the world towards trade
liberalization and economic globalization.[92] Protectionism and isolationism belong to
the past. Trade is no longer confined to a bilateral system. There is now "a new era of
global economic cooperation, reflecting the widespread desire to operate in a fairer
and more open multilateral trading system."[93] Conformably, the State must reaffirm
its commitment to the global community and take part in evolving a new international
economic order at the dawn of the new millenium.
IN VIEW WHEREOF, the petition is denied and the Decision and Resolution of
the Court of Appeals in CA-G.R. SP No. 28415 are affirmed.
SO ORDERED.
MIGHTY CORPORATION and LA CAMPANA FABRICA DE TABACO,
INC. petitioners, vs. E. & J. GALLO WINERY and THE
ANDRESONS GROUP, INC. respondents.

DECISION
CORONA, J.:

In this petition for review on certiorari under Rule 45, petitioners Mighty
Corporation and La Campana Fabrica de Tabaco, Inc. (La Campana) seek to
annul, reverse and set aside: (a) the November 15, 2001 decision[1] of the
Court of Appeals (CA) in CA-G.R. CV No. 65175 affirming the November 26,
1998 decision,[2] as modified by the June 24, 1999 order,[3] of the Regional
Trial Court of Makati City, Branch 57 (Makati RTC) in Civil Case No. 93-850,
which held petitioners liable for, and permanently enjoined them from,
committing trademark infringement and unfair competition, and which ordered
them to pay damages to respondents E. & J. Gallo Winery (Gallo Winery) and
The Andresons Group, Inc. (Andresons); (b) the July 11, 2002 CA resolution
denying their motion for reconsideration[4] and (c) the aforesaid Makati RTC
decision itself.
I.

The Factual Background

Respondent Gallo Winery is a foreign corporation not doing business in

the Philippines but organized and existing under the laws of the State of
California, United States of America (U.S.), where all its wineries are located.
Gallo Winery produces different kinds of wines and brandy products and sells
them in many countries under different registered trademarks, including the
GALLO and ERNEST & JULIO GALLO wine trademarks.
Respondent domestic corporation, Andresons, has been Gallo Winerys
exclusive wine importer and distributor in the Philippines since 1991, selling
these products in its own name and for its own account.[5]
Gallo Winerys GALLO wine trademark was registered in the principal
register of the Philippine Patent Office (now Intellectual Property Office) on
November 16, 1971 under Certificate of Registration No. 17021 which was
renewed on November 16, 1991 for another 20 years.[6] Gallo Winery also
applied for registration of its ERNEST & JULIO GALLO wine trademark on
October 11, 1990 under Application Serial No. 901011-00073599-PN but the
records do not disclose if it was ever approved by the Director of Patents.[7]
On the other hand, petitioners Mighty Corporation and La Campana and
their sister company, Tobacco Industries of the Philippines (Tobacco
Industries), are engaged in the cultivation, manufacture, distribution and sale
of tobacco products for which they have been using the GALLO cigarette
trademark since 1973. [8]
The Bureau of Internal Revenue (BIR) approved Tobacco Industries use of
GALLO 100s cigarette mark on September 14, 1973 and GALLO filter
cigarette mark on March 26, 1976, both for the manufacture and sale of its
cigarette products. In 1976, Tobacco Industries filed its manufacturers sworn
statement as basis for BIRs collection of specific tax on GALLO cigarettes.[9]
On February 5, 1974, Tobacco Industries applied for, but eventually did
not pursue, the registration of the GALLO cigarette trademark in the principal
register of the then Philippine Patent Office.[10]
In May 1984, Tobacco Industries assigned the GALLO cigarette trademark
to La Campana which, on July 16, 1985, applied for trademark registration in
the Philippine Patent Office.[11]On July 17, 1985, the National Library issued
Certificate of Copyright Registration No. 5834 for La Campanas lifetime
copyright claim over GALLO cigarette labels.[12]
Subsequently, La Campana authorized Mighty Corporation to manufacture
and sell cigarettes bearing the GALLO trademark.[13] BIR approved Mighty
Corporations use of GALLO 100s cigarette brand, under licensing agreement
with Tobacco Industries, on May 18, 1988, and GALLO SPECIAL MENTHOL
100s cigarette brand on April 3, 1989.[14]
 Petitioners claim that GALLO cigarettes have been sold in the Philippines
since 1973, initially by Tobacco Industries, then by La Campana and finally by
Mighty Corporation.[15]
On the other hand, although the GALLO wine trademark was registered in
the Philippines in 1971, respondents claim that they first introduced and sold
the GALLO and ERNEST & JULIO GALLO wines in the Philippines circa 1974
within the then U.S. military facilities only. By 1979, they had expanded their
Philippine market through authorized distributors and independent outlets.[16]
Respondents claim that they first learned about the existence of GALLO
cigarettes in the latter part of 1992 when an Andresons employee saw such
cigarettes on display with GALLO wines in a Davao supermarket wine cellar
section.[17] Forthwith, respondents sent a demand letter to petitioners asking
them to stop using the GALLO trademark, to no avail.
II.

The Legal Dispute

On March 12, 1993, respondents sued petitioners in the Makati RTC for
trademark and tradename infringement and unfair competition, with a prayer
for damages and preliminary injunction.
Respondents charged petitioners with violating Article 6bis of the Paris
Convention for the Protection of Industrial Property (Paris Convention)[18] and
RA 166 (Trademark Law),[19]specifically, Sections 22 and 23 (for trademark
infringement),[20] 29 and 30[21] (for unfair competition and false designation of
origin) and 37 (for tradename infringement).[22] They claimed that petitioners
adopted the GALLO trademark to ride on Gallo Winerys GALLO and ERNEST
& JULIO GALLO trademarks established reputation and popularity, thus
causing confusion, deception and mistake on the part of the purchasing public
who had always associated GALLO and ERNEST & JULIO GALLO
trademarks with Gallo Winerys wines. Respondents prayed for the issuance of
a writ of preliminary injunction and ex parte restraining order, plus P2 million
as actual and compensatory damages, at least P500,000 as exemplary and
moral damages, and at least P500,000 as attorneys fees and litigation
expenses.[23]
In their answer, petitioners alleged, among other affirmative defenses,
that: petitioners GALLO cigarettes and Gallo Winerys wines were totally
unrelated products; Gallo Winerys GALLO trademark registration certificate
covered wines only, not cigarettes; GALLO cigarettes and GALLO wines were
sold through different channels of trade; GALLO cigarettes, sold at P4.60 for
GALLO filters and P3 for GALLO menthols, were low-cost items compared to
Gallo Winerys high-priced luxury wines which cost between P98 to P242.50;
the target market of Gallo Winerys wines was the middle or high-income
bracket with at least P10,000 monthly income while GALLO cigarette buyers
were farmers, fishermen, laborers and other low-income workers; the
dominant feature of the GALLO cigarette mark was the rooster device with the
manufacturers name clearly indicated as MIGHTY CORPORATION while, in
the case of Gallo Winerys wines, it was the full names of the founders-owners
ERNEST & JULIO GALLO or just their surname GALLO; by their inaction and
conduct, respondents were guilty of laches and estoppel; and petitioners
acted with honesty, justice and good faith in the exercise of their right to
manufacture and sell GALLO cigarettes.
In an order dated April 21, 1993,[24] the Makati RTC denied, for lack of
merit, respondents prayer for the issuance of a writ of preliminary
injunction,[25] holding that respondents GALLO trademark registration
certificate covered wines only, that respondents wines and petitioners
cigarettes were not related goods and respondents failed to prove material
damage or great irreparable injury as required by Section 5, Rule 58 of the
Rules of Court.[26]
On August 19, 1993, the Makati RTC denied, for lack of merit,
respondents motion for reconsideration. The court reiterated that respondents
wines and petitioners cigarettes were not related goods since the likelihood of
deception and confusion on the part of the consuming public was very
remote. The trial court emphasized that it could not rely on foreign rulings
cited by respondents because the[se] cases were decided by foreign courts
on the basis of unknown facts peculiar to each case or upon factual
surroundings which may exist only within their jurisdiction. Moreover, there
[was] no showing that [these cases had] been tested or found applicable in
our jurisdiction.[27]
On February 20, 1995, the CA likewise dismissed respondents petition for
review on certiorari, docketed as CA-G.R. No. 32626, thereby affirming the
Makati RTCs denial of the application for issuance of a writ of preliminary
injunction against petitioners.[28]
After trial on the merits, however, the Makati RTC, on November 26, 1998,
held petitioners liable for, and permanently enjoined them from, committing
trademark infringement and unfair competition with respect to the GALLO
trademark:
WHEREFORE, judgment is rendered in favor of the plaintiff (sic) and against the
defendant (sic), to wit:

a. permanently restraining and enjoining defendants, their distributors, trade outlets,

and all persons acting for them or under their instructions, from (i) using E & Js
registered trademark GALLO or any other reproduction, counterfeit, copy or colorable
imitation of said trademark, either singly or in conjunction with other words, designs
or emblems and other acts of similar nature, and (ii) committing other acts of unfair
competition against plaintiffs by manufacturing and selling their cigarettes in the
domestic or export markets under the GALLO trademark.

b. ordering defendants to pay plaintiffs

(i) actual and compensatory damages for the injury and prejudice and impairment of
plaintiffs business and goodwill as a result of the acts and conduct pleaded as basis for
this suit, in an amount equal to 10% of FOURTEEN MILLION TWO HUNDRED
THIRTY FIVE THOUSAND PESOS (PHP14,235,000.00) from the filing of the
complaint until fully paid;

(ii) exemplary damages in the amount of PHP100,000.00;

(iii) attorneys fees and expenses of litigation in the amount of PHP1,130,068.91;

(iv) the cost of suit.

SO ORDERED.[29]

On June 24, 1999, the Makati RTC granted respondents motion for partial
reconsideration and increased the award of actual and compensatory
damages to 10% of P199,290,000 or P19,929,000.[30]
On appeal, the CA affirmed the Makati RTC decision and subsequently
denied petitioners motion for reconsideration.
III.

The Issues

Petitioners now seek relief from this Court contending that the CA did not
follow prevailing laws and jurisprudence when it held that: [a] RA 8293
(Intellectual Property Code of the Philippines [IP Code]) was applicable in this
case; [b] GALLO cigarettes and GALLO wines were identical, similar or
related goods for the reason alone that they were purportedly forms of vice; [c]
both goods passed through the same channels of trade and [d] petitioners
were liable for trademark infringement, unfair competition and damages.[31]
Respondents, on the other hand, assert that this petition which invokes
Rule 45 does not involve pure questions of law, and hence, must be
dismissed outright.
IV.

Discussion

THE EXCEPTIONAL CIRCUMSTANCES

IN THIS CASE OBLIGE THE COURT TO REVIEW
THE CAS FACTUAL FINDINGS

As a general rule, a petition for review on certiorari under Rule 45 must

raise only questions of law[32] (that is, the doubt pertains to the application and
interpretation of law to a certain set of facts) and not questions of fact (where
the doubt concerns the truth or falsehood of alleged facts),[33] otherwise, the
petition will be denied. We are not a trier of facts and the Court of Appeals
factual findings are generally conclusive upon us.[34]
This case involves questions of fact which are directly related and
intertwined with questions of law. The resolution of the factual issues
concerning the goods similarity, identity, relation, channels of trade, and acts
of trademark infringement and unfair competition is greatly dependent on the
interpretation of applicable laws. The controversy here is not simply the
identity or similarity of both parties trademarks but whether or not infringement
or unfair competition was committed, a conclusion based on statutory
interpretation. Furthermore, one or more of the following exceptional
circumstances oblige us to review the evidence on record:[35]
(1) the conclusion is grounded entirely on speculation, surmises, and conjectures;
(2) the inference of the Court of Appeals from its findings of fact is manifestly mistaken,
absurd and impossible;
(3) there is grave abuse of discretion;
(4) the judgment is based on a misapprehension of facts;
(5) the appellate court, in making its findings, went beyond the issues of the case, and
the same are contrary to the admissions of both the appellant and the appellee;
(6) the findings are without citation of specific evidence on which they are based;
 (7) the facts set forth in the petition as well as in the petitioner's main and reply briefs
are not disputed by the respondents; and
(8) the findings of fact of the Court of Appeals are premised on the absence of
evidence and are contradicted [by the evidence] on record.[36]

In this light, after thoroughly examining the evidence on record, weighing,

analyzing and balancing all factors to determine whether trademark
infringement and/or unfair competition has been committed, we conclude that
both the Court of Appeals and the trial court veered away from the law and
well-settled jurisprudence.
Thus, we give due course to the petition.
THE TRADEMARK LAW AND THE PARIS
CONVENTION ARE THE APPLICABLE LAWS,
NOT THE INTELLECTUAL PROPERTY CODE

We note that respondents sued petitioners on March 12, 1993 for

trademark infringement and unfair competition committed during the effectivity
of the Paris Convention and the Trademark Law.
Yet, in the Makati RTC decision of November 26, 1998, petitioners were
held liable not only under the aforesaid governing laws but also under the IP
Code which took effect only on January 1, 1998,[37] or about five years after
the filing of the complaint:

Defendants unauthorized use of the GALLO trademark constitutes trademark

infringement pursuant to Section 22 of Republic Act No. 166, Section 155 of the IP
Code, Article 6bis of the Paris Convention, and Article 16 (1) of the TRIPS Agreement
as it causes confusion, deception and mistake on the part of the purchasing
public.[38] (Emphasis and underscoring supplied)

The CA apparently did not notice the error and affirmed the Makati RTC
decision:

In the light of its finding that appellants use of the GALLO trademark on its cigarettes
is likely to create confusion with the GALLO trademark on wines previously
registered and used in the Philippines by appellee E & J Gallo Winery, the trial court
thus did not err in holding that appellants acts not only violated the provisions of
the our trademark laws (R.A. No. 166 and R.A. Nos. (sic) 8293) but also Article
6bis of the Paris Convention.[39] (Emphasis and underscoring supplied)

We therefore hold that the courts a quo erred in retroactively applying the
IP Code in this case.
 It is a fundamental principle that the validity and obligatory force of a law
proceed from the fact that it has first been promulgated. A law that is not yet
effective cannot be considered as conclusively known by the populace. To
make a law binding even before it takes effect may lead to the arbitrary
exercise of the legislative power.[40] Nova constitutio futuris formam imponere
debet non praeteritis. A new state of the law ought to affect the future, not the
past. Any doubt must generally be resolved against the retroactive operation
of laws, whether these are original enactments, amendments or
repeals.[41] There are only a few instances when laws may be given
retroactive effect,[42] none of which is present in this case.
The IP Code, repealing the Trademark Law,[43] was approved on June 6,
1997. Section 241 thereof expressly decreed that it was to take effect only on
January 1, 1998, without any provision for retroactive application. Thus, the
Makati RTC and the CA should have limited the consideration of the present
case within the parameters of the Trademark Law and the Paris Convention,
the laws in force at the time of the filing of the complaint.
DISTINCTIONS BETWEEN
TRADEMARK INFRINGEMENT
AND UNFAIR COMPETITION

Although the laws on trademark infringement and unfair competition have

a common conception at their root, that is, a person shall not be permitted to
misrepresent his goods or his business as the goods or business of another,
the law on unfair competition is broader and more inclusive than the law on
trademark infringement. The latter is more limited but it recognizes a more
exclusive right derived from the trademark adoption and registration by the
person whose goods or business is first associated with it. The law on
trademarks is thus a specialized subject distinct from the law on unfair
competition, although the two subjects are entwined with each other and are
dealt with together in the Trademark Law (now, both are covered by the IP
Code). Hence, even if one fails to establish his exclusive property right to a
trademark, he may still obtain relief on the ground of his competitors
unfairness or fraud.Conduct constitutes unfair competition if the effect is to
pass off on the public the goods of one man as the goods of another. It is not
necessary that any particular means should be used to this end.[44]
In Del Monte Corporation vs. Court of Appeals,[45] we distinguished
trademark infringement from unfair competition:
(1) Infringement of trademark is the unauthorized use of a trademark, whereas unfair
competition is the passing off of one's goods as those of another.
 (2) In infringement of trademark fraudulent intent is unnecessary, whereas in unfair
competition fraudulent intent is essential.
(3) In infringement of trademark the prior registration of the trademark is a prerequisite
to the action, whereas in unfair competition registration is not necessary.

Pertinent Provisions on Trademark

Infringement under the Paris
Convention and the Trademark Law

Article 6bis of the Paris Convention,[46] an international agreement binding

on the Philippines and the United States (Gallo Winerys country of domicile
and origin) prohibits the [registration] or use of a trademark which constitutes
a reproduction, imitation or translation, liable to create confusion, of a mark
considered by the competent authority of the country of registration or use to
be well-known in that country as being already the mark of a person entitled to
the benefits of the [Paris] Convention and used for identical
or similar goods. [This rule also applies] when the essential part of the mark
constitutes a reproduction of any such well-known mark or an imitation liable
to create confusion therewith. There is no time limit for seeking the prohibition
of the use of marks used in bad faith.[47]
Thus, under Article 6bis of the Paris Convention, the following are the
elements of trademark infringement:
(a) registration or use by another person of a trademark which is a
reproduction, imitation or translation liable to create confusion,
(b) of a mark considered by the competent authority of the country of
registration or use[48] to be well-known in that country and is already
the mark of a person entitled to the benefits of the Paris Convention,
and
(c) such trademark is used for identical or similar goods.
On the other hand, Section 22 of the Trademark Law holds a person liable
for infringement when, among others, he uses without the consent of the
registrant, any reproduction, counterfeit, copy or colorable imitation of any
registered mark or tradename in connection with the sale, offering for sale, or
advertising of any goods, business or services or in connection with which
such use is likely to cause confusion or mistake or to deceive purchasers or
others as to the source or origin of such goods or services, or identity of such
business; or reproduce, counterfeit, copy or colorably imitate any such mark
or tradename and apply such reproduction, counterfeit, copy or colorable
imitation to labels, signs, prints, packages, wrappers, receptacles or
advertisements intended to be used upon or in connection with such goods,
business or services.[49] Trademark registration and actual use are material to
the complaining partys cause of action.
Corollary to this, Section 20 of the Trademark Law[50] considers the
trademark registration certificate as prima facie evidence of the validity of the
registration, the registrants ownership and exclusive right to use the
trademark in connection with the goods, business or services as classified by
the Director of Patents[51] and as specified in the certificate, subject to the
conditions and limitations stated therein. Sections 2 and 2-A[52] of the
Trademark Law emphasize the importance of the trademarks actual use in
commerce in the Philippines prior t.o its registration. In the adjudication of
trademark rights between contendin/g parties, equitable principles of laches,
estoppel, and acquiescence may be considered and applied.[53]
Under Sections 2, 2-A, 9-A, 20 and 22 of the Trademark Law therefore,
the following constitute the elements of trademark infringement:
(a) a trademark actually used in commerce in the Philippines and
registered in the principal register of the Philippine Patent Office
(b) is used by another person in connection with the sale, offering for sale,
or advertising of any goods, business or services or in connection with
which such use is likely to cause confusion or mistake or to deceive
purchasers or others as to the source or origin of such goods or
services, or identity of such business; or such trademark is reproduced,
counterfeited, copied or colorably imitated by another person and such
reproduction, counterfeit, copy or colorable imitation 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 as to likely cause confusion or mistake or
to deceive purchasers,
(c) the trademark is used for identical or similar goods, and
(d) such act is done without the consent of the trademark registrant or
assignee.
In summary, the Paris Convention protects well-known trademarks only (to
be determined by domestic authorities), while the Trademark Law protects all
trademarks, whether well-known or not, provided that they have been
registered and are in actual commercial use in the Philippines. Following
universal acquiescence and comity, in case of domestic legal disputes on any
conflicting provisions between the Paris Convention (which is an international
agreement) and the Trademark law (which is a municipal law) the latter will
prevail.[54]
 Under both the Paris Convention and the Trademark Law, the protection
of a registered trademark is limited only to goods identical or similar to those
in respect of which such trademark is registered and only when there is
likelihood of confusion. Under both laws, the time element in commencing
infringement cases is material in ascertaining the registrants express or
implied consent to anothers use of its trademark or a colorable imitation
thereof. This is why acquiescence, estoppel or laches may defeat the
registrants otherwise valid cause of action.
Hence, proof of all the elements of trademark infringement is a condition
precedent to any finding of liability.
THE ACTUAL COMMERCIAL USE IN THE
PHILIPPINES OF GALLO CIGARETTE
TRADEMARK PRECEDED THAT OF
GALLO WINE TRADEMARK.

By respondents own judicial admission, the GALLO wine trademark was

registered in the Philippines in November 1971 but the wine itself was first
marketed and sold in the country only in 1974 and only within the former U.S.
military facilities, and outside thereof, only in 1979. To prove commercial use
of the GALLO wine trademark in the Philippines, respondents presented sales
invoice no. 29991 dated July 9, 1981 addressed to Conrad Company Inc.,
Makati, Philippines and sales invoice no. 85926 dated March 22, 1996
addressed to Andresons Global, Inc., Quezon City, Philippines. Both invoices
were for the sale and shipment of GALLO wines to the Philippines during that
period.[55] Nothing at all, however, was presented to evidence the alleged
sales of GALLO wines in the Philippines in 1974 or, for that matter, prior to
July 9, 1981.
On the other hand, by testimonial evidence supported by the BIR
authorization letters, forms and manufacturers sworn statement, it appears
that petitioners and its predecessor-in-interest, Tobacco Industries, have
indeed been using and selling GALLO cigarettes in the Philippines since 1973
or before July 9, 1981.[56]
In Emerald Garment Manufacturing Corporation vs. Court of
Appeals,[57] we reiterated our rulings in Pagasa Industrial Corporation vs.
Court of Appeals,[58] Converse Rubber Corporation vs. Universal Rubber
Products, Inc.,[59] Sterling Products International, Inc. vs. Farbenfabriken
Bayer Aktiengesellschaft,[60] Kabushi Kaisha Isetan vs. Intermediate Appellate
Court,[61] and Philip Morris vs. Court of Appeals,[62] giving utmost importance
to the actual commercial use of a trademark in the Philippines prior to its
registration, notwithstanding the provisions of the Paris Convention:
 xxx xxx xxx

In addition to the foregoing, we are constrained to agree with petitioner's contention

that private respondent failed to prove prior actual commercial use of its LEE
trademark in the Philippines before filing its application for registration with the
BPTTT and hence, has not acquired ownership over said mark.

Actual use in commerce in the Philippines is an essential prerequisite for the

acquisition of ownership over a trademark pursuant to Sec. 2 and 2-A of the
Philippine Trademark Law (R.A. No. 166) x x x

xxx xxx xxx

The provisions of the 1965 Paris Convention for the Protection of Industrial
Property relied upon by private respondent and Sec. 21-A of the Trademark Law
(R.A. No. 166) were sufficiently expounded upon and qualified in the recent case
of Philip Morris, Inc. v. Court of Appeals (224 SCRA 576 [1993]):

xxx xxx xxx

Following universal acquiescence and comity, our municipal law on trademarks

regarding the requirement of actual use in the Philippines must subordinate an
international agreement inasmuch as the apparent clash is being decided by a
municipal tribunal (Mortisen vs. Peters, Great Britain, High Court of Judiciary of
Scotland, 1906, 8 Sessions, 93; Paras, International Law and World Organization,
1971 Ed., p. 20). Withal, the fact that international law has been made part of the law
of the land does not by any means imply the primacy of international law over
national law in the municipal sphere. Under the doctrine of incorporation as applied in
most countries, rules of international law are given a standing equal, not superior, to
national legislative enactments.

xxx xxx xxx

In other words, (a foreign corporation) may have the capacity to sue for
infringement irrespective of lack of business activity in the Philippines on
account of Section 21-A of the Trademark Law but the question of whether they
have an exclusive right over their symbol as to justify issuance of the
controversial writ will depend on actual use of their trademarks in the
Philippines in line with Sections 2 and 2-A of the same law. It is thus incongruous
for petitioners to claim that when a foreign corporation not licensed to do business in
the Philippines files a complaint for infringement, the entity need not be actually using
the trademark in commerce in the Philippines. Such a foreign corporation may have
the personality to file a suit for infringement but it may not necessarily be entitled to
protection due to absence of actual use of the emblem in the local market.

xxx xxx xxx

Undisputably, private respondent is the senior registrant, having obtained several

registration certificates for its various trademarks LEE, LEE RIDERS, and
LEESURES in both the supplemental and principal registers, as early as 1969 to
1973. However, registration alone will not suffice. In Sterling Products
International, Inc. v. Farbenfabriken Bayer Aktiengesellschaft (27 SCRA 1214
[1969]; Reiterated in Kabushi Isetan vs. Intermediate Appellate Court (203 SCRA 583
[1991]) we declared:

xxx xxx xxx

A rule widely accepted and firmly entrenched because it has come down through the
years is that actual use in commerce or business is a prerequisite in the acquisition
of the right of ownership over a trademark.

xxx xxx xxx

The credibility placed on a certificate of registration of one's trademark, or its weight

as evidence of validity, ownership and exclusive use, is qualified. A registration
certificate serves merely as prima facieevidence. It is not conclusive but can and
may be rebutted by controverting evidence.

xxx xxx xxx

In the case at bench, however, we reverse the findings of the Director of Patents and
the Court of Appeals. After a meticulous study of the records, we observe that the
Director of Patents and the Court of Appeals relied mainly on the registration
certificates as proof of use by private respondent of the trademark LEE which,
as we have previously discussed are not sufficient. We cannot give credence to
private respondent's claim that its LEE mark first reached the Philippines in the
1960's through local sales by the Post Exchanges of the U.S. Military Bases in the
Philippines (Rollo, p. 177) based as it was solely on the self-serving statements of
Mr. Edward Poste, General Manager of Lee (Phils.), Inc., a wholly owned
subsidiary of the H.D. Lee, Co., Inc., U.S.A., herein private respondent. (Original
Records, p. 52) Similarly, we give little weight to the numerous vouchers
representing various advertising expenses in the Philippines for LEE products. It
is well to note that these expenses were incurred only in 1981 and 1982 by LEE
(Phils.), Inc. after it entered into a licensing agreement with private respondent
on 11 May 1981. (Exhibit E)

On the other hand, petitioner has sufficiently shown that it has been in the
business of selling jeans and other garments adopting its STYLISTIC MR. LEE
trademark since 1975 as evidenced by appropriate sales invoices to various stores
and retailers. (Exhibit 1-e to 1-o)

Our rulings in Pagasa Industrial Corp. v. Court of Appeals (118 SCRA 526
[1982]) and Converse Rubber Corp. v. Universal Rubber Products, Inc., (147 SCRA
154 [1987]), respectively, are instructive:

The Trademark Law is very clear. It requires actual commercial use of the mark prior
to its registration. There is no dispute that respondent corporation was the first
registrant, yet it failed to fully substantiate its claim that it used in trade or
business in the Philippines the subject mark; it did not present proof to invest it
with exclusive, continuous adoption of the trademark which should consist
among others, of considerable sales since its first use. The invoices submitted by
respondent which were dated way back in 1957 show that the zippers sent to the
Philippines were to be used as samples and of no commercial value. The evidence
for respondent must be clear, definite and free from inconsistencies. Samples are not
for sale and therefore, the fact of exporting them to the Philippines cannot be
considered to be equivalent to the use contemplated by law. Respondent did not
expect income from such samples. There were no receipts to establish sale, and no
proof were presented to show that they were subsequently sold in the Philippines.

xxx xxx xxx

For lack of adequate proof of actual use of its trademark in the Philippines prior
to petitioner's use of its own mark and for failure to establish confusing
similarity between said trademarks, private respondent's action for infringement
must necessarily fail. (Emphasis supplied.)

In view of the foregoing jurisprudence and respondents judicial admission

that the actual commercial use of the GALLO wine trademark
was subsequent to its registration in 1971 and to Tobacco Industries
commercial use of the GALLO cigarette trademark in 1973, we rule that, on
this account, respondents never enjoyed the exclusive right to use the GALLO
wine trademark to the prejudice of Tobacco Industries and its successors-in-
interest, herein petitioners, either under the Trademark Law or the Paris
Convention.
Respondents GALLO trademark
registration is limited to
wines only

We also note that the GALLO trademark registration certificates in the

Philippines and in other countries expressly state that they cover wines only,
without any evidence or indication that registrant Gallo Winery expanded or
intended to expand its business to cigarettes.[63]
Thus, by strict application of Section 20 of the Trademark Law, Gallo
Winerys exclusive right to use the GALLO trademark should be limited to
wines, the only product indicated in its registration certificates. This strict
statutory limitation on the exclusive right to use trademarks was amply
clarified in our ruling in Faberge, Inc. vs. Intermediate Appellate Court:[64]

Having thus reviewed the laws applicable to the case before Us, it is not difficult to
discern from the foregoing statutory enactments that private respondent may be
permitted to register the trademark BRUTE for briefs produced by it notwithstanding
petitioner's vehement protestations of unfair dealings in marketing its own set of items
which are limited to: after-shave lotion, shaving cream, deodorant, talcum powder and
toilet soap. Inasmuch as petitioner has not ventured in the production of briefs,
an item which is not listed in its certificate of registration, petitioner cannot and
should not be allowed to feign that private respondent had invaded petitioner's
exclusive domain. To be sure, it is significant that petitioner failed to annex in its
Brief the so-called eloquent proof that petitioner indeed intended to expand its mark
BRUT to other goods (Page 27, Brief for the Petitioner; page 202, Rollo). Even then,
a mere application by petitioner in this aspect does not suffice and may not vest an
exclusive right in its favor that can ordinarily be protected by the Trademark Law. In
short, paraphrasing Section 20 of the Trademark Law as applied to the
documentary evidence adduced by petitioner, the certificate of registration
issued by the Director of Patents can confer upon petitioner the exclusive right to
use its own symbol only to those goods specified in the certificate, subject to any
conditions and limitations stated therein. This basic point is perhaps the
unwritten rationale of Justice Escolin in Philippine Refining Co., Inc. vs. Ng
Sam (115 SCRA 472 [1982]), when he stressed the principle enunciated by the United
States Supreme Court in American Foundries vs. Robertson (269 U.S. 372, 381, 70 L
ed 317, 46 Sct. 160) that one who has adopted and used a trademark on his goods
does not prevent the adoption and use of the same trademark by others for
products which are of a different description. Verily, this Court had the occasion to
observe in the 1966 case of George W. Luft Co., Inc. vs. Ngo Guan (18 SCRA 944
[1966]) that no serious objection was posed by the petitioner therein since the
applicant utilized the emblem Tango for no other product than hair pomade in which
petitioner does not deal.

This brings Us back to the incidental issue raised by petitioner which private
respondent sought to belie as regards petitioner's alleged expansion of its business. It
may be recalled that petitioner claimed that it has a pending application for
registration of the emblem BRUT 33 for briefs (page 25, Brief for the Petitioner; page
202, Rollo) to impress upon Us the Solomonic wisdom imparted by Justice JBL Reyes
in Sta. Ana vs. Maliwat (24 SCRA 1018 [1968]), to the effect that dissimilarity of
goods will not preclude relief if the junior user's goods are not remote from any
other product which the first user would be likely to make or sell (vide, at page
1025). Commenting on the former provision of the Trademark Law now embodied
substantially under Section 4(d) of Republic Act No. 166, as amended, the erudite
jurist opined that the law in point does not require that the articles of manufacture of
the previous user and late user of the mark should possess the same descriptive
properties or should fall into the same categories as to bar the latter from registering
his mark in the principal register. (supra at page 1026).

Yet, it is equally true that as aforesaid, the protective mantle of the Trademark
Law extends only to the goods used by the first user as specified in the certificate
of registration following the clear message conveyed by Section 20.

How do We now reconcile the apparent conflict between Section 4(d) which was
relied upon by Justice JBL Reyes in the Sta. Ana case and Section 20? It would
seem that Section 4(d) does not require that the goods manufactured by the
second user be related to the goods produced by the senior user while Section 20
limits the exclusive right of the senior user only to those goods specified in the
certificate of registration. But the rule has been laid down that the clause which
comes later shall be given paramount significance over an anterior proviso upon the
presumption that it expresses the latest and dominant purpose. (Graham Paper Co. vs.
National Newspapers Asso. (Mo. App.) 193 S.W. 1003; Barnett vs. Merchant's L. Ins.
Co., 87 Okl. 42; State ex nel Atty. Gen. vs. Toledo, 26 N.E., p. 1061; cited by Martin,
Statutory Construction Sixth ed., 1980 Reprinted, p. 144). It ineluctably follows that
Section 20 is controlling and, therefore, private respondent can appropriate its
symbol for the briefs it manufactures because as aptly remarked by Justice
Sanchez in Sterling Products International Inc. vs. Farbenfabriken Bayer (27
SCRA 1214 [1969]):

Really, if the certificate of registration were to be deemed as including goods not

specified therein, then a situation may arise whereby an applicant may be
tempted to register a trademark on any and all goods which his mind may
conceive even if he had never intended to use the trademark for the said
goods. We believe that such omnibus registration is not contemplated by our
Trademark Law. (1226).

NO LIKELIHOOD OF CONFUSION, MISTAKE

OR DECEIT AS TO THE IDENTITY OR SOURCE
OF PETITIONERS AND RESPONDENTS
GOODS OR BUSINESS

A crucial issue in any trademark infringement case is the likelihood of

confusion, mistake or deceit as to the identity, source or origin of the goods or
identity of the business as a consequence of using a certain mark. Likelihood
of confusion is admittedly a relative term, to be determined rigidly according to
the particular (and sometimes peculiar) circumstances of each case. Thus, in
trademark cases, more than in other kinds of litigation, precedents must be
studied in the light of each particular case. [65]
There are two types of confusion in trademark infringement. The first is
confusion of goods when an otherwise prudent purchaser is induced to
purchase one product in the belief that he is purchasing another, in which
case defendants goods are then bought as the plaintiffs and its poor quality
reflects badly on the plaintiffs reputation. The other is confusion of
businesswherein the goods of the parties are different but the defendants
product can reasonably (though mistakenly) be assumed to originate from the
plaintiff, thus deceiving the public into believing that there is some connection
between the plaintiff and defendant which, in fact, does not exist.[66]
In determining the likelihood of confusion, the Court must consider: [a] the
resemblance between the trademarks; [b] the similarity of the goods to which
the trademarks are attached; [c] the likely effect on the purchaser and [d] the
registrants express or implied consent and other fair and equitable
considerations.
Petitioners and respondents both use GALLO in the labels of their
respective cigarette and wine products. But, as held in the following cases, the
use of an identical mark does not, by itself, lead to a legal conclusion that
there is trademark infringement:

(a) in Acoje Mining Co., Inc. vs. Director of Patent,[67] we ordered the approval of
Acoje Minings application for registration of the trademark LOTUS for its
soy sauce even though Philippine Refining Company had prior registration
and use of such identical mark for its edible oil which, like soy sauce, also
belonged to Class 47;
 (b) in Philippine Refining Co., Inc. vs. Ng Sam and Director of Patents,[68] we
upheld the Patent Directors registration of the same trademark CAMIA for
Ng Sams ham under Class 47, despite Philippine Refining Companys prior
trademark registration and actual use of such mark on its lard, butter,
cooking oil (all of which belonged to Class 47), abrasive detergents,
polishing materials and soaps;

(c) in Hickok Manufacturing Co., Inc. vs. Court of Appeals and Santos Lim Bun
Liong,[69] we dismissed Hickoks petition to cancel private respondents
HICKOK trademark registration for its Marikina shoes as against
petitioners earlier registration of the same trademark for handkerchiefs,
briefs, belts and wallets;

(d) in Shell Company of the Philippines vs. Court of Appeals,[70] in a minute

resolution, we dismissed the petition for review for lack of merit and
affirmed the Patent Offices registration of the trademark SHELL used in the
cigarettes manufactured by respondent Fortune Tobacco Corporation,
notwithstanding Shell Companys opposition as the prior registrant of the
same trademark for its gasoline and other petroleum products;

(e) in Esso Standard Eastern, Inc. vs. Court of Appeals,[71] we dismissed ESSOs
complaint for trademark infringement against United Cigarette Corporation
and allowed the latter to use the trademark ESSO for its cigarettes, the same
trademark used by ESSO for its petroleum products, and

(f) in Canon Kabushiki Kaisha vs. Court of Appeals and NSR Rubber
Corporation,[72] we affirmed the rulings of the Patent Office and the CA
that NSR Rubber Corporation could use the trademark CANON for its
sandals (Class 25) despite Canon Kabushiki Kaishas prior registration and
use of the same trademark for its paints, chemical products, toner and
dyestuff (Class 2).

Whether a trademark causes confusion and is likely to deceive the public

hinges on colorable imitation[73] which has been defined as such similarity in
form, content, words, sound, meaning, special arrangement or general
appearance of the trademark or tradename in their overall presentation or in
their essential and substantive and distinctive parts as would likely mislead or
confuse persons in the ordinary course of purchasing the genuine article.[74]
Jurisprudence has developed two tests in determining similarity and
likelihood of confusion in trademark resemblance:[75]
 (a) the Dominancy Test applied in Asia Brewery, Inc. vs. Court of
Appeals[76] and other cases,[77] and

(b) the Holistic or Totality Test used in Del Monte Corporation vs. Court of
Appeals[78] and its preceding cases.[79]

The Dominancy Test focuses on the similarity of the prevalent features of

the competing trademarks which might cause confusion or deception, and
thus infringement. If the competing trademark contains the main, essential or
dominant features of another, and confusion or deception is likely to result,
infringement takes place. Duplication or imitation is not necessary; nor is it
necessary that the infringing label should suggest an effort to imitate. The
question is whether the use of the marks involved is likely to cause confusion
or mistake in the mind of the public or deceive purchasers.[80]
On the other hand, the Holistic Test requires that the entirety of the marks
in question be considered in resolving confusing similarity. Comparison of
words is not the only determining factor. The trademarks in their entirety as
they appear in their respective labels or hang tags must also be considered in
relation to the goods to which they are attached. The discerning eye of the
observer must focus not only on the predominant words but also on the other
features appearing in both labels in order that he may draw his conclusion
whether one is confusingly similar to the other.[81]
In comparing the resemblance or colorable imitation of marks, various
factors have been considered, such as the dominant color, style, size, form,
meaning of letters, words, designs and emblems used, the likelihood of
deception of the mark or name's tendency to confuse[82] and the commercial
impression likely to be conveyed by the trademarks if used in conjunction with
the respective goods of the parties.[83]
Applying the Dominancy and Holistic Tests, we find that the dominant
feature of the GALLO cigarette trademark is the device of a large rooster
facing left, outlined in black against a gold background. The roosters color is
either green or red green for GALLO menthols and red for GALLO filters.
Directly below the large rooster device is the word GALLO. The rooster device
is given prominence in the GALLO cigarette packs in terms of size and
location on the labels.[84]
The GALLO mark appears to be a fanciful and arbitrary mark for the
cigarettes as it has no relation at all to the product but was chosen merely as
a trademark due to the fondness for fighting cocks of the son of petitioners
president. Furthermore, petitioners adopted GALLO, the Spanish word for
rooster, as a cigarette trademark to appeal to one of their target markets,
the sabungeros (cockfight aficionados).[85]
Also, as admitted by respondents themselves,[86] on the side of the
GALLO cigarette packs are the words MADE BY MIGHTY CORPORATION,
thus clearly informing the public as to the identity of the manufacturer of the
cigarettes.
On the other hand, GALLO Winerys wine and brandy labels are diverse. In
many of them, the labels are embellished with sketches of buildings and trees,
vineyards or a bunch of grapes while in a few, one or two small roosters
facing right or facing each other (atop the EJG crest, surrounded by leaves or
ribbons), with additional designs in green, red and yellow colors, appear as
minor features thereof.[87] Directly below or above these sketches is the entire
printed name of the founder-owners, ERNEST & JULIO GALLO or just their
surname GALLO,[88] which appears in different fonts, sizes, styles and labels,
unlike petitioners uniform casque-font bold-lettered GALLO mark.
Moreover, on the labels of Gallo Winerys wines are printed the words
VINTED AND BOTTLED BY ERNEST & JULIO GALLO, MODESTO,
CALIFORNIA.[89]
The many different features like color schemes, art works and other
markings of both products drown out the similarity between them the use of
the word GALLO ― a family surname for the Gallo Winerys wines and a
Spanish word for rooster for petitioners cigarettes.
WINES AND CIGARETTES ARE NOT
IDENTICAL, SIMILAR, COMPETING OR
RELATED GOODS

Confusion of goods is evident where the litigants are actually in

competition; but confusion of business may arise between non-competing
interests as well.[90]
Thus, apart from the strict application of Section 20 of the Trademark Law
and Article 6bis of the Paris Convention which proscribe trademark
infringement not only of goods specified in the certificate of registration but
also of identical or similar goods, we have also uniformly recognized and
applied the modern concept of related goods.[91] Simply stated, when goods
are so related that the public may be, or is actually, deceived and misled that
they come from the same maker or manufacturer, trademark infringement
occurs.[92]
Non-competing goods may be those which, though they are not in actual
competition, are so related to each other that it can reasonably be assumed
that they originate from one manufacturer, in which case, confusion of
business can arise out of the use of similar marks.[93] They may also be those
which, being entirely unrelated, cannot be assumed to have a common
source; hence, there is no confusion of business, even though similar marks
are used.[94] Thus, there is no trademark infringement if the public does not
expect the plaintiff to make or sell the same class of goods as those made or
sold by the defendant.[95]
In resolving whether goods are related,[96] several factors come into play:

(a) the business (and its location) to which the goods belong

(b) the class of product to which the goods belong

(c) the product's quality, quantity, or size, including the nature of the package,
wrapper or container [97]

(d) the nature and cost of the articles[98]

(e) the descriptive properties, physical attributes or essential characteristics with

reference to their form, composition, texture or quality

(f) the purpose of the goods[99]

(g) whether the article is bought for immediate consumption,[100] that is, day-to-
day household items[101]

(h) the fields of manufacture[102]

(i) the conditions under which the article is usually purchased[103] and

(j) the channels of trade through which the goods flow,[104] how they are
distributed, marketed, displayed and sold.[105]

The wisdom of this approach is its recognition that each trademark

infringement case presents its own unique set of facts. No single factor is
preeminent, nor can the presence or absence of one determine, without
analysis of the others, the outcome of an infringement suit. Rather, the court is
required to sift the evidence relevant to each of the criteria. This requires that
the entire panoply of elements constituting the relevant factual landscape be
comprehensively examined.[106] It is a weighing and balancing process. With
reference to this ultimate question, and from a balancing of the determinations
reached on all of the factors, a conclusion is reached whether the parties have
a right to the relief sought.[107]
A very important circumstance though is whether there exists a likelihood
that an appreciable number of ordinarily prudent purchasers will be misled, or
simply confused, as to the source of the goods in question.[108] The purchaser
is not the completely unwary consumer but is the ordinarily intelligent buyer
considering the type of product involved.[109] He is accustomed to buy, and
therefore to some extent familiar with, the goods in question. The test of
fraudulent simulation is to be found in the likelihood of the deception of some
persons in some measure acquainted with an established design and
desirous of purchasing the commodity with which that design has been
associated. The test is not found in the deception, or the possibility of
deception, of the person who knows nothing about the design which has been
counterfeited, and who must be indifferent between that and the other. The
simulation, in order to be objectionable, must be such as appears likely to
mislead the ordinary intelligent buyer who has a need to supply and is familiar
with the article that he seeks to purchase.[110]
Hence, in the adjudication of trademark infringement, we give due regard
to the goods usual purchasers character, attitude, habits, age, training and
education. [111]
Applying these legal precepts to the present case, petitioners use of the
GALLO cigarette trademark is not likely to cause confusion or mistake, or to
deceive the ordinarily intelligent buyer of either wines or cigarettes or both as
to the identity of the goods, their source and origin, or identity of the business
of petitioners and respondents.
Obviously, wines and cigarettes are not identical or competing products.
Neither do they belong to the same class of goods. Respondents GALLO
wines belong to Class 33 under Rule 84[a] Chapter III, Part II of the Rules of
Practice in Trademark Cases while petitioners GALLO cigarettes fall under
Class 34.
We are mindful that product classification alone cannot serve as the
decisive factor in the resolution of whether or not wines and cigarettes are
related goods. Emphasis should be on the similarity of the products involved
and not on the arbitrary classification or general description of their properties
or characteristics. But the mere fact that one person has adopted and used a
particular trademark for his goods does not prevent the adoption and use of
the same trademark by others on articles of a different description. [112]
Both the Makati RTC and the CA held that wines and cigarettes are
related products because: (1) they are related forms of vice, harmful when
taken in excess, and used for pleasure and relaxation and (2) they are
grouped or classified in the same section of supermarkets and groceries.
We find these premises patently insufficient and too arbitrary to support
the legal conclusion that wines and cigarettes are related products within the
contemplation of the Trademark Law and the Paris Convention.
First, anything - not only wines and cigarettes ― can be used for pleasure
and relaxation and can be harmful when taken in excess. Indeed, it would be
a grave abuse of discretion to treat wines and cigarettes as similar or related
products likely to cause confusion just because they are pleasure-giving,
relaxing or potentially harmful. Such reasoning makes no sense.
Second, it is common knowledge that supermarkets sell an infinite variety
of wholly unrelated products and the goods here involved, wines and
cigarettes, have nothing whatsoever in common with respect to their essential
characteristics, quality, quantity, size, including the nature of their packages,
wrappers or containers.[113]
Accordingly, the U.S. patent office and courts have consistently held that
the mere fact that goods are sold in one store under the same roof does not
automatically mean that buyers are likely to be confused as to the goods
respective sources, connections or sponsorships. The fact that different
products are available in the same store is an insufficient standard, in and of
itself, to warrant a finding of likelihood of confusion.[114]
In this regard, we adopted the Director of Patents finding in Philippine
Refining Co., Inc. vs. Ng Sam and the Director of Patents:[115]

In his decision, the Director of Patents enumerated the factors that set respondents
products apart from the goods of petitioner. He opined and we quote:

I have taken into account such factors as probable purchaser attitude and habits,
marketing activities, retail outlets, and commercial impression likely to be conveyed
by the trademarks if used in conjunction with the respective goods of the parties, I
believe that ham on one hand, and lard, butter, oil, and soap on the other are
products that would not move in the same manner through the same channels of
trade. They pertain to unrelated fields of manufacture, might be distributed and
marketed under dissimilar conditions, and are displayed separately even though
they frequently may be sold through the same retail food
establishments. Opposers products are ordinary day-to-day household items whereas
ham is not necessarily so. Thus, the goods of the parties are not of a character which
purchasers would likely attribute to a common origin.
The observations and conclusion of the Director of Patents are correct. The particular
goods of the parties are so unrelated that consumers, would not, in any probability
mistake one as the source of origin of the product of the other. (Emphasis supplied).

The same is true in the present case. Wines and cigarettes are non-
competing and are totally unrelated products not likely to cause confusion vis-
-vis the goods or the business of the petitioners and respondents.
Wines are bottled and consumed by drinking while cigarettes are packed
in cartons or packages and smoked. There is a whale of a difference between
their descriptive properties, physical attributes or essential characteristics like
form, composition, texture and quality.
GALLO cigarettes are inexpensive items while GALLO wines are not.
GALLO wines are patronized by middle-to-high-income earners while GALLO
cigarettes appeal only to simple folks like farmers, fishermen, laborers and
other low-income workers.[116] Indeed, the big price difference of these two
products is an important factor in proving that they are in fact unrelated and
that they travel in different channels of trade. There is a distinct price
segmentation based on vastly different social classes of purchasers.[117]
GALLO cigarettes and GALLO wines are not sold through the same
channels of trade. GALLO cigarettes are Philippine-made and petitioners
neither claim nor pass off their goods as imported or emanating from Gallo
Winery. GALLO cigarettes are distributed, marketed and sold through
ambulant and sidewalk vendors, small local sari-sari stores and grocery stores
in Philippine rural areas, mainly in Misamis Oriental, Pangasinan, Bohol, and
Cebu.[118] On the other hand, GALLO wines are imported, distributed and sold
in the Philippines through Gallo Winerys exclusive contracts with a domestic
entity, which is currently Andresons. By respondents own testimonial
evidence, GALLO wines are sold in hotels, expensive bars and restaurants,
and high-end grocery stores and supermarkets, not through sari-sari stores or
ambulant vendors.[119]
Furthermore, the Makati RTC and the CA erred in relying on Carling
Brewing Company vs. Philip Morris, Inc.[120] to support its finding that GALLO
wines and GALLO cigarettes are related goods. The courts a quo should have
taken into consideration the subsequent case of IDV North America, Inc. and
R & A Bailey Co. Limited vs. S & M Brands, Inc.:[121]

IDV correctly acknowledges, however, that there is no per se rule that the use of the
same mark on alcohol and tobacco products always will result in a likelihood of
confusion. Nonetheless, IDV relies heavily on the decision in John Walker & Sons,
Ltd. vs. Tampa Cigar Co., 124 F. Supp. 254, 256 (S.D. Fla. 1954), affd, 222 F. 2d 460
(5th Cir. 1955), wherein the court enjoined the use of the mark JOHNNIE WALKER
on cigars because the fame of the plaintiffs mark for scotch whiskey and because the
plaintiff advertised its scotch whiskey on, or in connection with tobacco products. The
court, in John Walker & Sons, placed great significance on the finding that the
infringers use was a deliberate attempt to capitalize on the senior marks
fame. Id. At 256. IDV also relies on Carling Brewing Co. v. Philip Morris, Inc., 297
F. Supp. 1330, 1338 (N.D. Ga. 1968), in which the court enjoined the defendants
use of the mark BLACK LABEL for cigarettes because it was likely to cause
confusion with the plaintiffs well-known mark BLACK LABEL for beer.

xxx xxx xxx

Those decisions, however, must be considered in perspective of the principle that

tobacco products and alcohol products should be considered related only in cases
involving special circumstances.Schenley Distillers, Inc. v. General Cigar
Co., 57C.C.P.A. 1213, 427 F. 2d 783, 785 (1970). The presence of special
circumstances has been found to exist where there is a finding of unfair
competition or where a famous or well-known mark is involved and there is a
demonstrated intent to capitalize on that mark. For example, in John Walker &
Sons, the court was persuaded to find a relationship between products, and hence a
likelihood of confusion, because of the plaintiffs long use and extensive advertising of
its mark and placed great emphasis on the fact that the defendant used the trademark
Johnnie Walker with full knowledge of its fame and reputation and with the intention
of taking advantage thereof. John Walker & Sons, 124 F. Supp. At 256; see Mckesson
& Robbins, Inc. v. P. Lorillard Co., 1959 WL 5894, 120 U.S.P.Q. 306, 307 (1959)
(holding that the decision in John Walker & Sons was merely the law on the particular
case based upon its own peculiar facts); see also Alfred Dunhill, 350 F. Supp. At 1363
(defendants adoption of Dunhill mark was not innocent). However, in Schenley, the
court noted that the relation between tobacco and whiskey products is significant
where a widely known arbitrary mark has long been used for diversified products
emanating from a single source and a newcomer seeks to use the same mark on
unrelated goods. Schenley, 427 F.2d. at 785. Significantly, in Schenley, the court
looked at the industry practice and the facts of the case in order to determine the
nature and extent of the relationship between the mark on the tobacco product and the
mark on the alcohol product.

The record here establishes conclusively that IDV has never advertised BAILEYS
liqueurs in conjunction with tobacco or tobacco accessory products and that IDV has
no intent to do so. And, unlike the defendant in Dunhill, S & M Brands does not
market bar accessories, or liqueur related products, with its cigarettes. The advertising
and promotional materials presented a trial in this action demonstrate a complete lack
of affiliation between the tobacco and liqueur products bearing the marks here at
issue.

xxx xxx xxx

Of equal significance, it is undisputed that S & M Brands had no intent, by adopting

the family name Baileys as the mark for its cigarettes, to capitalize upon the fame of
the BAILEYS mark for liqueurs. See Schenley, 427 F. 2d at 785. Moreover, as will
be discussed below, and as found in Mckesson & Robbins, the survey evidence
refutes the contention that cigarettes and alcoholic beverages are so intimately
associated in the public mind that they cannot under any circumstances be sold
under the same mark without causing confusion. See Mckesson & Robbins, 120
U.S.P.Q. at 308.

Taken as a whole, the evidence here demonstrates the absence of the special
circumstances in which courts have found a relationship between tobacco and alcohol
products sufficient to tip the similarity of goods analysis in favor of the protected
mark and against the allegedly infringing mark. It is true that BAILEYS liqueur,
the worlds best selling liqueur and the second best selling in the United States, is
a well-known product. That fact alone, however, is insufficient to invoke the
special circumstances connection here where so much other evidence and so
many other factors disprove a likelihood of confusion. The similarity of products
analysis, therefore, augers against finding that there is a likelihood of
confusion. (Emphasis supplied).

In short, tobacco and alcohol products may be considered related only in

cases involving special circumstances which exist only if a famous mark is
involved and there is a demonstrated intent to capitalize on it. Both of these
are absent in the present case.
THE GALLO WINE TRADEMARK IS NOT A
WELL-KNOWN MARK IN THE CONTEXT
OF THE PARIS CONVENTION IN THIS CASE
SINCE WINES AND CIGARETTES ARE NOT
IDENTICAL OR SIMILAR GOODS

First, the records bear out that most of the trademark registrations took
place in the late 1980s and the 1990s, that is, after Tobacco Industries use of
the GALLO cigarette trademark in 1973 and petitioners use of the same mark
in 1984.
 GALLO wines and GALLO cigarettes are neither the same, identical,
similar nor related goods, a requisite element under both the Trademark Law
and the Paris Convention.
Second, the GALLO trademark cannot be considered a strong and distinct
mark in the Philippines. Respondents do not dispute the documentary
evidence that aside from Gallo Winerys GALLO trademark registration, the
Bureau of Patents, Trademarks and Technology Transfer also issued on
September 4, 1992 Certificate of Registration No. 53356 under the Principal
Register approving Productos Alimenticios Gallo, S.As April 19, 1990
application for GALLO trademark registration and use for its noodles,
prepared food or canned noodles, ready or canned sauces for noodles,
semolina, wheat flour and bread crumbs, pastry, confectionery, ice cream,
honey, molasses syrup, yeast, baking powder, salt, mustard, vinegar, species
and ice.[122]
Third and most important, pursuant to our ruling in Canon Kabushiki
Kaisha vs. Court of Appeals and NSR Rubber Corporation,[123] GALLO cannot
be considered a well-known mark within the contemplation and protection of
the Paris Convention in this case since wines and cigarettes are not identical
or similar goods:

We agree with public respondents that the controlling doctrine with respect to the
applicability of Article 8 of the Paris Convention is that established in Kabushi Kaisha
Isetan vs. Intermediate Appellate Court (203 SCRA 59 [1991]). As pointed out by the
BPTTT:

Regarding the applicability of Article 8 of the Paris Convention, this Office

believes that there is no automatic protection afforded an entity whose
tradename is alleged to have been infringed through the use of that name as a
trademark by a local entity.

In Kabushiki Kaisha Isetan vs. The Intermediate Appellate Court, et. al., G.R. No.
75420, 15 November 1991, the Honorable Supreme Court held that:

The Paris Convention for the Protection of Industrial Property does not
automatically exclude all countries of the world which have signed it from using
a tradename which happens to be used in one country. To illustrate if a taxicab
or bus company in a town in the United Kingdom or India happens to use the
tradename Rapid Transportation, it does not necessarily follow that Rapid can
no longer be registered in Uganda, Fiji, or the Philippines.
This office is not unmindful that in (sic) the Treaty of Paris for the Protection of
Intellectual Property regarding well-known marks and possible application thereof in
this case. Petitioner, as this office sees it, is trying to seek refuge under its protective
mantle, claiming that the subject mark is well known in this country at the time the
then application of NSR Rubber was filed.

However, the then Minister of Trade and Industry, the Hon. Roberto V. Ongpin,
issued a memorandum dated 25 October 1983 to the Director of Patents, a set of
guidelines in the implementation of Article 6bis of the Treaty of Paris. These
conditions are:

a) the mark must be internationally known;

b) the subject of the right must be a trademark, not a patent or copyright or
anything else;
c) the mark must be for use in the same or similar kinds of goods; and
d) the person claiming must be the owner of the mark (The Parties
Convention Commentary on the Paris Convention. Article by Dr.
Bogsch, Director General of the World Intellectual Property
Organization, Geneva, Switzerland, 1985)

From the set of facts found in the records, it is ruled that the Petitioner failed to
comply with the third requirement of the said memorandum that is the mark
must be for use in the same or similar kinds of goods. The Petitioner is using the
mark CANON for products belonging to class 2 (paints, chemical products) while
the Respondent is using the same mark for sandals (class 25).

Hence, Petitioner's contention that its mark is well-known at the time the
Respondent filed its application for the same mark should fail. (Emphasis
supplied.)

Consent of the Registrant and

Other air, Just and Equitable
Considerations

Each trademark infringement case presents a unique problem which must

be answered by weighing the conflicting interests of the litigants.[124]
Respondents claim that GALLO wines and GALLO cigarettes flow through
the same channels of trade, that is, retail trade. If respondents assertion is
true, then both goods co-existed peacefully for a considerable period of
time. It took respondents almost 20 years to know about the existence of
GALLO cigarettes and sue petitioners for trademark infringement. Given, on
one hand, the long period of time that petitioners were engaged in the
manufacture, marketing, distribution and sale of GALLO cigarettes and, on the
other, respondents delay in enforcing their rights (not to mention implied
consent, acquiescence or negligence) we hold that equity, justice and fairness
require us to rule in favor of petitioners. The scales of conscience and reason
tip far more readily in favor of petitioners than respondents.
Moreover, there exists no evidence that petitioners employed malice, bad
faith or fraud, or that they intended to capitalize on respondents goodwill in
adopting the GALLO mark for their cigarettes which are totally unrelated to
respondents GALLO wines. Thus, we rule out trademark infringement on the
part of petitioners.
PETITIONERS ARE ALSO NOT LIABLE
FOR UNFAIR COMPETITION

Under Section 29 of the Trademark Law, any person who employs

deception or any other means contrary to good faith by which he passes off
the goods manufactured by him or in which he deals, or his business, or
services for those of the one having established such goodwill, or who
commits any acts calculated to produce said result, is guilty of unfair
competition. It includes the following acts:

(a) Any person, who in selling his goods shall give them the general appearance of
goods of another manufacturer or dealer, either as to the goods themselves or in the
wrapping of the packages in which they are contained, or the devices or words
thereon, or in any other feature of their appearance, which would be likely to
influence purchasers to believe that the goods offered are those of a manufacturer or
dealer other than the actual manufacturer or dealer, or who otherwise clothes the
goods with such appearance as shall deceive the public and defraud another of his
legitimate trade, or any subsequent vendor of such goods or any agent of any vendor
engaged in selling such goods with a like purpose;

(b) Any person who by any artifice, or device, or who employs any other means
calculated to induce the false belief that such person is offering the services of another
who has identified such services in the mind of the public;

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

The universal test question is whether the public is likely to be deceived.

Nothing less than conduct tending to pass off one mans goods or business as
that of another constitutes unfair competition. Actual or probable deception
and confusion on the part of customers by reason of defendants practices
must always appear.[125] On this score, we find that petitioners never
attempted to pass off their cigarettes as those of respondents. There is no
evidence of bad faith or fraud imputable to petitioners in using their GALLO
cigarette mark.
All told, after applying all the tests provided by the governing laws as well
as those recognized by jurisprudence, we conclude that petitioners are not
liable for trademark infringement, unfair competition or damages.
WHEREFORE, finding the petition for review meritorious, the same is
hereby GRANTED. The questioned decision and resolution of the Court of
Appeals in CA-G.R. CV No. 65175 and the November 26, 1998 decision and
the June 24, 1999 order of the Regional Trial Court of Makati, Branch 57 in
Civil Case No. 93-850 are hereby REVERSED and SET ASIDE and the
complaint against petitioners DISMISSED.
Costs against respondents.
SO ORDERED.
MIGHTY CORP. vs. E&J GALLO
G.R. NO. 154342
July 14, 2004
PONENTE CORONA; J.

FACTS:
On March 12, 1993, E. & J. GALLO WINERY and THE ANDRESONS GROUP, INC (respondents) sued
MIGHTY CORPORATION and LA CAMPANA FABRICA DE TABACO, INC. (petitioners) in the RTC-
Makati for trademark and trade name infringement and unfair competition, with a prayer for damages and
preliminary injunction.

They claimed that petitioners adopted the Gallo trademark to ride on Gallo Winery’s and Gallo and Ernest
& Julio Gallo trademark’s established reputation and popularity, thus causing confusion, deception and
mistake on the part of the purchasing public who had always associated Gallo and Ernest and Julio &
Gallo trademarks with Gallo Winery’s wines.

In their answer, petitioners alleged, among other affirmative defenses that: petitioners Gallo cigarettes
and Gallo Winery’s wine were totally unrelated products. To wit:
1. Gallo Winery’s GALLO trademark registration certificates covered wines only, and not cigarettes;
2. GALLO cigarettes and GALLO wines were sold through different channels of trade;
3. the target market of Gallo Winery’s wines was the middle or high-income bracket while Gallo cigarette
buyers were farmers, fishermen, laborers and other low-income workers;
4. that the dominant feature of the Gallo cigarette was the rooster device with the manufacturer’s name
clearly indicated as MIGHTY CORPORATION, while in the case of Gallo Winery’s wines, it was the full
names of the founders-owners ERNEST & JULIO GALLO or just their surname GALLO;

The Makati RTC denied, for lack of merit, respondent’s prayer for the issuance of a writ of preliminary
injunction. CA likewise dismissed respondent’s petition for review on certiorari.

After the trial on the merits, however, the Makati RTC held petitioners liable for committing trademark
infringement and unfair competition with respect to the GALLO trademark.
 On appeal, the CA affirmed the Makati RTC’s decision and subsequently denied petitioner’s motion for
reconsideration.

ISSUE/S: Whether GALLO cigarettes and GALLO wines were identical, similar or related goods for the
reason alone that they were purportedly forms of vice.

RULING: NO.
Wines and cigarettes are not identical, similar, competing or related goods.

In resolving whether goods are related, several factors come into play:
 the business (and its location) to which the goods belong
 the class of product to which the good belong
 the product’s quality, quantity, or size, including the nature of the package, wrapper or container
 the nature and cost of the articles
 the descriptive properties, physical attributes or essential characteristics with reference to their form,
composition, texture or quality
 the purpose of the goods
 whether the article is bought for immediate consumption, that is, day-to-day household items
 the field of manufacture
 the conditions under which the article is usually purchased and
 the articles of the trade through which the goods flow, how they are distributed, marketed, displayed and
sold.

The test of fraudulent simulation is to the likelihood of the deception of some persons in some measure
acquainted with an established design and desirous of purchasing the commodity with which that design
has been associated. The simulation, in order to be objectionable, must be as appears likely to mislead
the ordinary intelligent buyer who has a need to supply and is familiar with the article that he seeks to
purchase.

The petitioners are not liable for trademark infringement, unfair competition or damages.
FACTS
Lolita Escobar applied with the Bureau of Patents for the registration of the trademark “Barbizon”,
alleging that she had been manufacturing and selling these products since 1970. private respondent
Barbizon Corp opposed the application in IPC No. 686. The Bureau granted the application and a
certificate of registration was issued for the trademark “Barbizon”. Escobar later assigned all her rights
and interest over the trademark to petitioner Mirpuri. In 1979, Escobar failed to file with the Bureau the
Affidavit of Use of the trademark. Due to his failure, the Bureau cancelled the certificate of registration.
Escobar reapplied and Mirpuri also applied and this application was also opposed by private respondent
in IPC No. 2049, claiming that it adopted said trademark in 1933 and has been using it. It obtained a
certificate from the US Patent Office in 1934. Then in 1991, DTI cancelled petitioner’s registration and
declared private respondent the owner and prior user of the business name “Barbizon International”.

ISSUE
Whether or not the treaty (Paris Convention) affords protection to a foreign corporation against a
Philippine applicant for the registration of a similar trademark.
HELD
The Court held in the affirmative. RA 8293 defines trademark as any visible sign capable of
distinguishing goods. The Paris Convention is a multilateral treaty that seeks to protect industrial property
consisting of patents, utility models, industrial designs, trademarks, service marks, trade names and
indications of source or appellations of origin, and at the same time aims to repress unfair competition. In
short, foreign nationals are to be given the same treatment in each of the member countries as that
country makes available to its own citizens. Nationals of the various member nations are thus assured of
a certain minimum of international protection of their industrial property.