ENFORCEMENT OF JUDGMENT

G.R. No. 110263 July 20, 2001

ASIAVEST MERCHANT BANKERS (M) BERHAD, petitioner,
vs.
COURT OF APPEALS and PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, respondents.
DELEON, JR., J.:
Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals dated
May 19,1993 in C A-G.R. CY No. 35871 affirming the Decision2 dated October 14,1991 of
the Regional Trial Court of Pasig, Metro Manila, Branch 168 in Civil Case No. 56368 which
dismissed the complaint of petitioner Asiavest Merchant Bankers (M) Berhad for the
enforcement of the money of the judgment of the High Court of Malaysia in Kuala Lumpur
against private respondent Philippine National Construction Corporation.1âwphi1.nêt
The petitioner Asiavest Merchant Bankers (M) Berhad is a corporation organized under the laws
of Malaysia while private respondent Philippine National Construction Corporation is a
corporation duly incorporated and existing under Philippine laws.
It appears that sometime in 1983, petitioner initiated a suit for collection against private
respondent, then known as Construction and Development Corporation of the Philippines,
before the High Court of Malaya in Kuala Lumpur entitled "Asiavest Merchant Bankers (M)
Berhad v. Asiavest CDCP Sdn. Bhd. and Construction and Development Corporation of the
Philippines."3
Petitioner sought to recover the indemnity of the performance bond it had put up in favor of
private respondent to guarantee the completion of the Felda Project and the nonpayment of
the loan it extended to Asiavest-CDCP Sdn. Bhd. for the completion of Paloh Hanai and Kuantan
By Pass; Project.
On September 13, 1985, the High Court of Malaya (Commercial Division) rendered judgment in
favor of the petitioner and against the private respondent which is also designated therein as
the "2nd Defendant. "
The judgment reads in full:
SUIT NO. C638 of 1983
Between
Asiavest Merchant Bankers (M) Berhad Plaintiffs
And
1. Asiavest -CDCP Sdn. Bhd. Defendant
2. Construction & Development Corporation of the
Philippines
JUDGMENT
The 2nd Defendant having entered appearance herein and the Court having under Order 14,
rule 3 ordered that judgment as hereinafter provided be entered for the Plaintiffs against the
2nd Defendant.
IT IS THIS DAY ADJUDGED that the 2nd defendant do pay the Plaintiffs the sum of $5,
108,290.23 (Ringgit Five million one hundred and eight thousand two hundred and ninety and
Sen twenty-three) together with interest at the rate of 12% per annum on

1
 (i) the sum of $2,586,866.91 from the 2nd day of March 1983 to the date of
payment; and
(ii) the sum of $2,521,423.32 from the 11th day of March 1983 to the date of
payment; and $350.00 (Ringgit Three Hundred and Fifty) costs.
Dated the 13th day of September, 1985.
Senior Assistant Registrar, High Court, Kuala Lumpur
This Judgment is filed by Messrs. Skrine & Co., 3rd Floor, Straits Trading Building, No.4, Leboh
Pasar, Besar, Kuala Lumpur, Solicitors for the Plaintiffs abovenamed. (VP/Ong/81194.7/83) 4
On the same day, September 13, 1985, the High Court of Malaya issued an Order directing the
private respondent (also designated therein as the "2nd Defendant") to pay petitioner interest
on the sums covered by the said Judgment, thus:
SUIT NO. C638 of 1983
Between
Asiavest Merchant Bankers (M) Berhad Plaintiffs
And
1. Asiavest -CDCP Sdn. Bhd. Defendants
2. Construction & Development Corporation of the
Philippines
BEFORE THE SENIOR ASSISTANT REGISTRAR
CIK SUSILA S. PARAM THIS 13th DAY OF SEPTEMBER IN
1985 CHAMBERS
ORDER
Upon the application of Asiavest Merchant Bankers (M) Berhad, the Plaintiffs in this action AND
UPON READING the Summons in Chambers dated the 16th day of August, 1984 and the
Affidavit of Lee Foong Mee affirmed on the 14th day of August 1984 both filed herein AND
UPON HEARING Mr. T. Thomas of Counsel for the Plaintiffs and Mr. Khaw Chay Tee of Counsel
for the 2nd Defendant abovenamed on the 26th day of December 1984. IT WAS ORDERED that
the Plaintiffs be at liberty to sign final judgment against the 2nd Defendant for the sum of
$5,108,290.23 AND IT WAS ORDERED that the 2nd Defendant do pay the Plaintiffs the costs of
suit at $350.00 AND IT WAS FURTHER ORDERED that the plaintiffs be at liberty to apply for
payment of interest AND upon the application of the Plaintiffs for payment of interest coming
on for hearing on the 1st day of August in the presence of Mr. Palpanaban Devarajoo of
Counsel for the Plaintiffs and Mr. Khaw Chay Tee of Counsel for the 2nd Defendant above-
named AND UPON HEARING Counsel as aforesaid BY CONSENT IT WAS ORDERED that the 2nd
Defendant do pay the Plaintiffs interest at a rate to be assessed AND the same coming on for
assessment this day in the presence of Mr. Palpanaban Devarajoo of Counsel for the Plaintiffs
and Mr. Khaw Chay Tee of Counsel for the 2nd Defendant AND UPON HEARING Counsel as
aforesaid BY CONSENT IT IS ORDERED that the 2nd Defendant do pay the Plaintiffs interest at
the rate of 12% per annum on:
(i) the sum of $2,586,866.91 from the 2nd day of March 1983 to the date of payment;
and
(ii) the sum Of $2,521,423.32 from the 11th day of March 1983 to the date of Payment.
Dated the 13th day of September,1985.
Senior Assistant Registrar, High Court, Kuala Lumpur.5

2
Following unsuccessful attempts6 to secure payment from private respondent under the
judgment, petitioner initiated on September 5, 1988 the complaint before Regional Trial Court
of Pasig, Metro Manila, to enforce the judgment of the High Court of Malaya.7
Private respondent sought the dismissal of the case via a Motion to Dismiss filed on October 5,
1988, contending that the alleged judgment of the High Court of Malaya should be denied
recognition or enforcement since on in face, it is tainted with want of jurisdiction, want of
notice to private respondent, collusion and/or fraud, and there is a clear mistake of law or
fact.8 Dismissal was, however, denied by the trial court considering that the grounds relied
upon are not the proper grounds in a motion to dismiss under Rule 16 of the Revised Rules of
Court. 9
On May 22, 1989, private respondent filed its Answer with Compulsory Counter claim's10 and
therein raised the grounds it brought up in its motion to dismiss. In its Reply filed11 on June 8,
1989, the petitioner contended that the High Court of Malaya acquired jurisdiction over the
Person of private respondent by its voluntary submission the court's jurisdiction through its
appointed counsel, Mr. Khay Chay Tee. Furthermore, private respondent's counsel waived any
and all objections to the High Court's jurisdiction in a pleading filed before the court.
In due time, the trial court rendered its Decision dated October 14, 1991 dismissing petitioner's
complaint. Petitioner interposed an appeal with the Court of Appeals, but the appellate court
dismissed the same and affirmed the decision of the trial court in a Decision dated May 19,
1993.
Hence, the instant Petition which is anchored on two (2) assigned errors, 12 to wit:
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THE MALAYSIAN COURT DID NOT
ACQUIRE PERSONAL JURISDICTION OVER PNCC, NOTWITHSTANDING THAT (a) THE
FOREIGN COURT HAD SERVED SUMMONS ON PNCC AT ITS MALAYSlA OFFICE, AND (b)
PNCC ITSELF APPEARED BY COUNSEL IN THE CASE BEFORE THAT COURT.
II
THE COURT OF APPEALS ERRED IN DENYING RECOGNITION AND ENFORCEMENT TO (SIC)
THE MALAYSIAN COURT JUDGMENT.
Generally, in the absence of a special compact, no sovereign is bound to give effect within its
dominion to a judgment rendered by a tribunal of another country; 13 however, the rules of
comity, utility and convenience of nations have established a usage among civilized states by
which final judgments of foreign courts of competent jurisdiction are reciprocally respected and
rendered efficacious under certain conditions that may vary in different countries. 14
In this jurisdiction, a valid judgment rendered by a foreign tribunal may be recognized insofar as
the immediate parties and the underlying cause of action are concerned so long as it is
convincingly shown that there has been an opportunity for a full and fair hearing before a court
of competent jurisdiction; that the trial upon regular proceedings has been conducted,
following due citation or voluntary appearance of the defendant and under a system of
jurisprudence likely to secure an impartial administration of justice; and that there is nothing to
indicate either a prejudice in court and in the system of laws under which it is sitting or fraud in
procuring the judgment.15
A foreign judgment is presumed to be valid and binding in the country from which it comes,
until a contrary showing, on the basis of a presumption of regularity of proceedings and the
giving of due notice in the foreign forum Under Section 50(b),16 Rule 39 of the Revised Rules of
Court, which was the governing law at the time the instant case was decided by the trial court
and respondent appellate court, a judgment, against a person, of a tribunal of a foreign country
3
having jurisdiction to pronounce the same is presumptive evidence of a right as between the
parties and their successors in interest by a subsequent title. The judgment may, however, be
assailed by evidence of want of jurisdiction, want of notice to the party, collusion, fraud, or
clear mistake of law or fact. In addition, under Section 3(n), Rule 131 of the Revised Rules of
Court, a court, whether in the Philippines or elsewhere, enjoys the presumption that it was
acting in the lawful exercise of its jurisdiction. Hence, once the authenticity of the foreign
judgment is proved, the party attacking a foreign judgment, is tasked with the burden of
overcoming its presumptive validity.
In the instant case, petitioner sufficiently established the existence of the money judgment of
the High Court of Malaya by the evidence it offered. Vinayak Prabhakar Pradhan, presented as
petitioner's sole witness, testified to the effect that he is in active practice of the law profession
in Malaysia;17 that he was connected with Skrine and Company as Legal Assistant up to
1981;18 that private respondent, then known as Construction and Development Corporation of
the Philippines, was sued by his client, Asiavest Merchant Bankers (M) Berhad, in Kuala
Lumpur;19that the writ of summons were served on March 17, 1983 at the registered office of
private respondent and on March 21, 1983 on Cora S. Deala, a financial planning officer of
private respondent for Southeast Asia operations;20that upon the filing of the case, Messrs.
Allen and Gledhill, Advocates and Solicitors, with address at 24th Floor, UMBC Building, Jalan
Sulaiman, Kuala Lumpur, entered their conditional appearance for private respondent
questioning the regularity of the service of the writ of summons but subsequently withdrew the
same when it realized that the writ was properly served;21 that because private respondent
failed to file a statement of defense within two (2) weeks, petitioner filed an application for
summary judgment and submitted affidavits and documentary evidence in support of its
claim;22 that the matter was then heard before the High Court of Kuala Lumpur in a series of
dates where private respondent was represented by counsel; 23 and that the end result of all
these proceedings is the judgment sought to be enforced.
In addition to the said testimonial evidence, petitioner offered the following documentary
evidence:
(a) A certified and authenticated copy of the Judgment promulgated by the Malaysian
High Court dated September 13, 1985 directing private respondent to pay petitioner the
sum of $5,108,290.23 Malaysian Ringgit plus interests from March 1983 until fully
paid;24
(b) A certified and authenticated copy of the Order dated September 13,1985 issued by
the Malaysian High Court in Civil Suit No. C638 of 1983;25
(c) Computation of principal and interest due as of January 31, 1990 on the amount
adjudged payable to petitioner by private respondent;26
(d) Letter and Statement of Account of petitioner's counsel in Malaysia indicating the
costs for prosecuting and implementing the Malaysian High Court's Judgment; 27
(e) Letters between petitioner's Malaysian counsel, Skrine and Co., and its local counsel,
Sycip Salazar Law Offices, relative to institution of the action in the Philippines;28
(f) Billing Memorandum of Sycip Salazar Law Offices dated January 2, 1990 showing
attorney's fees paid by and due from petitioner; 29
(g) Statement of Claim, Writ of Summons and Affidavit of Service of such writ in
petitioner's suit against private respondent before the Malaysian High Court;30
(h) Memorandum of Conditional Appearance dated March 28, 1983 filed by counsel for
private respondent with the Malaysian High Court;31

4
 (i) Summons in Chambers and Affidavit of Khaw Chay Tee, cotmsel for private
respondent, submitted during the proceedings before the Malaysian High Court; 32
(j) Record of the Court's Proceedings in Civil Case No. C638 of 1983.33
(k) Petitioner 's verified Application for Summary Judgment dated August 14,
1984;34 and
(l) Letter dated November 6, 1985 from petitioner's Malaysian Counsel to private
respondent's counsel in Malaysia.35
Having thus proven, through the foregoing evidence, the existence and authenticity of the
foreign judgment, said foreign judgment enjoys presumptive validity and the burden then fell
upon the party who disputes its validity, herein private respondent, to prove otherwise.
Private respondent failed to sufficiently discharge the burden that fell upon it - to prove by
clear and convincing evidence the grounds which it relied upon to prevent enforcement of the
Malaysian High Court judgment, namely, (a) that jurisdiction was not acquired by the Malaysian
Court over the person of private respondent due to alleged improper service of summons upon
private respondent and the alleged lack of authority of its counsel to appear and represent
private respondent in the suit; (b) the foreign judgment is allegedly tainted by evident collusion,
fraud and clear mistake of fact or law; and (c) not only were the requisites for enforcement or
recognition allegedly not complied with but also that the Malaysian judgment is allegedly
contrary to the Constitutional prescription that the "every decision must state the facts and law
on which it is based."36
Private respondent relied solely on the testimony of its two (2) witnesses, namely, Mr. Alfredo.
Calupitan, an accountant of private respondent, and Virginia Abelardo, Executive Secretary and
a member of the staff of the Corporate Secretariat Section of the Corporate Legal Division, of
private respondent, both of whom failed to shed light and amplify its defense or claim for non-
enforcement of the foreign judgment against it.
Mr. Calupitan's testimony centered on the following: that from January to December 1982 he
was assigned in Malaysia as Project Comptroller of the Pahang Project Package A and B for road
construction under the joint venture of private respondent and Asiavest Holdings; 37 that under
the joint venture, Asiavest Holdings would handle the financial aspect of the project, which is
fifty-one percent (51 %) while private respondent would handle the technical aspect of the
project, or forty-nine percent (49%);38 and, that Cora Deala was not authorized to receive
summons for and in behalf of the private respondent.39 Ms. Abelardo's testimony, on the other
hand, focused on the following: that there was no board resolution authorizing Allen and
Gledhill to admit all the claims of petitioner in the suit brought before the High Court of
Malaya,40 though on cross-examination she admitted that Allen and Gledhill were the retained
lawyers of private respondent in Malaysia. 41
The foregoing reasons or grounds relied upon by private respondent in preventing enforcement
and recognition of the Malaysian judgment primarily refer to matters of remedy and procedure
taken by the Malaysian High Court relative to the suit for collection initiated by petitioner.
Needless to stress, the recognition to be accorded a foreign judgment is not necessarily
affected by the fact that the procedure in the courts of the country in which such judgment was
rendered differs from that of the courts of the country in which the judgment is relied
on.42 Ultimately, matters of remedy and procedure such as those relating to the service of
summons or court process upon the defendant, the authority of counsel to appear and
represent a defendant and the formal requirements in a decision are governed by the lex fori or
the internal law of the forum,43 i.e., the law of Malaysia in this case.

5
In this case, it is the procedural law of Malaysia where the judgment was rendered that
determines the validity of the service of court process on private respondent as well as other
matters raised by it. As to what the Malaysian procedural law is, remains a question of fact, not
of law. It may not be taken judicial notice of and must be pleaded and proved like any other
fact. Sections 24 and 25 of Rule 132 of the Revised Rules of Court provide that it may be
evidenced by an official publication or by a duly attested or authenticated copy thereof. It was
then incumbent upon private respondent to present evidence as to what that Malaysian
procedural law is and to show that under it, the assailed service of summons upon a financial
officer of a corporation, as alleged by it, is invalid. It did not. Accordingly, the presumption of
validity and regularity of service of summons and the decision thereafter rendered by the High
Court of Malaya must stand.44
On the matter of alleged lack of authority of the law firm of Allen and Gledhill to represent
private respondent, not only did the private respondent's witnesses admit that the said law
firm of Allen and Gledhill were its counsels in its transactions in Malaysia, 45 but of greater
significance is the fact that petitioner offered in evidence relevant Malaysian jurisprudence46 to
the effect that (a) it is not necessary under Malaysian law for counsel appearing before the
Malaysian High Court to submit a special power of attorney authorizing him to represent a
client before said court, (b) that counsel appearing before the Malaysian High Court has full
authority to compromise the suit, and (c) that counsel appearing before the Malaysian High
Court need not comply with certain pre-requisites as required under Philippine law to appear
and compromise judgments on behalf of their clients before said court.47
Furthermore, there is no basis for or truth to the appellate court's conclusion that the
conditional appearance of private respondent's counsel who was allegedly not authorized to
appear and represent, cannot be considered as voluntary submission to the jurisdiction of the
High Court of Malaya, inasmuch as said conditional appearance was not premised on the
alleged lack of authority of said counsel but the conditional appearance was entered to
question the regularity of the service of the writ of summons. Such conditional appearance was
in fact subsequently withdrawn when counsel realized that the writ was properly served. 48
On the ground that collusion, fraud and, clear mistake of fact and law tainted the judgment of
the High Court of Malaya, no clear evidence of the same was adduced or shown. The facts
which the trial court found "intriguing" amounted to mere conjectures and specious
observations. The trial court's finding on the absence of judgment against Asiavest-CDCP Sdn.
Bhd. is contradicted by evidence on record that recovery was also sought against Asiavest-CDCP
Sdn. Bhd. but the same was found insolvent.49 Furthermore, even when the foreign judgment is
based on the drafts prepared by counsel for the successful party, such is not per se indicative of
collusion or fraud. Fraud to hinder the enforcement within the jurisdiction of a foreign
judgment must be extrinsic, i.e., fraud based on facts not controverted or resolved in the case
where judgment is rendered,50 or that which would go to the jurisdiction of the court or would
deprive the party against whom judgment is rendered a chance to defend the action to which
he has a meritorious defense.51 Intrinsic fraud is one which goes to the very existence of the
cause of action is deemed already adjudged, and it, therefore, cannot militate against the
recognition or enforcement of the foreign judgment.52 Evidence is wanting on the alleged
extrinsic fraud. Hence, such unsubstantiated allegation cannot give rise to liability therein.
Lastly, there is no merit to the argument that the foreign judgment is not enforceable in view of
the absence of any statement of facts and law upon which the award in favor of the petitioner
was based. As aforestated, the lex fori or the internal law of the forum governs matters of
remedy and procedure.53 Considering that under the procedural rules of the High Court of
6
Malaya, a valid judgment may be rendered even without stating in the judgment every fact and
law upon which the judgment is based, then the same must be accorded respect and the courts
in the jurisdiction cannot invalidate the judgment of the foreign court simply because our rules
provide otherwise.
All in all, private respondent had the ultimate duty to demonstrate the alleged invalidity of such
foreign judgment, being the party challenging the judgment rendered by the High Court of
Malaya. But instead of doing so, private respondent merely argued, to which the trial court
agreed, that the burden lay upon petitioner to prove the validity of the money judgment. Such
is clearly erroneous and would render meaningless the presumption of validity accorded a
foreign judgment were the party seeking to enforce it be required to first establish its validity.54
WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals dated May
19,1993 in CA-G.R CY No. 35871 sustaining the Decision dated October 14, 1991 in Civil Case
No. 56368 of the Regional Trial Court of Pasig, Branch 168 denying the enforcement of the
Judgment dated September 13, 1985 of the High Court of Malaya in Kuala Lumpur
is REVERSED and SET ASIDE, and another in its stead is hereby rendered ORDERING private
respondent Philippine National Construction Corporation to pay petitioner Asiavest Merchant
Bankers (M) Berhad the amounts adjudged in the said foreign Judgment, subject of the said
case.

G.R. No. 103493 June 19, 1997

PHILSEC INVESTMENT CORPORATION, BPI-INTERNATIONAL FINANCE LIMITED, and ATHONA
HOLDINGS, N.V., petitioners,
vs.
THE HONORABLE COURT OF APPEALS, 1488, INC., DRAGO DAIC, VENTURA O. DUCAT,
PRECIOSO R. PERLAS, and WILLIAM H. CRAIG, respondents.

MENDOZA, J.:
This case presents for determination the conclusiveness of a foreign judgment upon the rights
of the parties under the same cause of action asserted in a case in our local court. Petitioners
brought this case in the Regional Trial Court of Makati, Branch 56, which, in view of the
pendency at the time of the foreign action, dismissed Civil Case No. 16563 on the ground of litis
pendentia, in addition to forum non conveniens. On appeal, the Court of Appeals affirmed.
Hence this petition for review on certiorari.
The facts are as follows:
On January 15, 1983, private respondent Ventura O. Ducat obtained separate loans from
petitioners Ayala International Finance Limited (hereafter called AYALA) 1 and Philsec
Investment Corporation (hereafter called PHILSEC) in the sum of US$2,500,000.00, secured by
shares of stock owned by Ducat with a market value of P14,088,995.00. In order to facilitate the
payment of the loans, private respondent 1488, Inc., through its president, private respondent
Drago Daic, assumed Ducat's obligation under an Agreement, dated January 27, 1983, whereby
1488, Inc. executed a Warranty Deed with Vendor's Lien by which it sold to petitioner Athona
Holdings, N.V. (hereafter called ATHONA) a parcel of land in Harris County, Texas, U.S.A., for
US$2,807,209.02, while PHILSEC and AYALA extended a loan to ATHONA in the amount of
US$2,500,000.00 as initial payment of the purchase price. The balance of US$307,209.02 was to
be paid by means of a promissory note executed by ATHONA in favor of 1488, Inc.
Subsequently, upon their receipt of the US$2,500,000.00 from 1488, Inc., PHILSEC and AYALA
7
released Ducat from his indebtedness and delivered to 1488, Inc. all the shares of stock in their
possession belonging to Ducat.
As ATHONA failed to pay the interest on the balance of US$307,209.02, the entire amount
covered by the note became due and demandable. Accordingly, on October 17, 1985, private
respondent 1488, Inc. sued petitioners PHILSEC, AYALA, and ATHONA in the United States for
payment of the balance of US$307,209.02 and for damages for breach of contract and for fraud
allegedly perpetrated by petitioners in misrepresenting the marketability of the shares of stock
delivered to 1488, Inc. under the Agreement. Originally instituted in the United States District
Court of Texas, 165th Judicial District, where it was docketed as Case No. 85-57746, the venue
of the action was later transferred to the United States District Court for the Southern District
of Texas, where 1488, Inc. filed an amended complaint, reiterating its allegations in the original
complaint. ATHONA filed an answer with counterclaim, impleading private respondents herein
as counterdefendants, for allegedly conspiring in selling the property at a price over its market
value. Private respondent Perlas, who had allegedly appraised the property, was later dropped
as counterdefendant. ATHONA sought the recovery of damages and excess payment allegedly
made to 1488, Inc. and, in the alternative, the rescission of sale of the property. For their part,
PHILSEC and AYALA filed a motion to dismiss on the ground of lack of jurisdiction over their
person, but, as their motion was denied, they later filed a joint answer with counterclaim
against private respondents and Edgardo V. Guevarra, PHILSEC's own former president, for the
rescission of the sale on the ground that the property had been overvalued. On March 13,
1990, the United States District Court for the Southern District of Texas dismissed the
counterclaim against Edgardo V. Guevarra on the ground that it was "frivolous and [was]
brought against him simply to humiliate and embarrass him." For this reason, the U.S. court
imposed so-called Rule 11 sanctions on PHILSEC and AYALA and ordered them to pay damages
to Guevarra.
On April 10, 1987, while Civil Case No. H-86-440 was pending in the United States, petitioners
filed a complaint "For Sum of Money with Damages and Writ of Preliminary Attachment"
against private respondents in the Regional Trial Court of Makati, where it was docketed as Civil
Case No. 16563. The complaint reiterated the allegation of petitioners in their respective
counterclaims in Civil Action No. H-86-440 of the United States District Court of Southern Texas
that private respondents committed fraud by selling the property at a price 400 percent more
than its true value of US$800,000.00. Petitioners claimed that, as a result of private
respondents' fraudulent misrepresentations, ATHONA, PHILSEC, and AYALA were induced to
enter into the Agreement and to purchase the Houston property. Petitioners prayed that
private respondents be ordered to return to ATHONA the excess payment of US$1,700,000.00
and to pay damages. On April 20, 1987, the trial court issued a writ of preliminary attachment
against the real and personal properties of private respondents. 2
Private respondent Ducat moved to dismiss Civil Case No. 16563 on the grounds of (1) litis
pendentia, vis-a-vis Civil Action No. H-86-440 filed by 1488, Inc. and Daic in the U.S., (2) forum
non conveniens, and (3) failure of petitioners PHILSEC and BPI-IFL to state a cause of action.
Ducat contended that the alleged overpricing of the property prejudiced only petitioner
ATHONA, as buyer, but not PHILSEC and BPI-IFL which were not parties to the sale and whose
only participation was to extend financial accommodation to ATHONA under a separate loan
agreement. On the other hand, private respondents 1488, Inc. and its president Daic filed a
joint "Special Appearance and Qualified Motion to Dismiss," contending that the action being in
personam, extraterritorial service of summons by publication was ineffectual and did not vest

8
the court with jurisdiction over 1488, Inc., which is a non-resident foreign corporation, and
Daic, who is a non-resident alien.
On January 26, 1988, the trial court granted Ducat's motion to dismiss, stating that "the
evidentiary requirements of the controversy may be more suitably tried before the forum of
the litis pendentia in the U.S., under the principle in private international law of forum non
conveniens," even as it noted that Ducat was not a party in the U.S. case.
A separate hearing was held with regard to 1488, Inc. and Daic's motion to dismiss. On March 9,
1988, the trial court 3 granted the motion to dismiss filed by 1488, Inc. and Daic on the ground
of litis pendentia considering that
the "main factual element" of the cause of action in this case which is the validity
of the sale of real property in the United States between defendant 1488 and
plaintiff ATHONA is the subject matter of the pending case in the United States
District Court which, under the doctrine of forum non conveniens, is the better (if
not exclusive) forum to litigate matters needed to determine the assessment
and/or fluctuations of the fair market value of real estate situated in Houston,
Texas, U.S.A. from the date of the transaction in 1983 up to the present and
verily, . . . (emphasis by trial court)
The trial court also held itself without jurisdiction over 1488, Inc. and Daic because they
were non-residents and the action was not an action in rem or quasi in rem, so that
extraterritorial service of summons was ineffective. The trial court subsequently lifted
the writ of attachment it had earlier issued against the shares of stocks of 1488, Inc. and
Daic.
Petitioners appealed to the Court of Appeals, arguing that the trial court erred in applying the
principle of litis pendentia and forum non conveniens and in ruling that it had no jurisdiction
over the defendants, despite the previous attachment of shares of stocks belonging to 1488,
Inc. and Daic.
On January 6, 1992, the Court of Appeals 4 affirmed the dismissal of Civil Case No. 16563
against Ducat, 1488, Inc., and Daic on the ground of litis pendentia, thus:
The plaintiffs in the U.S. court are 1488 Inc. and/or Drago Daic, while the
defendants are Philsec, the Ayala International Finance Ltd. (BPI-IFL's former
name) and the Athona Holdings, NV. The case at bar involves the same parties.
The transaction sued upon by the parties, in both cases is the Warranty Deed
executed by and between Athona Holdings and 1488 Inc. In the U.S. case, breach
of contract and the promissory note are sued upon by 1488 Inc., which likewise
alleges fraud employed by herein appellants, on the marketability of Ducat's
securities given in exchange for the Texas property. The recovery of a sum of
money and damages, for fraud purportedly committed by appellees, in
overpricing the Texas land, constitute the action before the Philippine court,
which likewise stems from the same Warranty Deed.
The Court of Appeals also held that Civil Case No. 16563 was an action in personam for
the recovery of a sum of money for alleged tortious acts, so that service of summons by
publication did not vest the trial court with jurisdiction over 1488, Inc. and Drago Daic.
The dismissal of Civil Case No. 16563 on the ground offorum non conveniens was
likewise affirmed by the Court of Appeals on the ground that the case can be better
tried and decided by the U.S. court:
The U.S. case and the case at bar arose from only one main transaction, and
involve foreign elements, to wit: 1) the property subject matter of the sale is
9
 situated in Texas, U.S.A.; 2) the seller, 1488 Inc. is a non-resident foreign
corporation; 3) although the buyer, Athona Holdings, a foreign corporation
which does not claim to be doing business in the Philippines, is wholly owned by
Philsec, a domestic corporation, Athona Holdings is also owned by BPI-IFL, also a
foreign corporation; 4) the Warranty Deed was executed in Texas, U.S.A.
In their present appeal, petitioners contend that:
1. THE DOCTRINE OF PENDENCY OF ANOTHER ACTION BETWEEN THE SAME
PARTIES FOR THE SAME CAUSE (LITIS PENDENTIA) RELIED UPON BY THE COURT
OF APPEALS IN AFFIRMING THE TRIAL COURT'S DISMISSAL OF THE CIVIL ACTION
IS NOT APPLICABLE.
2. THE PRINCIPLE OF FORUM NON CONVENIENS ALSO RELIED UPON BY THE
COURT OF APPEALS IN AFFIRMING THE DISMISSAL BY THE TRIAL COURT OF THE
CIVIL ACTION IS LIKEWISE NOT APPLICABLE.
3. AS A COROLLARY TO THE FIRST TWO GROUNDS, THE COURT OF APPEALS
ERRED IN NOT HOLDING THAT PHILIPPINE PUBLIC POLICY REQUIRED THE
ASSUMPTION, NOT THE RELINQUISHMENT, BY THE TRIAL COURT OF ITS
RIGHTFUL JURISDICTION IN THE CIVIL ACTION FOR THERE IS EVERY REASON TO
PROTECT AND VINDICATE PETITIONERS' RIGHTS FOR TORTIOUS OR WRONGFUL
ACTS OR CONDUCT PRIVATE RESPONDENTS (WHO ARE MOSTLY NON-RESIDENT
ALIENS) INFLICTED UPON THEM HERE IN THE PHILIPPINES.
We will deal with these contentions in the order in which they are made.
First. It is important to note in connection with the first point that while the present case was
pending in the Court of Appeals, the United States District Court for the Southern District of
Texas rendered judgment 5 in the case before it. The judgment, which was in favor of private
respondents, was affirmed on appeal by the Circuit Court of Appeals. 6Thus, the principal issue
to be resolved in this case is whether Civil Case No. 16536 is barred by the judgment of the U.S.
court.
Private respondents contend that for a foreign judgment to be pleaded as res judicata, a
judgment admitting the foreign decision is not necessary. On the other hand, petitioners argue
that the foreign judgment cannot be given the effect of res judicata without giving them an
opportunity to impeach it on grounds stated in Rule 39, §50 of the Rules of Court, to wit: "want
of jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law or fact."
Petitioners' contention is meritorious. While this Court has given the effect of res judicata to
foreign judgments in several cases, 7 it was after the parties opposed to the judgment had been
given ample opportunity to repel them on grounds allowed under the law. 8 It is not necessary
for this purpose to initiate a separate action or proceeding for enforcement of the foreign
judgment. What is essential is that there is opportunity to challenge the foreign judgment, in
order for the court to properly determine its efficacy. This is because in this jurisdiction, with
respect to actions in personam, as distinguished from actions in rem, a foreign judgment merely
constitutes prima facie evidence of
9
the justness of the claim of a party and, as such, is subject to proof to the contrary. Rule 39,
§50 provides:
Sec. 50. Effect of foreign judgments. — The effect of a judgment of a tribunal of a
foreign country, having jurisdiction to pronounce the judgment is as follows:
(a) In case of a judgment upon a specific thing, the judgment is conclusive upon
the title to the thing;

10
 (b) In case of a judgment against a person, the judgment is presumptive evidence
of a right as between the parties and their successors in interest by a subsequent
title; but the judgment may be repelled by evidence of a want of jurisdiction,
want of notice to the party, collusion, fraud, or clear mistake of law or fact.
Thus, in the case of General Corporation of the Philippines v. Union Insurance Society of Canton,
Ltd., 10 which private respondents invoke for claiming conclusive effect for the foreign judgment
in their favor, the foreign judgment was considered res judicata because this Court found "from
the evidence as well as from appellant's own pleadings" 11 that the foreign court did not make a
"clear mistake of law or fact" or that its judgment was void for want of jurisdiction or because
of fraud or collusion by the defendants. Trial had been previously held in the lower court and
only afterward was a decision rendered, declaring the judgment of the Supreme Court of the
State of Washington to have the effect of res judicata in the case before the lower court. In the
same vein, in Philippines International Shipping Corp. v. Court of Appeals, 12 this Court held that
the foreign judgment was valid and enforceable in the Philippines there being no showing that
it was vitiated by want of notice to the party, collusion, fraud or clear mistake of law or fact.
The prima facie presumption under the Rule had not been rebutted.
In the case at bar, it cannot be said that petitioners were given the opportunity to challenge the
judgment of the U.S. court as basis for declaring it res judicata or conclusive of the rights of
private respondents. The proceedings in the trial court were summary. Neither the trial court
nor the appellate court was even furnished copies of the pleadings in the U.S. court or apprised
of the evidence presented thereat, to assure a proper determination of whether the issues then
being litigated in the U.S. court were exactly the issues raised in this case such that the
judgment that might be rendered would constitute res judicata. As the trial court stated in its
disputed order dated March 9, 1988.
On the plaintiff's claim in its Opposition that the causes of action of this case and
the pending case in the United States are not identical, precisely the Order of
January 26, 1988 never found that the causes of action of this case and the case
pending before the USA Court, were identical. (emphasis added)
It was error therefore for the Court of Appeals to summarily rule that petitioners' action
is barred by the principle of res judicata. Petitioners in fact questioned the jurisdiction of
the U.S. court over their persons, but their claim was brushed aside by both the trial
court and the Court of Appeals. 13
Moreover, the Court notes that on April 22, 1992, 1488, Inc. and Daic filed a petition for the
enforcement of judgment in the Regional Trial Court of Makati, where it was docketed as Civil
Case No. 92-1070 and assigned to Branch 134, although the proceedings were suspended
because of the pendency of this case. To sustain the appellate court's ruling that the foreign
judgment constitutes res judicata and is a bar to the claim of petitioners would effectively
preclude petitioners from repelling the judgment in the case for enforcement. An absurdity
could then arise: a foreign judgment is not subject to challenge by the plaintiff against whom it
is invoked, if it is pleaded to resist a claim as in this case, but it may be opposed by the
defendant if the foreign judgment is sought to be enforced against him in a separate
proceeding. This is plainly untenable. It has been held therefore that:
[A] foreign judgment may not be enforced if it is not recognized in the
jurisdiction where affirmative relief is being sought. Hence, in the interest of
justice, the complaint should be considered as a petition for the recognition of
the Hongkong judgment under Section 50 (b), Rule 39 of the Rules of Court in
order that the defendant, private respondent herein, may present evidence of
11
 lack of jurisdiction, notice, collusion, fraud or clear mistake of fact and law, if
applicable. 14
Accordingly, to insure the orderly administration of justice, this case and Civil Case No. 92-1070
should be consolidated. 15 After all, the two have been filed in the Regional Trial Court of
Makati, albeit in different salas, this case being assigned to Branch 56 (Judge Fernando V.
Gorospe), while Civil Case No. 92-1070 is pending in Branch 134 of Judge Ignacio Capulong. In
such proceedings, petitioners should have the burden of impeaching the foreign judgment and
only in the event they succeed in doing so may they proceed with their action against private
respondents.
Second. Nor is the trial court's refusal to take cognizance of the case justifiable under the
principle of forum non conveniens. First, a motion to dismiss is limited to the grounds under
Rule 16, §1, which does not include forum non conveniens. 16 The propriety of dismissing a case
based on this principle requires a factual determination, hence, it is more properly considered a
matter of defense. Second, while it is within the discretion of the trial court to abstain from
assuming jurisdiction on this ground, it should do so only after "vital facts are established, to
determine whether special circumstances" require the court's desistance. 17
In this case, the trial court abstained from taking jurisdiction solely on the basis of the pleadings
filed by private respondents in connection with the motion to dismiss. It failed to consider that
one of the plaintiffs (PHILSEC) is a domestic corporation and one of the defendants (Ventura
Ducat) is a Filipino, and that it was the extinguishment of the latter's debt which was the object
of the transaction under litigation. The trial court arbitrarily dismissed the case even after
finding that Ducat was not a party in the U.S. case.
Third. It was error we think for the Court of Appeals and the trial court to hold that jurisdiction
over 1488, Inc. and Daic could not be obtained because this is an action in personam and
summons were served by extraterritorial service. Rule 14, §17 on extraterritorial service
provides that service of summons on a non-resident defendant may be effected out of the
Philippines by leave of Court where, among others, "the property of the defendant has been
attached within the Philippines." 18 It is not disputed that the properties, real and personal, of
the private respondents had been attached prior to service of summons under the Order of the
trial court dated April 20, 1987. 19
Fourth. As for the temporary restraining order issued by the Court on June 29, 1994, to suspend
the proceedings in Civil Case No. 92-1445 filed by Edgardo V. Guevarra to enforce so-called Rule
11 sanctions imposed on the petitioners by the U.S. court, the Court finds that the judgment
sought to be enforced is severable from the main judgment under consideration in Civil Case
No. 16563. The separability of Guevara's claim is not only admitted by petitioners, 20 it appears
from the pleadings that petitioners only belatedly impleaded Guevarra as defendant in Civil
Case No. 16563. 21 Hence, the TRO should be lifted and Civil Case No. 92-1445 allowed to
proceed.
WHEREFORE, the decision of the Court of Appeals is REVERSED and Civil Case No. 16563 is
REMANDED to the Regional Trial Court of Makati for consolidation with Civil Case No. 92-1070
and for further proceedings in accordance with this decision. The temporary restraining order
issued on June 29, 1994 is hereby LIFTED.
SO ORDERED.

12
Philippine Aluminum Wheels vs FASGI Enterprises
GR 137378; 12 October 2000
Facts:
On 01 June 1978, FASGI Enterprises Incorporated (“FASGI”), a corporation organized and
existing under and by virtue of the laws of the State of California, United States of America,
entered into a distributorship arrangement with Philippine Aluminum Wheels, Incorporated
(“PAWI”), a Philippine corporation, and Fratelli Pedrini Sarezzo S.P.A. (“FPS”), an Italian
corporation. The agreement provided for the purchase, importation and distributorship in the
United States of aluminium wheels manufactured by PAWI. FASGI then paid PAWI the FOB
value of the wheels. Unfortunately, FASGI later found the shipment to be defective and in non-
compliance with the contract.
On 21 September 1979, FASGI instituted an action against PAWI and FPS for breach of contract
and recovery of damages in the amount of US$2,316,591.00 before the United States District
Court for the Central District of California. In the interim, two agreements were entered by the
parties but PAWI kept on failing to discharge its obligations therein. Irked by PAWI’s persistent
default, FASGI filed with the US District Court of the Central District of California the
agreements for judgment against PAWI.
On 24 August 1982, FASGI filed a notice of entry of judgment. Unable to obtain satisfaction of
the final judgment within the United States, FASGI filed a complaint for “enforcement of foreign
judgment”, before RTC Makati. The Makati court, however, dismissed the case, on the ground
that the decree was tainted with collusion, fraud, and clear mistake of law and fact. The lower
court ruled that the foreign judgment ignored the reciprocal obligations of the parties. While
the assailed foreign judgment ordered the return by PAWI of the purchase amount, no similar
order was made requiring FASGI to return to PAWI the third and fourth containers of wheels.
This situation amounted to an unjust enrichment on the part of FASGI. Furthermore, the RTC
said, agreements which the California court had based its judgment were a nullity for having
been entered into by Mr. Thomas Ready, counsel for PAWI, without the latter’s authorization.
However, the Court of Appeals reversed this decision.
Issue: WON the Philippine Court may enforce the said foreign judgment.
Held:
In this jurisdiction, a valid judgment rendered by a foreign tribunal may be recognized insofar as
the immediate parties and the underlying cause of action are concerned so long as it is
convincingly shown that there has been an opportunity for a full and fair hearing before a court
of competent jurisdiction; that trial upon regular proceedings has been conducted, following
due citation or voluntary appearance of the defendant and under a system of jurisprudence
likely to secure an impartial administration of justice; and that there is nothing to indicate
either a prejudice in court and in the system of laws under which it is sitting or fraud in
procuring the judgment. PAWI claims that its counsel, Mr. Ready, has acted without its
authority. Verily, in this jurisdiction, it is clear that an attorney cannot, without a client’s
authorization, settle the action or subject matter of the litigation even when he honestly
believes that such a settlement will best serve his client’s interest. However, PAWI failed to
substantiate this complain with sufficient evidence. Hence, the foreign judgment must be
enforced.
Even if PAWI assailed that fraud tainted the agreements which the US Court based its
judgment, this cannot prevent the enforcement of said judgment. PAWI claimed that there was
collusion and fraud in the signing of the agreements. Although the US Court already adjudicated
on this matter, PAWI insisted on raising it again in this Court. Fraud, to hinder the enforcement
13
within this jurisdiction of a foreign judgment, must be extrinsic, i.e., fraud based on facts not
controverted or resolved in the case where judgment is rendered, or that which would go to
the jurisdiction of the court or would deprive the party against whom judgment is rendered a
chance to defend the action to which he has a meritorious case or defense. In fine, intrinsic
fraud, that is, fraud which goes to the very existence of the cause of action – such as fraud in
obtaining the consent to a contract – is deemed already adjudged, and it, therefore, cannot
militate against the recognition or enforcement of the foreign judgment.

G.R. No. 141536. February 26, 2001

GIL MIGUEL T. PUYAT, petitioner,
vs.
RON ZABARTE, respondent.

DECISION
PANGANIBAN, J.:
Summary judgment in a litigation is resorted to if there is no genuine issue as to any material
fact, other than the amount of damages. If this verity is evident from the pleadings and the
supporting affidavits, depositions and admissions on file with the court, the moving party is
entitled to such remedy as a matter of course.
The Case
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, challenging
the August 31, 1999 Decision 1 of the Court of Appeals (CA), which affirmed the Regional Trial
Court (RTC) of Pasig City, Branch 67 in Civil Case No. 64107; and the January 20, 2000 CA
Resolution 2 which denied reconsideration.
The assailed CA Decision disposed as follows:
“WHEREFORE, finding no error in the judgment appealed from, the same is AFFIRMED." 3
The Facts
The facts of this case, as narrated by the Court of Appeals, are as follows: 4
“It appears that on 24 January 1994, [Respondent] Ron Zabarte commenced [an action] to
enforce the money judgment rendered by the Superior Court for the State of California, County
of Contra Costa, U.S.A. On 18 March 1994, [petitioner] filed his Answer with the following
special and affirmative defenses:
xxx xxx xxx
‘8) The Superior Court for the State of California, County of Contra Costa[,] did not
properly acquire jurisdiction over the subject matter of and over the persons involved in
[C]ase #C21-00265.
‘9) The Judgment on Stipulations for Entry in Judgment in Case #C21-00265 dated
December 12, 1991 was obtained without the assistance of counsel for [petitioner] and
without sufficient notice to him and therefore, was rendered in clear violation of
[petitioner’s] constitutional rights to substantial and procedural due process.
‘10) The Judgment on Stipulation for Entry in Judgment in Case #C21-00265 dated
December 12, 1991 was procured by means of fraud or collusion or undue influence
and/or based on a clear mistake of fact and law.
‘11) The Judgment on Stipulation for Entry in Judgment in Case #C21-00265 dated
December 12, 1991 is contrary to the laws, public policy and canons of morality
obtaining in the Philippines and the enforcement of such judgment in the Philippines
14
 would result in the unjust enrichment of [respondent] at the expense of [petitioner] in
this case.
‘12) The Judgment on Stipulation for Entry in Judgment in Case #C21-00265 dated
December 12, 1991 is null and void and unenforceable in the Philippines.
‘13) In the transaction, which is the subject matter in Case #C21-00265, [petitioner] is
not in any way liable, in fact and in law, to [respondent] in this case, as contained in
[petitioner’s] ‘Answer to Complaint’ in Case #C21-00265 dated April 1, 1991, Annex ‘B’
of [respondent’s] ‘Complaint’ dated December 6, 1993.
’14) [Respondent] is guilty of misrepresentation or falsification in the filing of his
‘Complaint’ in this case dated December 6, 1993. Worse, [respondent] has no capacity
to sue in the Philippines.
’15) Venue has been improperly laid in this case.’
(Record, pp. 42-44)
“On 1 August 1994, [respondent] filed a [M]otion for [S]ummary [J]udgment under Rule
34 of the Rules of Court alleging that the [A]nswer filed by [petitioner] failed to tender
any genuine issue as to the material facts. In his [O]pposition to [respondent’s] motion,
[petitioner] demurred as follows:
‘2) [Petitioner] begs to disagree[;] in support hereof, [he] wishes to mention that in his
‘Answer with Special and Affirmative Defenses’ dated March 16, 1994 [petitioner] has
interposed that the ‘Judgment on Stipulations for Entry in Judgment’ is null and void,
fraudulent, illegal and unenforceable, the same having been obtained by means of
fraud, collusion, undue influence and/or clear mistake of fact and law. In addition, [he]
has maintained that said ‘Judgment on Stipulations for Entry in Judgment’ was obtained
without the assistance of counsel for [petitioner] and without sufficient notice to him
and therefore, was rendered in violation of his constitutional rights to substantial and
procedural due process.’
“The [M]otion for [S]ummary [J]udgment was set for hearing on 12 August 1994 during
which [respondent] marked and submitted in evidence the following:
Exhibit ‘A’ - x x x Judgment on Stipulation For Entry In Judgment of the Supreme Court of
the State of California[,] County of Contra Costa[,] signed by Hon. Ellen James, Judge of
the Superior Court.
Exhibit ‘B’ - x x x Certificate of Authentication of the [O]rder signed by the Hon. Ellen
James, issued by the Consulate General of the Republic of the Philippines.
Exhibit ‘C’ - [R]eturn of the [W]rit of [E]xecution (writ unsatisfied) issued by the
sheriff/marshall, County of Santa Clara, State of California.
Exhibit ‘D’ - [W]rit of [E]xecution
Exhibit 'E' [P]roof of [S]ervice of copies of [W]rit of [E]xecution, [N]otice of [L]evy,
[M]emorandum of [G]arnishee, [E]xemptions from [E]nforcement of [J]udgment.
Exhibit ‘F’ - Certification issued by the Secretary of State, State of California that Stephen
Weir is the duly elected, qualified and acting [c]ounty [c]lerk of the County of Contra
Costa of the State of California.
Exhibit ‘G’ - Certificate of [A]uthentication of the [W]rit of [E]xecution.
“On 6 April 1995, the court a quo issued an [O]rder granting [respondent’s] [M]otion for
[S]ummary [J]udgment [and] likewise granting [petitioner] ten (10) days to submit opposing
affidavits, after which the case would be deemed submitted for resolution (Record, pp. 152-
153). [Petitioner] filed a [M]otion for [R]econsideration of the aforesaid [O]rder and
[respondent] filed [C]omment. On 30 June 1995, [petitioner] filed a [M]otion to [D]ismiss on the
15
ground of lack of jurisdiction over the subject matter of the case and forum-non-conveniens
(Record, pp. 166-170). In his [O]pposition to the [M]otion (Record, pp. 181-182) [respondent]
contended that [petitioner could] no longer question the jurisdiction of the lower court on the
ground that [the latter’s] Answer had failed to raise the issue of jurisdiction. [Petitioner]
countered by asserting in his Reply that jurisdiction [could] not be fixed by agreement of the
parties. The lower court dismissed [his] [M]otion for [R]econsideration and [M]otion [to]
[D]ismiss (Record, pp. 196-198), x x x.”
The RTC 5 eventually rendered its February 21, 1997 Decision, 6 which disposed as follows:
“WHEREFORE, judgment is hereby rendered, ordering [petitioner] to pay [respondent] the
following amounts:
“1. The amount of U.S. dollars $241,991.33, with the interest of legal rate from October 18,
1991, or its peso equivalent, pursuant to the [J]udgment of [S]tipulation for [E]ntry in
[J]udgment dated December 19, 1991;
“2. The amount of P30,000.00 as attorney’s fees;
“3. To pay the costs of suit.
“The claim for moral damages, not having been substantiated, it is hereby denied.” 7
Ruling of the Court of Appeals
Affirming the trial court, the Court of Appeals held that petitioner was estopped from assailing
the judgment that had become final and had, in fact, been partially executed. The CA also ruled
that summary judgment was proper, because petitioner had failed to tender any genuine issue
of fact and was merely maneuvering to delay the full effects of the judgment.
Citing Ingenohl v. Olsen, 8 the CA also rejected petitioner’s argument that the RTC should have
dismissed the action for the enforcement of a foreign judgment, on the ground of forum non
conveniens. It reasoned out that the recognition of the foreign judgment was based on comity,
reciprocity and res judicata.
Hence, this Petition. 9
Issue
In his Memorandum, petitioner submits this lone but all-embracing issue:
“Whether or not the Court of Appeals acted in a manner x x x contrary to law when it affirmed
the Order of the trial court granting respondent’s Motion for Summary Judgment and rendering
judgment against the petitioner.” 10
In his discussion, petitioner contends that the CA erred in ruling in this wise:
1. That his Answer failed to tender a genuine issue of fact regarding the following:
(a) the jurisdiction of a foreign court over the subject matter
(b) the validity of the foreign judgment
(c) the judgment’s conformity to Philippine laws, public policy, canons of morality, and norms
against unjust enrichment
2. That the principle of forum non conveniens was inapplicable to the instant case.
This Court’s Ruling
The Petition has no merit.
First Question: Summary Judgment
Petitioner vehemently insists that summary judgment is inappropriate to resolve the case at
bar, arguing that his Answer allegedly raised genuine and material factual matters which he
should have been allowed to prove during trial.
On the other hand, respondent argues that the alleged “genuine issues of fact” raised by
petitioner are mere conclusions of law, or “propositions arrived at not by any process of natural

16
reasoning from a fact or a combination of facts stated but by the application of the artificial
rules of law to the facts pleaded.” 11
The RTC granted respondent’s Motion for Summary Judgment because petitioner, in his
Answer, admitted the existence of the Judgment on Stipulation for Entry in Judgment. Besides,
he had already paid $5,000 to respondent, as provided in the foreign judgment sought to be
enforced.12 Hence, the trial court ruled that, there being no genuine issue as to any material
fact, the case should properly be resolved through summary judgment. The CA affirmed this
ruling.
We concur with the lower courts. Summary judgment is a procedural device for the prompt
disposition of actions in which the pleadings raise only a legal issue, and not a genuine issue as
to any material fact. By genuine issue is meant a question of fact that calls for the presentation
of evidence. It should be distinguished from an issue that is sham, contrived, set in bad faith
and patently unsubstantial. 13
Summary judgment is resorted to in order to avoid long drawn out litigations and useless
delays. When affidavits, depositions and admissions on file show that there are no genuine
issues of fact to be tried, the Rules allow a party to pierce the allegations in the pleadings and
to obtain immediate relief by way of summary judgment. In short, since the facts are not in
dispute, the court is allowed to decide the case summarily by applying the law to the material
facts.
Petitioner contends that by allowing summary judgment, the two courts a quo prevented him
from presenting evidence to substantiate his claims. We do not agree. Summary judgment is
based on facts directly proven by affidavits, depositions or admissions. 14 In this case, the CA
and the RTC both merely ruled that trial was not necessary to resolve the case. Additionally and
correctly, the RTC specifically ordered petitioner to submit opposing affidavits to support his
contentions that (1) the Judgment on Stipulation for Entry in Judgment was procured on the
basis of fraud, collusion, undue influence, or a clear mistake of law or fact; and (2) that it was
contrary to public policy or the canons of morality. 15
Again, in its Order 16 dated November 29, 1995, the trial court clarified that the opposing
affidavits were “for [petitioner] to spell out the facts or circumstances [that] would constitute
lack of jurisdiction over the subject matter of and over the persons involved in Case No. C21-
00265,” and that would render the judgment therein null and void. In this light, petitioner’s
contention that he was not allowed to present evidence to substantiate his claims is clearly
untenable.
For summary judgment to be valid, Rule 34, Section 3 of the Rules of Court, requires (a) that
there must be no genuine issue as to any material fact, except for the amount of damages; and
(b) that the party presenting the motion for summary judgment must be entitled to a judgment
as a matter of law. 17 As mentioned earlier, petitioner admitted that a foreign judgment had
been rendered against him and in favor of respondent, and that he had paid $5,000 to the
latter in partial compliance therewith. Hence, respondent, as the party presenting the Motion
for Summary Judgment, was shown to be entitled to the judgment.
The CA made short shrift of the first requirement. To show that petitioner had raised no
genuine issue, it relied instead on the finality of the foreign judgment which was, in fact,
partially executed. Hence, we shall show in the following discussion how the defenses
presented by petitioner failed to tender any genuine issue of fact, and why a full-blown trial
was not necessary for the resolution of the issues.
Jurisdiction

17
Petitioner alleges that jurisdiction over Case No. C21-00265, which involved partnership
interest, was vested in the Securities and Exchange Commission, not in the Superior Court of
California, County of Contra Costa.
We disagree. In the absence of proof of California law on the jurisdiction of courts, we presume
that such law, if any, is similar to Philippine law. We base this conclusion on the presumption of
identity or similarity, also known as processual presumption. 18 The Complaint, 19 which
respondent filed with the trial court, was for the enforcement of a foreign judgment. He alleged
therein that the action of the foreign court was for the collection of a sum of money, breach of
promissory notes, and damages. 20
In our jurisdiction, such a case falls under the jurisdiction of civil courts, not of the Securities
and Exchange Commission (SEC). The jurisdiction of the latter is exclusively over matters
enumerated in Section 5, PD 902-A,21 prior to its latest amendment. If the foreign court did not
really have jurisdiction over the case, as petitioner claims, it would have been very easy for him
to show this. Since jurisdiction is determined by the allegations in a complaint, he only had to
submit a copy of the complaint filed with the foreign court. Clearly, this issue did not warrant
trial.
Rights to Counsel and to Due Process
Petitioner contends that the foreign judgment, which was in the form of a Compromise
Agreement, cannot be executed without the parties being assisted by their chosen lawyers. The
reason for this, he points out, is to eliminate collusion, undue influence and/or improper
exertion of ascendancy by one party over the other. He alleges that he discharged his counsel
during the proceedings, because he felt that the latter was not properly attending to the case.
The judge, however, did not allow him to secure the services of another counsel. Insisting that
petitioner settle the case with respondent, the judge practically imposed the settlement
agreement on him. In his Opposing Affidavit, petitioner states:
“It is true that I was initially represented by a counsel in the proceedings in #C21-00625. I
discharged him because I then felt that he was not properly attending to my case or was not
competent enough to represent my interest. I asked the Judge for time to secure another
counsel but I was practically discouraged from engaging one as the Judge was insistent that I
settle the case at once with the [respondent]. Being a foreigner and not a lawyer at that I did
not know what to do. I felt helpless and the Judge and [respondent’s] lawyer were the ones
telling me what to do. Under ordinary circumstances, their directives should have been taken
with a grain of salt especially so [since respondent’s] counsel, who was telling me what to do,
had an interest adverse to mine. But [because] time constraints and undue influence exerted by
the Judge and [respondent’s] counsel on me disturbed and seriously affected my freedom to
act according to my best judgment and belief. In point of fact, the terms of the settlement were
practically imposed on me by the Judge seconded all the time by [respondent’s] counsel. I was
then helpless as I had no counsel to assist me and the collusion between the Judge and
[respondent’s] counsel was becoming more evident by the way I was treated in the Superior
Court of [t]he State of California. I signed the ‘Judgment on Stipulation for Entry in Judgment’
without any lawyer assisting me at the time and without being fully aware of its terms and
stipulations.” 22
The manifestation of petitioner that the judge and the counsel for the opposing party had
pressured him would gain credibility only if he had not been given sufficient time to engage the
services of a new lawyer. Respondent’s Affidavit 23 dated May 23, 1994, clarified, however, that
petitioner had sufficient time, but he failed to retain a counsel. Having dismissed his lawyer as
early as June 19, 1991, petitioner directly handled his own defense and negotiated a settlement
18
with respondent and his counsel in December 1991. Respondent also stated that petitioner,
ignoring the judge’s reminder of the importance of having a lawyer, argued that “he would be
the one to settle the case and pay” anyway. Eventually, the Compromise Agreement was
presented in court and signed before Judge Ellen James on January 3, 1992. Hence, petitioner’s
rights to counsel and to due process were not violated.
Unjust Enrichment
Petitioner avers that the Compromise Agreement violated the norm against unjust enrichment
because the judge made him shoulder all the liabilities in the case, even if there were two other
defendants, G.S.P & Sons, Inc. and the Genesis Group.
We cannot exonerate petitioner from his obligation under the foreign judgment, even if there
are other defendants who are not being held liable together with him. First, the foreign
judgment itself does not mention these other defendants, their participation or their liability to
respondent. Second, petitioner’s undated Opposing Affidavit states: “[A]lthough myself and
these entities were initially represented by Atty. Lawrence L. Severson of the Law Firm Kouns,
Quinlivan & Severson, x x x I discharged x x x said lawyer. Subsequently, I assumed the
representation for myself and these firms and this was allowed by the Superior Court of the
State of California without any authorization from G.G.P. & Sons, Inc. and the Genesis
Group.” 24 Clearly, it was petitioner who chose to represent the other defendants; hence, he
cannot now be allowed to impugn a decision based on this ground.
In any event, contrary to petitioner’s contention, unjust enrichment or solutio indebiti does not
apply to this case. This doctrine contemplates payment when there is no duty to pay, and the
person who receives the payment has no right to receive it. 25 In this case, petitioner merely
argues that the other two defendants whom he represented were liable together with him. This
is not a case of unjust enrichment.
We do not see, either, how the foreign judgment could be contrary to law, morals, public policy
or the canons of morality obtaining in the country. Petitioner owed money, and the judgment
required him to pay it. That is the long and the short of this case.
In addition, the maneuverings of petitioner before the trial court reinforce our belief that his
claims are unfounded. Instead of filing opposing affidavits to support his affirmative defenses,
he filed a Motion for Reconsideration of the Order allowing summary judgment, as well as a
Motion to Dismiss the action on the ground of forum non conveniens. His opposing affidavits
were filed only after the Order of November 29, 1995 had denied both Motions. 26 Such
actuation was considered by the trial court as a dilatory ploy which justified the resolution of
the action by summary judgment. According to the CA, petitioner’s allegations sought to delay
the full effects of the judgment; hence, summary judgment was proper. On this point, we
concur with both courts.

Second Question: Forum Non Conveniens

Petitioner argues that the RTC should have refused to entertain the Complaint for enforcement
of the foreign judgment on the principle of forum non conveniens. He claims that the trial court
had no jurisdiction, because the case involved partnership interest, and there was difficulty in
ascertaining the applicable law in California. All the aspects of the transaction took place in a
foreign country, and respondent is not even Filipino.
We disagree. Under the principle of forum non conveniens, even if the exercise of jurisdiction is
authorized by law, courts may nonetheless refuse to entertain a case for any of the following
practical reasons:

19
“1) The belief that the matter can be better tried and decided elsewhere, either because the
main aspects of the case transpired in a foreign jurisdiction or the material witnesses have their
residence there;
2) The belief that the non-resident plaintiff sought the forum[,] a practice known as forum
shopping[,] merely to secure procedural advantages or to convey or harass the defendant;
3) The unwillingness to extend local judicial facilities to non-residents or aliens when the docket
may already be overcrowded;
4) The inadequacy of the local judicial machinery for effectuating the right sought to be
maintained; and
The difficulty of ascertaining foreign law.” 27
None of the aforementioned reasons barred the RTC from exercising its jurisdiction. In the
present action, there was no more need for material witnesses, no forum shopping or
harassment of petitioner, no inadequacy in the local machinery to enforce the foreign
judgment, and no question raised as to the application of any foreign law.
Authorities agree that the issue of whether a suit should be entertained or dismissed on the
basis of the above-mentioned principle depends largely upon the facts of each case and on the
sound discretion of the trial court.28 Since the present action lodged in the RTC was for the
enforcement of a foreign judgment, there was no need to ascertain the rights and the
obligations of the parties based on foreign laws or contracts. The parties needed only to
perform their obligations under the Compromise Agreement they had entered into.
Under Section 48, Rule 39 of the 1997 Rules of Civil Procedure, a judgment in an action in
personam rendered by a foreign tribunal clothed with jurisdiction is presumptive evidence of a
right as between the parties and their successors-in-interest by a subsequent title. 29
Also, under Section 5(n) of Rule 131, a court -- whether in the Philippines or elsewhere -- enjoys
the presumption that it is acting in the lawful exercise of its jurisdiction, and that it is regularly
performing its official duty. 30 Its judgment may, however, be assailed if there is evidence of
want of jurisdiction, want of notice to the party, collusion, fraud or clear mistake of law or fact.
But precisely, this possibility signals the need for a local trial court to exercise jurisdiction.
Clearly, the application of forum non coveniens is not called for.
The grounds relied upon by petitioner are contradictory. On the one hand, he insists that the
RTC take jurisdiction over the enforcement case in order to invalidate the foreign judgment;
yet, he avers that the trial court should not exercise jurisdiction over the same case on the basis
of forum non conveniens. Not only do these defenses weaken each other, but they bolster the
finding of the lower courts that he was merely maneuvering to avoid or delay payment of his
obligation.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision and
Resolution AFFIRMED. Double costs against petitioner.
SO ORDERED.
Melo, J. (Chairman), Vitug, Gonzaga-Reyes, and Sandoval-Gutierrez, JJ., concur.

G.R. No. 114323 September 28, 1999

OIL AND NATURAL GAS COMMISSION, petitioner,
vs.
COURT OF APPEALS and PACIFIC CEMENT COMPANY, INC.,respondents.
RESOLUTION

20
YNARES-SANTIAGO, J.:
This resolves the Motion for Reconsideration filed by private respondent against the Decision
rendered by this Court's Second Division on July 23, 1998.
The facts as set forth in the Decision sought to be reconsidered are restated thus:
The petitioner is a foreign corporation owned and controlled by the Government
of India while the private respondent is a private corporation duly organized and
existing under the laws of the Philippines. The present conflict between the
petitioner and the private respondent has its roots in a contract entered into by
and between both parties on February 26, 1983 whereby the private respondent
undertook to supply the petitioner FOUR THOUSAND THREE HUNDRED (4,300)
metric tons of oil well cement. In consideration therefor, the petitioner bound
itself to pay the private respondent the amount of FOUR HUNDRED SEVENTY-
SEVEN THOUSAND THREE HUNDRED U.S. DOLLARS ($477,300.00) by opening an
irrevocable, divisible, and confirmed letter of credit in favor of the latter. The oil
well cement was loaded on board the ship MV SURUTANA NAVA at the port of
Surigao City, Philippines for delivery at Bombay and Calcutta, India. However,
due to a dispute between the shipowner and the private respondent, the cargo
was held up in Bangkok and did not reach its point of destination.
Notwithstanding the fact that the private respondent had already received
payment and despite several demands made by the petitioner, the private
respondent failed to deliver the oil well cement. Thereafter, negotiations ensued
between the parties and they agreed that the private respondent will replace the
entire 4,300 metric tons of oil well cement with Class "G" cement cost free at the
petitioner's designated port. However, upon inspection, the Class "G" cement
did not conform to the petitioner's specifications. The petitioner then informed
the private respondent that it was referring its claim to an arbitrator pursuant to
Clause 16 of their contract which stipulates:
Except where otherwise provided in the supply order/contract all
questions and disputes, relating to the meaning of the
specification designs, drawings and instructions herein before
mentioned and as to quality of workmanship of the items ordered
or as to any other question, claim, right or thing whatsoever, in
any way arising out of or relating to the supply order/contract
design, drawing, specification, instruction or these conditions or
otherwise concerning the materials or the execution or failure to
execute the same during stipulated/extended period or after the
completion/abandonment thereof shall be referred to the sole
arbitration of the persons appointed by Member of the
Commission at the time of dispute. It will be no objection to any
such appointment that the arbitrator so appointed is a
Commission employer (sic) that he had to deal with the matter to
which the supply or contract relates and that in the course of his
duties as Commission's employee he had expressed views on all
or any of the matter in dispute or difference.
The arbitrator to whom the matter is originally referred being
transferred or vacating his office or being unable to act for any
reason the Member of the Commission shall appoint another
21
 person to act as arbitrator in accordance with the terms of the
contract/supply order. Such person shall be entitled to proceed
with reference from the stage at which it was left by his
predecessor. Subject as aforesaid the provisions of the Arbitration
Act, 1940, or any Statutary modification or re-enactment there of
and the rules made there under and for the time being in force
shall apply to the arbitration proceedings under this clause.
The arbitrator may with the consent of parties enlarge the time,
from time to time, to make and publish the award.
The venue for arbitration shall be at Dehra dun. 1
On July 23, 1988, the chosen arbitrator, one Shri N.N. Malhotra, resolved the
dispute in petitioner's favor setting forth the arbitral award as follows:
NOW THEREFORE after considering all facts of the case, the
evidence, oral and documentarys adduced by the claimant and
carefully examining the various written statements, submissions,
letters, telexes, etc. sent by the respondent, and the oral
arguments addressed by the counsel for the claimants, I, N.N.
Malhotra, Sole Arbitrator, appointed under clause 16 of the
supply order dated 26.2.1983; according to which the parties, i.e.
M/S Oil and Natural Gas Commission and the Pacific Cement Co.,
Inc. can refer the dispute to the sole arbitration under the
provision of the Arbitration Act. 1940, do hereby award and direct
as follows: —
The Respondent will pay the following to the claimant: —
1. Amount received by the Respondent
against the letter of credit No. 11/19
dated 28.2.1983 US $ 477,300.00
2. Re-imbursement of expenditure incurred
by the claimant on the inspection team's
visit to Philippines in August 1985 US $ 3,881.00
3. L. C. Establishment charges incurred
by the claimant US $ 1,252.82
4. Loss of interest suffered by claimant
from 21.6.83 to 23.7.88 US $ 417,169.95
———————
Total amount of award US $ 899,603.77
———————
In addition to the above, the respondent would also be liable to pay to the
claimant the interest at the rate of 6% on the above amount, with effect from
24.7.1988 up to the actual date of payment by the Respondent in full settlement
of the claim as awarded or the date of the decree, whichever is earlier.
I determine the cost at Rs. 70,000/— equivalent to US $5,000
towards the expenses on Arbitration, legal expenses, stamps duly
incurred by the claimant. The cost will be shared by the parties in
equal proportion.
Pronounced at Dehra Dun to-day, the 23rd of July 1988. 2

22
To enable the petitioner to execute the above award in its favor, it filed a
Petition before the Court of the Civil Judge in Dehra Dun, India (hereinafter
referred to as the foreign court for brevity), praying that the decision of the
arbitrator be made "the Rule of Court" in India. The foreign court issued notices
to the private respondent for filing objections to the petition. The private
respondent complied and sent its objections dated January 16, 1989.
Subsequently, the said court directed the private respondent to pay the filing
fees in order that the latter's objections could be given consideration. Instead of
paying the required filing fees, the private respondent sent the following
communication addressed to the Civil Judge of Dehra Dun:
The Civil Judge
Dehra Dun (U.P.) India
Re: Misc. Case No. 5 of 1989
M/S Pacific Cement Co.,
Inc. vs. ONGC Case
Sir:
1. We received your letter dated 28
April 1989 only last 18 May 1989.
2. Please inform us how much is the
court fee to be paid. Your letter did
not mention the amount to be paid.
3. Kindly give us 15 days from
receipt of your letter advising us
how much to pay to comply with the
same.
Thank you for your kind consideration.
Pacific Cement Co., Inc.
By:
Jose Cortes, Jr.
President 3
Without responding to the above communication, the foreign court refused to
admit the private respondent's objections for failure to pay the required filing
fees, and thereafter issued an Order on February 7, 1990, to wit:
ORDER
Since objections filed by defendant have been rejected through
Misc. Suit No. 5 on 7.2.90, therefore, award should be made "Rule
of the Court.
ORDER
Award dated 23.7.88, Paper No. 3/B-1 is made Rule of the Court.
On the basis of conditions of award decree is passed. Award Paper
No. 3/B-1 shall be a part of the decree. The plaintiff shall also be
entitled to get from defendant (US$ 899,603.77 (US$ Eight Lakhs
ninety nine thousand six hundred and three point seventy seven
only) along with 9% interest per annum till the last date of
realization. 4
Despite notice sent to the private respondent of the foregoing order and several
demands by the petitioner for compliance therewith, the private respondent
23
 refused to pay the amount adjudged by the foreign court as owing to the
petitioner. Accordingly, the petitioner filed a complaint with Branch 30 of the
Regional Trial Court (RTC) of Surigao City for the enforcement of the
aforementioned judgment of the foreign court. The private respondent moved
to dismiss the complaint on the following grounds: (1) plaintiffs lack of legal
capacity to sue; (2) lack of cause of action; and (3) plaintiffs claim or demand has
been waived, abandoned, or otherwise extinguished. The petitioner filed its
opposition to the said motion to dismiss, and the private respondent, its
rejoinder thereto. On January 3, 1992, the RTC issued an order upholding the
petitioner's legal capacity to sue, albeit dismissing the complaint for lack of a
valid cause of action. The RTC held that the rule prohibiting foreign corporations
transacting business in the Philippines without a license from maintaining a suit
in Philippine courts admits of an exception, that is, when the foreign corporation
is suing on an isolated transaction as in this case. 5 Anent the issue of the
sufficiency of the petitioner's cause of action, however, the RTC found the
referral of the dispute between the parties to the arbitrator under Clause 16 of
their contract erroneous. According to the RTC,
[a] perusal of the above-quoted clause (Clause 16) readily shows
that the matter covered by its terms is limited to "ALL QUESTIONS
AND DISPUTES, RELATING TO THE MEANING OF THE
SPECIFICATION, DESIGNS, DRAWINGS AND INSTRUCTIONS HEREIN
BEFORE MENTIONED and as to the QUALITY OF WORKMANSHIP
OF THE ITEMS ORDERED or as to any other questions, claim, right
or thing whatsoever, but qualified to "IN ANY WAY ARISING OR
RELATING TO THE SUPPLY ORDER/CONTRACT, DESIGN, DRAWING,
SPECIFICATION, etc.," repeating the enumeration in the opening
sentence of the clause.
The court is inclined to go along with the observation of the
defendant that the breach, consisting of the non-delivery of the
purchased materials, should have been properly litigated before a
court of law, pursuant to Clause No. 15 of the Contract/Supply
Order, herein quoted, to wit:
JURISDICTION
All questions, disputes and differences, arising
under out of or in connection with this supply
order, shall be subject to the EXCLUSIVE
JURISDICTION OF THE COURT, within the local
limits of whose jurisdiction and the place from
which this supply order is situated. 6
The RTC ruled that the arbitration proceedings was null and void because the submission of the
dispute to the arbitrator was a "mistake of law or fact amounting to want of jurisdiction". It
then concluded that petitioner acquired no enforceable right under the foreign court's
judgment because of the invalid adoption of the arbitrator's award. 7 On appeal, the Court of
Appeals affirmed the trial court's ruling that the arbitrator did not have jurisdiction over the
dispute and that the full text of the foreign court's judgment did not contain any findings of
facts and law but merely a "simplistic decision containing literally, only the dispositive
portion" 8in contravention of the Constitution. 9 The appellate court ruled further that the
24
dismissal of the private respondent's objections for non-payment of the required legal fees,
without the foreign court first replying to the private respondent's query as to the amount of
legal fees to be paid, constituted want of notice or violation of due process. Finally, the Court of
Appeals held that the arbitration proceeding was defective because the arbitrator was
appointed solely by the petitioner, and the fact that the arbitrator was a former employee of
the latter gives rise to a presumed bias on his part in favor of the petitioner. 10
After petitioner's motion for reconsideration was denied, it brought a petition for review
on certiorari to this Court, 11 wherein the threshold issue raised was the enforceability of the
foreign judgment rendered by the Civil Judge of Dehra Dun, India in favor of petitioner and
against private respondent — the resolution of which hinges on whether or not the arbitrator
had jurisdiction over the dispute between the said two parties under Clause 16 of the contract.
On July 23, 1998, this Court, as stated, rendered the assailed Decision in favor of petitioner, the
dispositive portion of which reads:
WHEREFORE, the instant petition is GRANTED, and the assailed decision of the
Court of Appeals sustaining the trial court's dismissal of the OIL AND NATURAL
GAS COMMISSION's complaint in Civil Case No. 4006 before Branch 30 of the
RTC of Surigao City is REVERSED, and another in its stead is hereby rendered
ORDERING private respondent PACIFIC CEMENT COMPANY, INC. to pay to
petitioner the amounts adjudged in the foreign judgment subject of said case.
SO ORDERED.
The dispute is within the jurisdiction of the arbitrator pursuant to Clause 16 of the contract
which provides:
Except where otherwise provided in the supply order/contract all questions and
disputes, relating to the meaning of the specification designs, drawings and
instructions herein before mentioned and as to quality of workmanship of the
items ordered or as to any other question, claim, right or thing whatsoever, in
any way arising out of or relating to the supply order/contract design, drawing,
specification, instruction or these conditions or otherwise concerning the
materials or the execution or failure to execute the same during
stipulated/extended period or after the completion/abandonment thereof shall
be referred to the sole arbitration of the persons appointed by Member of the
Commission at the time of dispute. It will be no objection to any such
appointment that the arbitrator so appointed is a Commission employer (sic)
that he had to deal with the matter to which the supply or contract relates and
that in the course of his duties as Commission's employee he had expressed
views on all or any of the matter in dispute or difference. 12
This Court reiterates its ruling in the Decision of July 23, 1998, to wit:
The dispute between the parties had its origin in the non-delivery of the 4,300
metric tons of oil well cement to the petitioner. The primary question that may
be posed, therefore, is whether or not the non-delivery of the said cargo is a
proper subject for arbitration under the above-quoted Clause 16. The petitioner
contends that the same was a matter within the purview of Clause 16,
particularly the phrase, ". . . or as to any other questions, claim, right or thing
whatsoever, in any way arising or relating to the supply order/contract, design,
drawing, specification, instruction . . .". 13 It is argued that the foregoing phrase
allows considerable latitude so as to include non-delivery of the cargo which was
a "claim, right or thing relating to the supply order/contract". The contention is
25
 bereft of merit. First of all, the petitioner has misquoted the said phrase,
shrewdly inserting a comma between the words "supply order/contract" and
"design" where none actually exists. An accurate reproduction of the phrase
reads, ". . . or as to any other question, claim, right or thing whatsoever, in any
way arising out of or relating to the supply order/contract design, drawing,
specification, instruction or these conditions . . .". The absence of a comma
between the words "supply order/contract" and "design" indicates that the
former cannot be taken separately but should be viewed in conjunction with the
words "design, drawing, specification, instruction or these conditions". It is thus
clear that to fall within the purview of this phrase, the "claim, right or thing
whatsoever" must arise out of or relate to the design, drawing, specification, or
instruction of the supply order/contract. The petitioner also insists that the non-
delivery of the cargo is not only covered by the foregoing phrase but also by the
phrase, ". . . or otherwise concerning the materials or the execution or failure to
execute the same during the stipulated/extended period or after
completion/abandonment thereof . . . .
. . . . The non-delivery of the oil well cement is definitely not in the nature of a
dispute arising from the failure to execute the supply order/contract design,
drawing, instructions, specifications or quality of the materials. That Clause 16
should pertain only to matters involving the technical aspects of the contract is
but a logical inference considering that the underlying purpose of a referral to
arbitration is for such technical matters to be deliberated upon by a person
possessed with the required skill and expertise which may be otherwise absent
in the regular courts.
This Court agrees with the appellate court in its ruling that the non-delivery of
the oil well cement is a matter properly cognizable by the regular courts as
stipulated by the parties in Clause 15 of their contract:
All questions, disputes and differences, arising under out of or in
connection with this supply order, shall be subject to the exclusive
jurisdiction of the court, within the local limits of whose
jurisdiction and the place from which this supply order is
situated. 14
If Clause 16 would be interpreted to include even the non-delivery of the oil well cement, it
would render Clause 15 a surplusage. Manifestly clear from Clause 16 is that the arbitration is
not the only means of settling disputes between the parties. Precisely, it is prefixed with the
proviso, "Except where otherwise provided in the supply order/contract . . .", thus indicating
that the jurisdiction of the arbitrator is not all encompassing, and admits of exceptions as may
be provided elsewhere in the supply order/contract. So as not to negate one provision against
the other, Clause 16 should be confined to all claims or disputes arising from or relating to the
design, drawing, instructions, specifications or quality of the materials of the supply
order/contract, and Clause 15 to cover all other claims or disputes.
However, private respondent alleges that the foreign court's judgment is not enforceable in this
jurisdiction because it failed to contain a statement of the facts and the law upon which the
award in favor of petitioner was based. The foreign judgment sought to be enforced reads:
ORDER
Since objections filed by defendant have been rejected through Misc. Suit No. 5
on 7.2.90, therefore, award should be made "Rule of the Court."
26
 ORDER
Award dated 23.7.88, Paper No. 3/B-1 is made Rule of the Court. On the basis of
conditions of award decree is passed. Award Paper No. 3/B-1 shall be a part of
the decree. The plaintiff shall also be entitled to get from defendant
(US$899,603.77 (US$ Eight Lakhs ninety nine thousand six hundred and three
point seventy seven only) along with 9% interest per annum till the last date of
realisation. (Emphasis supplied). 15
The foreign court explicitly declared in its Order that "Award Paper No. 3/B-1 shall be part of
the decree." This curt ruling of the foreign court may be categorized in the nature of
memorandum decisions or those which adopt by reference the findings of facts and conclusions
of law of inferior tribunals. In this jurisdiction, it has been held that memorandum decisions do
not transgress the constitutional requirement in Article VIII, Section 14, on clearly and distinctly
stating the facts and the law on which the decision is based. 16 Nonetheless, it would be more
prudent for a memorandum decision not to be simply limited to the dispositive portion but to
state the nature of the case, summarize the facts with references to the record, and contain a
statement of the applicable laws and jurisprudence and the tribunal's assessments and
conclusions on the case. This practice would better enable a court to make an appropriate
consideration of whether the dispositive portion of the judgment sought to be enforced is
consistent with the findings of facts and conclusions of law made by the tribunal that rendered
the decision. This is particularly true where the decisions, orders, or resolutions came from a
court in another jurisdiction. Otherwise, the enforcement of the decisions would be based on
presumptions that laws in other jurisdictions are similar to our laws, at the expense of justice
based on the merits.
Moreover, the constitutional guideline set forth in Article VIII, Section 14 cannot prevail over
the fundamental elements of due process. Matters of procedure even if laid down in the
Constitution must be tempered by substantial justice provided it has factual and legal basis.
Considering that the case involves significant properties, the overriding consideration of a
judgment based on the merits should prevail over the primordial interests of strict enforcement
on matters of technicalities. Procedural lapses, absent any collusion or intent to defraud the
parties or mislead the tribunals, should not be allowed to defeat the claim of a party who is not
well-informed in the technical aspects of the case but whose interest is merely to enforce what
he believes to be his rightful claim.
In this case, considering that petitioner simply prayed for the remand of the case to the lower
court, the outright ruling and adherence to the foreign courts' order adopting by reference
another entity's findings and conclusion was misplaced. The adjudication of this case demands
a full ventilation of the facts and issues and the presentation of their respective arguments in
support and in rebuttal of the claims of the contending parties. This is all the more applicable
herein since the Court is not a trier of facts, 17 but oftentimes simply relies on the cold pages of
the silent records of the case.
ACCORDINGLY, in the interest of due process, the case is REMANDED to the Regional Trial Court
of Surigao City for further proceedings.
SO ORDERED.

G.R. No. 139325 April 12, 2005

PRISCILLA C. MIJARES, LORETTA ANN P. ROSALES, HILDA B. NARCISO, SR. MARIANI
DIMARANAN, SFIC, and JOEL C. LAMANGAN in their behalf and on behalf of the Class
Plaintiffs in Class Action No. MDL 840, United States District Court of Hawaii, Petitioner,
27
vs.
HON. SANTIAGO JAVIER RANADA, in his capacity as Presiding Judge of Branch 137, Regional
Trial Court, Makati City, and the ESTATE OF FERDINAND E. MARCOS, through its court
appointed legal representatives in Class Action MDL 840, United States District Court of
Hawaii, namely: Imelda R. Marcos and Ferdinand Marcos, Jr.,Respondents.
DECISION
TINGA, J.:
Our martial law experience bore strange unwanted fruits, and we have yet to finish weeding
out its bitter crop. While the restoration of freedom and the fundamental structures and
processes of democracy have been much lauded, according to a significant number, the
changes, however, have not sufficiently healed the colossal damage wrought under the
oppressive conditions of the martial law period. The cries of justice for the tortured, the
murdered, and the desaparecidos arouse outrage and sympathy in the hearts of the fair-
minded, yet the dispensation of the appropriate relief due them cannot be extended through
the same caprice or whim that characterized the ill-wind of martial rule. The damage done was
not merely personal but institutional, and the proper rebuke to the iniquitous past has to
involve the award of reparations due within the confines of the restored rule of law.
The petitioners in this case are prominent victims of human rights violations 1 who, deprived of
the opportunity to directly confront the man who once held absolute rule over this country,
have chosen to do battle instead with the earthly representative, his estate. The clash has been
for now interrupted by a trial court ruling, seemingly comported to legal logic, that required the
petitioners to pay a whopping filing fee of over Four Hundred Seventy-Two Million Pesos
(P472,000,000.00) in order that they be able to enforce a judgment awarded them by a foreign
court. There is an understandable temptation to cast the struggle within the simplistic confines
of a morality tale, and to employ short-cuts to arrive at what might seem the desirable solution.
But easy, reflexive resort to the equity principle all too often leads to a result that may be
morally correct, but legally wrong.
Nonetheless, the application of the legal principles involved in this case will comfort those who
maintain that our substantive and procedural laws, for all their perceived ambiguity and
susceptibility to myriad interpretations, are inherently fair and just. The relief sought by the
petitioners is expressly mandated by our laws and conforms to established legal principles. The
granting of this petition for certiorari is warranted in order to correct the legally infirm and
unabashedly unjust ruling of the respondent judge.
The essential facts bear little elaboration. On 9 May 1991, a complaint was filed with the United
States District Court (US District Court), District of Hawaii, against the Estate of former
Philippine President Ferdinand E. Marcos (Marcos Estate). The action was brought forth by ten
Filipino citizens2 who each alleged having suffered human rights abuses such as arbitrary
detention, torture and rape in the hands of police or military forces during the Marcos
regime.3 The Alien Tort Act was invoked as basis for the US District Court's jurisdiction over the
complaint, as it involved a suit by aliens for tortious violations of international law.4These
plaintiffs brought the action on their own behalf and on behalf of a class of similarly situated
individuals, particularly consisting of all current civilian citizens of the Philippines, their heirs
and beneficiaries, who between 1972 and 1987 were tortured, summarily executed or had
disappeared while in the custody of military or paramilitary groups. Plaintiffs alleged that the
class consisted of approximately ten thousand (10,000) members; hence, joinder of all these
persons was impracticable.

28
The institution of a class action suit was warranted under Rule 23(a) and (b)(1)(B) of the US
Federal Rules of Civil Procedure, the provisions of which were invoked by the plaintiffs.
Subsequently, the US District Court certified the case as a class action and created three (3)
sub-classes of torture, summary execution and disappearance victims.5 Trial ensued, and
subsequently a jury rendered a verdict and an award of compensatory and exemplary damages
in favor of the plaintiff class. Then, on 3 February 1995, the US District Court, presided by Judge
Manuel L. Real, rendered a Final Judgment (Final Judgment) awarding the plaintiff class a total
of One Billion Nine Hundred Sixty Four Million Five Thousand Eight Hundred Fifty Nine Dollars
and Ninety Cents ($1,964,005,859.90). The Final Judgment was eventually affirmed by the US
Court of Appeals for the Ninth Circuit, in a decision rendered on 17 December 1996. 6
On 20 May 1997, the present petitioners filed Complaint with the Regional Trial Court, City of
Makati (Makati RTC) for the enforcement of the Final Judgment. They alleged that they are
members of the plaintiff class in whose favor the US District Court awarded damages. 7 They
argued that since the Marcos Estate failed to file a petition for certiorari with the US Supreme
Court after the Ninth Circuit Court of Appeals had affirmed the Final Judgment, the decision of
the US District Court had become final and executory, and hence should be recognized and
enforced in the Philippines, pursuant to Section 50, Rule 39 of the Rules of Court then in force. 8
On 5 February 1998, the Marcos Estate filed a motion to dismiss, raising, among others, the
non-payment of the correct filing fees. It alleged that petitioners had only paid Four Hundred
Ten Pesos (P410.00) as docket and filing fees, notwithstanding the fact that they sought to
enforce a monetary amount of damages in the amount of over Two and a Quarter Billion US
Dollars (US$2.25 Billion). The Marcos Estate cited Supreme Court Circular No. 7, pertaining to
the proper computation and payment of docket fees. In response, the petitioners claimed that
an action for the enforcement of a foreign judgment is not capable of pecuniary estimation;
hence, a filing fee of only Four Hundred Ten Pesos (P410.00) was proper, pursuant to Section
7(c) of Rule 141.9
On 9 September 1998, respondent Judge Santiago Javier Ranada10 of the Makati RTC issued the
subject Order dismissing the complaint without prejudice. Respondent judge opined that
contrary to the petitioners' submission, the subject matter of the complaint was indeed capable
of pecuniary estimation, as it involved a judgment rendered by a foreign court ordering the
payment of definite sums of money, allowing for easy determination of the value of the foreign
judgment. On that score, Section 7(a) of Rule 141 of the Rules of Civil Procedure would find
application, and the RTC estimated the proper amount of filing fees was approximately Four
Hundred Seventy Two Million Pesos, which obviously had not been paid.
Not surprisingly, petitioners filed a Motion for Reconsideration, which Judge Ranada denied in
an Order dated 28 July 1999. From this denial, petitioners filed a Petition for Certiorari under
Rule 65 assailing the twin orders of respondent judge.11 They prayed for the annulment of the
questioned orders, and an order directing the reinstatement of Civil Case No. 97-1052 and the
conduct of appropriate proceedings thereon.
Petitioners submit that their action is incapable of pecuniary estimation as the subject matter
of the suit is the enforcement of a foreign judgment, and not an action for the collection of a
sum of money or recovery of damages. They also point out that to require the class plaintiffs to
pay Four Hundred Seventy Two Million Pesos (P472,000,000.00) in filing fees would negate and
render inutile the liberal construction ordained by the Rules of Court, as required by Section 6,
Rule 1 of the Rules of Civil Procedure, particularly the inexpensive disposition of every action.
Petitioners invoke Section 11, Article III of the Bill of Rights of the Constitution, which provides
that "Free access to the courts and quasi-judicial bodies and adequate legal assistance shall not
29
be denied to any person by reason of poverty," a mandate which is essentially defeated by the
required exorbitant filing fee. The adjudicated amount of the filing fee, as arrived at by the RTC,
was characterized as indisputably unfair, inequitable, and unjust.
The Commission on Human Rights (CHR) was permitted to intervene in this case. 12 It urged that
the petition be granted and a judgment rendered, ordering the enforcement and execution of
the District Court judgment in accordance with Section 48, Rule 39 of the 1997 Rules of Civil
Procedure. For the CHR, the Makati RTC erred in interpreting the action for the execution of a
foreign judgment as a new case, in violation of the principle that once a case has been decided
between the same parties in one country on the same issue with finality, it can no longer be
relitigated again in another country.13 The CHR likewise invokes the principle of comity, and of
vested rights.
The Court's disposition on the issue of filing fees will prove a useful jurisprudential guidepost
for courts confronted with actions enforcing foreign judgments, particularly those lodged
against an estate. There is no basis for the issuance a limited pro hac vice ruling based on the
special circumstances of the petitioners as victims of martial law, or on the emotionally-charged
allegation of human rights abuses.
An examination of Rule 141 of the Rules of Court readily evinces that the respondent judge
ignored the clear letter of the law when he concluded that the filing fee be computed based on
the total sum claimed or the stated value of the property in litigation.
In dismissing the complaint, the respondent judge relied on Section 7(a), Rule 141 as basis for
the computation of the filing fee of over P472 Million. The provision states:
SEC. 7. Clerk of Regional Trial Court.-
(a) For filing an action or a permissive counterclaim or money claim against an
estate not based on judgment, or for filing with leave of court a third-party,
fourth-party, etc., complaint, or a complaint in intervention, and for all clerical
services in the same time, if the total sum claimed, exclusive of interest, or the
started value of the property in litigation, is:
1. Less than P 100,00.00 - P 500.00

2. P 100,000.00 or more but less - P 800.00

than P 150,000.00

3. P 150,000.00 or more but less - P 1,000.00

than P 200,000.00

4. P 200,000.00 or more but less - P 1,500.00

than P 250,000.00

5. P 250,000.00 or more but less than P 300,00.00 - P 1,750.00

6. P 300,000.00 or more but not more - P 2,000.00

than P400,000.00

7. P 350,000.00 or more but not more than - P 2,250.00

P400,000.00

30
 8. For each P 1,000.00 in excess of P 400,000.00 - P 10.00
(Emphasis supplied)
Obviously, the above-quoted provision covers, on one hand, ordinary actions, permissive
counterclaims, third-party, etc. complaints and complaints-in-interventions, and on the other,
money claims against estates which are not based on judgment. Thus, the relevant question for
purposes of the present petition is whether the action filed with the lower court is a "money
claim against an estate not based on judgment."
Petitioners' complaint may have been lodged against an estate, but it is clearly based on a
judgment, the Final Judgment of the US District Court. The provision does not make any
distinction between a local judgment and a foreign judgment, and where the law does not
distinguish, we shall not distinguish.
A reading of Section 7 in its entirety reveals several instances wherein the filing fee is computed
on the basis of the amount of the relief sought, or on the value of the property in litigation. The
filing fee for requests for extrajudicial foreclosure of mortgage is based on the amount of
indebtedness or the mortgagee's claim.14 In special proceedings involving properties such as for
the allowance of wills, the filing fee is again based on the value of the property.15 The
aforecited rules evidently have no application to petitioners' complaint.
Petitioners rely on Section 7(b), particularly the proviso on actions where the value of the
subject matter cannot be estimated. The provision reads in full:
SEC. 7. Clerk of Regional Trial Court.-
(b) For filing
1. Actions where the value
of the subject matter
cannot be estimated --- P 600.00
2. Special civil actions except
judicial foreclosure which
shall be governed by
paragraph (a) above --- P 600.00
3. All other actions not
involving property --- P 600.00
In a real action, the assessed value of the property, or if there is none, the estimated value,
thereof shall be alleged by the claimant and shall be the basis in computing the fees.
It is worth noting that the provision also provides that in real actions, the assessed value or
estimated value of the property shall be alleged by the claimant and shall be the basis in
computing the fees. Yet again, this provision does not apply in the case at bar. A real action is
one where the plaintiff seeks the recovery of real property or an action affecting title to or
recovery of possession of real property.16 Neither the complaint nor the award of damages
adjudicated by the US District Court involves any real property of the Marcos Estate.
Thus, respondent judge was in clear and serious error when he concluded that the filing fees
should be computed on the basis of the schematic table of Section 7(a), as the action involved
pertains to a claim against an estate based on judgment. What provision, if any, then should
apply in determining the filing fees for an action to enforce a foreign judgment?
To resolve this question, a proper understanding is required on the nature and effects of a
foreign judgment in this jurisdiction.
The rules of comity, utility and convenience of nations have established a usage among civilized
states by which final judgments of foreign courts of competent jurisdiction are reciprocally
31
respected and rendered efficacious under certain conditions that may vary in different
countries.17 This principle was prominently affirmed in the leading American case of Hilton v.
Guyot18 and expressly recognized in our jurisprudence beginning with Ingenholl v. Walter E.
Olsen & Co.19 The conditions required by the Philippines for recognition and enforcement of a
foreign judgment were originally contained in Section 311 of the Code of Civil Procedure, which
was taken from the California Code of Civil Procedure which, in turn, was derived from the
California Act of March 11, 1872.20 Remarkably, the procedural rule now outlined in Section 48,
Rule 39 of the Rules of Civil Procedure has remained unchanged down to the last word in nearly
a century. Section 48 states:
SEC. 48. Effect of foreign judgments. — The effect of a judgment of a tribunal of a
foreign country, having jurisdiction to pronounce the judgment is as follows:
(a) In case of a judgment upon a specific thing, the judgment is conclusive upon
the title to the thing;
(b) In case of a judgment against a person, the judgment is presumptive evidence
of a right as between the parties and their successors in interest by a subsequent
title;
In either case, the judgment or final order may be repelled by evidence of a want of
jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law or fact.
There is an evident distinction between a foreign judgment in an action in rem and one in
personam. For an action in rem, the foreign judgment is deemed conclusive upon the title to
the thing, while in an action inpersonam, the foreign judgment is presumptive, and not
conclusive, of a right as between the parties and their successors in interest by a subsequent
title.21 However, in both cases, the foreign judgment is susceptible to impeachment in our local
courts on the grounds of want of jurisdiction or notice to the party, 22 collusion, fraud,23 or clear
mistake of law or fact.24 Thus, the party aggrieved by the foreign judgment is entitled to defend
against the enforcement of such decision in the local forum. It is essential that there should be
an opportunity to challenge the foreign judgment, in order for the court in this jurisdiction to
properly determine its efficacy.25
It is clear then that it is usually necessary for an action to be filed in order to enforce a foreign
judgment26, even if such judgment has conclusive effect as in the case of in rem actions, if only
for the purpose of allowing the losing party an opportunity to challenge the foreign judgment,
and in order for the court to properly determine its efficacy.27 Consequently, the party
attacking a foreign judgment has the burden of overcoming the presumption of its validity. 28
The rules are silent as to what initiatory procedure must be undertaken in order to enforce a
foreign judgment in the Philippines. But there is no question that the filing of a civil complaint is
an appropriate measure for such purpose. A civil action is one by which a party sues another for
the enforcement or protection of a right,29 and clearly an action to enforce a foreign judgment
is in essence a vindication of a right prescinding either from a "conclusive judgment upon title"
or the "presumptive evidence of a right."30 Absent perhaps a statutory grant of jurisdiction to a
quasi-judicial body, the claim for enforcement of judgment must be brought before the regular
courts.31
There are distinctions, nuanced but discernible, between the cause of action arising from the
enforcement of a foreign judgment, and that arising from the facts or allegations that
occasioned the foreign judgment. They may pertain to the same set of facts, but there is an
essential difference in the right-duty correlatives that are sought to be vindicated. For example,
in a complaint for damages against a tortfeasor, the cause of action emanates from the
violation of the right of the complainant through the act or omission of the respondent. On the
32
other hand, in a complaint for the enforcement of a foreign judgment awarding damages from
the same tortfeasor, for the violation of the same right through the same manner of action, the
cause of action derives not from the tortious act but from the foreign judgment itself.
More importantly, the matters for proof are different. Using the above example, the
complainant will have to establish before the court the tortious act or omission committed by
the tortfeasor, who in turn is allowed to rebut these factual allegations or prove extenuating
circumstances. Extensive litigation is thus conducted on the facts, and from there the right to
and amount of damages are assessed. On the other hand, in an action to enforce a foreign
judgment, the matter left for proof is the foreign judgment itself, and not the facts from which
it prescinds.
As stated in Section 48, Rule 39, the actionable issues are generally restricted to a review of
jurisdiction of the foreign court, the service of personal notice, collusion, fraud, or mistake of
fact or law. The limitations on review is in consonance with a strong and pervasive policy in all
legal systems to limit repetitive litigation on claims and issues.32Otherwise known as the policy
of preclusion, it seeks to protect party expectations resulting from previous litigation, to
safeguard against the harassment of defendants, to insure that the task of courts not be
increased by never-ending litigation of the same disputes, and - in a larger sense - to promote
what Lord Coke in the Ferrer's Case of 1599 stated to be the goal of all law: "rest and
quietness."33 If every judgment of a foreign court were reviewable on the merits, the plaintiff
would be forced back on his/her original cause of action, rendering immaterial the previously
concluded litigation.34
Petitioners appreciate this distinction, and rely upon it to support the proposition that the
subject matter of the complaintthe enforcement of a foreign judgmentis incapable of
pecuniary estimation. Admittedly the proposition, as it applies in this case, is counter-intuitive,
and thus deserves strict scrutiny. For in all practical intents and purposes, the matter at hand is
capable of pecuniary estimation, down to the last cent. In the assailed Order, the respondent
judge pounced upon this point without equivocation:
The Rules use the term "where the value of the subject matter cannot be estimated."
The subject matter of the present case is the judgment rendered by the foreign court
ordering defendant to pay plaintiffs definite sums of money, as and for compensatory
damages. The Court finds that the value of the foreign judgment can be estimated;
indeed, it can even be easily determined. The Court is not minded to distinguish
between the enforcement of a judgment and the amount of said judgment, and
separate the two, for purposes of determining the correct filing fees. Similarly, a plaintiff
suing on promissory note for P1 million cannot be allowed to pay only P400 filing
fees (sic), on the reasoning that the subject matter of his suit is not the P1 million, but
the enforcement of the promissory note, and that the value of such "enforcement"
cannot be estimated.35
The jurisprudential standard in gauging whether the subject matter of an action is capable of
pecuniary estimation is well-entrenched. The Marcos Estate cites Singsong v. Isabela Sawmill
and Raymundo v. Court of Appeals, which ruled:
[I]n determining whether an action is one the subject matter of which is not capable of
pecuniary estimation this Court has adopted the criterion of first ascertaining the nature
of the principal action or remedy sought. If it is primarily for the recovery of a sum of
money, the claim is considered capable of pecuniary estimation, and whether
jurisdiction is in the municipal courts or in the courts of first instance would depend on
the amount of the claim. However, where the basic issue is something other than the
33
 right to recover a sum of money, where the money claim is purely incidental to, or a
consequence of, the principal relief sought, this Court has considered such actions as
cases where the subject of the litigation may not be estimated in terms of money, and
are cognizable exclusively by courts of first instance (now Regional Trial Courts).
On the other hand, petitioners cite the ponencia of Justice JBL Reyes in Lapitan v.
Scandia,36 from which the rule in Singsong and Raymundoactually derives, but which
incorporates this additional nuance omitted in the latter cases:
xxx However, where the basic issue is something other than the right to recover a sum
of money, where the money claim is purely incidental to, or a consequence of, the
principal relief sought, like in suits to have the defendant perform his part of the
contract (specific performance) and in actions for support, or for annulment of
judgment or to foreclose a mortgage, this Court has considered such actions as cases
where the subject of the litigation may not be estimated in terms of money, and are
cognizable exclusively by courts of first instance.37
Petitioners go on to add that among the actions the Court has recognized as being incapable of
pecuniary estimation include legality of conveyances and money deposits, 38 validity of a
mortgage,39 the right to support,40 validity of documents,41 rescission of contracts,42 specific
performance,43 and validity or annulment of judgments.44 It is urged that an action for
enforcement of a foreign judgment belongs to the same class.
This is an intriguing argument, but ultimately it is self-evident that while the subject matter of
the action is undoubtedly the enforcement of a foreign judgment, the effect of a providential
award would be the adjudication of a sum of money. Perhaps in theory, such an action is
primarily for "the enforcement of the foreign judgment," but there is a certain obtuseness to
that sort of argument since there is no denying that the enforcement of the foreign judgment
will necessarily result in the award of a definite sum of money.
But before we insist upon this conclusion past beyond the point of reckoning, we must examine
its possible ramifications. Petitioners raise the point that a declaration that an action for
enforcement of foreign judgment may be capable of pecuniary estimation might lead to an
instance wherein a first level court such as the Municipal Trial Court would have jurisdiction to
enforce a foreign judgment. But under the statute defining the jurisdiction of first level courts,
B.P. 129, such courts are not vested with jurisdiction over actions for the enforcement of
foreign judgments.
Sec. 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal
Circuit Trial Courts in civil cases. — Metropolitan Trial Courts, Municipal Trial Courts, and
Municipal Circuit Trial Courts shall exercise:
(1) Exclusive original jurisdiction over civil actions and probate proceedings, testate and
intestate, including the grant of provisional remedies in proper cases, where the value
of the personal property, estate, or amount of the demand does not exceed One
hundred thousand pesos (P100,000.00) or, in Metro Manila where such personal
property, estate, or amount of the demand does not exceed Two hundred thousand
pesos (P200,000.00) exclusive of interest damages of whatever kind, attorney's fees,
litigation expenses, and costs, the amount of which must be specifically alleged:
Provided, That where there are several claims or causes of action between the same or
different parties, embodied in the same complaint, the amount of the demand shall be
the totality of the claims in all the causes of action, irrespective of whether the causes of
action arose out of the same or different transactions;

34
 (2) Exclusive original jurisdiction over cases of forcible entry and unlawful
detainer: Provided, That when, in such cases, the defendant raises the question of
ownership in his pleadings and the question of possession cannot be resolved without
deciding the issue of ownership, the issue of ownership shall be resolved only to
determine the issue of possession.
(3) Exclusive original jurisdiction in all civil actions which involve title to, or possession
of, real property, or any interest therein where the assessed value of the property or
interest therein does not exceed Twenty thousand pesos (P20,000.00) or, in civil actions
in Metro Manila, where such assessed value does not exceed Fifty thousand pesos
(P50,000.00) exclusive of interest, damages of whatever kind, attorney's fees, litigation
expenses and costs: Provided, That value of such property shall be determined by the
assessed value of the adjacent lots.45
Section 33 of B.P. 129 refers to instances wherein the cause of action or subject matter pertains
to an assertion of rights and interests over property or a sum of money. But as earlier pointed
out, the subject matter of an action to enforce a foreign judgment is the foreign judgment
itself, and the cause of action arising from the adjudication of such judgment.
An examination of Section 19(6), B.P. 129 reveals that the instant complaint for enforcement of
a foreign judgment, even if capable of pecuniary estimation, would fall under the jurisdiction of
the Regional Trial Courts, thus negating the fears of the petitioners. Indeed, an examination of
the provision indicates that it can be relied upon as jurisdictional basis with respect to actions
for enforcement of foreign judgments, provided that no other court or office is vested
jurisdiction over such complaint:
Sec. 19. Jurisdiction in civil cases. — Regional Trial Courts shall exercise exclusive original
jurisdiction:
xxx
(6) In all cases not within the exclusive jurisdiction of any court, tribunal, person or body
exercising jurisdiction or any court, tribunal, person or body exercising judicial or quasi-
judicial functions.
Thus, we are comfortable in asserting the obvious, that the complaint to enforce the US District
Court judgment is one capable of pecuniary estimation. But at the same time, it is also an action
based on judgment against an estate, thus placing it beyond the ambit of Section 7(a) of Rule
141. What provision then governs the proper computation of the filing fees over the instant
complaint? For this case and other similarly situated instances, we find that it is covered by
Section 7(b)(3), involving as it does, "other actions not involving property."
Notably, the amount paid as docket fees by the petitioners on the premise that it was an action
incapable of pecuniary estimation corresponds to the same amount required for "other actions
not involving property." The petitioners thus paid the correct amount of filing fees, and it was a
grave abuse of discretion for respondent judge to have applied instead a clearly inapplicable
rule and dismissed the complaint.
There is another consideration of supreme relevance in this case, one which should disabuse
the notion that the doctrine affirmed in this decision is grounded solely on the letter of the
procedural rule. We earlier adverted to the the internationally recognized policy of
preclusion,46 as well as the principles of comity, utility and convenience of nations47 as the basis
for the evolution of the rule calling for the recognition and enforcement of foreign judgments.
The US Supreme Court in Hilton v. Guyot48 relied heavily on the concept of comity, as especially
derived from the landmark treatise of Justice Story in his Commentaries on the Conflict of Laws
of 1834.49 Yet the notion of "comity" has since been criticized as one "of dim contours" 50 or
35
suffering from a number of fallacies.51 Other conceptual bases for the recognition of foreign
judgments have evolved such as the vested rights theory or the modern doctrine of
obligation.52
There have been attempts to codify through treaties or multilateral agreements the standards
for the recognition and enforcement of foreign judgments, but these have not borne fruition.
The members of the European Common Market accede to the Judgments Convention, signed in
1978, which eliminates as to participating countries all of such obstacles to recognition such as
reciprocity and révision au fond.53 The most ambitious of these attempts is the Convention on
the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters,
prepared in 1966 by the Hague Conference of International Law.54 While it has not received the
ratifications needed to have it take effect,55 it is recognized as representing current scholarly
thought on the topic.56Neither the Philippines nor the United States are signatories to the
Convention.
Yet even if there is no unanimity as to the applicable theory behind the recognition and
enforcement of foreign judgments or a universal treaty rendering it obligatory force, there is
consensus that the viability of such recognition and enforcement is essential. Steiner and Vagts
note:
. . . The notion of unconnected bodies of national law on private international law,
each following a quite separate path, is not one conducive to the growth of a
transnational community encouraging travel and commerce among its members. There
is a contemporary resurgence of writing stressing the identity or similarity of the values
that systems of public and private international law seek to further - a community
interest in common, or at least reasonable, rules on these matters in national legal
systems. And such generic principles as reciprocity play an important role in both
fields.57
Salonga, whose treatise on private international law is of worldwide renown, points out:
Whatever be the theory as to the basis for recognizing foreign judgments, there can be
little dispute that the end is to protect the reasonable expectations and demands of the
parties. Where the parties have submitted a matter for adjudication in the court of one
state, and proceedings there are not tainted with irregularity, they may fairly be
expected to submit, within the state or elsewhere, to the enforcement of the judgment
issued by the court.58
There is also consensus as to the requisites for recognition of a foreign judgment and the
defenses against the enforcement thereof. As earlier discussed, the exceptions enumerated in
Section 48, Rule 39 have remain unchanged since the time they were adapted in this
jurisdiction from long standing American rules. The requisites and exceptions as delineated
under Section 48 are but a restatement of generally accepted principles of international law.
Section 98 of The Restatement, Second, Conflict of Laws, states that "a valid judgment rendered
in a foreign nation after a fair trial in a contested proceeding will be recognized in the United
States," and on its face, the term "valid" brings into play requirements such notions as valid
jurisdiction over the subject matter and parties.59 Similarly, the notion that fraud or collusion
may preclude the enforcement of a foreign judgment finds affirmation with foreign
jurisprudence and commentators,60 as well as the doctrine that the foreign judgment must not
constitute "a clear mistake of law or fact."61And finally, it has been recognized that "public
policy" as a defense to the recognition of judgments serves as an umbrella for a variety of
concerns in international practice which may lead to a denial of recognition. 62

36
The viability of the public policy defense against the enforcement of a foreign judgment has
been recognized in this jurisdiction.63 This defense allows for the application of local standards
in reviewing the foreign judgment, especially when such judgment creates only a presumptive
right, as it does in cases wherein the judgment is against a person.64 The defense is also
recognized within the international sphere, as many civil law nations adhere to a broad public
policy exception which may result in a denial of recognition when the foreign court, in the light
of the choice-of-law rules of the recognizing court, applied the wrong law to the case.65 The
public policy defense can safeguard against possible abuses to the easy resort to offshore
litigation if it can be demonstrated that the original claim is noxious to our constitutional
values.
There is no obligatory rule derived from treaties or conventions that requires the Philippines to
recognize foreign judgments, or allow a procedure for the enforcement thereof. However,
generally accepted principles of international law, by virtue of the incorporation clause of the
Constitution, form part of the laws of the land even if they do not derive from treaty
obligations.66 The classical formulation in international law sees those customary rules accepted
as binding result from the combination two elements: the established, widespread, and
consistent practice on the part of States; and a psychological element known as the opinion
juris sive necessitates (opinion as to law or necessity). Implicit in the latter element is a belief
that the practice in question is rendered obligatory by the existence of a rule of law requiring
it.67
While the definite conceptual parameters of the recognition and enforcement of foreign
judgments have not been authoritatively established, the Court can assert with certainty that
such an undertaking is among those generally accepted principles of international law.68 As
earlier demonstrated, there is a widespread practice among states accepting in principle the
need for such recognition and enforcement, albeit subject to limitations of varying degrees. The
fact that there is no binding universal treaty governing the practice is not indicative of a
widespread rejection of the principle, but only a disagreement as to the imposable specific
rules governing the procedure for recognition and enforcement.
Aside from the widespread practice, it is indubitable that the procedure for recognition and
enforcement is embodied in the rules of law, whether statutory or jurisprudential, adopted in
various foreign jurisdictions. In the Philippines, this is evidenced primarily by Section 48, Rule 39
of the Rules of Court which has existed in its current form since the early 1900s. Certainly, the
Philippine legal system has long ago accepted into its jurisprudence and procedural rules the
viability of an action for enforcement of foreign judgment, as well as the requisites for such
valid enforcement, as derived from internationally accepted doctrines. Again, there may be
distinctions as to the rules adopted by each particular state,69 but they all prescind from the
premise that there is a rule of law obliging states to allow for, however generally, the
recognition and enforcement of a foreign judgment. The bare principle, to our mind, has
attained the status of opinio juris in international practice.
This is a significant proposition, as it acknowledges that the procedure and requisites outlined
in Section 48, Rule 39 derive their efficacy not merely from the procedural rule, but by virtue of
the incorporation clause of the Constitution. Rules of procedure are promulgated by the
Supreme Court,70 and could very well be abrogated or revised by the high court itself. Yet the
Supreme Court is obliged, as are all State components, to obey the laws of the land, including
generally accepted principles of international law which form part thereof, such as those
ensuring the qualified recognition and enforcement of foreign judgments.71

37
Thus, relative to the enforcement of foreign judgments in the Philippines, it emerges that there
is a general right recognized within our body of laws, and affirmed by the Constitution, to seek
recognition and enforcement of foreign judgments, as well as a right to defend against such
enforcement on the grounds of want of jurisdiction, want of notice to the party, collusion,
fraud, or clear mistake of law or fact.
The preclusion of an action for enforcement of a foreign judgment in this country merely due to
an exhorbitant assessment of docket fees is alien to generally accepted practices and principles
in international law. Indeed, there are grave concerns in conditioning the amount of the filing
fee on the pecuniary award or the value of the property subject of the foreign decision. Such
pecuniary award will almost certainly be in foreign denomination, computed in accordance with
the applicable laws and standards of the forum.72 The vagaries of inflation, as well as the
relative low-income capacity of the Filipino, to date may very well translate into an award
virtually unenforceable in this country, despite its integral validity, if the docket fees for the
enforcement thereof were predicated on the amount of the award sought to be enforced. The
theory adopted by respondent judge and the Marcos Estate may even lead to absurdities, such
as if applied to an award involving real property situated in places such as the United States or
Scandinavia where real property values are inexorably high. We cannot very well require that
the filing fee be computed based on the value of the foreign property as determined by the
standards of the country where it is located.
As crafted, Rule 141 of the Rules of Civil Procedure avoids unreasonableness, as it recognizes
that the subject matter of an action for enforcement of a foreign judgment is the foreign
judgment itself, and not the right-duty correlatives that resulted in the foreign judgment. In
this particular circumstance, given that the complaint is lodged against an estate and is based
on the US District Court's Final Judgment, this foreign judgment may, for purposes of
classification under the governing procedural rule, be deemed as subsumed under Section
7(b)(3) of Rule 141, i.e., within the class of "all other actions not involving property." Thus, only
the blanket filing fee of minimal amount is required.
Finally, petitioners also invoke Section 11, Article III of the Constitution, which states that
"[F]ree access to the courts and quasi-judicial bodies and adequate legal assistance shall not be
denied to any person by reason of poverty." Since the provision is among the guarantees
ensured by the Bill of Rights, it certainly gives rise to a demandable right. However, now is not
the occasion to elaborate on the parameters of this constitutional right. Given our preceding
discussion, it is not necessary to utilize this provision in order to grant the relief sought by the
petitioners. It is axiomatic that the constitutionality of an act will not be resolved by the courts
if the controversy can be settled on other grounds73 or unless the resolution thereof is
indispensable for the determination of the case.74
One more word. It bears noting that Section 48, Rule 39 acknowledges that the Final
Judgment is not conclusive yet, but presumptive evidence of a right of the petitioners against
the Marcos Estate. Moreover, the Marcos Estate is not precluded to present evidence, if any, of
want of jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law or fact.
This ruling, decisive as it is on the question of filing fees and no other, does not render verdict
on the enforceability of the Final Judgment before the courts under the jurisdiction of the
Philippines, or for that matter any other issue which may legitimately be presented before the
trial court. Such issues are to be litigated before the trial court, but within the confines of the
matters for proof as laid down in Section 48, Rule 39. On the other hand, the speedy resolution
of this claim by the trial court is encouraged, and contumacious delay of the decision on the
merits will not be brooked by this Court.
38
WHEREFORE, the petition is GRANTED. The assailed orders are NULLIFIED and SET ASIDE, and a
new order REINSTATING Civil Case No. 97-1052 is hereby issued. No costs.
SO ORDERED.

G.R. No. 182013 December 4, 2009

QUASHA ANCHETA PEÑA & NOLASCO LAW OFFICE and LEGEND INTERNATIONAL RESORTS,
LIMITED, petitioners,
vs.
THE SPECIAL SIXTH DIVISION of the COURT OF APPEALS, KHOO BOO BOON and the Law Firm
of PICAZO BUYCO TAN FIDER & SANTOS,Respondents.
DECISION
CHICO-NAZARIO, J.:
This is a special civil action for Certiorari under Rule 65 of the 1997 Revised Rules of Civil
Procedure filed by petitioners Quasha Ancheta Peña and Nolasco Law Office (Quasha Law
Office) and Legend International Resorts, Limited (LIRL), seeking to reverse and set aside, on the
ground of grave abuse of discretion amounting to lack or excess of jurisdiction, the
Resolution1 dated 22 January 2008 of the Special Sixth Division of the Court of Appeals in CA-
G.R. CV No. 87281, which refused to recognize the Entry of Appearance of petitioner Quasha
Law Office as the duly authorized counsel of petitioner LIRL in CA-G.R. CV No. 87281.
Petitioner Quasha Law Office is the duly authorized counsel of petitioner LIRL in the Philippines.
Petitioner LIRL is a foreign corporation organized under the laws of Hong Kong and licensed to
operate a resort casino hotel in Subic Bay, Philippines, on the basis of the 19 March 1993
Agreement it entered into with Philippine Amusement and Gaming Corporation (PAGCOR) and
Subic Bay Metropolitan Authority (SBMA), which was later amended in July, 2000. It is doing
business in the Philippines through its branch, LIRL-Subic.
Private respondent Khoo Boo Boon was the former Chief Executive Officer of LIRL-Subic. Private
respondent Picazo Buyco Tan Fider and Santos Law Office (Picazo Law Office) was the former
counsel of petitioner LIRL in the Philippines.
The controversy in this case arose from the following facts:
Petitioner LIRL filed a Complaint for Annulment of Contract, Specific Performance with
Damages and Application for Preliminary Injunction and Temporary Restraining Order before
the Regional Trial Court (RTC) of Olongapo City, Branch 72, docketed as Civil Case No. 219-0-
2004, against PAGCOR and SBMA for amending the 19 March 1993 Agreement,
notwithstanding the total absence of any consideration supporting petitioner LIRL’s additional
obligations imposed under the amended Agreement.
On 28 December 2004, the trial court rendered a Decision 2 annulling the amendment to the 19
March 1993 Agreement executed between petitioner LIRL, PAGCOR and SBMA, as well as all
the agreements that may have been entered into by PAGCOR pursuant thereto. The trial court
also restrained PAGCOR from enforcing the amendment. It further enjoined PAGCOR from
terminating the Agreement dated 19 March 1993 or from otherwise suspending, limiting,
reducing or modifying petitioner LIRL’s license to operate the Subic Bay Casinos and from
entering into or continuing with any agreement with other entities for the operation of other
casinos in the Subic Freeport Zone or from any such acts, which would in any way reduce or
mitigate petitioner LIRL’s right under the aforesaid Agreement.3

39
Resultantly, PAGCOR filed its Notice of Appeal Ad Cautelam before the Special Sixth Division of
the Court of Appeals, and the case was docketed as CA-G.R. CV No. 87281.
Meanwhile, in relation to petitioner LIRL Companies’ Winding-Up No. 1139 of 2004 filed before
the Hong Kong Court of First Instance (Hong Kong Court), the said foreign court issued Orders
dated 9 June 2006 appointing Kelvin Edward Flynn (Flynn) and Cosimo Borrelli (Borrelli) as the
joint and several liquidators of petitioner LIRL and granting them the power to carry on and
manage the business of petitioner LIRL, including its business in Subic, Philippines. Pursuant to
the said Orders, Flynn sent a letter4 dated 10 July 2006 to private respondent Khoo Boo Boon
informing him that he had already been terminated from his position as Chief Executive Officer
of LIRL-Subic. On the same date, Flynn also sent a letter5 to private respondent Picazo Law
Office notifying it that its legal services as counsel of petitioner LIRL had also been terminated.
Petitioner LIRL later engaged the legal services of petitioner Quasha Law Office as its new
counsel to represent it in all proceedings in the Philippines.
Accordingly, petitioner Quasha Law Office filed its Entry of Appearance as counsel for petitioner
LIRL in CA-G.R. CV No. 87281 pending before the Special Sixth Division of the Court of Appeals,
through a Manifestation and Motion Ex Abudante Cautelam attaching thereto a copy of the
letter dated 10 July 2006 terminating the services of Picazo Law Office and engaging the
services of petitioner Quasha Law Office.
In a Resolution6 dated 19 October 2007, the Special Sixth Division of the Court of Appeals
refused to recognize the Entry of Appearance of petitioner Quasha Law Office as the new
counsel of petitioner LIRL. The appellate court ratiocinated that a mere photocopy of a letter
dated 10 July 2006, which was sent by one of the appointed liquidators of petitioner LIRL,
informing private respondent Picazo Law Office that its legal services as counsel of LIRL had
been terminated, had no probative value. Further the appointment of petitioner LIRL’s joint and
several liquidators were made pursuant to an Order of the Hong Kong Court. Because it was a
foreign judgment, our courts could not take judicial notice thereof, as the final orders of foreign
tribunals could only be enforced in Philippine courts after appropriate proceedings filed
therein. Thus, the appellate court concluded that until the alleged Order of the Hong Kong
Court had been validated and recognized in an appropriate proceeding before our local courts,
private respondent Picazo Law Office was recognized as the only counsel entitled to represent
and file pleadings for and on behalf of petitioner LIRL.7
Petitioners moved for the reconsideration of the aforesaid Resolution, but their Motion was
denied in a Resolution8 dated 9 January 2008.
Petitioners filed a Manifestation with the Special Sixth Division of the Court of Appeals that in a
related case filed before the Special Tenth Division of the appellate court, docketed as CA-G.R.
SP No. 96717, the said Division issued a Decision9 dated 14 December 2007 recognizing
petitioner Quasha Law Office as the duly authorized counsel of petitioner LIRL. In such
Manifestation, petitioner Quasha Law Office attached a copy of the aforesaid 14 December
2007 Decision of the Special Tenth Division of the Court of Appeals.
On 22 January 2008, the Special Sixth Division of the Court of Appeals issued the assailed
Resolution wherein it simply noted petitioners’ aforesaid Manifestation. The appellate court
then pointed out that decisions of a division of the Court of Appeals is not binding on the other
divisions, for only decisions of the Supreme Court form part of the legal system from which all
other inferior courts must take its bearing. The appellate court even directed the petitioners to
elevate the matter to this Court to settle who between petitioner Quasha Law Office and
private respondent Picazo Law Office can legally represent petitioner LIRL in the instant case.
Hence, this Petition.
40
The grounds relied upon by the petitioners for the allowance of this Petition are as follows:
I.
WHETHER OR NOT THE SPECIAL SIXTH DIVISION OF THE COURT OF APPEALS COMMITTED
PATENT GRAVE ABUSE OF DISCRETION, AMOUNTING TO EXCESS OF JURISDICTION, WHEN IT
REFUSED TO GIVE DUE DEFERENCE TO A DECISION OF A CO-DIVISION OF THE SAME COURT.
i.
THE DECISION OF THE COURT OF APPEALS IN CA-G.R. SP NO. 96717 HAS BECOME FINAL AND
EXECUTORY CONSIDERING THAT THE PETITION FOR REVIEW ON CERTIORARI FILED BY [PRIVATE
RESPONDENT PICAZO LAW OFFICE] WAS DISMISSED OUTRIGHT BY THE SECOND DIVISION OF
THIS HOROBALE COURT FOR BEING FILED OUT OF TIME.
II
IN A RELATED CASE WHERE THE ISSUE OF [PETITIONER QUASHA LAW OFFICE’S] AUTHORITY
WAS RAISED, THE SEVENTH DIVISION OF THE COURT OF APPEALS SUSTAINED [PETITIONER
QUASHA LAW OFFICE’S] STANDING AS THE DULY AUTHORIZED COUNSEL OF [PETITIONER] LIRL.
III
WHETHER OR NOT SECTION 48, RULE 39 OF THE 1997 REVISED RULES OF CIVIL PROCEDURE ON
RECOGNITION AND ENFORCEMENT OF FOREIGN JUDGMENT APPLIES IN THIS CASE.
i
SECTION 48, RULE 39 PRESUPPOSES THAT A FOREIGN JUDGMENT, REPRESENTING A CLAIM, IS
SOUGHT TO BE ENFORCED AGAINST A SPECIFIC THING OR AGAINST A PERSON.
ii
COROLLARY TO THE ABOVE, THE ORDERS OF THE HONG KONG COURT DO NOT ASSERT A CLAIM
AGAINST LIRL-SUBIC BRANCH, THE APPOINTMENT OF LIQUIDATORS IS A PURELY INTERNAL
MATTER BETWEEN A CORPORATION AND A MERE BRANCH THEREOF.
iii
[PETITIONER] LIRL-SUBIC BRANCH, WHICH [PRIVATE RESPONDENT] MR. KHOO BOO BOON
PURPORTEDLY REPRESENTS, CANNOT ASSAIL THE ORDERS OF THE HONG KONG COURT BY
INVOKING A RIGHT INDEPENDENT OF ITS MOTHER OFFICE.
IV
[PRIVATE RESPONDENT] PICAZO LAW OFFICE AS COUNSEL DERIVES ITS AUTHORITY FROM
[PRIVATE RESPONDENT] MR. KHOO BOO BOON, THE FORMER CHIEF [EXECUTIVE] OFFICER OF
[PETITIONER] LIRL.
i
[PRIVATE RESPONDENT] MR. KHOO BOO BOON IS NO LONGER THE CHIEF EXECUTIVE OFFICER,
HAVING RECOGNIZED THE APPOINTED LIQUIDATORS OF [PETITIONER] LIRL BY VOLUNTARILY
YIELDING CONTROL AND MANAGEMENT OF LIRL-SUBIC BRANCH.
ii
COROLLARY TO THE ABOVE, THE AUTHORITY OF [PRIVATE REPSONDENT] PICAZO LAW [OFFICE]
TO REPRESENT [PETITIONER] LIRL HAS BEEN TERMINATED BY THE APPOINTED LIQUIDATORS.10
On 16 June 2009, petitioner Quasha Law Office already filed its withdrawal of appearance as
counsel for petitioner LIRL. Thus, the issue of petitioner Quasha Law Office’s authority or
standing as the duly authorized counsel of petitioner LIRL has already become moot and
academic.
Even if we are to resolve the issues in the case at bar on their merits, we will nevertheless arrive
at the same conclusion.
Basically, the aforesaid grounds are the very arguments of the petitioners. Thus, the issues in
this case may be summed up into: (1) whether the Special Sixth Division of the Court of Appeals
41
acted with grave abuse of discretion in not giving due deference to a Decision of its co-division,
which similarly resolved the issue of proper legal representation of petitioner LIRL; and (2)
whether the Special Sixth Division of the Court of Appeals gravely abused its discretion in
considering that the Orders of the Hong Kong Court appointing liquidators for petitioner LIRL
involved enforcement and recognition of a foreign judgment.
In CA-G.R. SP No. 96717 entitled "In the Matter of Corporate Rehabilitation of Legend
International Resorts Limited," which was raffled to the Special Tenth Division of the Court of
Appeals, petitioner LIRL’s proper legal representation was raised as one of the issues. In the
said case, petitioner Quasha Law Office’s authority to represent petitioner LIRL was questioned
by private respondent Picazo Law Office, petitioner LIRL’s former counsel whose legal services
had been terminated by petitioner LIRL’s appointed liquidators. Private respondent Picazo Law
Office argued that the Orders of the Hong Kong Court from which the authority of the
liquidators, who engaged the legal services of petitioner Quasha Law Office to be the counsel of
petitioner LIRL, was derived, could not be enforced in this jurisdiction, since these foreign
orders have not been recognized by Philippine courts.
On 14 December 2007, the said division of the appellate court rendered its Decision resolving
the issue of petitioner LIRL’s proper legal representation in favor of petitioner Quasha Law
Office. The said division of the appellate court ratiocinated that private respondent Picazo Law
Office ceased to be the counsel of petitioner LIRL when it received the 10 July 2006 letter of
one of the appointed liquidators of LIRL, notifying it that its legal services had been terminated
and that petitioner Quasha Law Office’s legal services were engaged in its stead. Moreover,
there is actually no foreign judgment or order that is being enforced in this jurisdiction because
what is involved is the prerogative of petitioner LIRL, through its duly authorized
representative, which in this case is its appointed liquidators, to terminate and engage the
services of a counsel, which is an internal affair that requires no prior recognition in a separate
action. The right of petitioner LIRL to terminate the authority of its counsel includes the right to
cause a change or substitution of counsel at any stage of the proceedings.
The said Decision of the Special Tenth Division of the Court of Appeals was immediately
brought by the petitioners to the attention of the Special Sixth Division of the said appellate
court where CA-G.R. CV No. 87281 (the subject of this Petition) was pending. However, the
Special Sixth Division of the Court of Appeals merely noted the same and still refused to
recognize petitioner Quasha Law Office’s entry of appearance. It even advised petitioner
Quasha Law Office to elevate to this Court the issue of who between petitioner Quasha Law
Office and private respondent Picazo Law Office can legally represent petitioner LIRL in the
instant case.
Thus, petitioners ascribe grave abuse of discretion on the part of the Special Sixth Division of
the Court of Appeals in not giving due deference to the decision of its co-division.
Grave abuse of discretion means a capricious and whimsical exercise of judgment as is
equivalent to lack of jurisdiction. Mere abuse of discretion is not enough; it must be so grave 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.11
In the case at bar, this Court holds that there was no grave abuse of discretion amounting to
lack or excess of jurisdiction committed by the Special Sixth Division of the Court of Appeals in
not giving due deference to the decision of its co-division. As correctly pointed out by the
Special Sixth Division of the Court of Appeals, the decision of its co-division is not binding on its
42
other division. Further, it must be stressed that judicial decisions that form part of our legal
system are only the decisions of the Supreme Court.12 Moreover, at the time petitioners made
the aforesaid Manifestation, the Decision dated 14 December 2007 in CA-G.R. SP No. 96717 of
the Special Tenth Division was still on appeal before this Court.
Therefore, the Special Sixth Division of the Court of Appeals cannot be faulted for not giving
due deference to the said Decision of its co-division, and its actuation cannot be considered
grave abuse of discretion amounting to lack or excess of its jurisdiction.
However, as regards the second issue of whether the Special Sixth Division of the Court of
Appeals gravely abused its discretion in considering that the Orders of the Hong Kong Court
appointing liquidators for petitioner LIRL involved enforcement and recognition of a foreign
judgment, we hold that the same is already barred by the principle of res judicata—
conclusiveness of judgment.
The doctrine of res judicata actually embraces two different concepts: (1) bar by former
judgment and (b) conclusiveness of judgment.
The second concept - conclusiveness of judgment - states that a fact or question, which was in
issue in a former suit and was there judicially passed upon and determined by a court of
competent jurisdiction, is conclusively settled by the judgment therein as far as the parties to
that action and persons in privity with them are concerned and cannot be again litigated in any
future action between such parties or their privies in the same court or any other court of
concurrent jurisdiction on either the same or a different cause of action, while the judgment
remains unreversed by proper authority. It has been held that in order that a judgment in one
action can be conclusive as to a particular matter in another action between the same parties
or their privies, it is essential that the issue be identical. If a particular point or question is in
issue in the second action, and the judgment will depend on the determination of that
particular point or question, a former judgment between the same parties or their privies will
be final and conclusive in the second if that same point or question was in issue and
adjudicated in the first suit. Identity of cause of action is not required, but merely identity of
issues.13
Legarda v. Savellano14 elucidates the rationale for respecting the conclusiveness of judgment,
thus -
As we have repeatedly enunciated, public policy and sound practice enshrine the fundamental
principle upon which the doctrine of res judicata rests that parties ought not to be permitted to
litigate the same issues more than once. It is a general rule common to all civilized system of
jurisprudence, that the solemn and deliberate sentence of the law, pronounced by its
appointed organs, upon a disputed fact or a state of facts, should be regarded as a final and
conclusive determination of the question litigated, and should forever set the controversy at
rest. Indeed, it has been well said that this maxim is more than a mere rule of law; more even
than an important principle of public policy; and that it is not too much to say that it is a
fundamental concept in the organization of every jural sytem. Public policy and sound practice
demand that, at the risk of occasional errors, judgments of courts should become final at some
definite date fixed by law. The very object for which courts were constituted was to put an end
to controversies.
It must be stressed that the Decision dated 14 December 2007 in CA-G.R. SP No. 96717 of the
Special Tenth Division of the Court of Appealswas appealed to this Court via a Petition for
Review on Certiorari under Rule 45 and was docketed asG.R No. 184463. The said Decision
resolved the issue of petitioner LIRL’s proper legal representation in favor of petitioner Quasha
Law Office. It also ruled that there was no enforcement of a foreign judgment when one of the
43
appointed liquidators terminated the legal services of private respondent Picazo Law Office and
engaged in its stead petitioner Quasha Law Office to be the duly authorized counsel of
petitioner LIRL. What is involved is the prerogative of petitioner LIRL, through its duly
authorized representative -- which, in this case, is its appointed liquidators -- to terminate and
engage the services of a counsel, which is an internal affair that requires no prior recognition in
a separate action.15On 20 October 2008, this Court issued a Resolution denying the said
Petition for Review for being filed out of time and for failure to sufficiently show any
reversible error. Thus, the 14 December 2007 Decision of the Special Tenth Division of the
Court of Appeals in CA-G.R. SP No. 96717 became final and executory.
In a related case filed before the Seventh Division of the Court of Appeals docketed as CA-G.R.
SP No. 98893,16 petitioner LIRL’s proper legal representation and Quasha Law Office’s entry of
appearance as tantamount to an enforcement of a foreign judgment, were also raised. On 26
February 2009, the said division of the Court of Appeals rendered a Decision stating that no
enforcement of a foreign judgment was involved in the said case. It further decreed that
petitioner LIRL’s appointed liquidators had been duly authorized to manage petitioner LIRL. The
authority of the said liquidators extended to all of petitioner LIRL’s branches, wherever
situated, the branch in the Philippines included. Pursuant to 9 June 2006 Orders of the Hong
Kong Court, the appointed liquidators were given the power to, among other powers, "bring or
defend any action or other legal proceeding in the name and on behalf of the company or
themselves in Hong Kong, the Republic of the Philippines or attorneys in the Republic of the
Philippines or elsewhere and appoint a solicitor in Hong Kong and lawyers or assist the
Liquidators in the performance of their duties generally." No cogent reason existed to prevent
petitioner LIRL from exercising its prerogative in terminating the services of one counsel and in
engaging the services of another. Such act was purely an internal affair of the corporation,
which did not require prior recognition in a separate action.17
The aforesaid Decision of the Seventh Division of the Court of Appeals was appealed to this
Court via a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of Civil
Procedure, docketed as G.R. No. 189265. On 12 October 2009, this Court rendered a
Resolution denying the Petition for late filing, for failure to serve a copy of the Petition to the
Court of Appeals, for lack of the required number of plain copies of the Petition, and for
failure to sufficiently show any reversible error. Thus, the Decision dated 26 February 2009 of
the Seventh Division of the Court of Appeals in CA-G.R. SP No. 98893 became final and
executory.
It has already been settled in the aforesaid two Decisions that the Orders of the Hong Kong
Court appointing liquidators for petitioner LIRL did not involve the enforcement of a foreign
judgment. The act of terminating the legal services of private respondent Picazo Law Office and
engaging in its place petitioner Quasha Law Office was a mere exercise of petitioner LIRL’s
prerogative, through its appointed liquidators, which was an internal affair that required no
prior recognition in a separate action. Therefore, this Court can no longer pass upon the said
issue.
WHEREFORE, premises considered, the instant Petition for Certiorari, is hereby DISMISSED. No
costs.
SO ORDERED.

44
G.R. No. L-57338 July 23, 1987
WILLIAM B. BORTHWICK, petitioner,
vs.
HON. FLORELIANA CASTRO-BARTOLOME, Presiding Judge, Br. XV, Makati, of the Court of First
Instance of Rizal; JOSEPH E. SCALLON, and JEWELL C. SCALLON, respondents.
NARVASA, J.:
By action commenced in the Circuit Court of the First Circuit, State of Hawaii, U.S.A.,1 Joseph E.
Scallon sought to Compel payment by William B. Borthwick on four (4) promissory notes 2 in the
amounts of $32,408.95, $29,584.94, $2,832.59 and $40,000.00, plus stipulated interest.
Scallon's complaint alleged, inter alia, that Borthwick, an American citizen living in the
Philippines, owned real property interests in Hawaii where he last resided and transacted
business therein; that business dealings which transpired in Honolulu, Hawaii had given rise to
the promissory notes sued upon, and Borthwick had failed to pay the sums thereunder owing
upon maturity and despite demand.3 Attached to the complaint were the promissory notes,
which although uniformly specifying the city of Palos Verdes, Los Angeles, California as the
place of payment, also provided that —
in the event that payment *** shall not have been made in full on or before the
maturity date *** at *** (such) place ***, payee may select, at his option, Manila,
Philippines, or Honolulu, Hawaii as additional places for payment *** and *** any court
in any of said places having jurisdiction over the subject matter shall be a proper Court
for the trial of any action brought to enforce payment of this note and the law of the
place in which said action is brought shall apply. 4
Borthwick being then in Monterey, California, summons5 was served upon him personally in
that place, pursuant to Hawaiian law allowing service of process on a person outside the
territorial confines of the State, if he had otherwise submitted himself to the jurisdiction of its
courts as to causes of action arising from, among others, the act of transacting any business
within Hawaii6 — alleged to consist as to Borthwick in the negotiation and dealings regarding
the promissory notes. Borthwick ignored the summons. Default was entered against him, and in
due course a default judgment was rendered as follows:
DEFAULT JUDGMENT
That Defendant WILLIAM B. BORTHWICK having fatted to plead or otherwise defend in the
above-entitled action and his default having been duly entered herein;
Now, upon the application of the Plaintiff JOSEPH E. SCALLON and upon the affidavit that the
Defendant WILLIAM B. BORTHWICK is indebted to said Plaintiff in the sum of $104,817.48.
IT IS HEREBY ORDERED, ADJUDGED, and decreed that Plaintiff JOSEPH E. SCALLON recover from
Defendant WILLIAM B. BORTHWICK the sum of $104,817.48 together with
(1) The transaction of any business within the State;
xxx xxx xxx
(3) The ownership, use or possession of any real estate situated in this State;
xxx xxx xxx
(b) Service of process upon any person who is subject to the jurisprudence of the courts
of this State, as provided in this section, may be made as provided by sections 634-36, if
he cannot be found in the State, with the same force and effect as though summons had
been personally served within this State.
[ 634-36] Manner of service under sections 634-33 to 35.
When service of summons is provided for by sections 634-33, 634-34, or 634-35, service
shall be made by leaving a certified copy thereof with the director of regulatory agencies
45
 or his deputy, *** provided that notice of the service and a certified copy of the
summons are served upon the defendant personally by any person authorized to serve
process in the place which he may be found or appointed by the court for that purpose,
or sent by certified or registered mail ***. The service shall be deemed complete upon
delivery of the required papers to the defendant outside the State, personally or by mail
as provided; Rollo, pp. 143-144 interest in the sum of $41,807.93, costs of Court in the
sum of $37.00 and attorney's fees in the sum of $4,290.64 for a total sum of
$150,953.05.
DATED: Honolulu, Hawaii, APR. 30, 1987.
(Sgd.)
V. CHING
Clerk of the above-entitled Court 7
However, Scallon's attempts to have the judgment executed in Hawaii and California failed,
because no assets of Borthwick could be found in those states.8 Scallon and his wife, Jewell,
then came to the Philippines and on March 15, 1980 brought suit against Borthwick in the Court
of First Instance of Makati,9 seeking enforcement of the default judgment of the Hawaii Court
and asserting two other alternative causes of action.10
The sheriff's initial efforts to serve summons on Borthwick personally at his address at 861
Richmond St., Greenhills, Mandaluyong, Metro Manila having been unsuccessful — Borthwick
was "always out on official business" — the sheriff effected substituted service by leaving a
copy of the summons and the complaint with Borthwick's "house caretaker," a man named
Fred Daniel.11
Borthwick filed no answer to the Scallons' complaint. He was declared in default. After due
proceedings judgment by default was rendered against him, the dispositive portion of which
reads:
WHEREFORE, judgment is hereby rendered as follows:
1. The decision of the Court of Hawaii in Civil Case No. 56660 reading:
IT IS HEREBY ORDERED, ADJUDGED AND DECREED that Plaintiff JOSEPH E.
SCALLON recover from Defendant WILLIAM B. BORTHWICK the sum of
$104,817.48 together with interest in the sum of $41,807.93, costs of Court in
the sum of $37.00 and attorney's fees in the sum of $4,290.64 for a total sum of
$150,53.05.
may be, as it is hereby ordered, enforced in the Philippines.
2. The second alternative cause of action in the event that the satisfaction of the said
judgment becomes impossible, the rescission of the agreement (Exh. L) of the parties is
hereby granted. Defendant Borthwick is hereby ordered:
(a) To return and deliver to plaintiffs Joseph and Jewell Scallon their 800 shares
of stock of Manila Memorial Park Cemetery, Inc. and 180 shares of stock of
Trans-Pacific Development Management Corporation, together with any and/or
all stock dividends, cash dividends and similar corporate distributions accruing to
said shares of stock from and after December 3, 1973 (the date of the
Agreement, Exh. L);
(b) In the event that such shares cannot be returned and delivered, to pay to
plaintiff Scallon the value of the same from the execution of the agreement, Exh.
L, together with any increase in value from the said date to the finality of this
judgment.
SO ORDERED. 12
46
Again, it was with Fred Daniel, Identifying himself as Borthwick's "houseboy," that a copy of the
decision was left.13
No response from Borthwick was forthcoming until after the Court subsequently amended its
judgment so as to make the sums due under the Hawaii Court decision payable in their
equivalent in Philippine currency.14 Notice of this amendatory order was somehow personally
accepted by Borthwick at this time. Borthwick then moved for a new trial, claiming that it was
by accident, mistake and excusable negligence that his "off and on itinerant gardener," Daniel,
failed to transmit the summons to him, which omission consequently prevented Borthwick
from knowing of the judicial proceedings against him. Alleging too that "the promissory notes
did not arise from business dealings in Hawaii," nor "did (he) own real estate"
therein,15 Borthwick contended that the judgment sought to be enforced was invalid for want
of jurisdiction of the Hawaii Court over the cause of action and over his person.
The motion for new trial was denied by the Trial Court upon the factual finding that "Fred
Daniel is a responsible person" "of suitable age and discretion" "resident of the address *** (of
the) defendant" on whom substituted service of summons had been duly made. 16 As to
Borthwick's attack on the validity of the foreign judgment, the Trial Court ruled that "under the
** (Hawaii Revised Statute) cited by the defendant the Hawaii Court has jurisdiction" because
the factual premises upon which the exercise of such jurisdiction was based "had not been
refuted by the defendant" although he "appears to be a lawyer, and the summons in the Hawaii
case was served personally on him."17 Finally, the Trial Court disposed of Borthwick's other
defenses18 saying that the present action "is (for) the enforcement of a foreign judgment"
where the validity of his defenses to the original action is immaterial.19 Borthwick proceeded
directly to this Court and filed a petition for review,20 raising issues of law, framed as follows:
1. Is a foreign judgment against a person rendered without jurisdiction over the cause of
action and without proper summons to the defendant enforceable in the Philippines?
2. Has the respondent Judge acquired jurisdiction over the person of defendant when
summons was served on an itinerant gardener who did not reside in defendant's house?
3. Where a motion for new trial was filed on time, duly supported with affidavits to
prove the grounds relied upon, should not the Court grant the same? 21
It is true that a foreign judgment against a person is merely "presumptive evidence of a right as
between the parties," and rejection thereof may be justified, among others, by "evidence of a
want of jurisdiction" of the issuing authority, under Rule 39 of the Rules of Court. 22 In the case
at bar, the jurisdiction of the Circuit Court of Hawaii hinged entirely on the existence of either
of two facts in accordance with its State laws, i.e., either Borthwick owned real property in
Hawaii, or the promissory notes sued upon resulted from his business transactions therein.
Scallon's complaint clearly alleged both facts. Borthwick was accorded opportunity to answer
the complaint and impugn those facts, but he failed to appear and was in consequence
declared in default. There thus exists no evidence in the record of the Hawaii case upon which
to lay a conclusion of lack of jurisdiction, as Borthwick now urges.
The opportunity to negate the foreign court's competence by proving the non-existence of said
jurisdictional facts established in the original action, was again afforded to Borthwick in the
Court of First Instance of Makati, where enforcement of the Hawaii judgment was sought. This
time it was the summons of the domestic court which Borthwick chose to ignore, but with the
same result: he was declared in default. And in the default judgment subsequently
promulgated, the Court a quo decreed enforcement of the judgment affirming among others
the jurisdictional facts, that Borthwick owned real property in Hawaii and transacted business
therein.
47
In the light of these antecedents, it is plain that what Borthwick seeks in essence is one more
opportunity, a third, to challenge the jurisdiction of the Hawaii Court and the merits of the
cause of action which that Court had adjudged to have been established against him. This he
may obtain only if he succeed in showing that the declaration of his default was incorrect. He
has unfortunately not been able to do that; hence, the verdict must go against him.
It is not for this Court to disturb the express finding of the Court of First Instance that Daniel
was Borthwick's resident domestic houseboy, and of sufficient age and discretion to accept
substituted service of summons for Borthwick. Under Rule 42 of the Rules of Court, a party
appealling from the Courts of First Instance (now the Regional Trial Courts) to the Supreme
Court may "raise only questions of law (and) no other question **,"23 and is thus precluded
from impugning the factual findings of the trial court, being deemed to have admitted the
correctness of such findings24 and waived his right to open them to question.25
In any case, a review of the records shows that the Trial Court was correct in refusing to believe
Borthwick's representation that "Daniel gardens at the residence of Borthwick, then goes home
to La Union after gardening itinerantly." As said Court observed, that situation is "ridiculous," it
being I "queer and hardly coincidental why on all papers served on the defendant, it was Fred
Daniel who signed and acknowledged receipt. "26
There was therefore no error committed by the Trial Court when it denied Borthwick's motion
to lift the order of default (which is what the motion for new trial actually is) because Borthwick
had failed to establish any proper ground therefor.
WHEREFORE, the petition for review is denied, with costs against petitioner.
SO ORDERED.
Teehankee, C.J., Cruz, Paras and Gancayco, JJ., concur.

U.S. Supreme Court

Klaxon Co. v. Stentor Elec. Mfg. Co., Inc., 313 U.S. 487 (1941)
Klaxon Company v. Stentor Electric Manufacturing Co., Inc.
No. 741
Argued May 1, 2, 1941
Decided June 2, 1941
313 U.S. 487
CERTIORARI TO THE CIRCUIT COURT OF APPEALS
FOR THE THIRD CIRCUIT
Syllabus
1. In diversity of citizenship cases, the federal courts, when deciding questions of conflict of
laws, must follow the rules prevailing in the States in which they sit. Erie R. Co. v. Tompkins, 304
U. S. 64. P. 313 U. S. 496.
2. In an action in a federal court. in Delaware, for breach of a New York contract, the
applicability of a New York statute directing that interest be added to the recovery in contract
cases is a question of conflict of laws, which the federal court must determine by the law of
Delaware. P. 313 U. S. 496.
3. The Full Faith and Credit Clause does not require that a State, contrary to its own policy, shall
give effect in actions brought locally on contracts made in other States, to laws of those States
relating, not to the validity of such contracts, but to the right to add interest to the recovery as
an incidental item of damages.
Page 313 U. S. 488
48
§ 480 N.Y.Civ.Prac. Act. John Hancock Mutual Life Inc. Co. v. Yates, 299 U. S. 178, distinguished.
P. 313 U. S. 497.
115 F.2d 268, reversed.
Certiorari, 312 U.S. 674, to review the affirmance of a judgment recovered for breach of a
contract, 30 F.Supp. 425. The review in this Court was limited to the question whether § 480 of
the New York Civil Practice Act is applicable to an action in the federal court in Delaware.
Page 313 U. S. 494
MR. JUSTICE REED delivered the opinion of the Court.
The principal question in this case is whether, in diversity cases, the federal courts must follow
conflict of laws rules prevailing in the states in which they sit. We left this open in Ruhlin v. New
York Life Insurance Co.,304 U. S. 202, 304 U. S. 208, note 2. The frequent recurrence of the
problem, as well as the conflict of approach to the problem between the Third Circuit's opinion
here and that of the First Circuit in Sampson v. Channell, 110 F.2d 754, 759-762, led us to grant
certiorari.
In 1918, respondent, a New York corporation, transferred its entire business to petitioner, a
Delaware corporation. Petitioner contracted to use its best efforts to further the manufacture
and sale of certain patented devices covered by the agreement, and respondent was to have a
share of petitioner's profits. The agreement was executed in New York, the assets were
transferred there, and petitioner began performance there although later it moved its
operations to other states. Respondent was voluntarily dissolved under New York law in 1919.
Ten years later, it instituted this action in the United States District Court for the District of
Delaware, alleging that petitioner had failed to perform its agreement to use its best efforts.
Jurisdiction rested on diversity of citizenship. In 1939, respondent recovered a jury verdict of
$100,000, upon which judgment was entered. Respondent then moved to correct the judgment
by adding interest
Page 313 U. S. 495
at the rate of six percent from June 1, 1929, the date the action had been brought. The basis of
the motion was the provision in section 480 of the New York Civil Practice Act directing that, in
contract actions, interest be added to the principal sum "whether theretofore liquidated or
unliquidated." [Footnote 1] The District Court granted the motion, taking the view that the
rights of the parties were governed by New York law and that, under New York law, the
addition of such interest was mandatory. 30 F.Supp. 425, 431. The Circuit Court of Appeals
affirmed, 115 F.2d 268, 275, and we granted certiorari, limited to the question whether section
480 of the New York Civil Practice Act is applicable to an action in the federal court in Delaware.
312 U.S. 674.
The Circuit Court of Appeals was of the view that, under New York law, the right to interest
before verdict under section 480 went to the substance of the obligation, and that proper
construction of the contract in suit fixed New York as the place of performance. It then
concluded that section 480 was applicable to the case because
"it is clear by what we think is undoubtedly the better view of the law that the rules for
ascertaining the measure of damages are not a matter of procedure at all, but are
Page 313 U. S. 496
matters of substance which should be settled by reference to the law of the appropriate state
according to the type of case being tried in the forum. The measure of damages for breach of a
contract is determined by the law of the place of performance; Restatement, Conflict of Laws §
413."

49
The court referred also to section 418 of the Restatement, which makes interest part of the
damages to be determined by the law of the place of performance. Application of the New York
statute apparently followed from the court's independent determination of the "better view,"
without regard to Delaware law, for no Delaware decision or statute was cited or discussed.
We are of opinion that the prohibition declared in Erie R. Co. v. Tompkins, 304 U. S. 64, against
such independent determinations by the federal courts extends to the field of conflict of laws.
The conflict of laws rules to be applied by the federal court in Delaware must conform to those
prevailing in Delaware's state courts. [Footnote 2] Otherwise, the accident of diversity of
citizenship would constantly disturb equal administration of justice in coordinate state and
federal courts sitting side by side. See Erie R. Co. v. Tompkins, supra, at 304 U. S. 74-77. Any
other ruling would do violence to the principle of uniformity within a state upon which
the Tompkins decision is based. Whatever lack of uniformity this may produce between federal
courts in different states is attributable to our federal system, which leaves to a state, within
the limits permitted by the Constitution, the right to pursue local policies diverging from those
of its neighbors. It is not for the federal courts to thwart such local policies by enforcing an
independent "general law" of conflict of laws. Subject only to review by this Court
Page 313 U. S. 497
on any federal question that may arise, Delaware is free to determine whether a given matter is
to be governed by the law of the forum or some other law. Cf. Milwaukee County v. White
Co., 296 U. S. 268, 296 U. S. 272. This Court's views are not the decisive factor in determining
the applicable conflicts rule. Cf. Funkhouser v. J. B. Preston Co., 290 U. S. 163. And the proper
function of the Delaware federal court is to ascertain what the state law is, not what it ought to
be.
Besides these general considerations, the traditional treatment of interest in diversity cases
brought in the federal courts points to the same conclusion. Section 966 of the Revised
Statutes, 28 U.S.C. § 811, relating to interest on judgments, provides that it be calculated from
the date of judgment at such rate as is allowed by law on judgments recovered in the courts of
the state in which the court is held. In Massachusetts Benefit Association v. Miles, 137 U. S. 689,
this Court held that section 966 did not exclude the allowance of interest on verdicts as well as
judgments, and the opinion observed that "the courts of the state and the federal courts sitting
within the state should be in harmony upon this point." (P. 137 U. S. 691.)
Looking, then, to the Delaware cases, petitioner relies on one group to support his contention
that the Delaware state courts would refuse to apply § 480 of the New York Civil Practice Act,
and respondent on another to prove the contrary. We make no analysis of these Delaware
decisions, but leave this for the Circuit Court of Appeals when the case is remanded.
Respondent makes the further argument that the judgment must be affirmed because, under
the full faith and credit clause of the Constitution, Art. 4, § 1, the state courts of Delaware
would be obliged to give effect to the New York statute. The argument rests mainly on the
decision of this Court in John Hancock Mutual Life Ins. Co. v. Yates,
Page 313 U. S. 498
299 U. S. 178, where a New York statute was held such an integral part of a contract of
insurance that Georgia was compelled to sustain the contract under the full faith and credit
clause. Here, however, section 480 of the New York Civil Practice Act is in no way related to the
validity of the contract in suit, but merely to an incidental item of damages, interest, with
respect to which courts at the forum have commonly been free to apply their own or some
other law as they see fit. Nothing in the Constitution ensures unlimited extraterritorial
recognition of all statutes or of any statute under all circumstances. Pacific Employers Insurance
50
Co. v. Industrial Accident Comm'n, 306 U. S. 493; Kryger v. Wilson, 242 U. S. 171. The full faith
and credit clause does not go so far as to compel Delaware to apply section 480 if such
application would interfere with its local policy.
Accordingly, the judgment is reversed and the case remanded to the Circuit Court of Appeals
for decision in conformity with the law of Delaware.
Reversed.

United States Court of Appeals,Second Circuit.

BRIDGEWAY CORPORATION, Plaintiff-Appellant, v. CITIBANK, doing business as Citicorp N.A.,
Defendant-Appellee.
Docket No. 99-7504.
Decided: January 03, 2000
Before:  LEVAL, CALABRESI, and KATZMANN, Circuit Judges. Michael J. Calvey, New York City
(Thomas G. Amon and Mark J. Lawless, of counsel, on the brief), for Plaintiff-Appellant. J. Kelley
Nevling, Jr., New York City (Petra T. Tasheff, of counsel, on the brief), for Defendant-Appellee.
Bridgeway Corp. (“Bridgeway”), a Liberian corporation seeking to enforce a final judgment
rendered by the Supreme Court of Liberia, appeals from the district court's decision denying
Bridgeway's motion for summary judgment and granting, sua sponte, summary judgment in
favor of the nonmoving party, Citibank. The district court held, first, that Citibank was not
judicially estopped from challenging the fairness of the Liberian judicial system simply because
it had participated voluntarily in litigation in Liberia and, second, that the evidence in the record
established, as a matter of law, that the Liberian judicial system was not “a system that ․
provide[s] impartial tribunals or procedures compatible with the requirements of due process.”
Bridgeway Corp. v. Citibank, 45 F.Supp.2d 276, 288 (S.D.N.Y.1999). We affirm.
I. BACKGROUND
A. Overview of Liberian History
This appeal derives from an action by Bridgeway to enforce a money judgment against Citibank
entered by the Supreme Court of Liberia on July 28, 1995. Because the merits of this case turn
on the events surrounding the Liberian civil war during the first half of the 1990s, it is helpful to
provide a brief overview of those circumstances before proceeding to discuss the case. The
following facts are drawn from the district court's thoughtful opinion and are not traversed in
the record before us.
Liberia was founded in 1817 to resettle freed American slaves, and in 1847 it became an
independent republic. The original 1847 Constitution, amended in 1976 and again in 1986,
established a government modeled on that of the United States. Under the 1986 Constitution,
for example, the judicial powers of the Liberian government are vested in a Supreme Court and
such subordinate courts as the Legislature may establish. The Supreme Court is composed of
one chief justice and four associate justices. Justices and judges are nominated by the
President and confirmed by the Senate and have life tenure unless impeached.
From 1980 to 1989, Samuel Kanyon Doe headed a Liberian government marked by corruption
and human rights abuses, as well as by rampant inflation. In 1989, a group of dissidents seized
power and, in 1990, executed Doe. Doe's death marked the beginning of a violent seven-year
civil war. By 1991, Liberia was in effect ruled by two governments:  one controlled Monrovia,
the capital, while the other controlled the remainder of the country. Following several short-
lived cease fires, a formal peace accord was signed in August 1995. After another outbreak of

51
violence in 1996, elections were held in July 1997. In August 1997, Charles Taylor was
inaugurated and the 1986 Constitution was reinstated.
Throughout the period of civil war, Liberia's judicial system was in a state of disarray and the
provisions of the Constitution concerning the judiciary were no longer followed. Instead,
under an agreement worked out among the warring parties in 1992, the Supreme Court was
reorganized, with various factions each unilaterally appointing a specified number of justices.
The U.S. State Department Country Reports for Libiera during this period paint a bleak picture
of the Liberian judiciary. The 1994 Report observed that “corruption and incompetent
handling of cases remained a recurrent problem.” The 1996 Report stated that, “the judicial
system, already hampered by inefficiency and corruption, collapsed for six months following
the outbreak of fighting in April.”
In 1997, before elections were held, the leaders of the various factions acknowledged that the
integrity of the Supreme Court had been compromised by factional loyalties since 1992 and
agreed that the Court would have to be reconstituted so that it might gain the legitimacy that
would enable it to resolve successfully disputes that might arise concerning the elections. The
members of the Court were therefore dismissed and new members were appointed based on
the recommendations of the Liberian National Bar Association.
B. This Case
Plaintiff-appellant Bridgeway is a Liberian corporation with its principal place of business in
Monrovia, Liberia. Defendant-appellee, Citibank, is a U.S. banking corporation with its
principal place of business in New York. For many years Citibank maintained a branch in
Monrovia, but it closed that branch in January 1992 and completely withdrew from Liberia by
1995. As required by Liberian law, Citibank, before withdrawing, formulated a plan of
liquidation, which was approved by the National Bank of Liberia. According to this plan, funds
were to be remitted by Citibank to Meridian Bank Liberia Ltd., in order to meet Citibank's
obligations to depositors. Citibank alerted its customers to its plans so that they could
withrdraw their funds. On April 21, 1995, the National Bank of Liberia indicated by letter that
Citibank had satisfactorily completed the liquidation plan and was no longer licensed to do
business in Liberia.
Bridgeway had an account at Citibank's Liberian branch with a balance of $189,376.66. In
November 1992, Bridgeway brought suit in Liberia against Citibank, seeking a declaration that
Citibank was obligated to pay Bridgeway its balance in U.S. (rather than Liberian) dollars. In
August 1993, the trial court ruled in favor of Citibank. The court found that, under Liberian
law, a person may not refuse to accept Liberian dollars for the discharge of an obligation unless
there is an express agreement to the contrary and that Liberian law gives the Liberian dollar a
par value equal to the value of the U.S. dollar. The trial court also found that under
Bridgeway's contract with Citibank, the latter had the right to decide the currency in which a
withdrawal would be paid. Bridgeway appealed to the Liberian Supreme Court, which
reversed the lower court's decision and entered judgment for Bridgeway.
Bridgeway filed suit in New York state court to enforce the Liberian Supreme Court judgment,
and Citibank removed the case to the federal district court. When it became apparent that
Citibank was going to defend itself by challenging the legitimacy of the Liberian judicial system,
Bridgeway moved for summary judgment-arguing that Citibank was estopped from questioning
the fairness of the Liberian judiciary. But the district court denied that motion and, sua
sponte, granted summary judgment for Citibank. Specifically, the court found that, as a
matter of law, Liberia's courts did not constitute “a system of jurisprudence likely to secure an
impartial administration of justice” and that, as a result, the Liberian judgment was
52
unenforceable in the United States. See Bridgeway, 45 F.Supp.2d at 287. Bridgeway now
appeals.
II. DISCUSSION
A. Sua Sponte Summary Judgment Against the Moving Party
Bridgeway argues that the district court erred in granting summary judgment against it sua
sponte without prior notice. In so acting, Bridgeway alleges, the district court deprived
Bridgeway of an adequate opportunity to develop and present its case.
While it is not necessarily reversible error in our Circuit for a district court to grant summary
judgment against the moving party without notice or opportunity to defend, see Coach
Leatherware Co. v. AnnTaylor, Inc., 933 F.2d 162, 167 (2d Cir.1991) (“[The] court need not give
notice of its intention to enter summary judgment against the moving party.”), we have firmly
discouraged the practice. In Coach Leatherware Co., we made clear that grants of summary
judgment without notice will be tolerated only in the absence of “some indication that the
moving party might otherwise bring forward evidence that would affect the ․ determination,”
id., when “the facts before the district court were fully developed so that the moving party
suffered no procedural prejudice.” (Now Chief) Judge Winter stressed in his concurrence that
such “grants of summary judgment are rare and should be employed only when a court is
absolutely sure that no issue of material fact exists.” Id. at 172 (Winter, J., concurring in part
and dissenting in part);  see also Ramsey v. Coughlin, 94 F.3d 71, 74 (2d Cir.1996) (“Before
granting summary judgment sua sponte [without notice], the district court must assure itself
that following the procedures set out in Rule 56 [for notice and opportunity to defend] would
not alter the outcome.”). District courts are well advised to give clear and express notice
before granting summary judgment sua sponte, even against parties who have themselves
moved for summary judgment. The provision of such notice requires relatively little time or
effort, and it permits appellate courts much more readily to determine-as they are required to
do-whether “the absence of a cross motion affected the result.” Coach Leatherware Co., 933
F.2d at 167;  see also Snider v. Melindez, 199 F.3d 108, 113 (2d Cir.1999) (“[P]roviding the
adversely affected party with notice and an opportunity to be heard plays an important role in
establishing the fairness and reliability of the order.”).
If the district court fails to give notice before sua sponte granting summary judgment and the
moving party was, as a result, procedurally prejudiced, we must reverse. See id. A party is
procedurally prejudiced if it is surprised by the district court's action and that surprise results in
the party's failure to present evidence in support of its position. See id. If, however, the
party either cannot claim to have been surprised by the district court's action or if,
notwithstanding its surprise, the party had no additional evidence to bring, it cannot plausibly
argue that it was prejudiced by the lack of notice.
“[T]he threat of procedural prejudice is greatly diminished if the court's sua sponte
determination is based on issues identical to those raised by the moving party.” Id. In addition,
the likelihood of prejudice is greatly reduced, even when summary judgment is based upon
issues raised by the nonmoving party, if the moving party speaks to those issues in the course
of the district court proceedings.
Moreover, regardless of the basis for summary judgment, [w]here it appears clearly upon the
record that all of the evidentiary materials that a party might submit in response to a motion
for summary judgment are before the court, a sua sponte grant of summary judgment against
that party may be appropriate if those materials show that no material dispute of fact exists
and that the other party is entitled to judgment as a matter of law. Ramsey, 94 F.3d at 74. In
other words, when the moving party cannot plausibly claim that, had it been given notice of the
53
district court's consideration of summary judgment against it, it would have brought forth
additional evidence, the district court's failure to give notice is harmless and a remand is futile.
See First Financial Ins. Co. v. Allstate Interior Demolition Corp., 193 F.3d 109, 115-16 (2d
Cir.1999);  Ramsey, 94 F.3d at 74 (“The record must, therefore, reflect the losing party's
inability to enhance the evidence supporting its position and the winning party's entitlement to
judgment.”);  Coach Leatherware Co., 933 F.2d at 167 (“Absent some indication that the moving
party might otherwise bring forward evidence that would affect the court's summary judgment
determination, failure to provide an opportunity to respond is not reversible error.”).
In this case, there is nothing in the record to indicate that Bridgeway was procedurally
prejudiced by the district court's failure to give notice that it was considering a sua sponte grant
of summary judgment in favor of Citibank. First, the district court's decision was based upon
an issue clearly raised by the defendant below in its memorandum of law in opposition to
Bridgeway's motion for summary judgment. Second, Bridgeway argued in its reply to the
defendant's memorandum that the evidence it submitted was sufficient to establish that
Liberian courts constituted a “system of jurisprudence likely to secure an impartial
administration of justice.” Suppl. App. at 576. That is, the issue on which the district court
based its grant of summary judgment did not arise out of the blue but was clearly put into play
by the defendants in response to Bridgeway's motion. Moreover, Bridgeway repeatedly
claimed to the district court that it had introduced sufficient evidence concerning that very
issue. Under these circumstances, the likelihood that it was surprised by the district court's
reliance on that issue-and therefore prejudiced by the court's failure to provide notice before
granting summary judgement sua sponte to Citibank-was virtually nil.
Bridgeway did not, before the district court, raise any objections based on lack of notice. Nor
did it subsequently seek to introduce additional evidence that might have convinced the district
court to change its position. Contrast First Financial, 193 F.3d at 116 (“[T]he lack of
opportunity for [the appellant] to present evidence ․ before judgment was entered against it
was highly prejudicial. Considerable evidence supporting [the appellant's] position had come
to light during the [time] between submission of [the] motion to dismiss and the district court's
decision. Much of that evidence was eventually placed before the Court when the motions for
reconsideration were made.”). Indeed, at no point since the district court's decision has
Bridgeway identified any piece of evidence respecting the Liberian judicial system that it would
have introduced had it been given notice. We therefore conclude that Bridgeway was not
procedurally prejudiced by the district court's decision to grant summary judgment sua sponte
to Citibank, albeit without prior notice to Bridgeway, though we reemphasize that giving such
notice is certainly the preferable practice.
B. Judicial Estoppel
Bridgeway next argues that because Citibank voluntarily participated in litigation in Liberian
courts, it was judicially estopped from raising any question as to the impartiality of those courts
in the instant case. Bridgeway observes that Citibank has taken part in at least a dozen civil
cases in Liberia since 1992. And in several of those cases, Citibank appeared as a plaintiff.
Having availed itself of Liberia's courts without there raising any objections to the fairness of
Liberian justice, Citibank should now be estopped, Bridgeway argues, from calling into question
the validity of Liberian judgments. Citibank responds by arguing that its participation in
Liberian litigation did not amount to an admission of the fairness of Liberian courts.
Moreover, it argues that it could not have raised its objections to Liberia's judicial system in
Liberia, because Liberian courts routinely sanction lawyers who question the Liberian judicial
system. The district court agreed with Citibank. See Bridgeway Corp., 45 F.Supp.2d at 284.
54
 Judicial estoppel “prevents a party from asserting a factual position in a legal proceeding that
is contrary to a position previously taken by [the party] in a prior legal proceeding.” Bates v.
Long Island R.R., 997 F.2d 1028, 1037 (2d Cir.1993). In this Circuit, “[a] party invoking judicial
estoppel must show that (1) the party against whom the estoppel is asserted took an
inconsistent position in a prior proceeding and (2) that position was adopted by the first
tribunal in some manner.” Mitchell v. Washingtonville Cent. Sch. Dist., 190 F.3d 1, 6 (2d
Cir.1999). We have described the type of inconsistency required as a “clear inconsistency
between [the party's] present and former positions.” Maharaj v. Bankamerica Corp., 128 F.3d
94, 98 (2d Cir.1997).
In order for Bridgeway to prevail, we must conclude that voluntarily participating in litigation in
a foreign tribunal is fundamentally inconsistent with the belief that the tribunal is unlikely to
provide an impartial forum or one that comports with notions of due process. Such a position
is without merit. Defending a suit where one has been haled into court, and suing where
jurisdiction and venue readily exist do not constitute assertions that the relevant courts are fair
and impartial. Accordingly, we do not view Citibank's voluntary participation in Liberian
litigation, even as a plaintiff, as clearly contradictory to its present position.
C. Fairness of Liberian Courts1
i. Burden
The parties strenuously dispute who bears the ultimate burden of proof with respect to the
fairness of the Liberian judicial system. Although there are cases in which the question of the
burden might be significant, it does not ultimately matter here. Accordingly, we express no
opinion on it. Even if Citibank were to bear both the burden of production and that of
persuasion, it has come forward with sufficiently powerful and uncontradicted documentary
evidence describing the chaos within the Liberian judicial system during the period of interest
to this case to have met those burdens and to be entitled to judgment as a matter of law.
Thus, the U.S. State Department Country Reports presented by Citibank indicate that the
Liberian judicial system was in a state of disarray, as do, more subtly, the affidavits by Citibank's
Liberian counsel, H. Varney G. Sherman.
The only evidence Bridgeway has introduced in support of its position are three statements
by Liberian attorneys:  (1) an affidavit of James E. Pierre, Esq., a member of the Liberian Bar,
stating that the procedural rules of Liberia are modeled on those of New York State courts;  (2)
an affidavit introduced by Citibank, in which H. Varney G. Sherman, Citibank's Liberian counsel,
states that “the Liberian Government is patterned after the state governments of the United
States of America;” and (3) an affidavit of N. Oswald Tweh, former Vice President of the
Liberian National Bar Association, that “Liberia's judicial system was and is structured and
administered to afford party-litigants therein impartial justice.” The first statement concerns
the design of the Liberian judicial system, but says nothing about its practice during the period
in question.2 The second, in addition to suffering from the same defect as the first, does not
even discuss the Liberian judicial system directly. And the third is purely conclusory. See
Kulak v. City of New York, 88 F.3d 63, 71 (2d Cir.1996) (“[C]onclusory statements, conjecture, or
speculation by the party resisting the motion will not defeat summary judgment.”).
ii. Evidence
Summary judgment cannot be granted on the basis of inadmissible evidence. See
Fed.R.Civ.P. 56(e). And Bridgeway raises many objections to the evidence relied upon by the
district court in determining that Liberia's courts were, as a matter of law, unlikely to render
impartial justice. Although the parties argue over a variety of different pieces of evidence, in
the absence of any proof supporting Bridgeway's position, we need only consider whether
55
Citibank adduced admissible evidence in sufficient amount to make the district court's decision
regarding the performance of the Liberian judiciary during the civil war be supportable as well
as uncontroverted. In fact, all of the district court's conclusions concerning this issue can be
derived from just two sources:  the affidavits of H. Varney G. Sherman (“Sherman affidavits”)
and the U.S. State Department Country Reports for Liberia for the years 1994-1997 (“Country
Reports” or “Reports”).
Bridgeway does not object to the admissibility of the Sherman affidavits (except on the ground
that they support an argument that Bridgeway alleges Citibank is estopped from making).
Indeed, in its brief, Bridgeway cites statements derived from these very affidavits in support of
its own position. We will therefore assume that the Sherman material was properly relied
upon by the district court.3
The district court also relied quite heavily on the Country Reports. Bridgeway argues that
these Reports constitute excludable hearsay. Citibank replies that the Reports are admissible
under Federal Rule of Evidence 803(8)(C), which allows the admission of “factual findings
resulting from an investigation made pursuant to authority granted by law, unless the sources
of information or other circumstances indicate lack of trustworthiness.” See Fed.R.Evid.
803(8)(C).
Rule 803(8) “is based upon the assumption that public officers will perform their duties, that
they lack motive to falsify, and that public inspection to which many such records are subject
will disclose inaccuracies.” 31 Michael H. Graham, Federal Practice and Procedure § 6759, at
663-64 (Interim ed.1992). “ ‘Factual finding’ includes not only what happened, but how it
happened, why it happened, and who caused it to happen.” Id. at 689. The rule therefore
renders presumptively admissible “not merely ․ factual determinations in the narrow sense,
but also ․ conclusions or opinions that are based upon a factual investigation.” Gentile v.
County of Suffolk, 926 F.2d 142, 148 (2d Cir.1991).
In order to fit within the purview of Rule 803(8)(C), the evidence must (1) contain factual
findings, and (2) be based upon an investigation made pursuant to legal authority. Once a
party has shown that a set of factual findings satisfies the minimum requirements of Rule
803(8)(C), the admissibility of such factual findings is presumed. The burden to show “a lack of
trustworthiness” then shifts to the party opposing admission. See Ariza v. City of New York,
139 F.3d 132, 134 (2d Cir.1998).
In this case, there is little doubt that the Country Reports constitute “factual findings.”
Moreover, the Reports are certainly gathered pursuant to legal authority:  federal law requires
that the State Department submit the Reports annually to Congress, see 22 U.S.C. §§ 2151n(d),
2304(b) (1994 & Supp.1999). They are therefore presumptively admissible.
Bridgeway attempts to rebut this presumption by arguing that the Reports are untrustworthy,
and it points to language in the State Department's description of their preparation. The State
Department says that “[w]e have given particular attention to attaining a high standard of
consistency despite the multiplicity of sources and the obvious problems related to varying
degrees of access to information, structural differences in political and social systems, and
trends in world opinion regarding human rights practices in specific countries.” Although this
constitutes a frank recognition of the shortcomings intrinsic in any historical investigation, it
does not amount (as Bridgeway argues) to an admission of the lack of trustworthiness required
to reject the admissibility of these documents.
When evaluating the trustworthiness of a factual report, we look to (a) the timeliness of the
investigation, (b) the special skills or experience of the official, (c) whether a hearing was held
and the level at which it was conducted, and (d) possible motivation problems. See
56
Fed.R.Evid. 803(8)(C) advisory committee's note. With the exception of (c), which is not
determinative by itself, cf. id. ([T]he rule ․ assumes admissibility in the first instance but with
ample provision for escape if sufficient negative factors are present. (emphasis added)), nothing
about the Reports calls into question their reliability with respect to these factors. The
Reports are submitted annually, and are therefore investigated in a timely manner. They are
prepared by area specialists at the State Department. And nothing in the record or in
Bridgeway's briefs indicates any motive for misrepresenting the facts concerning Liberia's civil
war or its effect on the judicial system there.4 See Bank Melli Iran v. Pahlavi, 58 F.3d 1406,
1411 (9th Cir.1995) (relying on Country Reports in granting summary judgment on the issue of
the fairness of Iranian courts).
In addition to its reliance on the Sherman affidavits and the Country Reports, the district
court took judicial notice of historical facts drawn from a variety of sources. See Bridgeway,
45 F.Supp.2d at 278 n. 2. Bridgeway objects to this. Even if we agreed with Bridgeway's
objection, we would affirm the district court's decision because the facts of which the district
court took judicial notice were merely background history and of no moment to the ultimate
determination of the fairness of Liberia's courts during the period of the civil war. The
information in the district court's opinion concerning the functioning of the Liberian courts
during the war is drawn (or could easily be drawn) entirely from the Sherman affidavits and the
Country Reports, both of which were clearly admissible.
* * * * * *
Having found all of Bridgeway's contentions to be without merit, we AFFIRM the judgment of
the district court.

57
INTERNET CASES

Bensusan Restaurant Corp. v. King, 126 F.3d 25 (2d Cir. 1997)

U.S. Court of Appeals for the Second Circuit - 126 F.3d 25 (2d Cir. 1997)
Argued April 9, 1997. Decided Sept. 10, 1997

Columbia, Missouri is a small to medium size city far distant both physically and substantively
from Manhattan. It is principally a white-collar community, hosting among other institutions
Stephens College, Columbia College and the University of Missouri. It would appear to be an
ideal location for a small cabaret featuring live entertainment, and King, a Columbia resident,
undoubtedly found this to be so. Since 1980, he has operated such a club under the name "The
Blue Note" at 17 North Ninth Street in Columbia.

Plaintiff alleges in its complaint that it is "the creator of an enormously successful jazz club in
New York City called 'The Blue Note,' " which name "was registered as a federal trademark for
cabaret services on May 14, 1985." Around 1993, a Bensusan representative wrote to King
demanding that he cease and desist from calling his club The Blue Note. King's attorney
informed the writer that Bensusan had no legal right to make the demand.

Nothing further was heard from Bensusan until April 1996, when King, at the suggestion of a
local web-site design company, ThoughtPort Authority, Inc., permitted that company to create
a web-site or cyberspot on the internet for King's cabaret. This work was done in Missouri.
Bensusan then brought the instant action in the Southern District of New York, alleging
violations of sections 32(1) and 43(a) of the Lanham Act, as well as common law unfair
competition.

In addition to seeking trebled compensatory damages, punitive damages, costs and attorney's
fees, Bensusan requests that King be enjoined from using the mark "The Blue Note", or any
other indicia of the Blue Note in any manner likely to cause confusion, or to cause mistake, or
to deceive, or from otherwise representing to the public in any way that [King's club] is in any
way sponsored, endorsed, approved, or authorized by, or affiliated or connected with, Plaintiff
or its CABARET, by means of using any name, trademark, or service mark of Plaintiff or any
other names whatsoever, including but not limited to removal of Defendant's website....

The web-site describes King's establishment as "Mid-Missouri's finest live entertainment venue,
... [l]ocated in beautiful Columbia, Missouri," and it contains monthly calendars of future events
and the Missouri telephone number of King's box office. Initially, it contained the following text:
The Blue Note's CyberSpot should not be confused with one of the world's finest jazz club Blue
Note, located in the heart of New York's Greenwich Village. If you should ever find yourself in
the big apple give them a visit.

This text was followed by a hyperlink1 that could be used to connect a reader's computer to a
web-site maintained by Bensusan. When Bensusan objected to the above-quoted language,
King reworded the disclaimer and removed the hyperlink, substituting the following disclaimer
that continues in use:
58
The Blue Note, Columbia, Missouri should not be confused in any way, shape, or form with Blue
Note Records or the jazz club, Blue Note, located in New York. The CyberSpot is created to
provide information for Columbia, Missouri area individuals only, any other assumptions are
purely coincidental.

The district court dismissed the complaint in a scholarly opinion that was published in (1996).
Although we realize that attempting to apply established trademark law in the fast-developing
world of the internet is somewhat like trying to board a moving bus, we believe that well-
established doctrines of personal jurisdiction law support the result reached by the district
court.

In diversity or federal question cases the court must look first to the long-arm statute of the
forum state, in this instance, New York. If the exercise of jurisdiction is appropriate under that
statute, the court then must decide whether such exercise comports with the requisites of due
process. Because we believe that the exercise of personal jurisdiction in the instant case is
proscribed by the law of New York, we do not address the issue of due process.

The New York law dealing with personal jurisdiction based upon tortious acts of a non-
domiciliary who does not transact business in New York is contained in sub-paragraphs (a) (2)
and (a) (3) of CPLR § 302, and Bensusan claims jurisdiction with some degree of inconsistency
under both sub-paragraphs. Because King does not transact business in New York State,
Bensusan makes no claim under section 302(a) (1). The legislative intent behind the enactment
of sub-paragraphs (a) (2) and (a) (3) best can be gleaned by reviewing their disparate
backgrounds. Sub-paragraph (a) (2), enacted in 1962, provides in pertinent part that a New York
court may exercise personal jurisdiction over a non-domiciliary who "in person or through an
agent" commits a tortious act within the state. The New York Court of Appeals has construed
this provision in several cases. The Court held that the language "commits a tortious act within
the state," as contained in sub-paragraph (a) (2), is "plain and precise" and confers personal
jurisdiction over non-residents "when they commit acts within the state."

Feathers adopted the view that CPLR § 302(a) (2) reaches only tortious acts performed by a
defendant who was physically present in New York when he performed the wrongful act. The
official Practice Commentary to CPLR § 302 explains that "if a New Jersey domiciliary were to
lob a bazooka shell across the Hudson River at Grant's tomb, Feathers would appear to bar the
New York courts from asserting personal jurisdiction over the New Jersey domiciliary in an
action by an injured New York plaintiff."

The comment goes on to conclude that:

As construed by the Feathers decision, jurisdiction cannot be asserted over a nonresident under
this provision unless the nonresident commits an act in this state. This is tantamount to a
requirement that the defendant or his agent be physically present in New York.... In short, the
failure to perform a duty in New York is not a tortious act in this state, under the cases, unless
the defendant or his agent enters the state.

The Court of Appeals adhered to the Feathers holding in Kramer v. Vogl, where it said:
The failure of a man to do anything at all when he is physically in one State is not an "act" done
or "committed" in another State. His decision not to act and his not acting are both personal
59
events occurring in the physical situs. That they may have consequences elsewhere does not
alter their personal localization as acts.

In 1990, Judge McLaughlin, who wrote the above-quoted commentary on section 302(a) (2),
further evidenced his belief that the commentary correctly interpreted the statute when he
quoted its substance in Twine v. Levy, 746 F. Supp. 1202, 1206 (E.D.N.Y. 1990). As recently as
1996, another of our district judges flatly stated: To subject non-residents to New York
jurisdiction under § 302(a) (2) the defendant must commit the tort while he or she is physically
in New York State.

Like the district court in Bulk Oil, supra, 584 F. Supp. at 41, we recognize that the interpretation
of sub-paragraph (a) (2) in the line of cases above cited has not been adopted by every district
judge in the Second Circuit. However, the judges who differ are in the minority. In the absence
of some indication by the New York Court of Appeals that its decisions in Feathers and Platt, as
interpreted and construed in the above-cited majority of cases, no longer represent the law of
New York, we believe it would be impolitic for this Court to hold otherwise. Applying these
principles, we conclude that Bensusan has failed to allege that King or his agents committed a
tortious act in New York as required for exercise of personal jurisdiction under CPLR § 302(a)
(2). The acts giving rise to Bensusan's lawsuit--including the authorization and creation of King's
web site, the use of the words "Blue Note" and the Blue Note logo on the site, and the creation
of a hyperlink to Bensusan's web site--were performed by persons physically present in
Missouri and not in New York. Even if Bensusan suffered injury in New York, that does not
establish a tortious act in the state of New York within the meaning of § 302(a) (2).

Bensusan's claims under sub-paragraph (a) (3) can be quickly disposed of. Sub-paragraph (a) (2)
left a substantial gap in New York's possible exercise of jurisdiction over non-residents because
it did not cover the tort of a non-resident that took place outside of New York but caused injury
inside the state.

Accordingly, in 1966 the New York Legislature enacted sub-paragraph (a) (3), which provides in
pertinent part that New York courts may exercise jurisdiction over a non-domiciliary who
commits a tortious act without the state, causing injury to person or property within the state.
However, once again the Legislature limited its exercise of jurisdictional largess. Insofar as is
pertinent herein it restricted the exercise of jurisdiction under sub-paragraph (a) (3) to persons
who expect or should reasonably expect the tortious act to have consequences in the state and
in addition derive substantial revenue from interstate commerce. To satisfy the latter
requirement, Bensusan relies on the arguments that King participated in interstate commerce
by hiring bands of national stature and received revenue from customers--students of the
University of Missouri--who, while residing in Missouri, were domiciliaries of other states.

These alleged facts were not sufficient to establish that substantial revenues were derived from
interstate commerce, a requirement that "is intended to exclude non-domiciliaries whose
business operations are of a local character."

King's "Blue Note" cafe was unquestionably a local operation.

For all the reasons above stated, we affirm the judgment of the district court.
60
America Online, Inc. v. Superior Court (Mendoza) (2001)
OPINION

I. Introduction
This petition for writ of mandate was filed by petitioner America Online, Inc. (AOL) following
the denial of its motion to stay or dismiss a putative consumer class-action lawsuit. The motion
was based on a claim that California is an inconvenient forum in which to litigate the dispute
concerning AOL's proprietary Internet service. In support of its motion, AOL exclusively relied
on a forum selection clause in its contracts with real parties in interest, Al Mendoza, Jr.
(Mendoza) and the potential class members, which designated Virginia as the jurisdiction in
which all disputes arising out of the relationship would be litigated. The agreement also
included a choice of law provision requiring that Virginia law be applied to any such dispute.

We conclude the court properly denied AOL's motion. First, one of the causes of action seeks
class action relief under the California Consumers [90 Cal. App. 4th 5] Legal Remedies Act
(CLRA) (Civ. Code, § 1750 et seq.). This act contains a provision that voids any purported waiver
of rights under the CLRA as being contrary to California public policy. Enforcement of the
contractual forum selection and choice of law clauses would be the functional equivalent of a
contractual waiver of the consumer protections under the CLRA and, thus, is prohibited under
California law.

Second, we conclude that Virginia law does not allow consumer lawsuits to be brought as class
actions and the available remedies are more limited than those afforded by California law.
Accordingly, the rights of Mendoza and the California consumer class members would be
substantially diminished if they are required to litigate their dispute in Virginia, thereby
violating an important public policy underlying California's consumer protection law. For this
independent reason, the forum selection clause is unenforceable.

II. Factual and Procedural History

A class action was filed by Mendoza for himself and others against AOL seeking compensatory
and punitive damages, injunctive relief, and restitution. The complaint alleges that real parties
are former subscribers to AOL's Internet service who, over the past four years, paid between $5
and $22 each month for the service. Monthly payments were made by allowing AOL to debit
automatically the credit cards of class members. The class members terminated their
subscriptions to AOL but, without authorization, AOL continued to debit their credit cards for
monthly service fees. Mendoza individually alleged that he gave AOL notice of the cancellation
of his subscription in October 1999, but AOL continued to charge monthly fees against his credit
card at least through February 2000, at which time Mendoza cancelled his credit card in order
to stop the debits.

The complaint alleged separate causes of action including violations of California's Unfair
Business Practices Act (first cause of action), violations of California's CLRA (second cause of
action), common law conversion/trespass (third cause of action), and common law fraud
(fourth cause of action). The complaint also prayed that the action proceed as a class action
under Code of Civil Procedure section 382, Civil Code section 1781, and Business and
Professions Code section 17204, and that Mendoza and class be awarded compensatory and

61
punitive damages, restitution, prejudgment interest, attorney fees and costs, and a permanent
injunction halting AOL's practice, and requiring it to disseminate corrective notices.

Shortly thereafter, AOL filed a motion to stay or dismiss the action on the ground of
inconvenient forum. As noted, the motion was based on the forum selection clause contained
in the "Terms of Service" (TOS) agreement entered into between Mendoza and AOL at the time
he subscribed to AOL's proprietary Internet service. The TOS, attached as exhibit A in support of
AOL's motion, is a four-and-one-half-page, single-spaced, unsigned document. Paragraph 8 of
the TOS entitled "Law and Legal Notices" states in part the following: "You expressly agree that
exclusive jurisdiction for any claim or dispute with AOL or relating in any way to your
membership or your use of AOL resides in the courts of Virginia and you further agree and
expressly consent to the exercise of personal jurisdiction in the courts of Virginia in connection
with any such dispute including any claim involving AOL or its affiliates, subsidiaries, employees,
contractors, officers, directors, telecommunications providers and content providers...."

Additionally, paragraph 8 contained a choice of law provision designating Virginia law as being
applicable to any dispute between the parties: "The laws of the Commonwealth of Virginia,
excluding its conflicts-of-law rules, govern this Agreement and your membership."
In support of its motion, AOL contended the forum selection clause was presumptively valid
under California law, was a rational, voluntary, and conscionable choice, and that its
enforcement would not violate any strong public policy of this state. Among the legal
authorities on which it relied, AOL referred to several unpublished out-of-state cases in which
the clause had been previously enforced.

In response, Mendoza objected to exhibit A, claiming that the document did not accurately
reflect what was displayed to him when he commenced service with AOL. Instead, he described
seeing displayed on his home computer monitor a "densely worded, small-size text that was
hard to read on the computer screen." This objection formed the leitmotif for Mendoza's claim
that the TOS was an unconscionable adhesion contract, and that under applicable rules of
contract construction, the forum selection clause was unenforceable. In addition, Mendoza
contended the TOS was unreasonable and unenforceable because it necessarily required him
and the putative class members to relinquish legal rights in derogation of California public
policy.

On September 25, 2000, the court entered its order denying AOL's motion. After discussing
several of the pertinent cases bearing on the issue, the court denied the motion finding that: 1)
the forum selection clause was unfair and unreasonable because it was not negotiated, it was
contained in a standard form contract, and was in a format that was not readily identifiable by
Mendoza; 2) AOL had failed to carry its burden of proving that the consumer rights afforded
under California law would not be diminished by enforcement of the clause; and 3) the
remedies available to consumers in Virginia were not comparable to those in California.

AOL filed a petition for writ of mandamus. On November 28, 2000, we issued an order to show
cause why a peremptory writ of mandamus should not issue. Thereafter, on January 4, 2001,
we discharged the order to show cause as improvidently granted, and denied the petition. AOL
then petitioned the Supreme Court for review. On February 28, 2001, the high court granted
the petition for review, and transferred the matter back to this court with directions to issue an
62
order to show cause why the relief requested in the petition should not be granted. On March
2, 2001, we issued a new order to show cause as directed by the Supreme Court.

III. Legal Discussion

A. Standard of Review and Burden of Proof

[1a] We begin by addressing the standard of review and which party had the burden of proof
below, for even these threshold issues are disputed, and not without some muddle. A decision
on a petition for writ of mandamus which will take on even greater importance in later
discussion, the Supreme Court denied a request for mandamus concluding that the trial court
"acted within its discretion" in upholding a contractual forum selection clause designating
Pennsylvania as the proper forum. This statement by our high court clearly implicates a review
of the lower court's decision utilizing the most deferential abuse of discretion standard. This
standard of review scrutinizes lower court decisions to determine if the ruling made " 'exceed[s]
the bounds of reason,' " all circumstances before it being considered. If not, the ruling will be
affirmed regardless of whether the appellate court might have decided the issue differently.

The court in Cal-State Business Products & Services, Inc. v. Ricoh (1993), described the abuse of
discretion standard as one which "measures whether the act of the lower tribunal is within the
range of options available under governing legal criteria in light of the evidence before the
tribunal."

Later, in Furda v. Superior Court (1984), the court began its analysis of the lower court's ruling
denying the defendant's motion to stay or dismiss based on forum non conveniens with the
following statement: "We next consider whether the superior court abused its discretion in
denying Furda's motion to stay or dismiss real parties' action on the ground of forum non
conveniens and the forum selection clause." Citing Furda, this division similarly began our
uncharacteristically laconic opinion in Lu v. Dryclean-U.S.A. of California, Inc. (1992), by saying
"[w]e review a trial court's decision to enforce a forum selection clause for an abuse of
discretion. “

Thus, all of these decisions, and we trust there may be more, performed the same review with
which we are charged using the abuse of discretion standard of review.

However, when faced with this question, the Sixth District, without explanation or citation to
authority, commenced its discussion in Lifeco Services Corp. v. Superior Court (1990), with this
pronouncement: "The issue is whether substantial evidence supports the trial court's finding
that enforcement of the forum selection clause is unreasonable."

This language from Lifeco was cited in Cal-State in support of the following proposition: "In
contrast with the abuse-of-discretion standard of review applicable in a noncontractual forum
non conveniens motion, a substantial-evidence standard of review applies where a forum has
been selected by contract...." As we note, the Lifeco court did not make any distinction in the
applicable standard of review based on whether the court was reviewing a contractual forum
selection clause or applying traditional forum non conveniens doctrine.

63
Nevertheless, Cal-State went on to explain why a different standard of review applied
depending on whether the motion to stay or to dismiss was contractually derived: "While none
of the contractual forum non conveniens cases have explicitly stated the standard of review, it
is apparent from their discussion that they are de facto applying the substantial-evidence test,
and there is a meaningful basis for distinction. In ruling on a forum non conveniens motion
where no contract is involved, the lower tribunal decides whether or not to exercise jurisdiction
based on the evidence before it in light of legally prescribed criteria. Some criteria may be
present, some not; ultimately, the review does not depend upon the sufficiency of the evidence
before the lower tribunal but whether it correctly applied the pertinent criteria. On the other
hand, in a contractual forum non conveniens motion, the trial court must determine if there is
sufficient evidence to satisfy the requirements for invalidating a binding contract. If the trial
court finds there are facts present that satisfy these criteria, it must act in a particular way;
there is no discretion involved. The reviewing court is thus involved in determining the
quantum of evidence adduced, not the manner in which factors were applied.

While we understand the distinction intended by Cal-State, we are not persuaded that
appellate review of a contract interpretation issue can be properly analogized to review of an
unambiguous forum selection clause. Nor, in light of the language contained in Furda and Lu, as
well as in Smith Valentino, do we see justification for the Cal-State court's conclusion that no
cases have "explicitly stated" what standard of review is applicable. Instead, given existing
guidance on this question from our Supreme Court, and the more consistent line of Court of
Appeal decisions, which likewise apply the abuse of discretion standard, we disagree with Cal-
State's conclusion that the substantial evidence standard applies instead. Therefore, we review
the lower court's decision using the abuse of discretion standard.

Turning to the question of which side has the burden of proof when a forum selection clause is
challenged, as we have noted, the trial court in the case before us found: "[D]efendant AOL did
not meet its burden of showing that the substantive rights afforded California plaintiffs were
not diminished by enforcement of the forum selection clause." (Italics added.) Normally, the
burden of proof is on the party challenging the enforcement of a contractual forum selection
clause.

[2] Wimsatt was an action by weight-loss center franchisees against their franchisor under
California's Franchise Investment Law (FIL) (Corp. Code, § 31000 et seq.). The franchisees had
signed franchise agreements which, inter alia, required them to sue in Virginia, the home state
of the franchisor. The trial court dismissed the complaint finding that the plaintiffs had "failed
to meet their 'heavy' burden of making a 'strong' showing that enforcement of the forum
selection clause would be 'so gravely difficult and inconvenient' that they would, in practical
effect, be deprived of 'their day in court.' "

In reversing, the Court of Appeal explained that in the context of that case, the customary rule
assigning the burden of proof to the party challenging the enforceability of the forum selection
clause did not apply. The court noted that the remedies sought by the franchisees were
statutorily enumerated, and were specifically designed to protect the rights of persons
purchasing and operating franchise businesses in this state. These protections included a non-
waiver statute that voids provisions in a franchise agreement purporting to waive any of the
protections under the FIL (Corp. Code, § 31512).
64
The court reasoned that a franchise agreement's forum selection clause might subject
California franchisees to litigation in a state that does not provide the same level of legal
protections afforded by California law. Under those circumstances, enforcing the forum
selection clause would effectively waive the remedies of California's FIL, thereby violating the
antiwaiver component of that law. Faced with this potential, the burden of proof was on the
franchisor to prove that enforcing the clause would not violate the statutory antiwaiver
provision of the FIL by "diminish[ing] in any way the substantive rights afforded California
franchisees under California law."

[1b] The trial court in this case concluded that because Mendoza seeks recovery, in part, under
the CLRA which contains a statutory anti-waiver provision like that involved in Wimsatt, the
burden of proof was on AOL to prove that enforcement of the forum selection clause would not
result in a significant diminution of rights to California consumers. We agree. In comparing the
purpose and remedies afforded to California franchisees under the FIL to those afforded
California, consumers under the CLRA, we find identical policy considerations which command
shifting the burden of proof here to AOL, the party seeking enforcement of the forum selection
clause, as was done in Wimsatt.

The FIL and the CLRA were each enacted to protect the statute's beneficiaries from deceptive
and unfair business practices. Each statutory scheme embodies strong remedial provisions for
violations of the statute.

[3a] Important to the trial court's finding is the fact that the CLRA, like the FIL, embeds in its
statutory scheme a provision prohibiting waivers by consumers of any of these remedies. Civil
Code section 1751 warns: "Any waiver by a consumer of the provisions of this title is contrary to
public policy and shall be unenforceable and void."

While the remedial aspects of each statutory scheme are indigenous to the business practices
regulated, in both cases the Legislature has ensured that the rights afforded to California
citizens against unfair practices cannot be diminished or avoided by contract. Where the effect
of transfer to a different forum has the potential of stripping California consumers of their legal
rights deemed by the Legislature to be nonwaivable, the burden must be placed on the party
asserting the contractual forum selection clause to prove that the CLRA's antiwaiver provisions
are not violated. For this reason we too embrace the rationale of the Wimsatt decision and
conclude that the CLRA claim pleaded by Mendoza, like the FIL claims asserted in Wimsatt,
mandates departure from the general rule which normally places the burden of proving
unfairness or unreasonableness of the forum selection clause on the party opposed to its
enforcement.

B. Overview of Forum Selection Clause Enforcement

[4a] AOL correctly posits that California favors contractual forum selection clauses so long as
they are entered into freely and voluntarily, and their enforcement would not be unreasonable.
This favorable treatment is attributed to our law's devotion to the concept of one's free right to
contract, and flows from the important practical effect such contractual rights have on
commerce generally. This division has characterized forum selection clauses as "play[ing] an
important role in both national and international commerce." The Wimsatt court similarly

65
exhorted that "[f]orum selection clauses are important in facilitating national and international
commerce, and as a general rule should be welcomed."

We agree with these sentiments, and view such clauses as likely to become even more
ubiquitous as this state and nation become acculturated to electronic commerce. Moreover,
there are strong economic arguments in support of these agreements, favoring both merchants
and consumers, including reduction in the costs of goods and services and the stimulation of e-
commerce.

But this encomium is not boundless. Our law favors forum selection agreements only so long as
they are procured freely and voluntarily, with the place chosen having some logical nexus to
one of the parties or the dispute, and so long as California consumers will not find their
substantial legal rights significantly impaired by their enforcement. Therefore, to be
enforceable, the selected jurisdiction must be "suitable," "available," and able to "accomplish
substantial justice." The trial court determined that the circumstances of contract formation did
not reflect Mendoza exercised free will, and that the effect of enforcing the forum selection
clause here would violate California public policy by eviscerating important legal rights afforded
to this state's consumers. Our task, then, is to review the record to determine if there was a
rational basis for the court's findings and the choice it made not to enforce the forum selection
clause in AOL's TOS agreement.

C. Enforcement of the Forum Selection Clause Violates Strong California Public Policy
[4b] California courts will refuse to defer to the selected forum if to do so would substantially
diminish the rights of California residents in a way that violates our state's public policy. For
example, in CQL Original Products, Inc. v. National Hockey League Players' Assn. (1995) 39
Cal.App.4th, a dispute arose following the termination of a merchandise licensing agreement
between CQL Original Products, Inc. and the National Hockey League (NHL). The merchandiser's
breach of contract suit in California was met with a motion filed by the NHL to dismiss based on
a forum selection clause contained in the licensing agreement.

The trial court granted the NHL's motion. In affirming the trial court's ruling, the appellate court
noted that "a forum selection clause will not be enforced if to do so will bring about a result
contrary to the public policy of the forum...." After reviewing the agreement in question, the
court concluded there was no public policy reason to deny enforcement of the provision.

In Hall v. Superior Court (1983) (Hall), two California investors exchanged their interests in an oil
and gas limited partnership in return for stock in one of their co-investors, Imperial Petroleum,
Inc., a Utah corporation. Closer to the facts of this case, the contract embodying their exchange
agreement contained both forum selection and choice of law provisions identifying Nevada as
the selected forum and governing law. A dispute arose, and the two investors sued Imperial in
California. Imperial asserted the forum selection clause, and the trial court found the forum
selection clause was enforceable.

In reversing the lower court's decision, the appellate court undertook an examination of both
the choice of law clause as well as the forum selection clause noting that the enforceability of
these clauses were "inextricably bound up" in one another. The reason for considering them
together was that absent a choice of law clause, the selected forum could apply California law
66
to the dispute under the selected forum's conflict of laws principles. If so, there would be no
risk that substantive law might be employed which would materially diminish rights of
California residents in violation of California public policy. However, where the effect of the
transfer would be otherwise, the forum selection clause would not be enforced: "While
'California does not have any public policy against a choice of law provision, where it is
otherwise appropriate' [citation] and 'choice of law provisions are usually respected by
California courts ...' [citing Smith Valentino, supra, 17 Cal.3d at p. 494] 'an agreement
designating [a foreign] law will not be given effect if it would violate a strong California public
policy ... [or] "result in an evasion of ... a statute of the forum protecting its citizens." '

The Hall court determined that if the pending securities litigation were transferred to Nevada
where Nevada law would be applied, the plaintiffs would lose the benefit of California's
Corporate Securities Law of 1968, which would otherwise govern the transaction in question.
This California law was designed to protect the public from fraud and deception in securities
matters, by providing statutory remedies for violations of the California Corporations Code. For
this reason, the remedial scheme, like the CRLA involved in this case, contains an anti-waiver
provision. The court concluded: "[W]e believe the right of a buyer of securities in California to
have California law and its concomitant nuances apply to any future dispute arising out of the
transaction is a 'provision' within the meaning of [Corporations Code] section 25701 which
cannot be waived or evaded by stipulation of the parties to a securities transaction.
Consequently, we hold the choice of Nevada law provision in this agreement violates section
25701 and the public policy of this state [citation] and for that reason deny enforcement of the
forum selection clause as unreasonable."

It is important to consider that the Hall court denied enforcement of the forum selection clause
solely on the inevitability that doing so would eliminate the protections of California's
Corporate Securities Law of 1968; a result prohibited by the antiwaiver feature of that law.
However, it did not compare the California statutory scheme to that afforded by Nevada law to
determine if the remedies provided by each were materially different.

[3c] The CLRA parallels the Corporate Securities Law of 1968, at issue in Hall, insofar as the
CRLA is a legislative embodiment of a desire to protect California consumers and furthers a
strong public policy of this state. "The CLRA was enacted in an attempt to alleviate social and
economic problems stemming from deceptive business practices, which were identified in the
1969 Report of the National Advisory Commission on Civil Disorders. Section 1760 contains an
express statement of legislative intent: 'This title shall be liberally construed and applied to
promote its underlying purposes, which are to protect consumers against unfair and deceptive
business practices and to provide efficient and economical procedures to secure such
protection.' "

Certainly, the CLRA provides remedial protections at least as important as those under the
Corporate Securities Law of 1968. Therefore, by parity of reasoning, enforcement of AOL's
forum selection clause, which is also accompanied by a choice of law provision favoring Virginia,
would necessitate a waiver of the statutory remedies of the CLRA, in violation of that law's
antiwaiver provision (Civ. Code, § 1751) and California public policy. For this reason alone, we
affirm the trial court's ruling.

67
This conclusion is reinforced by a statutory comparison of California and Virginia consumer
protection laws, which reveals Virginia's law provides significantly less consumer protection to
its citizens than California law provides for our own. Consumers who prove violations of the
CLRA within the three-year limitations period may be entitled to a minimum recovery of $1,000,
restitution or property, power of injunctive relief, and punitive damages. Attorney fees and
costs are also recoverable if the plaintiffs prevail on their claim under the act. In addition to
these extraordinary remedies, if the complaining consumer is a senior citizen or disabled
person, up to $5,000 may be awarded for substantial physical, emotional distress, or economic
damage. Of course, the CLRA specifies that actions under that act may be prosecuted as class
actions.

Virginia also has a statutory scheme denominated the Virginia Consumer Protection Act of 1977
(VCPA) The purpose of the VCPA is to "promote fair and ethical standards of dealings between
suppliers and the consuming public." The panoply of prohibited acts appears to be as
comprehensive as those under the CLRA, and covers the specific misconduct by AOL alleged in
Mendoza's complaint. Under the VCPA, individuals are entitled to sue and recover actual
damages, or a minimum of $500, whichever is greater. If willful misconduct is proved, the
minimum damages increase to $1000. Attorney fees and costs "may" be awarded. Restitution is
also available. However, if the violation is determined to be "unintentional," the only remedies
obtainable are restitution and attorney fees and court costs. The Virginia act has a two-year
limitations period.

The parties disagree whether, and to what extent, private injunctive relief is available under the
VCPA. The applicable statute (Va. Code Ann. § 59.1-203) is somewhat ambiguous. However, at
bottom we agree with AOL that a more reasonable reading of the statute appears to support
injunctive relief for individuals, although we do not agree that the law allows private persons to
obtain injunctive relief on behalf of others similarly situated.

In this respect injunctive relief afforded by the CLRA is unique, as its purpose is not simply to
correct future private injury but to remedy a public wrong. As explained by our Supreme Court
in Broughton, supra, 21 Cal.4th at page 1080: "Whatever the individual motive of the party
requesting injunctive relief, the benefits of granting injunctive relief by and large do not accrue
to that party, but to the general public in danger of being victimized by the same deceptive
practices as the plaintiff suffered.... In other words, the plaintiff in a CLRA damages action is
playing the role of a bona fide private attorney general.

Of greater importance is the absence of any provision in the VCPA that allows suits under the
act to proceed as class actions. Unless specifically allowed by statute, class action relief is not
generally available in Virginia in actions at law.

In contrast to Virginia consumer law's ostensible hostility to class actions, the right to seek class
action relief in consumer cases has been extolled by California courts. A notable example is the
opinion in Vasquez v. Superior Court (1971), in which the Supreme Court considered the
question of whether consumers could pursue a class action for restitution for fraud in
connection with a now-infamous installment purchase contract scheme to sell freezers and
frozen meat to California consumers. Justice Mosk, writing for a unanimous Supreme Court,

68
first noted that "[p]rotection of unwary consumers from being duped by unscrupulous sellers is
an exigency of the utmost priority in contemporary society."

Using memorable prose, Justice Mosk then explained the importance of class actions as an
instrumentality of consumer protection: "Frequently numerous consumers are exposed to the
same dubious practice by the same seller so that proof of the prevalence of the practice as to
one consumer would provide proof for all. Individual actions by each of the defrauded
consumers is often impracticable because the amount of individual recovery would be
insufficient to justify bringing a separate action; thus an unscrupulous seller retains the benefits
of its wrongful conduct. A class action by consumers produces several salutary by-products,
including a therapeutic effect upon those sellers who indulge in fraudulent practices, aid to
legitimate business enterprises by curtailing illegitimate competition, and avoidance to the
judicial process of the burden of multiple litigation involving identical claims. The benefit to the
parties and the courts would, in many circumstances, be substantial."

That this view has endured over the last 30 years is of little surprise given the importance class
action consumer litigation has come to play in this state. In light of that history, we cannot
accept AOL's assertion that the elimination of class actions for consumer remedies if the forum
selection clause is enforced is a matter of insubstantial moment. fn. 15 The unavailability of
class action relief in this context is sufficient in and by itself to preclude enforcement of the TOS
forum selection clause.

In addition to the unavailability of class actions and the apparent limitation in injunctive relief,
neither punitive damages, nor enhanced remedies for disabled and senior citizens are
recoverable under Virginia's law. More nuanced differences are the reduced recovery under the
VCPA for "unintentional" acts, a shorter period of limitations, and Virginia's use of a Lodestar
formula alone to calculate attorney fees recovery.

Quite apart from the remedial limitations under Virginia law relating to injunctive and class
action relief, the cumulative importance of even these less significant differences is substantial.
Enforcement of a forum selection clause, which would impair these aggregate rights, would
itself violate important California public policy. For this additional reason the trial court was
correct in denying AOL's motion to stay or to dismiss.

In so holding we reject Mendoza's contention that the clause should not be enforced simply
because it would be patently unreasonable to require him or other AOL customers who form
the putative class to travel to Virginia to litigate the relatively nominal individual sums at issue.
He points out that in 1998 and 1999, not a single suit by a non-Virginia resident appears to have
been filed in AOL's Virginia home county, a development Mendoza suggests is directly related
to the fact that the cost of prosecuting a claim in Virginia vastly exceeds the amounts normally
at issue in individual claims against AOL.

[4c] But the additional cost or inconvenience necessitated by litigation in the selected forum is
not part of the calculus when considering whether a forum selection clause should be enforced.
Our Supreme Court has put this matter to rest in Smith Valentino when it quoted: " 'Mere
inconvenience or additional expense is not the test of unreasonableness since it may be
assumed that the plaintiff received under the contract consideration for these things.'
69
[3d] Yet Mendoza contends that Smith Valentino's admonition not to consider convenience and
cost in evaluating the validity of forum selection clauses applies only where there remains a
"practical option [of travel to the selected forum] in terms of the expense and value of the
controversy." As we understand it, Mendoza is arguing that expense in litigating in the selected
forum can be considered if it exceeds the amount in controversy or at least renders the choice
to litigate "impractical."

We disagree that Smith Valentino can be read so narrowly. No case of which we are aware has
interpreted this language as Mendoza suggests we should. Moreover, it is not at all clear what
monetary amount was in dispute in that case, or whether it was "practical" to bring the
litigation in the selected forum. Although the current dispute between Mendoza and AOL might
make it impractical for Mendoza to pursue an individual claim in Virginia, there may be other
potential disputes between Mendoza and AOL arising from their relationship which would have
significantly greater value. Are we to parse the enforceability of the forum selection clause,
then, based on the economic value of the particular claim in issue, so that the clause can be
enforced some of the time (depending on the value of the claim), but not all of the time? If so,
should trial courts use an objective standard, or consider the proclivities of the individual
claimant who may not feel litigation in the selected forum is worth it? How should trial judges
calculate the costs of litigation? Should they consider the extent to which the selected forum
allows for the recovery of costs, including travel-related expenses? Should courts compute the
extent to which extraordinary costs in enforcing contractual rights are included in the
consideration paid for the goods or services purchased?

As can be seen, in addition to reading a limitation in our Supreme Court's opinion which is not
warranted, the practical problems in accepting Mendoza's restricted reading of Smith Valentino
are formidable, and will ensnare trial courts in endless proceedings during which these factors
would be argued and weighed. It was perhaps just such a concern that, in part, moved the
Supreme Court to pronounce costs and convenience "[are] not the test of reasonableness [of
forum selection clauses]."

We also reject AOL's suggestion made at oral argument that this conclusion is inconsistent with
our Supreme Court's decision in Broughton. That opinion holds only that remedies under the
CLRA are arbitrable so long as the substantive rights of the plaintiffs are not impaired. Indeed,
because claims for injunctive relief cannot be arbitrated, the court ordered the arbitrable
causes of action severed from the court action.

Similarly, our holding is unaffected by the recent Supreme Court decision in Washington Mutual
Bank v. Superior Court (2001). That case concerns what procedurally must be done by trial
courts considering whether to certify a national class action where the dispute arises out of a
contract containing a foreign choice of law provision. Relying on its earlier opinion in Nedlloyd
Lines B.V. v. Superior Court, the Supreme Court directed trial courts to perform a choice of law
analysis as part of the national class certification process.

As part of that analysis, courts must determine if the substantive law of the selected forum is in
conflict with a " 'fundamental public policy of California.' " If so, the choice of law provision is
not to be enforced if California has an interest in having its own law applied to the dispute. If

70
relevant at all, the legal principles underlying both Nedlloyd and Washington Mutual are
entirely consistent with our opinion.

Lastly, we are also unpersuaded by AOL's contention that the trial court erred in not granting
AOL's request for a stay of the California action to allow the Virginia court to determine
whether the relief available to Mendoza in consistent with California consumer law. AOL claims
that if the Virginia court found inconsistency, the California court could then reassert
jurisdiction, deny enforcement of the forum selection clause, and allow Mendoza to proceed in
the California forum. We reject this claim because: 1) it is unnecessary for us to defer our
decision until a Virginia course clarifies its consumer law, for we do not find Virginia consumer
law to be nearly as opaque as suggested by counsel for AOL; 2) AOL suggests no procedural
device which would allow a California court to proceed with the underlying case after a Virginia
court has ruled (see U.S. Const., art. IV, § 1); and 3) a stay would take an already financially
impractical legal dispute and compound the expense to resolve it by necessitating perhaps two
lawsuits.

IV. Disposition
The order to show cause is discharged and the petition for writ of mandate is denied. Costs are
awarded to Mendoza.
Haerle, Acting P. J., and Lambden, J., concurred.

PANAVISION INTERNATIONAL, L.P., a Delaware Limited Partnership, Plaintiff-Appellee, v.

Dennis TOEPPEN;  Network Solutions, Inc., a District of Columbia Corporation, Defendants-
Appellants.
No. 97-55467.
Decided: April 17, 1998

This case presents two novel issues. We are asked to apply existing rules of personal
jurisdiction to conduct that occurred, in part, in “cyberspace.” In addition, we are asked to
interpret the Federal Trademark Dilution Act as it applies to the Internet.

Panavision accuses Dennis Toeppen of being a “cyber pirate” who steals valuable trademarks
and establishes domain names on the Internet using these trademarks to sell the domain
names to the rightful trademark owners.

The district court found that under the “effects doctrine,” Toeppen was subject to personal
jurisdiction in California. The district court then granted summary judgment in favor of
Panavision, concluding that Toeppen's conduct violated the Federal Trademark Dilution Act of
1995, 15 U.S.C. § 1125(c), and the California Anti-dilution statute, California Business &
Professions Code § 14330. Panavision International, L.P. v. Toeppen, 945 F.Supp. 1296, 1306
(C.D.Cal.1996).

Toeppen appeals. He argues that the district court erred in exercising personal jurisdiction
over him because any contact he had with California was insignificant, emanating solely from
his registration of domain names on the Internet, which he did in Illinois. Toeppen further
71
argues that the district court erred in granting summary judgment because his use of
Panavision's trademarks on the Internet was not a commercial use and did not dilute those
marks.

We have jurisdiction under 28 U.S.C. § 1291 and we affirm. The district court's exercise of
jurisdiction was proper and comported with the requirements of due process. Toeppen did
considerably more than simply register Panavision's trademarks as his domain names on the
Internet. He registered those names as part of a scheme to obtain money from Panavision.
Pursuant to that scheme, he demanded $13,000 from Panavision to release the domain names
to it. His acts were aimed at Panavision in California, and caused it to suffer injury there.
We also conclude Panavision was entitled to summary judgment under the federal and state
dilution statutes. Toeppen made commercial use of Panavision's trademarks and his conduct
diluted those marks.

I
BACKGROUND
The Internet is a worldwide network of computers that enables various individuals and
organizations to share information. The Internet allows computer users to access millions of
web sites and web pages. A web page is a computer data file that can include names, words,
messages, pictures, sounds, and links to other information.

Every web page has its own web site, which is its address, similar to a telephone number or
street address. Every web site on the Internet has an identifier called a “domain name.” The
domain name often consists of a person's name or a company's name or trademark. For
example, Pepsi has a web page with a web site domain name consisting of the company name,
Pepsi, and . com, the “top level” domain designation:  Pepsi.com.1

The Internet is divided into several “top level” domains:  .edu for education;  .org for
organizations;  .gov for government entities;  .net for networks;  and .com for “commercial”
which functions as the catchall domain for Internet users.

Domain names with the .com designation must be registered on the Internet with Network
Solutions, Inc. (“NSI”). NSI registers names on a first-come, first-served basis for a $100
registration fee. NSI does not make a determination about a registrant's right to use a domain
name. However, NSI does require an applicant to represent and warrant as an express
condition of registering a domain name that (1) the applicant's statements are true and the
applicant has the right to use the requested domain name;  (2) the “use or registration of the
domain name ․ does not interfere with or infringe the rights of any third party in any
jurisdiction with respect to trademark, service mark, trade name, company name or any other
intellectual property right”;  and (3) the applicant is not seeking to use the domain name for any
unlawful purpose, including unfair competition.

A domain name is the simplest way of locating a web site. If a computer user does not know a
domain name, she can use an Internet “search engine.” To do this, the user types in a key
word search, and the search will locate all of the web sites containing the key word. Such key
word searches can yield hundreds of web sites. To make it easier to find their web sites,
individuals and companies prefer to have a recognizable domain name.
72
Panavision holds registered trademarks to the names “Panavision” and “Panaflex” in
connection with motion picture camera equipment. Panavision promotes its trademarks
through motion picture and television credits and other media advertising.

In December 1995, Panavision attempted to register a web site on the Internet with the domain
name Panavision.com. It could not do that, however, because Toeppen had already established
a web site using Panavision's trademark as his domain name. Toeppen's web page for this site
displayed photographs of the City of Pana, Illinois.

On December 20, 1995, Panavision's counsel sent a letter from California to Toeppen in Illinois
informing him that Panavision held a trademark in the name Panavision and telling him to stop
using that trademark and the domain name Panavision.com. Toeppen responded by mail to
Panavision in California, stating he had the right to use the name Panavision.com on the
Internet as his domain name.

Toeppen stated:
If your attorney has advised you otherwise, he is trying to screw you. He wants to blaze new
trails in the legal frontier at your expense. Why do you want to fund your attorney's purchase
of a new boat (or whatever) when you can facilitate the acquisition of ‘PanaVision.com’ cheaply
and simply instead?

Toeppen then offered to “settle the matter” if Panavision would pay him $13,000 in exchange
for the domain name. Additionally, Toeppen stated that if Panavision agreed to his offer, he
would not “acquire any other Internet addresses which are alleged by Panavision Corporation
to be its property.”

After Panavision refused Toeppen's demand, he registered Panavision's other trademark with
NSI as the domain name Panaflex.com. Toeppen's web page for Panaflex.com simply displays
the word “Hello.”

Toeppen has registered domain names for various other companies including Delta Airlines,
Neiman Marcus, Eddie Bauer, Lufthansa, and over 100 other marks. Toeppen has attempted
to “sell” domain names for other trademarks such as intermatic.com to Intermatic, Inc. for
$10,000 and americanstandard.com to American Standard, Inc. for $15,000.

Panavision filed this action against Toeppen in the District Court for the Central District of
California. Panavision alleged claims for dilution of its trademark under the Federal
Trademark Dilution Act of 1995, 15 U.S.C. § 1125(c), and under the California Anti-dilution
statute, California Business and Professions Code § 14330. Panavision alleged that Toeppen
was in the business of stealing trademarks, registering them as domain names on the Internet
and then selling the domain names to the rightful trademark owners. The district court
determined it had personal jurisdiction over Toeppen, and granted summary judgment in favor
of Panavision on both its federal and state dilution claims. This appeal followed.

II
DISCUSSION. Personal Jurisdiction

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 A district court's determination that personal jurisdiction can properly be exercised is a
question of law reviewable de novo when the underlying facts are undisputed. A district court's
factual findings regarding jurisdiction are reviewed for clear error.

There is no applicable federal statute governing personal jurisdiction in this case. Accordingly,
we apply the law of California, the state in which the district court sits. California's long-arm
statute permits a court to exercise personal jurisdiction over a defendant to the extent
permitted by the Due Process Clause of the Constitution. The issue we address, therefore, is
whether the requirements of due process are satisfied by the district court's exercise of
personal jurisdiction over Toeppen.

Personal jurisdiction may be founded on either general jurisdiction or specific jurisdiction.

1. General Jurisdiction
General jurisdiction exists when a defendant is domiciled in the forum state or his activities
there are “substantial” or “continuous and systematic.” The district court correctly concluded
that it did not have general jurisdiction over Toeppen. Toeppen is domiciled in Illinois and his
activities in California are not substantial or continuous and systematic.

2. Specific Jurisdiction
We apply a three-part test to determine if a district court may exercise specific jurisdiction:
(1) The nonresident defendant must do some act or consummate some transaction with the
forum or perform some act by which he purposefully avails himself of the privilege of
conducting activities in the forum, thereby invoking the benefits and protections of its laws;  (2)
the claim must be one which arises out of or results from the defendant's forum-related
activities;  and (3) exercise of jurisdiction must be reasonable.

The first of these requirements is purposeful availment.

a. Purposeful Availment
The purposeful availment requirement ensures that a nonresident defendant will not be
haled into court based upon “random, fortuitous or attenuated” contacts with the forum state.
This requirement is satisfied if the defendant “has taken deliberate action” toward the forum
state. It is not required that a defendant be physically present or have physical contacts with
the forum, so long as his efforts are “purposefully directed” toward forum residents.

i. Application to the Internet

Applying principles of personal jurisdiction to conduct in cyberspace is relatively new. “With
this global revolution looming on the horizon, the development of the law concerning the
permissible scope of personal jurisdiction based on Internet use is in its infant stages. The
cases are scant.” We have, however, recently addressed the personal availment aspect of
personal jurisdiction in a case involving the Internet.

In Cybersell, an Arizona corporation, Cybersell, Inc., held a registered servicemark for the name
Cybersell. A Florida corporation, Cybersell, Inc. (“Cybersell FL”), created a web site with the
domain name cybsell.com. The web page had the word “Cybersell” at the top and the phrase,
“Welcome to Cybersell!” Cybersell AZ claimed that Cybersell FL infringed its registered
74
trademark and brought an action in the district court in Arizona. We held the Arizona court
could not exercise personal jurisdiction over Cybersell FL, because it had no contacts with
Arizona other than maintaining a web page accessible to anyone over the Internet.

In reaching this conclusion in Cybersell, we carefully reviewed cases from other circuits
regarding how personal jurisdiction should be exercised in cyberspace. We concluded that no
court had ever held that an Internet advertisement alone is sufficient to subject a party to
jurisdiction in another state. In each case where personal jurisdiction was exercised, there had
been “something more” to “indicate that the defendant purposefully (albeit electronically)
directed his activity in a substantial way to the forum state.” Cybersell FL had not done this, and
the district court could not exercise personal jurisdiction over it.

Personal jurisdiction was properly exercised, however, in CompuServe, Inc. v. Patterson, 89 F.3d
1257 (6th Cir.1996). There, the Sixth Circuit held that a Texas resident who had advertised his
product via a computer information service, CompuServe, located in Ohio, was subject to
personal jurisdiction in Ohio. The court found that the Texas resident had taken direct actions
that created a connection with Ohio. He subscribed to CompuServe, he loaded his software
onto the CompuServe system for others to use, and he advertised his software on the
CompuServe system.

In the present case, the district court's decision to exercise personal jurisdiction over Toeppen
rested on its determination that the purposeful availment requirement was satisfied by the
“effects doctrine.” That doctrine was not applicable in our Cybersell case. There, we said:
 “Likewise unpersuasive is Cybersell AZ's reliance on Panavision International v. Toeppen, [the
district court's published opinion in this case], where the court found the ‘purposeful availment’
prong satisfied by the effects felt in California, the home state of Panavision, from Toeppen's
alleged out-of-state scheme to register domain names using the trademarks of California
companies, including Panavision, for the purpose of extorting fees from them. Again, there is
nothing analogous about Cybersell FL's conduct.” Our reference in Cybersell to “the effects felt
in California” was a reference to the effects doctrine.

ii. The Effects Doctrine

In tort cases, jurisdiction may attach if the defendant's conduct is aimed at or has an effect in
the forum state. Under Calder, personal jurisdiction can be based upon:  “(1) intentional actions
(2) expressly aimed at the forum state (3) causing harm, the brunt of which is suffered-and
which the defendant knows is likely to be suffered-in the forum state.”

Toeppen purposefully registered Panavision's trademarks as his domain names on the Internet
to force Panavision to pay him money. The brunt of the harm to Panavision was felt in
California. Toeppen knew Panavision would likely suffer harm there because, although at all
relevant times Panavision was a Delaware limited partnership, its principal place of business
was in California, and the heart of the theatrical motion picture and television industry is
located there. Id. at 621-622.

The harm to Panavision is similar to the harm to the Indianapolis Colts football team in
Indianapolis Colts, Inc. v. Metropolitan Baltimore Football Club Ltd. Partnership, 34 F.3d 410
There, the Indianapolis Colts brought a trademark infringement action in the district court in
75
Indiana against the Canadian Football League's new team, the “Baltimore CFL Colts.” The
Seventh Circuit held that the Baltimore CFL Colts team was subject to personal jurisdiction in
Indiana even though its only activity directed toward Indiana was the broadcast of its games on
nationwide cable television. Id. Because the Indianapolis Colts used their trademarks in
Indiana, any infringement of those marks would create an injury which would be felt mainly in
Indiana, and this, coupled with the defendant's “entry” into the state by the television
broadcasts, was sufficient for the exercise of personal jurisdiction.

Toeppen argues he has not directed any activity toward Panavision in California, much less
“entered” the state. He contends that all he did was register Panavision's trademarks on the
Internet and post web sites using those marks;  if this activity injured Panavision, the injury
occurred in cyberspace.2

We agree that simply registering someone else's trademark as a domain name and posting a
web site on the Internet is not sufficient to subject a party domiciled in one state to jurisdiction
in another. As we said in Cybersell, there must be “something more” to demonstrate that the
defendant directed his activity toward the forum state. Id. Here, that has been shown.
Toeppen engaged in a scheme to register Panavision's trademarks as his domain names for the
purpose of extorting money from Panavision. His conduct, as he knew it likely would, had the
effect of injuring Panavision in California where Panavision has its principal place of business
and where the movie and television industry is centered.3 Under the “effects test,” the
purposeful availment requirement necessary for specific, personal jurisdiction is satisfied.

b. Defendant's Forum-Related Activities

The second requirement for specific, personal jurisdiction is that the claim asserted in the
litigation arises out of the defendant's forum related activities. We must determine if the
plaintiff Panavision would not have been injured “but for” the defendant Toeppen's conduct
directed toward Panavision in California.

This requirement is satisfied. Toeppen's registration of Panavision's trademarks as his own

domain names on the Internet had the effect of injuring Panavision in California. But for
Toeppen's conduct, this injury would not have occurred. Panavision's claims arise out of
Toeppen's California-related activities.

c. Reasonableness
Even if the first two requirements are met, in order to satisfy the Due Process Clause, the
exercise of personal jurisdiction must be reasonable. For jurisdiction to be reasonable, it must
comport with “fair play and substantial justice.” “[W]here a defendant who purposefully has
directed his activities at forum residents seeks to defeat jurisdiction, he must present a
compelling case that the presence of some other considerations would render jurisdiction
unreasonable.” As we have said, Toeppen purposefully directed his activities at Panavision in
California. This placed the burden on him to “present a compelling case that the presence of
some other considerations would render jurisdiction unreasonable.”

In addressing the question of reasonableness, we consider seven factors:  (1) the extent of a
defendant's purposeful interjection;  (2) the burden on the defendant in defending in the
forum;  (3) the extent of conflict with the sovereignty of the defendant's state;  (4) the forum
76
state's interest in adjudicating the dispute;  (5) the most efficient judicial resolution of the
controversy;  (6) the importance of the forum to the plaintiff's interest in convenient and
effective relief;  and (7) the existence of an alternative forum.

No one factor is dispositive; a court must balance all seven.

The district court found that Toeppen had not presented a compelling case that jurisdiction was
unreasonable. We agree. The balance of the Burger King factors which we articulated in
Core-Vent tips in favor of the exercise of personal jurisdiction.

i. Purposeful Interjection
“Even if there is sufficient ‘interjection’ into the state to satisfy the purposeful availment prong,
the degree of interjection is a factor to be weighed in assessing the overall reasonableness of
jurisdiction under the reasonableness prong.” Here, the degree of interjection was substantial.

Toeppen's acts were aimed at Panavision in California. He registered Panavision's trademarks

as his domain names, knowing that this would likely injure Panavision in California. In addition,
he sent a letter to Panavision in California demanding $13,000 to release his registration of
Panavision.com. The purposeful interjection factor weighs strongly in favor of the district
court's exercise of personal jurisdiction.

ii. Defendant's Burden in Litigating

A defendant's burden in litigating in the forum is a factor in the assessment of reasonableness,
but unless the “inconvenience is so great as to constitute a deprivation of due process, it will
not overcome clear justifications for the exercise of jurisdiction.”

The burden on Toeppen as an individual living in Illinois to litigate in California is significant, but
the inconvenience is not so great as to deprive him of due process. As the district court
stated, “ ‘in this era of fax machines and discount air travel’ requiring Toeppen to litigate in
California is not constitutionally unreasonable.”

iii. Sovereignty
This factor concerns the extent to which the district court's exercise of jurisdiction in California
would conflict with the sovereignty of Illinois, Toeppen's state of domicile. Such a conflict is not
a concern in this case. The allegations in support of Panavision's state law claim and those in
support of its federal claim under the Trademark Dilution Act require the same analysis. The
federal analysis would be the same in either Illinois or California. In this circumstance, the
exercise of jurisdiction by a federal court in California does not implicate sovereignty concerns
of Illinois.

iv. Forum State's Interest

“California maintains a strong interest in providing an effective means of redress for its
residents tortiously injured.” Panavision's principal place of business is in California. This
factor weighs in Panavision's favor.

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v. Efficient Resolution
This factor focuses on the location of the evidence and witnesses. It is no longer weighed
heavily given the modern advances in communication and transportation. Id. In any event, due
to the limited amount of evidence and few potential witnesses in the present litigation, this
factor is probably neutral.

vi. Convenient & Effective Relief for Plaintiff

In evaluating the convenience and effectiveness of relief for the plaintiff, we have given little
weight to the plaintiff's inconvenience. It may be somewhat more costly and inconvenient for
Panavision to litigate in another forum, but the burden on Panavision is relatively slight. This
factor is essentially neutral, perhaps weighing slightly in Toeppen's favor.

vii. Alternative Forum

Panavision has not demonstrated the unavailability of an alternative forum. In this case,
Illinois is an alternative forum. As stated above, it may be more costly and inconvenient for
Panavision to litigate in Illinois, but this is not an unreasonable burden. This factor weighs in
Toeppen's favor.

In balancing the Burger King factors, we conclude that although some factors weigh in
Toeppen's favor, he failed to present a compelling case that the district court's exercise of
jurisdiction in California would be unreasonable.

We conclude that all of the requirements for the exercise of specific, personal jurisdiction are
satisfied. The district court properly exercised personal jurisdiction over Toeppen. We next
consider the district court's summary judgment in favor of Panavision on its trademark dilution
claims.

B. Trademark Dilution Claims

The Federal Trademark Dilution Act provides:
The owner of a famous mark shall be entitled ․ to an injunction against another person's
commercial use in commerce of a mark or trade name, if such use begins after the mark has
become famous and causes dilution of the distinctive quality of the mark․

The California Anti-dilution statute is similar. It prohibits dilution of “the distinctive quality” of a
mark regardless of competition or the likelihood of confusion. The protection extends only to
strong and well recognized marks. Panavision's state law dilution claim is subject to the same
analysis as its federal claim.

In order to prove a violation of the Federal Trademark Dilution Act, a plaintiff must show that
(1) the mark is famous;  (2) the defendant is making a commercial use of the mark in
commerce;  (3) the defendant's use began after the mark became famous;  and (4) the
defendant's use of the mark dilutes the quality of the mark by diminishing the capacity of the
mark to identify and distinguish goods and services.

Toeppen does not challenge the district court's determination that Panavision's trademark is
famous, that his alleged use began after the mark became famous, or that the use was in

78
commerce. Toeppen challenges the district court's determination that he made “commercial
use” of the mark and that this use caused “dilution” in the quality of the mark.

1. Commercial Use
Toeppen argues that his use of Panavision's trademarks simply as his domain names cannot
constitute a commercial use under the Act. Case law supports this argument. (“Registration of
a trade[mark] as a domain name, without more, is not a commercial use of the trademark and
therefore is not within the prohibitions of the Act.”);  

Developing this argument, Toeppen contends that a domain name is simply an address used to
locate a web page. He asserts that entering a domain name on a computer allows a user to
access a web page, but a domain name is not associated with information on a web page. If a
user were to type Panavision.com as a domain name, the computer screen would display
Toeppen's web page with aerial views of Pana, Illinois. The screen would not provide any
information about “Panavision,” other than a “location window” which displays the domain
name. Toeppen argues that a user who types in Panavision.com, but who sees no reference to
the plaintiff Panavision on Toeppen's web page, is not likely to conclude the web page is related
in any way to the plaintiff, Panavision.

Toeppen's argument misstates his use of the Panavision mark. His use is not as benign as he
suggests. Toeppen's “business” is to register trademarks as domain names and then sell them
to the rightful trademark owners. He “act[s] as a ‘spoiler,’ preventing Panavision and others
from doing business on the Internet under their trademarked names unless they pay his fee.”
This is a commercial use. (stating that “[o]ne of Toeppen's business objectives is to profit by the
resale or licensing of these domain names, presumably to the entities who conduct business
under these names.”).

As the district court found, Toeppen traded on the value of Panavision's marks. So long as he
held the Internet registrations, he curtailed Panavision's exploitation of the value of its
trademarks on the Internet, a value which Toeppen then used when he attempted to sell the
Panavision.com domain name to Panavision.

In a nearly identical case involving Toeppen and Intermatic Inc., a federal district court in Illinois
held that Toeppen's conduct violated the Federal Trademark Dilution Act. There, Intermatic
sued Toeppen for registering its trademark on the Internet as Toeppen's domain name,
intermatic.com. It was “conceded that one of Toeppen's intended uses for registering the
Intermatic mark was to eventually sell it back to Intermatic or to some other party.” The court
found that “Toeppen's intention to arbitrage the ‘intermatic.com’ domain name constitute[d] a
commercial use.”

Toeppen's reliance on Holiday Inns, Inc. v. 800 Reservation, Inc., is misplaced. In Holiday Inns,
the Sixth Circuit held that a company's use of the most commonly misdialed number for Holiday
Inns' 1-800 reservation number was not trademark infringement.

Holiday Inns is distinguishable. There, the defendant did not use Holiday Inns' trademark.
Rather, the defendant selected the most commonly misdialed telephone number for Holiday
Inns and attempted to capitalize on consumer confusion.
79
A telephone number, moreover, is distinguishable from a domain name because a domain
name is associated with a word or phrase. A domain name is similar to a “vanity number” that
identifies its source. Using Holiday Inns as an example, when a customer dials the vanity
number “1-800-Holiday,” she expects to contact Holiday Inns because the number is associated
with that company's trademark. A user would have the same expectation typing the domain
name HolidayInns.com. The user would expect to retrieve Holiday Inns' web page.4
Toeppen made a commercial use of Panavision's trademarks. It does not matter that he did
not attach the marks to a product. Toeppen's commercial use was his attempt to sell the
trademarks themselves.5 Under the Federal Trademark Dilution Act and the California Anti-
dilution statute, this was sufficient commercial use.

2. Dilution
“Dilution” is defined as “the lessening of the capacity of a famous mark to identify and
distinguish goods or services, regardless of the presence or absence of (1) competition between
the owner of the famous mark and other parties, or (2) likelihood of confusion, mistake or
deception.” Trademark dilution on the Internet was a matter of Congressional concern.
Senator Patrick Leahy (D-Vt.) stated:
[I]t is my hope that this anti-dilution statute can help stem the use of deceptive Internet
addresses taken by those who are choosing marks that are associated with the products and
reputations of others.

To find dilution, a court need not rely on the traditional definitions such as “blurring” and
“tarnishment.” 7 Indeed, in concluding that Toeppen's use of Panavision's trademarks diluted
the marks, the district court noted that Toeppen's conduct varied from the two standard
dilution theories of blurring and tarnishment.

The court found that Toeppen's conduct diminished “the capacity of the Panavision marks to
identify and distinguish Panavision's goods and services on the Internet.” (Toeppen's
registration of the domain name, “lessens the capacity of Intermatic to identify and distinguish
its goods and services by means of the Internet.”).

This view is also supported by Teletech. There, TeleTech Customer Care Management Inc.,
(“TCCM”), sought a preliminary injunction against Tele-Tech Company for use of TCCM's
registered service mark, “TeleTech,” as an Internet domain name. The district court issued an
injunction, finding that TCCM had demonstrated a likelihood of success on the merits on its
trademark dilution claim. The court found that TCCM had invested great resources in
promoting its servicemark and Teletech's registration of the domain name teletech.com on the
Internet would most likely dilute TCCM's mark.

Toeppen argues he is not diluting the capacity of the Panavision marks to identify goods or
services. He contends that even though Panavision cannot use Panavision.com and
Panaflex.com as its domain name addresses, it can still promote its goods and services on the
Internet simply by using some other “address” and then creating its own web page using its
trademarks.

We reject Toeppen's premise that a domain name is nothing more than an address. A
significant purpose of a domain name is to identify the entity that owns the web site. 8 “A
80
customer who is unsure about a company's domain name will often guess that the domain
name is also the company's name.” “[A] domain name mirroring a corporate name may be a
valuable corporate asset, as it facilitates communication with a customer base.”

Using a company's name or trademark as a domain name is also the easiest way to locate that
company's web site. Use of a “search engine” can turn up hundreds of web sites, and there is
nothing equivalent to a phone book or directory assistance for the Internet.

Moreover, potential customers of Panavision will be discouraged if they cannot find its web
page by typing in “Panavision.com,” but instead are forced to wade through hundreds of web
sites. This dilutes the value of Panavision's trademark. We echo the words of Judge Lechner,
quoting Judge Wood:  “Prospective users of plaintiff's services who mistakenly access
defendant's web site may fail to continue to search for plaintiff's own home page, due to anger,
frustration or the belief that plaintiff's home page does not exist.”

Toeppen's use of Panavision.com also puts Panavision's name and reputation at his mercy.
(“If Toeppen were allowed to use ‘intermatic.com,’ Intermatic's name and reputation would be
at Toeppen's mercy and could be associated with an unimaginable amount of messages on
Toeppen's web page.”).

We conclude that Toeppen's registration of Panavision's trademarks as his domain names on

the Internet diluted those marks within the meaning of the Federal Trademark Dilution Act, 15
U.S.C. § 1125(c), and the California Anti-dilution statute, Cal.Bus. & Prof.Code § 14330.

III
CONCLUSION
Toeppen engaged in a scheme to register Panavision's trademarks as his domain names on the
Internet and then to extort money from Panavision by trading on the value of those names.
Toeppen's actions were aimed at Panavision in California and the brunt of the harm was felt in
California. The district court properly exercised personal jurisdiction over Toeppen.

We also affirm the district court's summary judgment in favor of Panavision under the Federal
Trademark Dilution Act, 15 U.S.C. § 1125(c), and the California Anti-dilution statute, Cal.Bus. &
Prof.Code § 14330. Toeppen made commercial use of Panavision's trademarks and his
conduct diluted those marks.
AFFIRMED.

81
MARITZ, INC., Plaintiff,
v.
CYBERGOLD, INC., Defendant.

This matter is before the Court on the motion of defendant to dismiss for lack of personal
jurisdiction and improper venue [document # 18], on the motion of defendant to dismiss for
failure to state a claim and lack of subject matter jurisdiction [document # 23], and on the
motion of defendant to stay the proceedings [document # 24].

Plaintiff Maritz, Inc., has brought this action alleging that defendant Cybergold, Inc., is violating
Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), in connection with Cybergold's internet
activities. Plaintiff seeks a preliminary injunction to enjoin Cybergold's alleged trademark
infringement and unfair competition. Plaintiff also seeks an expedited hearing on the
preliminary injunction hearing. Because of plaintiff's requests for an expedited hearing on
plaintiff's motion for a preliminary injunction, the Court ordered expedited briefing on
defendant's motions to dismiss and to stay, in order to resolve threshold jurisdictional
questions in this action. (court must determine threshold matter of whether it possesses
personal jurisdiction over defendant before it can reach merits of dispute and enter legally
binding orders).

I. Personal Jurisdiction and Venue

Defendant has moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b) (2), asserting
that this Court cannot exercise personal jurisdiction over it. Defendant argues that plaintiff's
first amended complaint fails to allege any facts on which personal jurisdiction over defendant
can be based.

Whether the Court can exercise personal jurisdiction over defendant requires a two-part
inquiry. The Court first examines whether personal jurisdiction exists under Missouri's long-arm
statute.[1] Next, the Court must determine whether the exercise of personal jurisdiction is
consistent with due process.

In considering a motion under Rule 12(b) (2), the Court views the facts in a light most favorable
to plaintiff, the party opposing the motion. However, the burden remains on plaintiff to
establish that jurisdiction exists. Because the Court is ruling on the submissions of the parties,
and is not conducting an evidentiary hearing on the matter, plaintiff is required to make a
prima facie showing of personal jurisdiction over the defendant at this time.

Viewed in the light most favorable to plaintiff, defendant's contacts with Missouri are as
follows. CyberGold maintains an internet site on the World Wide Web. The server for the
website is presumably in Berkeley, California. The website is at present continually accessible to
every internet-connected computer in Missouri and the world. CyberGold's website can be
accessed at "www.cybergold.com" by any internet user.

It is estimated that there are 20 to 30 million users of the internet. Today, there are around
9,400,000 computers that have present capability to access the internet. The "internet" is
essentially a term that describes the interconnection of all of these computers to each other. It
is also referred to as "the information superhighway." The connections of these computers are
82
completed through the use of telephone lines, which electronically transmit information from
one computer to another. The internet has created a tremendous global means of rapid
exchange of information by the government, academic institutions, and commercial
entities. (describing the nature of the internet). There are at least 12,000 persons in Missouri
who have internet access, although the number may be much higher. Any internet user can
access any website, of which there are presumably hundreds of thousands, by entering into the
computer the internet address they are seeking. Internet users can also perform searches on
the internet to find websites within targeted areas of interest. Via telephone lines, the user is
connected to the website, and the user can obtain any information that has been posted at the
website for the user. The user can also interact with and send messages to that website. Upon
connecting to a website, the information is transmitted electronically to the user's computer
and quickly appears on the users screen. This transmitted information can easily be
downloaded to a disk or sent to a printer.

CyberGold's website, located at "www.cybergold.com," is operational. The website provides

information about CyberGold's new upcoming service. The website explains that the
forthcoming service will maintain a mailing list of internet users, presumably including many
residents of Missouri. An internet user who wants to be on CyberGold's mailing list provides
CyberGold with his or her particular areas of interest. CyberGold will then provide the user with
a personal electronic mailbox and will forward to the user advertisements that match the users
selected interests.[2]CyberGold plans to provide users incentives for reading the
advertisements. CyberGold plans to charge advertisers for access to the internet users on its
mailing list. CyberGold's actual service is not yet in operation.

Plaintiff asserts that this website acts as a state-wide advertisement for CyberGold's
forthcoming internet service. Plaintiff asserts that the website "invites Missourians to put their
names on CyberGold's mailing list and get up-to-date information about the company and its
forthcoming Internet service." 4.) Plaintiff also asserts that through this website "CyberGold is
also actively soliciting advertising customers" from Missouri.

Since CyberGold has set up its website, the website has been accessed through internet users
located in Missouri at least 311 times, although 180 of the 311 times were by Maritz and its
employees. CyberGold attests that, other than maintaining the website "www.cybergold.com,"
it has no other contacts with the state of Missouri.

Missouri's long-arm statute allows the exercise of jurisdiction over non-residents to the extent
permissible under the due process *1331 clause. The Missouri long-arm statute, Mo.Rev.Stat. §
506.500, provides, in relevant part:

Any person or firm, whether or not a citizen or resident of this state, or any corporation, who in
person or through an agent does any of the acts enumerated in this section, thereby submits
such person, firm, or corporation, and, if an individual, his personal representative, to the
jurisdiction of the courts of this state as to any cause of action arising from the doing of any of
such acts:

(1) The transaction of any business within this state

...
83
 (3) The commission of a tortious act within this state
...

Plaintiff asserts first that defendant meets the "transaction of any business" within the state
test. In Danforth, the Missouri supreme court held that the "transaction of any business"
requirement was satisfied where defendant conducted promotional activities directed towards
recipients located in Missouri. The defendant in Danforth had mailed into Missouri, on two
occasions, thousands of solicitations for magazine subscriptions.

Missouri courts have not addressed the issue of whether internet transmissions involving
advertising meet the "transaction of any business" test. Plaintiff's comparison of the
maintenance of a website to the active solicitation through mass mailings is to some extent
unsatisfactory in resolving the question of whether defendant's internet activities amount to
the "transaction of any business." As discussed below, there are considerable differences in the
two mediums of communication and information exchange. Because the Missouri courts
construe the Missouri long-arm statute to confer jurisdiction to the extent allowed by the Due
Process Clause, this Court will resolve the long-arm statute question in the context of the due
process clause.

It is unnecessary to decide whether defendant's activities satisfy the "transaction of any

business" test because the Court concludes that defendant is amenable to service under the
"commission of a tortious act" provision in Missouri's long-arm statute.

Plaintiff argues that CyberGold is infringing on Maritz's trademark in violation of the Lanham
Act, 15 U.S.C. § 1125(a), and that this infringement is causing economic harm and injury to
Maritz. Plaintiff asserts that the injury from infringement is occurring in Missouri, as Maritz is
located in Missouri.

A violation of the Lanham Act is tortious in nature. The courts determined that the "commission
of a tortious act" provision of Missouri's long-arm statute permitted jurisdiction over a
defendant corporation where the sole basis for jurisdiction was an extraterritorial act of
tortious interference with a contract which produced an effect in the State of Missouri. Based
on these decisions, the Court concludes that Missouri's long-arm statute reaches the
defendants, even assuming CyberGold's allegedly infringing activities were wholly outside of
Missouri, because the allegedly infringing activities have produced an effect in Missouri as they
have allegedly caused Maritz economic injury.

Both Peabody Holding Co. Inc., 808 F. Supp. at 1436-38, and May Dep't Stores Co., 900 F. Supp.
at 1161, relied upon by plaintiffs, however, concluded that, while Missouri's long-arm statute
extended to the defendants, exercising jurisdiction over the defendant corporations would
violate due process. In both cases, the plaintiffs could point to no contacts other than the
impact of the defendants' alleged tortious activity upon plaintiffs in the form of economic
damages. Such limited contact alone, was "so attenuated that the maintenance of a suit would
offend traditional notions of fair play and substantial justice."

Thus, the Court must turn to the issue of whether the Court's exercise of personal jurisdiction
over defendant CyberGold under the facts of this case would violate due process.[3] Due process
84
requires that there be "minimum contacts" between the nonresident defendant and the forum
state before a court can exercise personal jurisdiction over the defendant.

Sufficient contacts exist when the defendant's conduct and connection with the forum state are
such that he should reasonably anticipate being hailed into court there, and when the
maintenance of the suit does not offend traditional notions of fair play and substantial justice.
In assessing the defendant's "reasonable anticipation," there must be some act by which the
defendant purposefully avails itself of the privilege of conducting activities within the forum
State, thus invoking the benefits of its laws.

The Eighth Circuit has set forth a five-part test for measuring minimum contacts:

(1) the nature and quality of the contacts with the forum state;

(2) the quantity of those contacts:

(3) the relation of the cause of action to the contacts;

(4) the interest of the forum state in providing a forum for its residents;

(5) the convenience of the parties.

The first three factors are the most important.

Whether maintaining a website, such as the one maintained by CyberGold, which can be
accessed by any internet user, and which appears to be maintained for the purpose of, and in
anticipation of, being accessed and used by any and all internet users, including those residing
in Missouri, amounts to promotional activities or active solicitations such as to provide the
minimum contacts necessary for exercising personal jurisdiction over a non-resident
corporation, presents an issue of first impression to this Court. The internet, a new and rapidly
developing means of mass communication and information exchange, raises difficult questions
regarding the scope of court's personal jurisdiction in the context of due process jurisprudence.
Because the internet is an entirely new means of information exchange, analogies to cases
involving the use of mail and telephone are less than satisfactory in determining whether
defendant has "purposefully availed" itself to this forum. Unlike use of the mail, the internet,
with its electronic mail, is a tremendously more efficient, quicker, and vast means of reaching a
global audience. By simply setting up, and posting information at, a website in the form of an
advertisement or solicitation, one has done everything necessary to reach the global internet
audience.

A company's establishment of a telephone number, such as an 800 number, is not as efficient,

quick, or easy way to reach the global audience that the internet has the capability of reaching.
While the internet does operate via telephone communications, and requires users to place a
"call" to a website via the user's computer, a telephone number still requires a print media to
advertise that telephone number. Such media would likely require the employment of phone
books, newspapers, magazines, and television. Even then, an 800 number provides a less rapid
and more limited means of information exchange than a computer with information
85
downloading and printing capabilities. With a website, one need only post information at the
website. Any internet user can perform a search for selected terms or words and obtain a list of
website addresses that contain such terms or words. The user can then access any of those
websites.

In analyzing the first factor articulated by the Eighth Circuit the Court finds that the nature and
quality of contacts provided by the maintenance of a website on the internet are clearly of a
different nature and quality than other means of contact with a forum such as the mass mailing
of solicitations into a forum, or that of advertising an 800 number in a national publication.

CyberGold's posting of information about its new, up-coming service through a website seeks
to develop a mailing list of internet users, as such users are essential to the success of its
service. Clearly, CyberGold has obtained the website for the purpose of, and in anticipation
that, internet users, searching the internet for websites, will access CyberGold's website and
eventually sign up on CyberGold's mailing list. Although CyberGold characterizes its activity as
merely maintaining a "passive website," its intent is to reach all internet users, regardless of
geographic location. Defendant's characterization of its activity as passive is not completely
accurate. By analogy, if a Missouri resident would mail a letter to CyberGold in California
requesting information from CyberGold regarding its service, CyberGold would have the option
as to whether to mail information to the Missouri resident and would have to take some active
measures to respond to the mail. With CyberGold's website, CyberGold automatically and
indiscriminately responds to each and every internet user who accesses its website. Through its
website, CyberGold has consciously decided to transmit advertising information to all internet
users, knowing that such information will be transmitted globally. Thus, CyberGold's contacts
are of such a quality and nature, albeit a very new quality and nature for personal jurisdiction
jurisprudence, that they favor the exercise of personal jurisdiction over defendant.

As to the second factor the quantity of contacts the Court finds that defendant has transmitted
information into Missouri regarding its services approximately 131 times.[4] The information
transmitted is clearly intended as a promotion of CyberGold's upcoming service and a
solicitation for internet users, CyberGold's potential customers. This factor suggests that
defendant is purposefully availing itself to the privilege of conducting activities in Missouri.

As to the third factor articulated by the Eighth Circuit, the litigation in this action against
CyberGold results from alleged injuries that, at least in part, arise out of or relate to
CyberGold's website and the information posted at the website. (discussing requirements for
specific jurisdiction). The website invites internet users to use CyberGold's new service when it
becomes operational. This service and the promotional efforts that CyberGold is employing by
posting the information its website are allegedly infringing on plaintiff's alleged trademark.
While CyberGold has not yet set up its service of sending advertisements to internet users on
its mailing list, CyberGold's acts of developing a mailing list through its acceptance of addresses
on its website are also part of the allegedly infringing activity about which plaintiff complains.
Whether sufficient minimum contacts to obtain personal jurisdiction over a defendant can be
established solely through the use of computers and electronic communications is a new issue
under due process jurisprudence. Courts addressing the issue have recognized that such
communications via computer are of a different nature. The court, in addressing whether a

86
defendant's communication by posting allegedly false statements about plaintiff on an
interstate computer network could create personal jurisdiction, stated:

Not only did defendants act intentionally but, by communicating through the [computer]
network, they made their messages available to an audience wider than those requesting the
information ... Through the use of computers, corporations can now transact business and
communicate with individuals in several states simultaneously. Unlike communication by mail
or telephone, message sent through computers are available to the recipient and anyone else
who may be watching. Thus, while modern technology has made nationwide commercial
transactions simpler and more feasible, even for small businesses, it must broaden
correspondingly the permissible scope of jurisdiction exercisable by the courts.

The district court found that personal jurisdiction existed over a defendant corporation that
made its toll-free 800 number available over the internet to the residents of the forum state. In
addressing the issue of "purposeful availment," the Court stated:

[Defendant] has directed its advertising activities via the Internet and its toll-free number
toward not only the state of Connecticut, but to all states. The Internet as well as toll-free
numbers are designed to communicate with people and their businesses in every state.
Advertisement on the Internet can reach as many as 10,000 Internet users within Connecticut
alone. Further, once posted on the Internet, unlike television and radio advertising, the
advertisement is available continuously to any Internet user. [Defendant] therefore,
purposefully availed itself of the privilege of doing business within Connecticut.

Similarly, the Court concludes that defendant CyberGold, through its internet activities, has
purposefully availed itself of the privilege of doing business with this forum such that it could
reasonably anticipate the possibility of being haled into court here.

The Court also concludes that traditional notions of "fair play and substantial justice" do not
dictate against exercising personal jurisdiction over defendant in Missouri. Considerations
include the burden on defendant, the interest in the forum state in adjudicating type dispute,
the plaintiff's interest in obtaining convenient and effective relief, the interstate judicial
system's interest in obtaining the most efficient resolution of controversies, and the shared
interest of the several States in furthering fundamental substantive social policies." The State
of Missouri has an interest in resolving this case and determining whether a Missouri
corporation's trademark is being infringed in violation of a federal statute. Plaintiff likewise has
a strong interest in adjudicating this action in Missouri. Defendant, who has availed itself to this
forum has not shown that it is so burdened by defending itself in this forum that traditional
notions of fair play and substantial justice are implicated.

Defendant's argument that venue is improper must also be denied. Because the Court has
concluded it has personal jurisdiction over defendant, venue is proper in this judicial district.

II. Subject Matter Jurisdiction

Defendant has moved to dismiss plaintiff's Lanham Act claim for lack of subject matter
jurisdiction. Defendant points to allegations in plaintiff's first amended complaint that
CyberGold's advertising services are not yet available or operational. Defendant also states that
87
the complaint does not allege that CyberGold has begun rendering any internet advertising
services regarding its new service, or that CyberGold has received any payment from
prospective advertisers. Defendant argues that because CyberGold has not yet actually
rendered, sold, or transported its goods or services in commerce, plaintiff's Lanham Act claim
must be dismissed. Defendant also argues that plaintiff's service, under the name of GoldMail,
is not yet operational, but is only in the process of soliciting and enrolling customers to its
service. Defendant essentially asserts that plaintiff's Lanham Act claim is premature, as it
cannot meet the "use in commerce" test required under the Lanham Act, and that, therefore, it
must be dismissed for lack of subject matter jurisdiction.

The Lanham Act provides:

Any person who, in connection with any goods or services ... uses in commerce any word, term,
name, symbol, or device, or any combination thereof, or any false designation of origin, false or
misleading description of fact, or false or misleading representation of fact, which

(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation,

connection, or association of such person with another person, or as to the origin, sponsorship,
or approval of his or her goods, services, or commercial activities by another person ...shall be
liable in a civil action by any person who believes that he or she is or is likely to be damaged by
such act.

(1). Defendant argues that because in has not "used in commerce" any of the acts enumerated
in the statute, no claim arises under the Lanham Act and thus, the Court is without jurisdiction.
Defendant cites to Lang v. Pacific Marine and Supply Co., Ltd., in which the court held that
because defendant's ship, which contained an allegedly infringing name, was still under
construction in drydock and would not be ready for nine months, the ship had not entered into
commerce and thus, no Lanham Act claim was present. Similarly, in Cognitest Corp. v. The
Riverside Publishing Co., no Lanham Act claim could be sustained where plaintiff made only
conclusory allegations that defendant had presented its infringing program to the public at a
meeting, because the plaintiff never alleged that "the defendant's product was never used in
commerce."

Although defendant's internet service is not operational yet, plaintiff's Lanham Act claim is not
necessarily premature. A Lanham Act claim can exist even before a defendant actually opens
the business, so long as the acts of defendant are imminent and impending. The court held that
plaintiff's Lanham Act claim was not premature where defendant had printed infringing labels
and had shipped one bottle to a potential distributor.

Here, defendant clearly has not actually commenced its service of sending advertisements over
the internet to internet users on its mailing list. However, defendant does, as discussed above,
maintain a website from which it sends out information regarding its upcoming services. The
information is an advertisement of its services and solicits names and addresses of internet
users who are potential users on its mailing list. Defendant is using the internet to develop an
indispensable part of its advertising service its mailing list. Thus, because of these activities, the
Court concludes that the "uses in commerce" test has been satisfied. ("in commerce"
requirement satisfied where "service mark has been advertised significantly in travel guides or
88
publications having interstate circulation"); ("Because Internet communications transmit
instantaneously on a worldwide basis, there is little question that the `in commerce'
requirement would be met in a typical Internet message, be it trademark infringement or false
advertising"). The Court also concludes that it is imminent and impending that defendant will
be fully operating its internet advertising service in the near future. Both developing a mailing
list and obtaining advertisers are integral to defendant's business. Plaintiff need not wait until
both are fully established before it can maintain an action for violation of the Lanham Act.

III. Defendant's Motion to Stay

CyberGold has moved to stay the proceedings. As grounds for a stay, CyberGold states that, on
October 1, 1995, CyberGold filed an intent-to-use trademark application for use of the mark
"CYBERGOLD" with the United States Patent and Trademark Office (the PTO) pursuant to 15
U.S.C. § 1051(b) of the Lanham Act and that, on August 5, 1996, CyberGold's pending federal
trademark was accepted for registration and approved for publication in the Official Gazette for
opposition purposes by the PTO pursuant to 15 U.S.C. § 1062(a).[5] CyberGold asserts that
because it filed its intent-to-use application prior to any alleged activities of plaintiff and its use
of its GOLDMAIL mark, there is a high likelihood that the opposition to CyberGold's pending
federal trademark will be unsuccessful and that CyberGold's CYBERGOLD mark will be approved
for registration by the PTO under 15 U.S.C. § 1063.

If CyberGold's mark is eventually registered upon the principal register, CyberGold will be
issued a certificate of registration. 15 U.S.C. § 1057(a). Such certificate will "be prima facie
evidence of the validity of the registered mark ... and of the registrant's exclusive right to use
the registered mark in commerce on or in connection with the goods or services specified in the
certificate."

If a registration certificate is issued on the principal register, the person holding the registration
certificate for the mark has a nationwide right of priority in using such mark, dating back to the
date the person filed its application to register the mark. Such right of priority exists as to all
persons except those who, prior to the date such person filed the application to register, have
used the mark or have filed an application to register the mark which is pending or has been
registered.

Because of the pending registration of its CYBERGOLD trademark, CyberGold argues that this
Court should stay its proceedings and await the outcome of any opposition proceedings
regarding its recently published mark. CyberGold argues that the outcome of the PTO
proceedings will determine, at least through prima facie evidence, whether CyberGold has
priority in the use of its CYBERGOLD mark, and that the outcome of the PTO proceedings will
affect whether plaintiff will be able to succeed in its Lanham Act claim against CyberGold.

Under the doctrine of primary jurisdiction, a court can stay a proceeding to allow an
administrative agency to first make a determination as to an issue important to the court
proceeding. The doctrine "is concerned with promoting the proper relationships between the
courts and administrative agencies charged with regulatory duties." The doctrine "comes into
play whenever enforcement of [a] claim requires the resolution of issues which, under a
regulatory scheme, have been placed within the special competence of an administrative body;
in such a case, the judicial process is suspended pending referral of such issues to the
89
administrative body for its views." Several considerations drive the doctrine of primary
jurisdiction and whether a court should stay its proceedings and defer to an administrative
agency: (1) whether the relevant administrative agency has exclusive primary jurisdiction; (2)
whether awaiting the decision of issues by the administrative agency will be of importance in
resolving issues in the litigation before the district court; (3) whether the administrative agency
has specialized expertise and experience and the issues in dispute are not within the
conventional experience of judges; and (4) whether deferring to an administrative agency is
likely to prolong the dispute rather than lead to a judicially economical disposition.

Consideration of these factors leads to the conclusion that this action should not be stayed for
initial resolution of issues by the PTO. First, this is an action for under 15 U.S.C. § 1125(a) of the
Lanham Act for infringement and unfair competition. The PTO does not have exclusive
jurisdiction over such claims and whether to stay this action is discretionary. A PTO decision as
to whether to issue a registered trademark to CyberGold would not be determinative of any
issues in this Court's proceeding. While a PTO decision to issue a registered trademark would be
prima facie evidence of CyberGold's right of priority to use the CYBERGOLD mark, it would not
be conclusive evidence. While such a determination would be "a material aid in ultimately
deciding the issues presented before the court" it would not be dispositive of plaintiff's
infringement and unfair competition claim brought under 15 U.S.C. § 1125(a).

While the PTO clearly has specialized expertise and experience in the area of registration of
trademarks, the ultimate issue which this Court must decide is whether a violation of 15 U.S.C.
§ 1125(a) has occurred. The PTO cannot resolve such issues. Rather, the district courts are
vested with jurisdiction to hear such claims and the issues involved in such claims are within
"the conventional competence of courts."

Finally, considerations of judicial economy suggest that stay is inappropriate at the present
time. While plaintiff has indicated that it expects to file opposition to CyberGold's pending
registration in the PTO, such proceedings have not yet commenced, as CyberGold's pending
federal trademark was only recently accepted for registration and approved for publication in
the Official Gazette for opposition purposes. Also, because it appears that CyberGold is
amending its application for its federal trademark, it appears likely that a considerable amount
of time may pass before any determination is made by the PTO whether to issue a trademark
registration to CyberGold. Thus, a stay to allow the PTO to make its determinations would
cause considerable delay in these proceedings, yet would not resolve the pending dispute
between the parties. The Court will deny defendant's motion to stay.

Accordingly,
IT IS HEREBY ORDERED that the motion of defendant to dismiss for lack of personal jurisdiction
and improper venue [document # 18] is DENIED.
IT IS FURTHER ORDERED that the motion of defendant to dismiss for failure to state a claim and
lack of subject matter jurisdiction [document # 23] is DENIED.
IT IS FURTHER ORDERED that the motion of defendant to stay the proceedings [document # 24]
is DENIED.

90
COMPUSERVE, INCORPORATED, Plaintiff-Appellant, v. Richard S. PATTERSON, individually,
and Flashpoint Development, Defendants-Appellees.

In a case that requires us to consider the scope of the federal courts' jurisdictional powers in a
new context, a computer network giant, CompuServe, appeals the dismissal, for lack of
personal jurisdiction, of its complaint in which it sought a declaratory judgment that it had not
infringed on the defendants' common law copyrights or otherwise engaged in unfair
competition. The district court held that the electronic links between the defendant
Patterson, who is a Texan,1 and Ohio, where CompuServe is headquartered, were “too tenuous
to support the exercise of personal jurisdiction.” The district court also denied CompuServe's
motion for reconsideration. Because we believe that CompuServe made a prima facie
showing that the defendant's contacts with Ohio were sufficient to support the exercise of
personal jurisdiction, we REVERSE the district court's dismissal and REMAND this case for
further proceedings consistent with this opinion.

I. BACKGROUND
CompuServe is a computer information service headquartered in Columbus, Ohio. It contracts
with individual subscribers, such as the defendant, to provide, inter alia, access to computing
and information services via the Internet, and it is the second largest such provider currently
operating on the so-called “information super highway.” 2 A CompuServe subscriber may use
the service to gain electronic access to more than 1700 information services.3

CompuServe also operates as an electronic conduit to provide its subscribers computer

software products, which may originate either from CompuServe itself or from other parties.
Computer software generated and distributed in this manner is, according to CompuServe,
often referred to as “shareware.” Shareware makes money only through the voluntary
compliance of an “end user,” that is, another CompuServe subscriber who may or may not pay
the creator's suggested licensing fee if she uses the software beyond a specified trial period.
The “end user” pays that fee directly to CompuServe in Ohio, and CompuServe takes a 15% fee
for its trouble before remitting the balance to the shareware's creator. 4

Defendant, Richard Patterson, is an attorney and a resident of Houston, Texas who claims never
to have visited Ohio. Patterson also does business as FlashPoint Development. He
subscribed to CompuServe, and he also placed items of “shareware” on the CompuServe
system for others to use and purchase. When he became a shareware “provider,” Patterson
entered into a “Shareware Registration Agreement” (“SRA”) with CompuServe. Under the
SRA, CompuServe provides its subscribers with access to the software, or shareware, that
Patterson creates. The SRA purports to create an independent contractor relationship
between Patterson and CompuServe, whereby Patterson may place software of his creation on
CompuServe's system. The SRA does not mention Patterson's software by name;  in fact, it
leaves the content and identification of that software to Patterson.

The SRA incorporates by reference two other documents:  the CompuServe Service Agreement
(“Service Agreement”) and the Rules of Operation, both of which are published on the
CompuServe Information Service. Both the SRA and the Service Agreement expressly provide
that they are entered into in Ohio, and the Service Agreement further provides that it is to “be
governed by and construed in accordance with” Ohio law. These documents appear to be
91
standardized and entirely the product of CompuServe. It bears noting, however, that the SRA
asks a new shareware “provider” like Patterson to type “AGREE” at various points in the
document, “[i]n recognition of your on line agreement to all the above terms and conditions.”
Thus, Patterson's assent to the SRA was first manifested at his own computer in Texas, then
transmitted to the CompuServe computer system in Ohio.

From 1991 through 1994, Patterson electronically transmitted 32 master software files to
CompuServe. These files were stored in CompuServe's system in Ohio, and they were
displayed in different services for CompuServe subscribers, who could “download” them into
their own computers and, if they chose to do so, pay for them. Patterson also advertised his
software on the CompuServe system, and he indicated a price term in at least one of his
advertisements. CompuServe asserts that Patterson marketed his software exclusively on its
system. Patterson, for his part, stated that he has sold less than $650 worth of his software to
only 12 Ohio residents via CompuServe.

Patterson's software product was, apparently, a program designed to help people navigate
their way around the larger Internet network. CompuServe began to market a similar product,
however, with markings and names that Patterson took to be too similar to his own. Thus, in
December of 1993, Patterson notified CompuServe (appropriately via an electronic mail or “E-
mail” message 5 ) that the terms “WinNAV,” “Windows Navigator,” and “FlashPoint Windows
Navigator” were common law trademarks which he and his company owned. Patterson stated
that CompuServe's marketing of its product infringed these trademarks, and otherwise
constituted deceptive trade practices. CompuServe changed the name of its program, but
Patterson continued to complain. CompuServe asserts that, if Patterson's allegations of
trademark infringement are correct, they threaten CompuServe's software sales revenue with a
loss of approximately $10.8 million.

After Patterson demanded at least $100,000 to settle his potential claims, CompuServe filed
this declaratory judgment action in the federal district court for the Southern District of Ohio,
relying on the court's diversity subject matter jurisdiction. CompuServe sought, among other
things, a declaration that it had not infringed any common law trademarks of Patterson or
FlashPoint Development, and that it was not otherwise guilty of unfair or deceptive trade
practices. Patterson responded pro se with a consolidated motion to dismiss on several
grounds, including lack of personal jurisdiction. Patterson also submitted a supporting
affidavit, in which he denied many jurisdictional facts, including his having ever visited Ohio.
CompuServe then filed a memorandum in opposition to Patterson's consolidated motion, along
with several supporting exhibits.

The district court, considering only these pleadings and papers, granted Patterson's motion to
dismiss for lack of personal jurisdiction in a thorough and thoughtful opinion.6 At various
points in its consideration of the case, however, the district court expressly relied on
Patterson's affidavit. Joint Appendix at 97, 98, 99. The court below then denied
CompuServe's motion for a rehearing, which it construed as a motion for reconsideration under
Federal Rule of Civil Procedure 59(e). CompuServe timely appealed. Patterson, however,
filed no appellate brief, and he did not appear at oral argument.

92
II. ANALYSIS
A. Standards of Review.
We conduct a plenary review of personal jurisdiction issues.

CompuServe, as the party seeking assertion of in personam jurisdiction, bears the burden of
showing that such jurisdiction exists. When, however, a district court rules on a jurisdictional
motion to dismiss made pursuant to Federal Rule of Civil Procedure 12(b)(2) without
conducting an evidentiary hearing, the court must consider the pleadings and affidavits in a
light most favorable to the plaintiff-here, CompuServe. To defeat such a motion, a party in
CompuServe's position need only make a prima facie showing of jurisdiction.

Furthermore, a “court disposing of a 12(b)(2) motion does not weigh the controverting
assertions of the party seeking dismissal,” Patterson in this case, because we want “to prevent
non-resident defendants from regularly avoiding personal jurisdiction simply by filing an
affidavit denying all jurisdictional facts.” Id. at 1459 (emphasis added). Dismissal in this
procedural posture is proper only if all the specific facts which the plaintiff (CompuServe)
alleges collectively fail to state a prima facie case for jurisdiction.

B. Personal Jurisdiction.
This case presents a novel question of first impression:  Did CompuServe make a prima facie
showing that Patterson's contacts with Ohio, which have been almost entirely electronic in
nature, are sufficient, under the Due Process Clause, to support the district court's exercise of
personal jurisdiction over him?

The Supreme Court has noted, on more than one occasion, the confluence of the “increasing
nationalization of commerce” and “modern transportation and communication,” and the
resulting relaxation of the limits that the Due Process Clause imposes on courts' jurisdiction.
Simply stated, there is less perceived need today for the federal constitution to protect
defendants from “inconvenient litigation,” because all but the most remote forums are easily
accessible for the pursuit of both business and litigation. The Court has also, however,
reminded us that the due process rights of a defendant should be the courts' primary concern
where personal jurisdiction is at issue.

The Internet represents perhaps the latest and greatest manifestation of these historical, globe-
shrinking trends. It enables anyone with the right equipment and knowledge-that is, people
like Patterson-to operate an international business cheaply, and from a desktop. That
business operator, however, remains entitled to the protection of the Due Process Clause,
which mandates that potential defendants be able “to structure their primary conduct with
some minimum assurance as to where the conduct will and will not render them liable to suit.”
Thus, this case presents a situation where we must reconsider the scope of our jurisdictional
reach.

To determine whether personal jurisdiction exists over a defendant, federal courts apply the
law of the forum state, subject to the limits of the Due Process Clause of the Fourteenth
Amendment. “[T]he defendant must be amenable to suit under the forum state's long-arm
statute and the due process requirements of the Constitution must be met.”

93
The Ohio long-arm statute allows an Ohio court to exercise personal jurisdiction over
nonresidents of Ohio on claims arising from, inter alia, the nonresident's transacting any
business in Ohio. It is settled Ohio law, moreover, that the “transacting business” clause of that
statute was meant to extend to the federal constitutional limits of due process, and that as a
result Ohio personal jurisdiction cases require an examination of those limits.

Further, personal jurisdiction may be either general or specific in nature, depending on the
nature of the contacts in a given case. In the instant case, because CompuServe bases its action
on Patterson's act of sending his computer software to Ohio for sale on its service, CompuServe
seeks to establish such specific personal jurisdiction over Patterson.

As always in this context, the crucial federal constitutional inquiry is whether, given the facts of
the case, the nonresident defendant has sufficient contacts with the forum state that the
district court's exercise of jurisdiction would comport with “traditional notions of fair play and
substantial justice.”

This court has repeatedly employed three criteria to make this determination:

First, the defendant must purposefully avail himself of the privilege of acting in the forum state
or causing a consequence in the forum state. Second, the cause of action must arise from the
defendant's activities there. Finally, the acts of the defendant or consequences caused by the
defendant must have a substantial enough connection with the forum to make the exercise of
jurisdiction over the defendant reasonable.

We conclude that Patterson has knowingly made an effort-and, in fact, purposefully contracted-
to market a product in other states, with Ohio-based CompuServe operating, in effect, as his
distribution center. Thus, it is reasonable to subject Patterson to suit in Ohio, the state which
is home to the computer network service he chose to employ.

To support this conclusion, we will address each of the above three criteria seriatim, bearing in
mind that (1) CompuServe need only make a prima facie case of personal jurisdiction, and (2)
we cannot weigh Patterson's affidavit in the analysis, given that the district court addressed his
motion to dismiss without holding an evidentiary hearing.7

1. The “purposeful availment” requirement.

This court has stated that the question of whether a defendant has purposefully availed itself
of the privilege of doing business in the forum state is “the sine qua non for in personam
jurisdiction.”

The “purposeful availment” requirement is satisfied when the defendant's contacts with the
forum state “proximately result from actions by the defendant himself that create a ‘substantial
connection’ with the forum State,” and when the defendant's conduct and connection with the
forum are such that he “should reasonably anticipate being haled into court there.” Courts
require purposeful availment to insure that “random,” “fortuitous,” or “attenuated” contacts
do not cause a defendant to be haled into a jurisdiction. This requirement does not, however,
mean that a defendant must be physically present in the forum state. As the Burger King Corp.
Court stated, “So long as a commercial actor's efforts are ‘purposefully directed’ toward
94
residents of another State, we have consistently rejected the notion that an absence of physical
contacts can defeat personal jurisdiction there.”

Further, as this court noted long ago, Physical presence of an agent is not necessary for the
transaction of business in a state. The soliciting of insurance by mail, the transmission of radio
broadcasts into a state, and the sending of magazines and newspapers into a state to be sold
there by independent contractors are all accomplished without the physical presence of an
agent;  yet all have been held to constitute the transaction of business in a state.

There is no question that Patterson himself took actions that created a connection with Ohio in
the instant case. He subscribed to CompuServe, and then he entered into the Shareware
Registration Agreement when he loaded his software onto the CompuServe system for others
to use and, perhaps, purchase. Once Patterson had done those two things, he was on notice
that he had made contracts, to be governed by Ohio law, with an Ohio-based company. Then,
he repeatedly sent his computer software, via electronic links, to the CompuServe system in
Ohio, and he advertised that software on the CompuServe system. Moreover, he initiated the
events that led to the filing of this suit by making demands of CompuServe via electronic and
regular mail messages.

The real question is whether these connections with Ohio are “substantial” enough that
Patterson should reasonably have anticipated being haled into an Ohio court. The district
court did not think so. It looked to “cases involving interstate business negotiations and
relationships” and held that the relationship between CompuServe and Patterson, because it
was marked by a “minimal course of dealing,” was insufficient to satisfy the purposeful
availment test. Compare Reynolds, (holding that the contacts between an England-based
association and an Ohio plaintiff in a contract case were “superficial” where, although mail and
telephone communications had taken place, the parties had engaged in no prior negotiations
and expected no future consequences) and Health Communications, Inc. v. Mariner Corp.,
(finding no jurisdiction over a nonresident purchaser who had bought services from a
corporation in the forum state) with Burger King Corp., (finding significant the defendant's
reaching beyond Michigan to negotiate with a Florida corporation for the purchase of a long-
term franchise). The district court deemed this case closer to Reynolds and Health
Communications than to Burger King Corp., and thus it found no purposeful availment on the
part of Patterson.

We disagree.

The contract cases upon which the district court relied are both distinguishable in important
ways. Patterson, unlike the nonresident defendant in Reynolds, entered into a written
contract with CompuServe which provided for the application of Ohio law, and he then
purposefully perpetuated the relationship with CompuServe via repeated communications with
its system in Ohio. And, unlike the nonresident defendant in Health Communications,
Patterson was far more than a purchaser of services; he was a third-party provider of software
who used CompuServe, which is located in Columbus, to market his wares in Ohio and
elsewhere.

95
In fact, it is Patterson's relationship with CompuServe as a software provider and marketer that
is crucial to this case. The district court's analysis misses the mark because it disregards the
most salient facts of that relationship:  that Patterson chose to transmit his software from Texas
to CompuServe's system in Ohio, that myriad others gained access to Patterson's software via
that system, and that Patterson advertised and sold his product through that system. Though
all this happened with a distinct paucity of tangible, physical evidence, there can be no doubt
that Patterson purposefully transacted business in Ohio. See Plus System, Inc. v. New England
Network, Inc., (finding personal jurisdiction over a nonresident computer network defendant
because, inter alia, that defendant benefitted from the intangible computer services provided
by the plaintiff's own computer network system);  United States v. Thomas, (upholding a
conviction under federal obscenity laws where the defendants transmitted computer-
generated images across state lines, despite the defendants' argument that the images were
intangible).

Moreover, this was a relationship intended to be ongoing in nature;  it was not a “one-shot
affair.” Patterson sent software to CompuServe repeatedly for some three years, and the
record indicates that he intended to continue marketing his software on CompuServe. As this
court has often stated,

[B]usiness is transacted in a state when obligations created by the defendant or business

operations set in motion by the defendant have a realistic impact on the commerce of that
state;  and the defendant has purposefully availed himself of the opportunity of acting there if
he should have reasonably foreseen that the transaction would have consequences in that
state.

Patterson deliberately set in motion an ongoing marketing relationship with CompuServe, and
he should have reasonably foreseen that doing so would have consequences in Ohio.

Admittedly, merely entering into a contract with CompuServe would not, without more,
establish that Patterson had minimum contacts with Ohio. By the same token, Patterson's
injection of his software product into the stream of commerce, without more, would be at best
a dubious ground for jurisdiction. Because Patterson deliberately did both of those things,
however, and because of the other factors that we discuss herein, we believe that ample
contacts exist to support the assertion of jurisdiction in this case, and certainly an assertion of
jurisdiction by the state where the computer network service in question is headquartered.

We find support for our conclusion in the Ohio Supreme Court case of U.S. Sprint
Communications Co. Limited Partnership v. Mr. K's Foods, Inc., 68 Ohio St.3d 181, 624 N.E.2d
1048, 1052-54 (1994). In that case, the court held that a foreign corporation “transacted
business” in Ohio, and thus was subject to personal jurisdiction, where it frequently made long-
distance telephone calls to Ohio to sell its products, had distribution facilities in Ohio for its
products, and shipped goods to Ohio for ultimate sale.

Similarly, Patterson frequently contacted Ohio to sell his computer software over CompuServe's
Ohio-based system. Patterson repeatedly sent his “goods” to CompuServe in Ohio for their
ultimate sale. CompuServe, in effect, acted as Patterson's distributor, albeit electronically and
not physically.
96
Further, we must reject the district court's reliance on the de minimis amount of software sales
which Patterson claims he enjoyed in Ohio. As this court recently stated, “It is the ‘quality’ of
[the] contacts,” and not their number or status, that determines whether they amount to
purposeful availment. Patterson's contacts with CompuServe here were deliberate and
repeated, even if they yielded little revenue from Ohio itself.

Moreover, we should not focus solely on the sales that Patterson made in Ohio, because that
ignores the sales Patterson may have made through CompuServe to others elsewhere.
Patterson sought to make those sales from Texas by way of CompuServe's system in Ohio, and
the sales then involved the passage of funds through Ohio to Patterson in Texas. This case is
thus analogous to the Mohasco Industries case, 401 F.2d at 383-86, where this court held that
jurisdiction was proper where a nonresident defendant both (a) entered a licensing contract for
the plaintiff to manufacture and sell equipment in the forum state, and (b) contemplated the
ongoing marketing of that equipment in the forum state and elsewhere.

We also find instructive the Supreme Court case of McGee v. International Life Insurance Co.,
which held that due process did not prohibit California from asserting jurisdiction over a Texas
insurance company based upon its issuance of a single insurance contract in California and the
receipt of premium payments mailed from California. The McGee Court reasoned that (1) the
company had consciously sought the contract with the California insured, and (2) “the suit was
based on a contract which had substantial connection with that State.”

Similarly, in the instant case, Patterson consciously reached out from Texas to Ohio to subscribe
to CompuServe, and to use its service to market his computer software on the Internet. He
entered into a contract which expressly stated that it would be governed by and construed in
light of Ohio law. Ohio has written and interpreted its long-arm statute, and particularly its
“transacting business” subsection, with the intent of reaching as far as the Due Process Clause
will allow, and it certainly has an interest “in providing effective means of redress for its
residents.” As the Burger King Corp. Court noted, the purposeful direction of one's activities
toward a state has always been significant in personal jurisdiction cases, particularly where
individuals purposefully derive benefits from interstate activities. Moreover, the Court
continued, it could be unfair to allow individuals who purposefully engage in interstate
activities for profit to escape having to account in other states for the proximate consequences
of those activities.

Finally, we note this court's own finding of purposeful availment based (in part) on analogous
litigation threats in American Greetings Corp. v. Cohn). The American Greetings Corp. case
involved an Ohio corporation's suit, in Ohio, against a California shareholder who had
threatened to file a lawsuit to invalidate an amendment to the company's articles of
incorporation. The district court dismissed the case, without conducting an evidentiary hearing,
for lack of personal jurisdiction, finding that the defendant merely owned stock in an Ohio
company and expressed strong reservations about a matter of shareholder interest. This court
reversed, finding purposeful availment because of the defendant's letters and telephone calls
to Ohio, in which he had threatened suit and had sought money to release his claim. Thus,
this court stated, the defendant himself had “originated and maintained the required contacts
with Ohio.”

97
In the instant case, the record demonstrates that Patterson not only purposefully availed
himself of CompuServe's Ohio-based services to market his software, but that he also
“originated and maintained” contacts with Ohio when he believed that CompuServe's
competing product unlawfully infringed on his own software. Patterson repeatedly sent both
electronic and regular mail messages to CompuServe about his claim, and he posted a message
on one of CompuServe's electronic forums, which outlined his case against CompuServe for
anyone who wished to read it. Moreover, the record shows that Patterson demanded at least
$100,000 to settle the matter.

Thus, we believe that the facts which CompuServe has alleged, viewed in the light most
favorable to CompuServe, support a finding that Patterson purposefully availed himself of the
privilege of doing business in Ohio. He knowingly reached out to CompuServe's Ohio home,
and he benefitted from CompuServe's handling of his software and the fees that it generated.

2. The requirement that the cause of action arises from Patterson's activities in Ohio.
Even though we have found that Patterson purposefully availed himself of Ohio privileges, we
must also find that CompuServe's claims against him arise out of his activities in Ohio if we are
to find the exercise of jurisdiction proper. If a defendant's contacts with the forum state are
related to the operative facts of the controversy, then an action will be deemed to have arisen
from those contacts.

The district court viewed the presence of Patterson's software on the CompuServe system in
Ohio as “entirely incidental to the alleged dispute between the parties.” In the district court's
opinion, Patterson could have claimed trademark or trade name protection for his software
against CompuServe even if he had placed his software on another computer network
altogether, or in a retail store. Patterson's discovery of the similarity in program names may
have come to his attention through the CompuServe system, the court below noted, but it
concluded that “the way in which the parties discovered they might have a clash of legal
interests is not relevant to the issue of jurisdiction.”

Again, we must disagree with the district court's holding. The cause of action in the instant
case concerns allegations of trademark or trade name infringement and unfair competition.
Patterson's contacts with Ohio are certainly related to the operative facts of that controversy.
He placed his software on CompuServe's Ohio-based system. He used that system to
advertise his software and sell it. The proceeds of those sales flowed to him through Ohio.
According to CompuServe's allegations, Patterson has marketed his product exclusively on their
system.

As the district court points out, Patterson could have placed his software anywhere and had the
same result. Nevertheless, it is uncontroverted that Patterson placed, marketed, and sold his
software only on Ohio-based CompuServe. Thus, any common law trademark or trade name
which Patterson might have in his product would arguably have been created in Ohio, and any
violation of those alleged trademarks or trade names by CompuServe would have occurred, at
least in part, in Ohio.

Moreover, as noted heretofore with regard to the purposeful availment test, CompuServe's
declaratory judgment action arose in part because Patterson threatened, via regular and
98
electronic mail, to seek an injunction against CompuServe's sales of its software product, or to
seek damages at law if CompuServe did not pay to settle his purported claim. Thus,
Patterson's threats-which were contacts with Ohio-gave rise to the case before us, as did the
threats in the American Greetings Corp. case, 839 F.

3. The reasonableness requirement.

Lastly, we consider whether exercising personal jurisdiction over Patterson would be
reasonable, i.e., whether it would “comport with ‘traditional notions of fair play and substantial
justice.’ ” We note that, if we find, as we do, the first two elements of a prima facie case-
purposeful availment and a cause of action arising from the defendant's contacts with the
forum state-then an inference arises that this third factor is also present.

A court must consider several factors in this context, including “the burden on the
defendant, the interest of the forum state, the plaintiff's interest in obtaining relief, and the
interest of other states in securing the most efficient resolution of controversies.”

The district court analogized the instant case to a standard consumer suit in which
CompuServe might have brought suit in Ohio “to collect a small amount of user fees from a
Texas resident who, while seated at his computer terminal, became a member of the
CompuServe network.” That is not, however, the case at bar. Here, we have an entrepreneur
who purposefully employed CompuServe to market his computer software product. It may be
burdensome for Patterson to defend a suit in Ohio, but he knew when he entered into the
Shareware Registration Agreement with CompuServe that he was making a connection with
Ohio, and presumably he hoped that connection would work to his benefit. Further, Ohio has
a strong interest in resolving a dispute involving an Ohio company, which will involve the Ohio
law on common law trademarks and trade names.8 CompuServe alleges that more than $10
million could be at stake in this case, and it also contends that this case will have a profound
impact on its relationships with other “shareware” providers like Patterson, who also directed
their activities toward Ohio-based CompuServe. We have no reason to believe otherwise.
Again, considering the pleadings and affidavits in a light most favorable to CompuServe (as we
must), we find that, on these facts, there is a substantial enough connection between Patterson
and Ohio to make it reasonable for an Ohio court to assert personal jurisdiction over
him.9 Someone like Patterson who employs a computer network service like CompuServe to
market a product can reasonably expect disputes with that service to yield lawsuits in the
service's home state.

Finally, because of the unique nature of this case, we deem it important to note what we do
not hold. We need not and do not hold that Patterson would be subject to suit in any state
where his software was purchased or used;  that is not the case before us. We also do not
have before us an attempt by another party from a third state to sue Patterson in Ohio for, say,
a “computer virus” caused by his software, and thus we need not address whether personal
jurisdiction could be found on those facts. Finally, we need not and do not hold that
CompuServe may, as the district court posited, sue any regular subscriber to its service for
nonpayment in Ohio, even if the subscriber is a native Alaskan who has never left home. Each
of those cases may well arise someday, but they are not before us now.

99
III. CONCLUSION
Because we believe that Patterson had sufficient contacts with Ohio to support the exercise of
personal jurisdiction over him, we REVERSE the district court's dismissal and REMAND this case
for further proceedings consistent with this opinion.

100
ZIPPO MANUFACTURING COMPANY, Plaintiff,
v.
ZIPPO DOT COM, INC., Defendant.
January 16, 1997.

This is an Internet domain name[1] dispute. At this stage of the controversy, we must *decide
the Constitutionally permissible reach of Pennsylvania's Long Arm Statute, 42 Pa. C.S.A. § 5322,
through cyberspace. Plaintiff Zippo Manufacturing Corporation ("Manufacturing") has filed a
five count complaint against Zippo Dot Com, Inc. ("Dot Com") alleging trademark dilution,
infringement, and false designation under the Federal Trademark Act, 15 U.S.C. §§ 1051-1127.
In addition, the Complaint alleges causes of action based on state law trademark dilution under
54 Pa.C.S.A. § 1124, and seeks equitable accounting and imposition of a constructive trust. Dot
Com has moved to dismiss for lack of personal jurisdiction and improper venue pursuant to
Fed.R.Civ.P. 12(b) (2) and (3) or, in the alternative, to transfer the case pursuant to 28 U.S.C. §
1406(a). For the reasons set forth below, Defendant's motion is denied.

I. BACKGROUND
The facts relevant to this motion are as follows. Manufacturing is a Pennsylvania corporation
with its principal place of business in Bradford, Pennsylvania. Manufacturing makes, among
other things, well known "Zippo" tobacco lighters. Dot Com is a California corporation with its
principal place of business in Sunnyvale, California. Dot Com operates an Internet Web
site[2] and an Internet news service and has obtained the exclusive right to use the domain
names "zippo.com", "zippo.net" and "zipponews.com" on the Internet.[3]

Dot Com's Web site contains information about the company, advertisements and an
application for its Internet news service. The news service itself consists of three levels of
membership public/free, "Original" and "Super." Each successive level offers access to a greater
number of Internet newsgroups. A customer who wants to subscribe to either the "Original" or
"Super" level of service, fills out an on-line application that asks for a variety of information
including the person's name and address. Payment is made by credit card over the Internet or
the telephone. The application is then processed and the subscriber is assigned a password
which permits the subscriber to view and/or download Internet newsgroup messages that are
stored on the Defendant's server in California.

Dot Com's contacts with Pennsylvania have occurred almost exclusively over the Internet. Dot
Com's offices, employees and Internet servers are located in California. Dot Com maintains no
offices, employees or agents in Pennsylvania. Dot Com's advertising for its service to
Pennsylvania residents involves posting information about its service on its Web page, which is
accessible to Pennsylvania residents via the Internet. Defendant has approximately 140,000
paying subscribers worldwide. Approximately two percent (3,000) of those subscribers are
Pennsylvania residents. These subscribers have contracted to receive Dot Com's service by
visiting its Web site and filling out the application. Additionally, Dot Com has entered into
agreements with seven Internet access providers in Pennsylvania to permit their subscribers to
access Dot Com's news service. Two of these providers are located in the Western District of
Pennsylvania.
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The basis of the trademark claims is Dot Com's use of the word "Zippo" in the domain names it
holds, in numerous locations in its Web site and in the heading of Internet newsgroup messages
that have been posted by Dot Com subscribers. When an Internet user views or downloads a
newsgroup message posted by a Dot Com subscriber, the word "Zippo" appears in the
"Message-Id" *and "Organization" sections of the heading.[4] The news message itself,
containing text and/or pictures, follows. Manufacturing points out that some of the messages
contain adult oriented, sexually explicit subject matter.

II. STANDARD OF REVIEW

When a defendant raises the defense of the court's lack of personal jurisdiction, the burden
falls upon the plaintiff to come forward with sufficient facts to establish that jurisdiction is
proper. The plaintiff meets this burden by making a prima facie showing of "sufficient contacts
between the defendant and the forum state."

III. DISCUSSION

A. Personal Jurisdiction

1. The Traditional Framework

Our authority to exercise personal jurisdiction in this case is conferred by state law. The extent
to which we may exercise that authority is governed by the Due Process Clause of the
Fourteenth Amendment to the Federal Constitution.
Pennsylvania's long arm jurisdiction statute is codified at 42 Pa.C.S.A. § 5322(a). The portion of
the statute authorizing us to exercise jurisdiction here permits the exercise of jurisdiction over
non-resident defendants upon:

(2) Contracting to supply services or things in this Commonwealth.

42 Pa.C.S.A. § 5322(a). It is undisputed that Dot Com contracted to supply Internet news
services to approximately 3,000 Pennsylvania residents and also entered into agreements with
seven Internet access providers in Pennsylvania. Moreover, even if Dot Com's conduct did not
satisfy a specific provision of the statute, we would nevertheless be authorized to exercise
jurisdiction to the "fullest extent allowed under the Constitution of the United States."

The Constitutional limitations on the exercise of personal jurisdiction differ depending upon
whether a court seeks to exercise general or specific jurisdiction over a non-resident defendant.
General jurisdiction permits a court to exercise personal jurisdiction over a non-resident
defendant for non-forum related activities when the defendant has engaged in "systematic and
continuous" activities in the forum state. In the absence of general jurisdiction, specific
jurisdiction permits a court to exercise personal jurisdiction over a non-resident defendant for
forum-related activities where the "relationship between the defendant and the forum falls
within the `minimum contacts' framework" of International Shoe Co. v. Washington, and its
progeny. Manufacturing does not contend that we should exercise general personal
jurisdiction over Dot Com. Manufacturing concedes that if personal jurisdiction exists in this
case, it must be specific.

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A three-pronged test has emerged for determining whether the exercise of specific personal
jurisdiction over a non-resident defendant is appropriate: (1) the defendant must have
sufficient "minimum contacts" with the forum state, (2) the claim asserted * against the
defendant must arise out of those contacts, and (3) the exercise of jurisdiction must be
reasonable. Id. The "Constitutional touchstone" of the minimum contacts analysis is embodied
in the first prong, "whether the defendant purposefully established" contacts with the forum
state. Defendants who "`reach out beyond one state' and create continuing relationships and
obligations with the citizens of another state are subject to regulation and sanctions in the
other State for consequences of their actions." "[T]he foreseeability that is critical to the due
process analysis is ... that the defendant's conduct and connection with the forum State are
such that he should reasonably expect to be haled into court there." This protects defendants
from being forced to answer for their actions in a foreign jurisdiction based on "random,
fortuitous or attenuated" contacts.

"Jurisdiction is proper, however, where contacts proximately result from actions by the
defendant himself that create a `substantial connection' with the forum State."

The "reasonableness" prong exists to protect defendants against unfairly inconvenient

litigation. Under this prong, the exercise of jurisdiction will be reasonable if it does not offend
"traditional notions of fair play and substantial justice." When determining the reasonableness
of a particular forum, the court must consider the burden on the defendant in light of other
factors including: "the forum state's interest in adjudicating the dispute; the plaintiff's interest
in obtaining convenient and effective relief, at least when that interest is not adequately
protected by the plaintiff's right to choose the forum; the interstate judicial system's interest in
obtaining the most efficient resolution of controversies; and the shared interest of the several
states in furthering fundamental substantive social policies."

2. The Internet and Jurisdiction

In Hanson v. Denckla, the Supreme Court noted that "[a]s technological progress has increased
the flow of commerce between States, the need for jurisdiction has undergone a similar
increase." Twenty seven years later, the Court observed that jurisdiction could not be avoided
"merely because the defendant did not physically enter the forum state." The Court observed
that:

[I]t is an inescapable fact of modern commercial life that a substantial amount of commercial
business is transacted solely by mail and wire communications across state lines, thus obviating
the need for physical presence within a State in which business is conducted.

Enter the Internet, a global "`super-network' of over 15,000 computer networks used by over
30 million individuals, corporations, organizations, and educational institutions worldwide." "In
recent years, businesses have begun to use the Internet to provide information and products to
consumers and other businesses." The Internet makes it possible to conduct business
throughout the world entirely from a desktop. With this global revolution looming on the
horizon, the development of the law concerning the permissible scope of personal jurisdiction
based on Internet use is in its infant stages. The cases are scant. Nevertheless, our review of the
available cases and materials[5] reveals that the likelihood that personal jurisdiction can be
constitutionally exercised is directly proportionate to the nature and quality of commercial
103
activity that an entity conducts over the Internet. This sliding scale is consistent with well
developed personal jurisdiction principles. At one end of the spectrum are situations where a
defendant clearly does business over the Internet. If the defendant enters into contracts with
residents of a foreign jurisdiction that involve the knowing and repeated transmission of
computer files over the Internet, personal jurisdiction is proper.

At the opposite end are situations where a defendant has simply posted information on an
Internet Web site which is accessible to users in foreign jurisdictions. A passive Web site that
does little more than make information available to those who are interested in it is not
grounds for the exercise personal jurisdiction. The middle ground is occupied by interactive
Web sites where a user can exchange information with the host computer. In these cases, the
exercise of jurisdiction is determined by examining the level of interactivity and commercial
nature of the exchange of information that occurs on the Web site.

Traditionally, when an entity intentionally reaches beyond its boundaries to conduct business
with foreign residents, the exercise of specific jurisdiction is proper. Different results should not
be reached simply because business is conducted over the Internet. In CompuServe, Inc. v.
Patterson, the Sixth Circuit addressed the significance of doing business over the Internet. In
that case, Patterson, a Texas resident, entered into a contract to distribute
shareware[6] through CompuServe's Internet server located in Ohio. From Texas, Patterson
electronically uploaded thirty-two master software files to CompuServe's server in Ohio via the
Internet. One of Patterson's software products was designed to help people navigate the
Internet. When CompuServe later began to market a product that Patterson believed to be
similar to his own, he threatened to sue. CompuServe brought an action in the Southern
District of Ohio, seeking a declaratory judgment. The District Court granted Patterson's motion
to dismiss for lack of personal jurisdiction and CompuServe appealed. The Sixth Circuit
reversed, reasoning that Patterson had purposefully directed his business activities toward
Ohio by knowingly entering into a contract with an Ohio resident and then "deliberately and
repeatedly" transmitted files to Ohio.

In Maritz, Inc. v. Cybergold, Inc., the defendant had put up a Web site as a promotion for its
upcoming Internet service. The service consisted of assigning users an electronic mailbox and
then forwarding advertisements for products and services that matched the users' interests to
those electronic mailboxes. The defendant planned to charge advertisers and provide users
with incentives to view the advertisements. Although the service was not yet operational, users
were encouraged to add their address to a mailing list to receive updates about the service. The
court rejected the defendant's contention that it operated a "passive Web site."

The court reasoned that the defendant's conduct amounted to "active solicitations" and
"promotional activities" designed to "develop a mailing list of Internet users" and that the
defendant "indiscriminately responded to every user" who accessed the site.

Bensusan Restaurant Corp., v. King, reached a different conclusion based on a similar Web site.
In Bensusan, the operator of a New York jazz club sued the operator of a Missouri jazz club for
trademark infringement. The Internet Web site at issue contained general information about
the defendant's club, a calendar of events and ticket information. However, the site was not
interactive. If a user wanted to go to the club, she would have to call or visit a ticket outlet and
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then pick up tickets at the club on the night of the show. . The court refused to exercise
jurisdiction based on the Web site alone, reasoning that it did not rise to the level of purposeful
availment of that jurisdiction's laws. The court distinguished the case from
CompuServe, supra, where the user had "`reached out' from Texas to Ohio and `originated and
maintained' contacts with Ohio."

3. Application to this Case

First, we note that this is not an Internet advertising case in the line of Inset
Systems and Bensusan, supra. Dot Com has not just posted information on a Web site that is
accessible to Pennsylvania residents who are connected to the Internet. This is not even an
interactivity case in the line of Maritz, supra. Dot Com has done more than create an interactive
Web site through which it exchanges information with Pennsylvania residents in hopes of using
that information for commercial gain later. We are not being asked to determine whether Dot
Com's Web site alone constitutes the purposeful availment of doing business in Pennsylvania.

This is a "doing business over the Internet" case in the line of CompuServe, supra. We are being
asked to determine whether Dot Com's conducting of electronic commerce with Pennsylvania
residents constitutes the purposeful availment of doing business in Pennsylvania. We conclude
that it does. Dot Com has contracted with approximately 3,000 individuals and seven Internet
access providers in Pennsylvania. The intended object of these transactions has been the
downloading of the electronic messages that form the basis of this suit in Pennsylvania.

We find Dot Com's efforts to characterize its conduct as falling short of purposeful availment of
doing business in Pennsylvania wholly unpersuasive. At oral argument, Defendant repeatedly
characterized its actions as merely "operating a Web site" or "advertising." Dot Com also cites
to a number of cases from this Circuit which, it claims, stand for the proposition that merely
advertising in a forum, without more, is not a sufficient minimal contact. [7] This argument is
misplaced. Dot Com has done more than advertise on the Internet in Pennsylvania. Defendant
has sold passwords to approximately 3,000 subscribers in Pennsylvania and entered into seven
contracts with Internet access providers to furnish its services to their customers in
Pennsylvania.

Dot Com also contends that its contacts with Pennsylvania residents are "fortuitous" within the
meaning of World-Wide Volkswagen. Defendant argues that it has not "actively" solicited
business in Pennsylvania and that any business it conducts with Pennsylvania residents has
resulted from contacts that were initiated by Pennsylvanians who visited the Defendant's Web
site. The fact that Dot Com's services have been consumed in Pennsylvania is not "fortuitous"
within the meaning of World-Wide Volkswagen. In World-Wide Volkswagen, a couple that had
purchased a vehicle in New York, while they were New York residents, were injured while
driving that vehicle through Oklahoma and brought suit in an Oklahoma state court. The
manufacturer did not sell its vehicles in Oklahoma and had not made an effort to establish
business relationships in Oklahoma. The Supreme Court characterized the manufacturer's ties
with Oklahoma as fortuitous because they resulted entirely out the fact that the plaintiffs had
driven their car into that state.

Here, Dot Com argues that its contacts with Pennsylvania residents are fortuitous because
Pennsylvanians happened to find its Web site or heard about its news service elsewhere and
105
decided to subscribe. This argument misconstrues the concept of fortuitous contacts embodied
in World-Wide Volkswagen. Dot Com's contacts with Pennsylvania would be fortuitous within
the meaning of World-Wide Volkswagen if it had no Pennsylvania subscribers and an Ohio
subscriber forwarded a copy of a file he obtained from Dot Com to a friend in Pennsylvania or
an Ohio subscriber brought his computer along on a trip to Pennsylvania and used it to access
Dot Com's service. That is not the situation here. Dot Com repeatedly and consciously chose to
process Pennsylvania residents' applications and to assign them passwords. Dot Com knew that
the result of these contracts would be the transmission of electronic messages into
Pennsylvania. The transmission of these files was entirely within its control. Dot Com cannot
maintain that these contracts are "fortuitous" or "coincidental" within the meaning of World-
Wide Volkswagen. When a defendant makes a conscious choice to conduct business with the
residents of a forum state, "it has clear notice that it is subject to suit there." Dot Com was
under no obligation to sell its services to Pennsylvania residents. It freely chose to do so,
presumably in order to profit from those transactions. If a corporation determines that the risk
of being subject to personal jurisdiction in a particular forum is too great, it can choose to sever
its connection to the state. Id. If Dot Com had not wanted to be amenable to jurisdiction
in Pennsylvania, the solution would have been simple it could have chosen not to sell its
services to Pennsylvania residents.

Next, Dot Com argues that its forum-related activities are not numerous or significant enough
to create a "substantial connection" with Pennsylvania. Defendant points to the fact that only
two percent of its subscribers are Pennsylvania residents. However, the Supreme Court has
made clear that even a single contact can be sufficient. The test has always focused on the
"nature and quality" of the contacts with the forum and not the quantity of those contacts. The
Sixth Circuit also rejected a similar argument in CompuServe when it wrote that the contacts
were "deliberate and repeated even if they yielded little revenue."

We also conclude that the cause of action arises out of Dot Com's forum-related conduct in this
case. The Third Circuit has stated that "a cause of action for trademark infringement occurs
where the passing off occurs." In Tefal, the maker and distributor of T-Fal cookware sued a
partnership of California corporations in the District of New Jersey for trademark
infringement. The defendants objected to venue in New Jersey, arguing that the contested
trademark accounted for only about five percent of national sales. On appeal, the Third Circuit
concluded that since substantial sales of the product bearing the allegedly infringing mark took
place in New Jersey, the cause of action arose in New Jersey and venue was proper.

In Indianapolis Colts, also case cited by the Third Circuit in Cottman, an Indiana National
Football League franchise sued a Maryland Canadian Football League franchise in the Southern
District of Indiana, alleging trademark infringement. On appeal, the Seventh Circuit held that
personal jurisdiction was appropriate in Indiana because trademark infringement is a tort-like
injury and a substantial amount of the injury from the alleged infringement was likely to occur
in Indiana.

In the instant case, both a significant amount of the alleged infringement and dilution, and
resulting injury have occurred in Pennsylvania. The object of Dot Com's contracts with
Pennsylvania residents is the transmission of the messages that Plaintiff claims dilute and
infringe upon its trademark. When these messages are transmitted into Pennsylvania and
106
viewed by Pennsylvania residents on their computers, there can be no question that the alleged
infringement and dilution occur in Pennsylvania. Moreover, since Manufacturing is a
Pennsylvania corporation, a substantial amount of the injury from the alleged wrongdoing is
likely to occur in Pennsylvania. Thus, we conclude that the cause of action arises out of Dot
Com's forum-related activities under the authority of both Tefal and Indianapolis Colts, supra.

Finally, Dot Com argues that the exercise of jurisdiction would be unreasonable in this case. We
disagree. There can be no question that Pennsylvania has a strong interest in adjudicating
disputes involving the alleged infringement of trademarks owned by resident corporations. We
must also give due regard to the Plaintiff's choice to seek relief in Pennsylvania. These concerns
outweigh the burden created by forcing the Defendant to defend the suit in Pennsylvania,
especially when Dot Com consciously chose to conduct business in Pennsylvania, pursuing
profits from the actions that are now in question. The Due Process Clause is not a "territorial
shield to interstate obligations that have been voluntarily assumed."

B. Venue Under 28 U.S.C. § 1391

Defendant argues that, under the law of this Circuit, venue is only proper in trademark cases in
the judicial district in which "a substantial part of the events or omissions giving rise to the
claim occurred."

Venue in this case is governed by 28 U.S.C. § 1391(b), the relevant portion of which provides:

(b) A civil action wherein jurisdiction is not founded solely on diversity of citizenship may,
except as otherwise provided by law, be brought only in (1) a judicial district where any
defendant resides, if all defendants reside in the same State, (2) a judicial district in which a
substantial part of the events or omissions giving rise to the claim occurred, or a substantial
part of the property that is the subject of the action is situated, or (3) a judicial district in which
the defendant may be found if there is no district in which the action may otherwise be
brought.

Subsection (c) further provides that a corporate defendant is "deemed to reside in any judicial
district in which it is subject to personal jurisdiction at the time the action is commenced." Dot
Com is the only defendant in this case and it is a corporation. Thus, under the plain language of
28 U.S.C. § 1391(b) (1), our previous discussion of personal jurisdiction is dispositive of the
venue issue. Contrary to Dot Com's contention, Cottman does not command a different result.
Cottman involved a suit by a Pennsylvania corporation against a former Michigan franchisee
and his wholly owned corporation for trademark infringement arising out of the continued use
of the plaintiff's trademark after termination of the franchise agreement. The suit was brought
in the Eastern District of Pennsylvania. Both defendants were Michigan residents and the
corporation did business exclusively in Michigan. In the district court, the plaintiff relied
exclusively on 28 U.S.C. § 1391(b) (2) to establish venue. The district court found venue proper,
reasoning that a "substantial part of the events or omissions giving rise to the claim occurred"
in Pennsylvania. Thus, on appeal, the only issue before the Third Circuit was the propriety of
venue under § 1391(b) (2). In fact, the Third Circuit expressly stated that it was analyzing the
case under § 1391(b) (2). The Third Circuit read the record as only capable of supporting the
contention that the defendants attempted to pass off the trademarks at issue in the Eastern

107
District of Michigan. Thus, the Third Circuit reversed, because a "substantial part of the events
or omissions giving rise to the claim" had not occurred in the Eastern District of Pennsylvania.

The fact that the Third Circuit analyzed Cottman under the standard in § 1391(b) (2) does not
mean that it applies to every trademark case. In fact, at oral argument, Dot Com conceded that
if its reading of Cottman were the law, it would effectively render § 1391(b) (1) inapplicable to
trademark cases and require the plaintiff to always satisfy § 1391(b) (2) in order to lay venue. If
the Third Circuit had intended to create such a radical departure from the plain language of §
1391, it would have said so.

Since venue has been properly laid in this District, we cannot dismiss the action under 28 U.S.C.
§ 1406(a). We are also not permitted to compel the Plaintiff to accept a transfer against its
wishes.

IV. CONCLUSION
We conclude that this Court may appropriately exercise personal jurisdiction over the
Defendant and that venue is proper in this judicial district.

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Kenneth M. ZERAN, Plaintiff-Appellant, v. AMERICA ONLINE, INCORPORATED, Defendant-
Appellee.
Decided: November 12, 1997

OPINION
Kenneth Zeran brought this action against America Online, Inc. (“AOL”), arguing that AOL
unreasonably delayed in removing defamatory messages posted by an unidentified third party,
refused to post retractions of those messages, and failed to screen for similar postings
thereafter. The district court granted judgment for AOL on the grounds that the
Communications Decency Act of 1996 (“CDA”)-47 U.S.C. § 230-bars Zeran's claims. Zeran
appeals, arguing that § 230 leaves intact liability for interactive computer service providers
who possess notice of defamatory material posted through their services. He also contends
that § 230 does not apply here because his claims arise from AOL's alleged negligence prior to
the CDA's enactment. Section 230, however, plainly immunizes computer service providers
like AOL from liability for information that originates with third parties. Furthermore,
Congress clearly expressed its intent that § 230 apply to lawsuits, like Zeran's, instituted after
the CDA's enactment. Accordingly, we affirm the judgment of the district court.

I.
“The Internet is an international network of interconnected computers,” currently used by
approximately 40 million people worldwide. One of the many means by which individuals
access the Internet is through an interactive computer service. These services offer not only a
connection to the Internet as a whole, but also allow their subscribers to access information
communicated and stored only on each computer service's individual proprietary network.
AOL is just such an interactive computer service. Much of the information transmitted over its
network originates with the company's millions of subscribers. They may transmit information
privately via electronic mail, or they may communicate publicly by posting messages on AOL
bulletin boards, where the messages may be read by any AOL subscriber.

The instant case comes before us on a motion for judgment on the pleadings, so we accept
the facts alleged in the complaint as true.

On April 25, 1995, an unidentified person posted a message on an AOL bulletin board
advertising “Naughty Oklahoma T-Shirts.” The posting described the sale of shirts featuring
offensive and tasteless slogans related to the April 19, 1995, bombing of the Alfred P. Murrah
Federal Building in Oklahoma City. Those interested in purchasing the shirts were instructed to
call “Ken” at Zeran's home phone number in Seattle, Washington. As a result of this
anonymously perpetrated prank, Zeran received a high volume of calls, comprised primarily of
angry and derogatory messages, but also including death threats. Zeran could not change his
phone number because he relied on its availability to the public in running his business out of
his home. Later that day, Zeran called AOL and informed a company representative of his
predicament. The employee assured Zeran that the posting would be removed from AOL's
bulletin board but explained that as a matter of policy AOL would not post a retraction. The
parties dispute the date that AOL removed this original posting from its bulletin board.

On April 26, the next day, an unknown person posted another message advertising additional
shirts with new tasteless slogans related to the Oklahoma City bombing. Again, interested
109
buyers were told to call Zeran's phone number, to ask for “Ken,” and to “please call back if
busy” due to high demand. The angry, threatening phone calls intensified. Over the next
four days, an unidentified party continued to post messages on AOL's bulletin board,
advertising additional items including bumper stickers and key chains with still more offensive
slogans. During this time period, Zeran called AOL repeatedly and was told by company
representatives that the individual account from which the messages were posted would soon
be closed. Zeran also reported his case to Seattle FBI agents. By April 30, Zeran was
receiving an abusive phone call approximately every two minutes.

Meanwhile, an announcer for Oklahoma City radio station KRXO received a copy of the first AOL
posting. On May 1, the announcer related the message's contents on the air, attributed them
to “Ken” at Zeran's phone number, and urged the listening audience to call the number. After
this radio broadcast, Zeran was inundated with death threats and other violent calls from
Oklahoma City residents. Over the next few days, Zeran talked to both KRXO and AOL
representatives. He also spoke to his local police, who subsequently surveilled his home to
protect his safety. By May 14, after an Oklahoma City newspaper published a story exposing
the shirt advertisements as a hoax and after KRXO made an on-air apology, the number of calls
to Zeran's residence finally subsided to fifteen per day.

Zeran first filed suit on January 4, 1996, against radio station KRXO in the United States District
Court for the Western District of Oklahoma. On April 23, 1996, he filed this separate suit
against AOL in the same court. Zeran did not bring any action against the party who posted
the offensive messages.1 After Zeran's suit against AOL was transferred to the Eastern District
of Virginia pursuant to 28 U.S.C. § 1404(a), AOL answered Zeran's complaint and interposed 47
U.S.C. § 230 as an affirmative defense. AOL then moved for judgment on the pleadings
pursuant to Fed.R.Civ.P. 12(c). The district court granted AOL's motion, and Zeran filed this
appeal.

II.
A.
Because § 230 was successfully advanced by AOL in the district court as a defense to Zeran's
claims, we shall briefly examine its operation here. Zeran seeks to hold AOL liable for
defamatory speech initiated by a third party. He argued to the district court that once he
notified AOL of the unidentified third party's hoax, AOL had a duty to remove the defamatory
posting promptly, to notify its subscribers of the message's false nature, and to effectively
screen future defamatory material. Section 230 entered this litigation as an affirmative
defense pled by AOL. The company claimed that Congress immunized interactive computer
service providers from claims based on information posted by a third party.

The relevant portion of § 230 states:  “No provider or user of an interactive computer service
shall be treated as the publisher or speaker of any information provided by another information
content provider.” By its plain language, § 230 creates a federal immunity to any cause of
action that would make service providers liable for information originating with a third-party
user of the service. Specifically, § 230 precludes courts from entertaining claims that would
place a computer service provider in a publisher's role. Thus, lawsuits seeking to hold a
service provider liable for its exercise of a publisher's traditional editorial functions-such as
deciding whether to publish, withdraw, postpone or alter content-are barred.
110
 The purpose of this statutory immunity is not difficult to discern. Congress recognized the
threat that tort-based lawsuits pose to freedom of speech in the new and burgeoning Internet
medium. The imposition of tort liability on service providers for the communications of others
represented, for Congress, simply another form of intrusive government regulation of speech.
Section 230 was enacted, in part, to maintain the robust nature of Internet communication and,
accordingly, to keep government interference in the medium to a minimum. In specific
statutory findings, Congress recognized the Internet and interactive computer services as
offering “a forum for a true diversity of political discourse, unique opportunities for cultural
development, and myriad avenues for intellectual activity.” It also found that the Internet and
interactive computer services “have flourished, to the benefit of all Americans, with a minimum
of government regulation.” Congress further stated that it is “the policy of the United States ․
to preserve the vibrant and competitive free market that presently exists for the Internet and
other interactive computer services, unfettered by Federal or State regulation.”

None of this means, of course, that the original culpable party who posts defamatory messages
would escape accountability. While Congress acted to keep government regulation of the
Internet to a minimum, it also found it to be the policy of the United States “to ensure vigorous
enforcement of Federal criminal laws to deter and punish trafficking in obscenity, stalking, and
harassment by means of computer.” Congress made a policy choice, however, not to deter
harmful online speech through the separate route of imposing tort liability on companies that
serve as intermediaries for other parties' potentially injurious messages.

Congress' purpose in providing the § 230 immunity was thus evident. Interactive computer
services have millions of users. See Reno v. ACLU, 521U.S. at ----, 117 S.Ct. at 2334 (noting
that at time of district court trial, “commercial online services had almost 12 million individual
subscribers”). The amount of information communicated via interactive computer services is
therefore staggering. The specter of tort liability in an area of such prolific speech would have
an obvious chilling effect. It would be impossible for service providers to screen each of their
millions of postings for possible problems. Faced with potential liability for each message
republished by their services, interactive computer service providers might choose to severely
restrict the number and type of messages posted. Congress considered the weight of the
speech interests implicated and chose to immunize service providers to avoid any such
restrictive effect.

Another important purpose of § 230 was to encourage service providers to self-regulate the
dissemination of offensive material over their services. In this respect, § 230 responded to a
New York state court decision, Stratton Oakmont, Inc. v. Prodigy Servs. Co., 1995 WL 323710
There, the plaintiffs sued Prodigy-an interactive computer service like AOL-for defamatory
comments made by an unidentified party on one of Prodigy's bulletin boards. The court held
Prodigy to the strict liability standard normally applied to original publishers of defamatory
statements, rejecting Prodigy's claims that it should be held only to the lower “knowledge”
standard usually reserved for distributors. The court reasoned that Prodigy acted more like an
original publisher than a distributor both because it advertised its practice of controlling
content on its service and because it actively screened and edited messages posted on its
bulletin boards.

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Congress enacted § 230 to remove the disincentives to self-regulation created by the Stratton
Oakmont decision. Under that court's holding, computer service providers who regulated the
dissemination of offensive material on their services risked subjecting themselves to liability,
because such regulation cast the service provider in the role of a publisher. Fearing that the
specter of liability would therefore deter service providers from blocking and screening
offensive material, Congress enacted § 230's broad immunity “to remove disincentives for the
development and utilization of blocking and filtering technologies that empower parents to
restrict their children's access to objectionable or inappropriate online material.” In line with
this purpose, § 230 forbids the imposition of publisher liability on a service provider for the
exercise of its editorial and self-regulatory functions.

B.
Zeran argues, however, that the § 230 immunity eliminates only publisher liability, leaving
distributor liability intact. Publishers can be held liable for defamatory statements contained
in their works even absent proof that they had specific knowledge of the statement's inclusion.
According to Zeran, interactive computer service providers like AOL are normally considered
instead to be distributors, like traditional news vendors or book sellers. Distributors cannot be
held liable for defamatory statements contained in the materials they distribute unless it is
proven at a minimum that they have actual knowledge of the defamatory statements upon
which liability is predicated. Id. at 811 (explaining that distributors are not liable “in the
absence of proof that they knew or had reason to know of the existence of defamatory matter
contained in matter published”). Zeran contends that he provided AOL with sufficient notice
of the defamatory statements appearing on the company's bulletin board. This notice is
significant, says Zeran, because AOL could be held liable as a distributor only if it acquired
knowledge of the defamatory statements' existence.

Because of the difference between these two forms of liability, Zeran contends that the term
“distributor” carries a legally distinct meaning from the term “publisher.” Accordingly, he
asserts that Congress' use of only the term “publisher” in § 230 indicates a purpose to
immunize service providers only from publisher liability. He argues that distributors are left
unprotected by § 230 and, therefore, his suit should be permitted to proceed against AOL. We
disagree. Assuming arguendo that Zeran has satisfied the requirements for imposition of
distributor liability, this theory of liability is merely a subset, or a species, of publisher liability,
and is therefore also foreclosed by § 230.

The terms “publisher” and “distributor” derive their legal significance from the context of
defamation law. Although Zeran attempts to artfully plead his claims as ones of negligence,
they are indistinguishable from a garden variety defamation action. Because the publication
of a statement is a necessary element in a defamation action, only one who publishes can be
subject to this form of tort liability. Publication does not only describe the choice by an author
to include certain information. In addition, both the negligent communication of a
defamatory statement and the failure to remove such a statement when first communicated by
another party-each alleged by Zeran here under a negligence label-constitute publication. In
fact, every repetition of a defamatory statement is considered a publication. In this case, AOL
is legally considered to be a publisher. “[E]very one who takes part in the publication ․ is
charged with publication.”

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Even distributors are considered to be publishers for purposes of defamation law:
Those who are in the business of making their facilities available to disseminate the writings
composed, the speeches made, and the information gathered by others may also be regarded as
participating to such an extent in making the books, newspapers, magazines, and information
available to others as to be regarded as publishers. They are intentionally making the contents
available to others, sometimes without knowing all of the contents-including the defamatory
content-and sometimes without any opportunity to ascertain, in advance, that any defamatory
matter was to be included in the matter published.

AOL falls squarely within this traditional definition of a publisher and, therefore, is clearly
protected by § 230's immunity.

Zeran contends that decisions like Stratton Oakmont and Cubby, Inc. v. CompuServe Inc., 776
F.Supp. 135 (S.D.N.Y.1991), recognize a legal distinction between publishers and distributors.
He misapprehends, however, the significance of that distinction for the legal issue we consider
here. It is undoubtedly true that mere conduits, or distributors, are subject to a different
standard of liability. As explained above, distributors must at a minimum have knowledge of
the existence of a defamatory statement as a prerequisite to liability. But this distinction
signifies only that different standards of liability may be applied within the larger publisher
category, depending on the specific type of publisher concerned. See Keeton et al., supra, §
113 (explaining that every party involved is charged with publication, although degrees of legal
responsibility differ). To the extent that decisions like Stratton and Cubby utilize the terms
“publisher” and “distributor” separately, the decisions correctly describe two different
standards of liability. Stratton and Cubby do not, however, suggest that distributors are not
also a type of publisher for purposes of defamation law.

Zeran simply attaches too much importance to the presence of the distinct notice element in
distributor liability. The simple fact of notice surely cannot transform one from an original
publisher to a distributor in the eyes of the law. To the contrary, once a computer service
provider receives notice of a potentially defamatory posting, it is thrust into the role of a
traditional publisher. The computer service provider must decide whether to publish, edit, or
withdraw the posting. In this respect, Zeran seeks to impose liability on AOL for assuming the
role for which § 230 specifically proscribes liability-the publisher role.

Our view that Zeran's complaint treats AOL as a publisher is reinforced because AOL is cast in
the same position as the party who originally posted the offensive messages. According to
Zeran's logic, AOL is legally at fault because it communicated to third parties an allegedly
defamatory statement. This is precisely the theory under which the original poster of the
offensive messages would be found liable. If the original party is considered a publisher of the
offensive messages, Zeran certainly cannot attach liability to AOL under the same theory
without conceding that AOL too must be treated as a publisher of the statements.

Zeran next contends that interpreting § 230 to impose liability on service providers with
knowledge of defamatory content on their services is consistent with the statutory purposes
outlined in Part IIA. Zeran fails, however, to understand the practical implications of notice
liability in the interactive computer service context. Liability upon notice would defeat the
dual purposes advanced by § 230 of the CDA. Like the strict liability imposed by the Stratton
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Oakmont court, liability upon notice reinforces service providers' incentives to restrict speech
and abstain from self-regulation.

If computer service providers were subject to distributor liability, they would face potential
liability each time they receive notice of a potentially defamatory statement-from any party,
concerning any message. Each notification would require a careful yet rapid investigation of
the circumstances surrounding the posted information, a legal judgment concerning the
information's defamatory character, and an on-the-spot editorial decision whether to risk
liability by allowing the continued publication of that information. Although this might be
feasible for the traditional print publisher, the sheer number of postings on interactive
computer services would create an impossible burden in the Internet context. Because service
providers would be subject to liability only for the publication of information, and not for its
removal, they would have a natural incentive simply to remove messages upon notification,
whether the contents were defamatory or not. Thus, like strict liability, liability upon notice
has a chilling effect on the freedom of Internet speech.

Similarly, notice-based liability would deter service providers from regulating the dissemination
of offensive material over their own services. Any efforts by a service provider to investigate
and screen material posted on its service would only lead to notice of potentially defamatory
material more frequently and thereby create a stronger basis for liability. Instead of
subjecting themselves to further possible lawsuits, service providers would likely eschew any
attempts at self-regulation.

More generally, notice-based liability for interactive computer service providers would provide
third parties with a no-cost means to create the basis for future lawsuits. Whenever one was
displeased with the speech of another party conducted over an interactive computer service,
the offended party could simply “notify” the relevant service provider, claiming the information
to be legally defamatory. In light of the vast amount of speech communicated through
interactive computer services, these notices could produce an impossible burden for service
providers, who would be faced with ceaseless choices of suppressing controversial speech or
sustaining prohibitive liability. Because the probable effects of distributor liability on the vigor
of Internet speech and on service provider self-regulation are directly contrary to § 230's
statutory purposes, we will not assume that Congress intended to leave liability upon notice
intact.

Zeran finally contends that the interpretive canon favoring retention of common law principles
unless Congress speaks directly to the issue counsels a restrictive reading of the § 230
immunity here. This interpretive canon does not persuade us to reach a different result.

Here, Congress has indeed spoken directly to the issue by employing the legally significant term
“publisher,” which has traditionally encompassed distributors and original publishers alike. The
decision cited by Zeran, United States v. Texas, also recognized that abrogation of common law
principles is appropriate when a contrary statutory purpose is evident. This is consistent with
the Court's earlier cautions against courts' application of the canon with excessive zeal:  “ ‘The
rule that statutes in derogation of the common law are to be strictly construed does not require
such an adherence to the letter as would defeat an obvious legislative purpose or lessen the
scope plainly intended to be given to the measure.’ ”
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Zeran's argument flies in the face of this warning. As explained above, interpreting § 230 to
leave distributor liability in effect would defeat the two primary purposes of the statute and
would certainly “lessen the scope plainly intended” by Congress' use of the term “publisher.”

Section 230 represents the approach of Congress to a problem of national and international
dimension. The Supreme Court underscored this point in Reno v. ACLU, finding that the
Internet allows “tens of millions of people to communicate with one another and to access vast
amounts of information from around the world.[It] is ‘a unique and wholly new medium of
worldwide human communication.’ ” Application of the canon invoked by Zeran here would
significantly lessen Congress' power, derived from the Commerce Clause, to act in a field whose
international character is apparent. While Congress allowed for the enforcement of “any
State law that is consistent with [§ 230],” 47 U.S.C. § 230(d)(3), it is equally plain that
Congress' desire to promote unfettered speech on the Internet must supersede conflicting
common law causes of action. Section 230(d)(3) continues:  “No cause of action may be
brought and no liability may be imposed under any State or local law that is inconsistent with
this section.” With respect to federal-state preemption, the Court has advised:  “[W]hen
Congress has ‘unmistakably ․ ordained,’ that its enactments alone are to regulate a part of
commerce, state laws regulating that aspect of commerce must fall. The result is compelled
whether Congress' command is explicitly stated in the statute's language or implicitly contained
in its structure and purpose.” Here, Congress' command is explicitly stated. Its exercise of its
commerce power is clear and counteracts the caution counseled by the interpretive canon
favoring retention of common law principles.

III.
The CDA was signed into law and became effective on February 8, 1996. Zeran did not file
his complaint until April 23, 1996. Zeran contends that even if § 230 does bar the type of
claim he brings here, it cannot be applied retroactively to bar an action arising from AOL's
alleged misconduct prior to the CDA's enactment.

We disagree. Section 230 applies by its plain terms to complaints brought after the CDA
became effective. As noted in Part IIB, the statute provides, in part:  “No cause of action may
be brought and no liability may be imposed under any State or local law that is inconsistent
with this section.”

Initially, it is doubtful that a retroactivity issue is even presented here. Retroactivity concerns
arise when a statute applies to conduct predating its enactment. Section 230 does not directly
regulate the activities of interactive computer service providers like AOL. Instead, § 230 is
addressed only to the bringing of a cause of action. Here, Zeran did not file his complaint until
over two months after § 230's immunity became effective. Thus, the statute's application in
this litigation is in fact prospective.

Even if this were a case implicating the application of a federal statute to pre-enactment
events, the Supreme Court's Landgraf framework would nevertheless require § 230's
application to Zeran's claims. Landgraf instructs us first “to determine whether Congress has
expressly prescribed the statute's proper reach.” This case can be resolved at this first step.
In § 230(d)(3), Congress clearly expressed its intent that the statute apply to any complaint
instituted after its effective date, regardless of when the relevant conduct giving rise to the
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claims occurred. Other circuits have interpreted similar statutory language to clearly express
Congress' intent that the relevant statutes apply to bar new actions under statutorily specified
conditions.

If we were to find a directive as plain as § 230(d)(3) to be ambiguous as to Congress' intent, we

would be announcing a new superclear-statement condition for the retroactive operation of
statutes. Such a jurisprudential shift would be both unwise and contrary to the Court's
admonitions in Landgraf:  “Retroactivity provisions often serve entirely benign and legitimate
purposes, whether to respond to emergencies, to correct mistakes, to prevent circumvention of
a new statute in the interval immediately preceding its passage, or simply to give
comprehensive effect to a new law Congress considers salutary.” Here, Congress decided that
free speech on the Internet and self-regulation of offensive speech were so important that §
230 should be given immediate, comprehensive effect.

There finally is a significant contrast between statutes that impose new liabilities for already-
completed conduct and statutes that govern litigants' access to courts. For example, courts
often apply intervening statutes that restrict a court's jurisdiction. Section 230 neither imposes
any new liability on Zeran nor takes away any rights acquired under prior law. No person has
a vested right in a non-final tort judgment, much less an unfiled tort claim. Furthermore,
Zeran cannot point to any action he took in reliance on the law prior to § 230's enactment.
Because § 230 has no untoward retroactive effect, even the presumption against statutory
retroactivity absent an express directive from Congress is of no help to Zeran here.

IV.
For the foregoing reasons, we affirm the judgment of the district court.
AFFIRMED.

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Perfect 10, Inc. v. Amazon.com, Inc.

Brief Fact Summary. Google, Inc. (Defendant) claimed that even if its transmission of thumbnail
images of Perfect 10, Inc.’s (Plaintiff) copyrighted nude images, or its in-line linking to or
framing of full-size images that infringed Plaintiff’s copyright in the images constituted
infringement of Plaintiff’s display or distribution rights, its use still constituted a fair use.

Synopsis of Rule of Law. (1) A computer owner that stores an image as electronic information
and provides that electronic information directly to a user violates the copyright holder’s
exclusive right to display the image. (2) A computer owner that in-line links to or frames a full-
size image does not infringe the distribution right of the image’s copyright owner when the
image is displayed on the computer screen of a user. (3) A search engine’s owner’s
appropriation of a copyrighted image for use as an indexed thumbnail picture is a protected
“fair use”� under the copyright law where the balance of the statutory fair use factors favors
the owner of the search engine.

Facts. Perfect 10, Inc. (Plaintiff) markets and sells copyrighted images of nude models, and
operates a subscription website on the Internet accessible to subscribers who pay a monthly
fee. Members may view images of Perfect 10 (Plaintiff) in a “member’s only”� area of the site
by using a personal password required to log-in. Plaintiff has also licensed copyrighted images
in a reduced size for download and use on cell phones. Google, Inc. (Defendant) operates a
search engine, a software program that automatically accesses thousands of websites
(collections of web pages) on the Internet and indexes them within a database stored on
Defendant’s computers. When a Google (Defendant) user accesses Defendant’s website and
types in a search query, Defendant’s software searches its database for websites that respond
to the particular search query. Defendant then sends relevant information from its index of
websites to the user’s computer. Defendant’s search engines can provide results in the form of
text, images, or videos. The Google (Defendant) search engine that provides responses in the
form of images is called “Google Image Search.”

Google Image Search identifies text in its database responsive to the query and then
communicates to users the images associated with the relevant text. Defendant’s software
cannot identify and index the images themselves. Google Image Search provides search results
as a web page of small images called “thumbails,”� which are stored in Google’s (Defendant)
servers. The thumbnail images are reduced, lower-resolution versions of full-sized images
stored on third-party computers. When a user clicks on a thumbnail image, Defendant’s
software directs the user’s browser to create on the user’s computer screen a small rectangular
box that contains the Google (Defendant) thumbnail and a larger box that contains the full-size
image, which the user’s computer has been instructed to access from the third-party site that
houses that image. Defendant does not store the images that fill this larger box and does not
communicate the images to the user. The two boxes together appear to be coming from the
same source, since they are in the same frame, but they actually come from two sources—
Google (Defendant) and the third-party website. The process the web pages use to direct a
user’s browser to incorporate content from different computers into a single window is
referred to as “in-line linking.”

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The term “framing”� refers to the process by which information from one computer appears
to frame and annotate the in-line linked content from another computer. Defendant also stores
web page content in its cache, which ultimately means that Defendant’s cache copy can
provide a user’s browser with valid directions to an infringing image even though the updated
web page no longer includes that infringing image. Google (Defendant) also generates revenue
through a business program called “AdSense.”

Under this program, a website owner can register with Google (Defendant) to become an
AdSense “partner.”� The owner then places HTML instructions on its web pages that signal
Google’s (Defendant) server to place advertising on the web pages that is relevant to the web
pages’ content Google’s (Defendant) computer program picks the advertising automatically by
using an algorithm, and the AdSense participants share the revenues that result from such
advertising with D. Some website publishers pirated Plaintiff’s images and Defendant’s search
engine automatically indexed the web pages containing the pirated images and provided
thumbnail versions of the images in response to user inquiries.

Perfect 10 (Plaintiff) repeatedly informed Google (Defendant) that its thumbnail images and in-
line linking to the full-size images infringed Plaintiff’s copyright and when Defendant continued
its search engine practices, Plaintiff filed a copyright infringement action against Defendant,
and sought a preliminary injunction to prevent Google (Defendant) from infringing Plaintiff’s
copyright in its images and linking to websites that provide full-size infringing versions of
Plaintiff’s photographs. The district court granted the preliminary injunction, finding harm to
the derivative market for Plaintiff’s reduced-size images. The court also ruled that Defendant’s
search engine likely infringed Plaintiff’s display right with regards to the infringing thumbnails,
but that Plaintiff was not likely to succeed on its claim that Google (Defendant) violated Perfect
10’s (Plaintiff) display or distribution right regarding its full-size infringing images. The district
court used a “server test”� in reaching these conclusions, reasoning that a computer owner
that stores an image as electronic information and serves that electronic information directly to
the user is displaying the electronic information in violation of a copyright holder’s exclusive
display right. Also, however, the court reasoned that the owner of a computer that does not
store and serve the electronic information to a user is not displaying that information, even if
such owner in-line links to or frames the electronic information. The district court also reasoned
that distribution requires an “actual dissemination”� of a copy, and since Google (Defendant)
did not communicate the full0size images to the ser’s computer, Defendant did not distribute
these images. Defendant raised the affirmative defense that its use was a fair use, but the
district court rejected this defense. The court of appeals granted review.

Issue.
(1) Does a computer owner that stores an image as electronic information and provides that
electronic information directly to a user violates the copyright holder’s exclusive right to display
the image?
(2) Does a computer owner that in-line links to or frames a full-size image does not infringe the
distribution right of the image’s copyright owner when the image is displayed on the computer
screen of a user?
(3) Is a search engine’s owner’s appropriation of a copyrighted image for use as an indexed
thumbnail picture is a protected “fair use”� under the copyright law where the balance of the
statutory fair use factors favors the owner of the search engine?
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Held. (Ikuta, J.)
(1) Yes. A computer owner that stores an image as electronic information and provides that
electronic information directly to a user violates the copyright holder’s exclusive right to display
the image. The district court’s reasoning and “server test”� comport with the language in the
Copyright Act, and, therefore, its ruling is correct as far as Perfect 10’s (Plaintiff) display rights.
Based on the plain language of the statute, a person displays a photographic image by using a
computer to fill a computer screen with a copy of the photographic image fixed in the memory
of the computer.

Google’s (Defendant) computers store thumbnail versions of Plaintiff’s copyrighted images and
communicate copies of those thumbnails to Defendant’s users. Therefore, Plaintiff has made a
prima facie case that Defendant’s communication of its stored thumbnail images directly
infringes Plaintiff’s display right. Conversely, Defendant’s computers do not store the full0siuze
photographic images, but merely in-line links to, and frames, those images. Therefore, Google
(Defendant) does not have a copy of the images for purposes of the Copyright Act, i.e., it does
not have any “material objects . . . in which a work is fixed . . . and from which the work can be
perceived, reproduced, or otherwise communicated”� and therefore Google (Defendant)
cannot communicate a copy as defined under 17 U.S.C. § 101. While Google (Defendant) may
facilitate access to infringing copies, such assistance only implicates contributory liability for
copyright infringement, not direct liability. Even if such in-line linking and framing may cause
some computer users to believe they are viewing a single Google (Defendant) web page, the
Copyright Act, unlike the Trademark Act, does not protect a copyright holder against acts that
cause consumer confusion. Finally, the same analysis is applicable to Defendant’s cache.

(2) No. A computer owner that in-line links to or frames a full-size image does not infringe the
distribution right of the image’s copyright owner when the image is displayed on the computer
screen of a user. Again, the district court’s ruling is consistent with the language of the
Copyright Act. Under § 106(3), a copyright owner has the exclusive right “to distribute copies. . .
.”� “Copies”� means “material objects . . . in which a work is fixed,”� and the Supreme Court
has indicated that in the electronic context, copies may be distributed electronically. Because
the full-size images are not on Defendant’s computers, it cannot “distribute”� them. It is the
third-party website publisher’s computer that distributes copies of the images by transmitting
the photographic image electronically to the user’s computer. Plus, Plaintiff’s argument that
merely making the images “available”� constitutes distribution is not supported. A “deemed
distribution”� rule that is applicable in other contexts is inapplicable to Defendant because
Defendant does not own a collection of Plaintiff’s full-size images and does not communicate
these images to the computers of people using Defendant’s search engine; it only indexes the
images Google (Defendant) therefore cannot be deemed to distribute copies of these images.

(3) Yes. A search engine’s owner’s appropriation of a copyrighted image for use as an indexed
thumbnail picture is a protected “fair use”� under the copyright law where the balance of the
statutory fair use factors favors the owner of the search engine. Although Perfect 10 (Plaintiff)
would likely prevail in its prima facie case that Google’s (Defendant) thumbnail images infringe
its display rights, Plaintiff has the burden to show a likelihood that it will prevail against an
affirmative fair use defense by Defendant. The first fair use factor, 17 U.S.C. § 107(1), requires a
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court to consider “the purpose and character of the use, including whether such use is of a
commercial nature or is for nonprofit educational purposes.”� A “transformative work”� is
one that alters the original work “with new expression, meaning, or message.”� In this case,
Defendant’s use of thumbnails is highly transformative. Defendant’s search engine provides
social benefit by incorporating an original work into a new work that serves as an electronic
reference tool, thereby providing an entirely new use for the original work. The district court
concluded that since

Defendant’s use of the thumbnails could supersede Plaintiff’s cellphone download use and
because the use was commercial as Google’s (Defendant) thumbnails “lead users to sites that
directly benefit Google’s bottom line”� through the AdSense program, this fair use factor
weighed “slightly”� in favor of Perfect 10 (Plaintiff). The district court’s conclusion on this
factor is erroneous because the superseding use was nonexistent insofar as the district court
did not find that any downloads for mobile phone use had taken place, and because there was
no evidence that AdSense websites containing infringing images significantly contributed to
Defendant’s bottom line. Accordingly, the significantly transformative nature of Defendant’s
search engine, particularly in light of its public benefit, outweighs Defendant’s superseding and
commercial uses of the thumbnails in this case. A weighing of these considerations must
promote flexibility and account for the rule that “the more transformative the new work, the
less will be the significance of other factors, like commercialism, that may weigh against a
finding of fair use.”� The second fair use factor is “the nature of the copyrighted
work,”� Perfect 10’s (Plaintiff) images are “creative in nature”� and therefore “closer to the
core of intended copyright protection than are more fact-based works.”� However, because
the photos appeared on the Internet before Google (Defendant) used thumbnail versions in its
search engine results, this factor weighs only slightly in favor of Plaintiff. The third fair use
factor, asks whether the amount and substantiality of the portion used in relation to the
copyrighted work as a whole are reasonable in relation to the purpose of the copying. Here, this
factor is neutral and does not weigh in favor of either party because Google’s (Defendant) use
of the entire photographic image was reasonable in light of the purpose of a search engine and
since using less than the entire image would be less helpful to a computer user. The fourth fair
use factor is “the effect of the use upon the potential market for or value of the copyrighted
work.”� The district court in this case correctly held that Defendant’s use of thumbnails did
not damage Plaintiff’s market for full-size images. Plaintiff argues that the district court erred
because the likelihood of market harm may be presumed if an image’s intended use is for
commercial gain. However, this presumption does not arise when a work is transformative
because “market substitution is at least less certain, and market harm may not be so readily
inferred.”� As already discussed, Defendant’s thumbnail images were highly transformative,
and there was no evidence that Plaintiff’s market for full-size images was harmed. Therefore,
the district court did not err as far as this ruling. However, the district court did err in
determining that Google’s (Defendant) thumbnails would harm the market for reduced-size
images, since Perfect 10 (Plaintiff) adduced no evidence that actual sales of such images had
been made for cell phone use. Any potential harm to Plaintiff’s market remains hypothetical,
and, therefore, this factor does not favor either party. Weighing the fair use factors leads to the
conclusion that Defendant’s use was a fair use, especially with the public utility served by its
search engine and the transformative nature of its use. Plaintiff is unlikely to be able to

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overcome Defendant’s fair use defense. And so, the preliminary injunction regarding Google’s
(Defendant) use of thumbnail images is vacated.

Reversed as to this issue.

Discussion.
Although finding that Google (Defendant) was not liable for its copyright infringement since its
use was a fair use, the court in this case nevertheless ruled that Defendant could be
contributorily liable for copyright infringement since an actor may be contributorily liable for
intentionally encouraging direct infringement if the actor knowingly takes steps that are
substantially certain to result in such direct infringement. In this case, the court found that
Defendant substantially helped websites to distribute their infringing copies to a worldwide
market and helped a worldwide audience of users access infringing materials. The court said it
could not disregard the effect of such a service on copyright owners, even though Defendant’s
assistance is available to all websites, not just infringing ones. The court concluded that Google
(Defendant) could be held contributorily liable if it had knowledge that infringing Perfect 10
(Plaintiff)) images were available using its search engine, could take easy steps to prevent
further damage to Plaintiff’s copyrighted works, and failed to do so. The court remanded so the
district court could make factual findings necessary to resolve this issue.

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G.R. No. 203335 February 11, 2014
JOSE JESUS M. DISINI, JR., ROWENA S. DISINI, LIANNE IVY P. MEDINA, JANETTE TORAL and
ERNESTO SONIDO, JR., Petitioners,
vs.
THE SECRETARY OF JUSTICE, THE SECRETARY OF THE DEPARTMENT OF THE INTERIOR AND
LOCAL GOVERNMENT, THE EXECUTIVE DIRECTOR OF THE INFORMATION AND
COMMUNICATIONS TECHNOLOGY OFFICE, THE CHIEF OF THE PHILIPPINE NATIONAL POLICE
and THE DIRECTOR OF THE NATIONAL BUREAU OF INVESTIGATION, Respondents.
x-----------------------x
G.R. No. 203299
LOUIS "BAROK" C. BIRAOGO, Petitioner,
vs.
NATIONAL BUREAU OF INVESTIGATION and PHILIPPINE NATIONAL POLICE, Respondents.
x-----------------------x
DECISION
ABAD, J.:
These consolidated petitions seek to declare several provisions of Republic Act (R.A.) 10175, the
Cybercrime Prevention Act of 2012, unconstitutional and void.
The Facts and the Case
The cybercrime law aims to regulate access to and use of the cyberspace. Using his laptop or
computer, a person can connect to the internet, a system that links him to other computers and
enable him, among other things, to:
1. Access virtual libraries and encyclopedias for all kinds of information that he needs for
research, study, amusement, upliftment, or pure curiosity;
2. Post billboard-like notices or messages, including pictures and videos, for the general
public or for special audiences like associates, classmates, or friends and read postings
from them;
3. Advertise and promote goods or services and make purchases and payments;
4. Inquire and do business with institutional entities like government agencies, banks,
stock exchanges, trade houses, credit card companies, public utilities, hospitals, and
schools; and
5. Communicate in writing or by voice with any person through his e-mail address or
telephone.
This is cyberspace, a system that accommodates millions and billions of simultaneous and
ongoing individual accesses to and uses of the internet. The cyberspace is a boon to the need of
the current generation for greater information and facility of communication. But all is not well
with the system since it could not filter out a number of persons of ill will who would want to
use cyberspace technology for mischiefs and crimes. One of them can, for instance, avail
himself of the system to unjustly ruin the reputation of another or bully the latter by posting
defamatory statements against him that people can read.
And because linking with the internet opens up a user to communications from others, the ill-
motivated can use the cyberspace for committing theft by hacking into or surreptitiously
accessing his bank account or credit card or defrauding him through false representations. The
wicked can use the cyberspace, too, for illicit trafficking in sex or for exposing to pornography
guileless children who have access to the internet. For this reason, the government has a
legitimate right to regulate the use of cyberspace and contain and punish wrongdoings.

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Notably, there are also those who would want, like vandals, to wreak or cause havoc to the
computer systems and networks of indispensable or highly useful institutions as well as to the
laptop or computer programs and memories of innocent individuals. They accomplish this by
sending electronic viruses or virtual dynamites that destroy those computer systems, networks,
programs, and memories. The government certainly has the duty and the right to prevent these
tomfooleries from happening and punish their perpetrators, hence the Cybercrime Prevention
Act.
But petitioners claim that the means adopted by the cybercrime law for regulating undesirable
cyberspace activities violate certain of their constitutional rights. The government of course
asserts that the law merely seeks to reasonably put order into cyberspace activities, punish
wrongdoings, and prevent hurtful attacks on the system.
Pending hearing and adjudication of the issues presented in these cases, on February 5, 2013
the Court extended the original 120-day temporary restraining order (TRO) that it earlier issued
on October 9, 2012, enjoining respondent government agencies from implementing the
cybercrime law until further orders.
The Issues Presented
Petitioners challenge the constitutionality of the following provisions of the cybercrime law that
regard certain acts as crimes and impose penalties for their commission as well as provisions
that would enable the government to track down and penalize violators. These provisions are:
a. Section 4(a)(1) on Illegal Access;
b. Section 4(a)(3) on Data Interference;
c. Section 4(a)(6) on Cyber-squatting;
d. Section 4(b)(3) on Identity Theft;
e. Section 4(c)(1) on Cybersex;
f. Section 4(c)(2) on Child Pornography;
g. Section 4(c)(3) on Unsolicited Commercial Communications;
h. Section 4(c)(4) on Libel;
i. Section 5 on Aiding or Abetting and Attempt in the Commission of Cybercrimes;
j. Section 6 on the Penalty of One Degree Higher;
k. Section 7 on the Prosecution under both the Revised Penal Code (RPC) and R.A.
10175;
l. Section 8 on Penalties;
m. Section 12 on Real-Time Collection of Traffic Data;
n. Section 13 on Preservation of Computer Data;
o. Section 14 on Disclosure of Computer Data;
p. Section 15 on Search, Seizure and Examination of Computer Data;
q. Section 17 on Destruction of Computer Data;
r. Section 19 on Restricting or Blocking Access to Computer Data;
s. Section 20 on Obstruction of Justice;
t. Section 24 on Cybercrime Investigation and Coordinating Center (CICC); and
u. Section 26(a) on CICC’s Powers and Functions.
Some petitioners also raise the constitutionality of related Articles 353, 354, 361, and 362 of
the RPC on the crime of libel.
The Rulings of the Court
Section 4(a)(1)
Section 4(a)(1) provides:

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Section 4. Cybercrime Offenses. – The following acts constitute the offense of cybercrime
punishable under this Act:
(a) Offenses against the confidentiality, integrity and availability of computer data and systems:
(1) Illegal Access. – The access to the whole or any part of a computer system without right.
Petitioners contend that Section 4(a)(1) fails to meet the strict scrutiny standard required of
laws that interfere with the fundamental rights of the people and should thus be struck down.
The Court has in a way found the strict scrutiny standard, an American constitutional
construct,1 useful in determining the constitutionality of laws that tend to target a class of
things or persons. According to this standard, a legislative classification that impermissibly
interferes with the exercise of fundamental right or operates to the peculiar class disadvantage
of a suspect class is presumed unconstitutional. The burden is on the government to prove that
the classification is necessary to achieve a compelling state interest and that it is the least
restrictive means to protect such interest.2 Later, the strict scrutiny standard was used to assess
the validity of laws dealing with the regulation of speech, gender, or race as well as other
fundamental rights, as expansion from its earlier applications to equal protection. 3
In the cases before it, the Court finds nothing in Section 4(a)(1) that calls for the application of
the strict scrutiny standard since no fundamental freedom, like speech, is involved in punishing
what is essentially a condemnable act – accessing the computer system of another without
right. It is a universally condemned conduct.4
Petitioners of course fear that this section will jeopardize the work of ethical hackers,
professionals who employ tools and techniques used by criminal hackers but would neither
damage the target systems nor steal information. Ethical hackers evaluate the target system’s
security and report back to the owners the vulnerabilities they found in it and give instructions
for how these can be remedied. Ethical hackers are the equivalent of independent auditors who
come into an organization to verify its bookkeeping records.5
Besides, a client’s engagement of an ethical hacker requires an agreement between them as to
the extent of the search, the methods to be used, and the systems to be tested. This is referred
to as the "get out of jail free card."6Since the ethical hacker does his job with prior permission
from the client, such permission would insulate him from the coverage of Section 4(a)(1).
Section 4(a)(3) of the Cybercrime Law
Section 4(a)(3) provides:
Section 4. Cybercrime Offenses. – The following acts constitute the offense of cybercrime
punishable under this Act:
(a) Offenses against the confidentiality, integrity and availability of computer data and systems:
xxxx
(3) Data Interference. – The intentional or reckless alteration, damaging, deletion or
deterioration of computer data, electronic document, or electronic data message, without
right, including the introduction or transmission of viruses.
Petitioners claim that Section 4(a)(3) suffers from overbreadth in that, while it seeks to
discourage data interference, it intrudes into the area of protected speech and expression,
creating a chilling and deterrent effect on these guaranteed freedoms.
Under the overbreadth doctrine, a proper governmental purpose, constitutionally subject to
state regulation, may not be achieved by means that unnecessarily sweep its subject broadly,
thereby invading the area of protected freedoms.7 But Section 4(a)(3) does not encroach on
these freedoms at all. It simply punishes what essentially is a form of vandalism, 8 the act of
willfully destroying without right the things that belong to others, in this case their computer
data, electronic document, or electronic data message. Such act has no connection to
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guaranteed freedoms. There is no freedom to destroy other people’s computer systems and
private documents.
All penal laws, like the cybercrime law, have of course an inherent chilling effect, an in terrorem
effect9 or the fear of possible prosecution that hangs on the heads of citizens who are minded
to step beyond the boundaries of what is proper. But to prevent the State from legislating
criminal laws because they instill such kind of fear is to render the state powerless in addressing
and penalizing socially harmful conduct.10 Here, the chilling effect that results in paralysis is an
illusion since Section 4(a)(3) clearly describes the evil that it seeks to punish and creates no
tendency to intimidate the free exercise of one’s constitutional rights.
Besides, the overbreadth challenge places on petitioners the heavy burden of proving that
under no set of circumstances will Section 4(a)(3) be valid.11 Petitioner has failed to discharge
this burden.
Section 4(a)(6) of the Cybercrime Law
Section 4(a)(6) provides:
Section 4. Cybercrime Offenses. – The following acts constitute the offense of cybercrime
punishable under this Act:
(a) Offenses against the confidentiality, integrity and availability of computer data and systems:
xxxx
(6) Cyber-squatting. – The acquisition of domain name over the internet in bad faith to profit,
mislead, destroy the reputation, and deprive others from registering the same, if such a domain
name is:
(i) Similar, identical, or confusingly similar to an existing trademark registered with the
appropriate government agency at the time of the domain name registration;
(ii) Identical or in any way similar with the name of a person other than the registrant, in
case of a personal name; and
(iii) Acquired without right or with intellectual property interests in it.
Petitioners claim that Section 4(a)(6) or cyber-squatting violates the equal protection clause12 in
that, not being narrowly tailored, it will cause a user using his real name to suffer the same fate
as those who use aliases or take the name of another in satire, parody, or any other literary
device. For example, supposing there exists a well known billionaire-philanthropist named
"Julio Gandolfo," the law would punish for cyber-squatting both the person who registers such
name because he claims it to be his pseudo-name and another who registers the name because
it happens to be his real name. Petitioners claim that, considering the substantial distinction
between the two, the law should recognize the difference.
But there is no real difference whether he uses "Julio Gandolfo" which happens to be his real
name or use it as a pseudo-name for it is the evil purpose for which he uses the name that the
law condemns. The law is reasonable in penalizing him for acquiring the domain name in bad
faith to profit, mislead, destroy reputation, or deprive others who are not ill-motivated of the
rightful opportunity of registering the same. The challenge to the constitutionality of Section
4(a)(6) on ground of denial of equal protection is baseless.
Section 4(b)(3) of the Cybercrime Law
Section 4(b)(3) provides:
Section 4. Cybercrime Offenses. – The following acts constitute the offense of cybercrime
punishable under this Act:
xxxx
b) Computer-related Offenses:
xxxx
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(3) Computer-related Identity Theft. – The intentional acquisition, use, misuse, transfer,
possession, alteration, or deletion of identifying information belonging to another, whether
natural or juridical, without right: Provided: that if no damage has yet been caused, the penalty
imposable shall be one (1) degree lower.
Petitioners claim that Section 4(b)(3) violates the constitutional rights to due process and to
privacy and correspondence, and transgresses the freedom of the press.
The right to privacy, or the right to be let alone, was institutionalized in the 1987 Constitution
as a facet of the right protected by the guarantee against unreasonable searches and
seizures.13 But the Court acknowledged its existence as early as 1968 in Morfe v. Mutuc, 14 it
ruled that the right to privacy exists independently of its identification with liberty; it is in itself
fully deserving of constitutional protection.
Relevant to any discussion of the right to privacy is the concept known as the "Zones of
Privacy." The Court explained in "In the Matter of the Petition for Issuance of Writ of Habeas
Corpus of Sabio v. Senator Gordon"15 the relevance of these zones to the right to privacy:
Zones of privacy are recognized and protected in our laws. Within these zones, any form of
intrusion is impermissible unless excused by law and in accordance with customary legal
process. The meticulous regard we accord to these zones arises not only from our conviction
that the right to privacy is a "constitutional right" and "the right most valued by civilized men,"
but also from our adherence to the Universal Declaration of Human Rights which mandates
that, "no one shall be subjected to arbitrary interference with his privacy" and "everyone has
the right to the protection of the law against such interference or attacks."
Two constitutional guarantees create these zones of privacy: (a) the right against unreasonable
searches16 and seizures, which is the basis of the right to be let alone, and (b) the right to
privacy of communication and correspondence.17 In assessing the challenge that the State has
impermissibly intruded into these zones of privacy, a court must determine whether a person
has exhibited a reasonable expectation of privacy and, if so, whether that expectation has been
violated by unreasonable government intrusion.18
The usual identifying information regarding a person includes his name, his citizenship, his
residence address, his contact number, his place and date of birth, the name of his spouse if
any, his occupation, and similar data.19 The law punishes those who acquire or use such
identifying information without right, implicitly to cause damage. Petitioners simply fail to show
how government effort to curb computer-related identity theft violates the right to privacy and
correspondence as well as the right to due process of law.
Also, the charge of invalidity of this section based on the overbreadth doctrine will not hold
water since the specific conducts proscribed do not intrude into guaranteed freedoms like
speech. Clearly, what this section regulates are specific actions: the acquisition, use, misuse or
deletion of personal identifying data of another. There is no fundamental right to acquire
another’s personal data.
Further, petitioners fear that Section 4(b)(3) violates the freedom of the press in that journalists
would be hindered from accessing the unrestricted user account of a person in the news to
secure information about him that could be published. But this is not the essence of identity
theft that the law seeks to prohibit and punish. Evidently, the theft of identity information must
be intended for an illegitimate purpose. Moreover, acquiring and disseminating information
made public by the user himself cannot be regarded as a form of theft.
The Court has defined intent to gain as an internal act which can be established through the
overt acts of the offender, and it may be presumed from the furtive taking of useful property
pertaining to another, unless special circumstances reveal a different intent on the part of the
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perpetrator.20 As such, the press, whether in quest of news reporting or social investigation, has
nothing to fear since a special circumstance is present to negate intent to gain which is required
by this Section.
Section 4(c)(1) of the Cybercrime Law
Section 4(c)(1) provides:
Sec. 4. Cybercrime Offenses.– The following acts constitute the offense of cybercrime
punishable under this Act:
xxxx
(c) Content-related Offenses:
(1) Cybersex.– The willful engagement, maintenance, control, or operation, directly or
indirectly, of any lascivious exhibition of sexual organs or sexual activity, with the aid of a
computer system, for favor or consideration.
Petitioners claim that the above violates the freedom of expression clause of the
Constitution.21 They express fear that private communications of sexual character between
husband and wife or consenting adults, which are not regarded as crimes under the penal code,
would now be regarded as crimes when done "for favor" in cyberspace. In common usage, the
term "favor" includes "gracious kindness," "a special privilege or right granted or conceded," or
"a token of love (as a ribbon) usually worn conspicuously."22 This meaning given to the term
"favor" embraces socially tolerated trysts. The law as written would invite law enforcement
agencies into the bedrooms of married couples or consenting individuals.
But the deliberations of the Bicameral Committee of Congress on this section of the Cybercrime
Prevention Act give a proper perspective on the issue. These deliberations show a lack of intent
to penalize a "private showing x x x between and among two private persons x x x although that
may be a form of obscenity to some."23 The understanding of those who drew up the
cybercrime law is that the element of "engaging in a business" is necessary to constitute the
illegal cybersex.24 The Act actually seeks to punish cyber prostitution, white slave trade, and
pornography for favor and consideration. This includes interactive prostitution and
pornography, i.e., by webcam.25
The subject of Section 4(c)(1)—lascivious exhibition of sexual organs or sexual activity—is not
novel. Article 201 of the RPC punishes "obscene publications and exhibitions and indecent
shows." The Anti-Trafficking in Persons Act of 2003 penalizes those who "maintain or hire a
person to engage in prostitution or pornography."26 The law defines prostitution as any act,
transaction, scheme, or design involving the use of a person by another, for sexual intercourse
or lascivious conduct in exchange for money, profit, or any other consideration. 27
The case of Nogales v. People28 shows the extent to which the State can regulate materials
that serve no other purpose than satisfy the market for violence, lust, or pornography. 29 The
Court weighed the property rights of individuals against the public welfare. Private property, if
containing pornographic materials, may be forfeited and destroyed. Likewise, engaging in
sexual acts privately through internet connection, perceived by some as a right, has to be
balanced with the mandate of the State to eradicate white slavery and the exploitation of
women.
In any event, consenting adults are protected by the wealth of jurisprudence delineating the
bounds of obscenity.30The Court will not declare Section 4(c)(1) unconstitutional where it
stands a construction that makes it apply only to persons engaged in the business of
maintaining, controlling, or operating, directly or indirectly, the lascivious exhibition of sexual
organs or sexual activity with the aid of a computer system as Congress has intended.
Section 4(c)(2) of the Cybercrime Law
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Section 4(c)(2) provides:
Sec. 4. Cybercrime Offenses. – The following acts constitute the offense of cybercrime
punishable under this Act:
xxxx
(c) Content-related Offenses:
xxxx
(2) Child Pornography. — The unlawful or prohibited acts defined and punishable by Republic
Act No. 9775 or the Anti-Child Pornography Act of 2009, committed through a computer
system: Provided, That the penalty to be imposed shall be (1) one degree higher than that
provided for in Republic Act No. 9775.
It seems that the above merely expands the scope of the Anti-Child Pornography Act of
200931 (ACPA) to cover identical activities in cyberspace. In theory, nothing prevents the
government from invoking the ACPA when prosecuting persons who commit child pornography
using a computer system. Actually, ACPA’s definition of child pornography already embraces
the use of "electronic, mechanical, digital, optical, magnetic or any other means." Notably, no
one has questioned this ACPA provision.
Of course, the law makes the penalty higher by one degree when the crime is committed in
cyberspace. But no one can complain since the intensity or duration of penalty is a legislative
prerogative and there is rational basis for such higher penalty.32 The potential for uncontrolled
proliferation of a particular piece of child pornography when uploaded in the cyberspace is
incalculable.
Petitioners point out that the provision of ACPA that makes it unlawful for any person to
"produce, direct, manufacture or create any form of child pornography"33 clearly relates to the
prosecution of persons who aid and abet the core offenses that ACPA seeks to
punish.34 Petitioners are wary that a person who merely doodles on paper and imagines a
sexual abuse of a 16-year-old is not criminally liable for producing child pornography but one
who formulates the idea on his laptop would be. Further, if the author bounces off his ideas on
Twitter, anyone who replies to the tweet could be considered aiding and abetting a cybercrime.
The question of aiding and abetting the offense by simply commenting on it will be discussed
elsewhere below. For now the Court must hold that the constitutionality of Section 4(c)(2) is
not successfully challenged.
Section 4(c)(3) of the Cybercrime Law
Section 4(c)(3) provides:
Sec. 4. Cybercrime Offenses. – The following acts constitute the offense of cybercrime
punishable under this Act:
xxxx
(c) Content-related Offenses:
xxxx
(3) Unsolicited Commercial Communications. – The transmission of commercial electronic
communication with the use of computer system which seeks to advertise, sell, or offer for sale
products and services are prohibited unless:
(i) There is prior affirmative consent from the recipient; or
(ii) The primary intent of the communication is for service and/or administrative
announcements from the sender to its existing users, subscribers or customers; or
(iii) The following conditions are present:

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 (aa) The commercial electronic communication contains a simple, valid, and
reliable way for the recipient to reject receipt of further commercial electronic
messages (opt-out) from the same source;
(bb) The commercial electronic communication does not purposely disguise the
source of the electronic message; and
(cc) The commercial electronic communication does not purposely include
misleading information in any part of the message in order to induce the
recipients to read the message.
The above penalizes the transmission of unsolicited commercial communications, also known
as "spam." The term "spam" surfaced in early internet chat rooms and interactive fantasy
games. One who repeats the same sentence or comment was said to be making a "spam." The
term referred to a Monty Python’s Flying Circus scene in which actors would keep saying
"Spam, Spam, Spam, and Spam" when reading options from a menu.35
The Government, represented by the Solicitor General, points out that unsolicited commercial
communications or spams are a nuisance that wastes the storage and network capacities of
internet service providers, reduces the efficiency of commerce and technology, and interferes
with the owner’s peaceful enjoyment of his property. Transmitting spams amounts to trespass
to one’s privacy since the person sending out spams enters the recipient’s domain without prior
permission. The OSG contends that commercial speech enjoys less protection in law.
But, firstly, the government presents no basis for holding that unsolicited electronic ads reduce
the "efficiency of computers." Secondly, people, before the arrival of the age of computers,
have already been receiving such unsolicited ads by mail. These have never been outlawed as
nuisance since people might have interest in such ads. What matters is that the recipient has
the option of not opening or reading these mail ads. That is true with spams. Their recipients
always have the option to delete or not to read them.
To prohibit the transmission of unsolicited ads would deny a person the right to read his emails,
even unsolicited commercial ads addressed to him. Commercial speech is a separate category
of speech which is not accorded the same level of protection as that given to other
constitutionally guaranteed forms of expression but is nonetheless entitled to protection. 36 The
State cannot rob him of this right without violating the constitutionally guaranteed freedom of
expression. Unsolicited advertisements are legitimate forms of expression.
Articles 353, 354, and 355 of the Penal Code
Section 4(c)(4) of the Cyber Crime Law
Petitioners dispute the constitutionality of both the penal code provisions on libel as well as
Section 4(c)(4) of the Cybercrime Prevention Act on cyberlibel.
The RPC provisions on libel read:
Art. 353. Definition of libel. — A libel is public and malicious imputation of a crime, or of a vice
or defect, real or imaginary, or any act, omission, condition, status, or circumstance tending to
cause the dishonor, discredit, or contempt of a natural or juridical person, or to blacken the
memory of one who is dead.
Art. 354. Requirement for publicity. — Every defamatory imputation is presumed to be
malicious, even if it be true, if no good intention and justifiable motive for making it is shown,
except in the following cases:
1. A private communication made by any person to another in the performance of any
legal, moral or social duty; and
2. A fair and true report, made in good faith, without any comments or remarks, of any
judicial, legislative or other official proceedings which are not of confidential nature, or
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 of any statement, report or speech delivered in said proceedings, or of any other act
performed by public officers in the exercise of their functions.
Art. 355. Libel means by writings or similar means. — A libel committed by means of writing,
printing, lithography, engraving, radio, phonograph, painting, theatrical exhibition,
cinematographic exhibition, or any similar means, shall be punished by prision correccional in
its minimum and medium periods or a fine ranging from 200 to 6,000 pesos, or both, in
addition to the civil action which may be brought by the offended party.
The libel provision of the cybercrime law, on the other hand, merely incorporates to form part
of it the provisions of the RPC on libel. Thus Section 4(c)(4) reads:
Sec. 4. Cybercrime Offenses. — The following acts constitute the offense of cybercrime
punishable under this Act:
xxxx
(c) Content-related Offenses:
xxxx
(4) Libel. — The unlawful or prohibited acts of libel as defined in Article 355 of the Revised
Penal Code, as amended, committed through a computer system or any other similar means
which may be devised in the future.
Petitioners lament that libel provisions of the penal code37 and, in effect, the libel provisions of
the cybercrime law carry with them the requirement of "presumed malice" even when the
latest jurisprudence already replaces it with the higher standard of "actual malice" as a basis for
conviction.38 Petitioners argue that inferring "presumed malice" from the accused’s defamatory
statement by virtue of Article 354 of the penal code infringes on his constitutionally guaranteed
freedom of expression.
Petitioners would go further. They contend that the laws on libel should be stricken down as
unconstitutional for otherwise good jurisprudence requiring "actual malice" could easily be
overturned as the Court has done in Fermin v. People39 even where the offended parties
happened to be public figures.
The elements of libel are: (a) the allegation of a discreditable act or condition concerning
another; (b) publication of the charge; (c) identity of the person defamed; and (d) existence of
malice.40
There is "actual malice" or malice in fact41 when the offender makes the defamatory statement
with the knowledge that it is false or with reckless disregard of whether it was false or
not.42 The reckless disregard standard used here requires a high degree of awareness of
probable falsity. There must be sufficient evidence to permit the conclusion that the accused in
fact entertained serious doubts as to the truth of the statement he published. Gross or even
extreme negligence is not sufficient to establish actual malice.43
The prosecution bears the burden of proving the presence of actual malice in instances where
such element is required to establish guilt. The defense of absence of actual malice, even when
the statement turns out to be false, is available where the offended party is a public official or a
public figure, as in the cases of Vasquez (a barangay official) and Borjal (the Executive Director,
First National Conference on Land Transportation). Since the penal code and implicitly, the
cybercrime law, mainly target libel against private persons, the Court recognizes that these laws
imply a stricter standard of "malice" to convict the author of a defamatory statement where the
offended party is a public figure. Society’s interest and the maintenance of good government
demand a full discussion of public affairs.44
Parenthetically, the Court cannot accept the proposition that its ruling in Fermin disregarded
the higher standard of actual malice or malice in fact when it found Cristinelli Fermin guilty of
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committing libel against complainants who were public figures. Actually, the Court found the
presence of malice in fact in that case. Thus:
It can be gleaned from her testimony that petitioner had the motive to make defamatory
imputations against complainants. Thus, petitioner cannot, by simply making a general denial,
convince us that there was no malice on her part. Verily, not only was there malice in law, the
article being malicious in itself, but there was also malice in fact, as there was motive to talk ill
against complainants during the electoral campaign. (Emphasis ours)
Indeed, the Court took into account the relatively wide leeway given to utterances against
public figures in the above case, cinema and television personalities, when it modified the
penalty of imprisonment to just a fine of ₱6,000.00.
But, where the offended party is a private individual, the prosecution need not prove the
presence of malice. The law explicitly presumes its existence (malice in law) from the
defamatory character of the assailed statement.45 For his defense, the accused must show that
he has a justifiable reason for the defamatory statement even if it was in fact true. 46
Petitioners peddle the view that both the penal code and the Cybercrime Prevention Act violate
the country’s obligations under the International Covenant of Civil and Political Rights (ICCPR).
They point out that in Adonis v. Republic of the Philippines,47 the United Nations Human Rights
Committee (UNHRC) cited its General Comment 34 to the effect that penal defamation laws
should include the defense of truth.
But General Comment 34 does not say that the truth of the defamatory statement should
constitute an all-encompassing defense. As it happens, Article 361 recognizes truth as a defense
but under the condition that the accused has been prompted in making the statement by good
motives and for justifiable ends. Thus:
Art. 361. Proof of the truth. — In every criminal prosecution for libel, the truth may be given in
evidence to the court and if it appears that the matter charged as libelous is true, and,
moreover, that it was published with good motives and for justifiable ends, the defendants
shall be acquitted.
Proof of the truth of an imputation of an act or omission not constituting a crime shall not be
admitted, unless the imputation shall have been made against Government employees with
respect to facts related to the discharge of their official duties.
In such cases if the defendant proves the truth of the imputation made by him, he shall be
acquitted.
Besides, the UNHRC did not actually enjoin the Philippines, as petitioners urge, to decriminalize
libel. It simply suggested that defamation laws be crafted with care to ensure that they do not
stifle freedom of expression.48Indeed, the ICCPR states that although everyone should enjoy
freedom of expression, its exercise carries with it special duties and responsibilities. Free
speech is not absolute. It is subject to certain restrictions, as may be necessary and as may be
provided by law.49
The Court agrees with the Solicitor General that libel is not a constitutionally protected speech
and that the government has an obligation to protect private individuals from defamation.
Indeed, cyberlibel is actually not a new crime since Article 353, in relation to Article 355 of the
penal code, already punishes it. In effect, Section 4(c)(4) above merely affirms that online
defamation constitutes "similar means" for committing libel.
But the Court’s acquiescence goes only insofar as the cybercrime law penalizes the author of
the libelous statement or article. Cyberlibel brings with it certain intricacies, unheard of when
the penal code provisions on libel were enacted. The culture associated with internet media is
distinct from that of print.
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The internet is characterized as encouraging a freewheeling, anything-goes writing style.50 In a
sense, they are a world apart in terms of quickness of the reader’s reaction to defamatory
statements posted in cyberspace, facilitated by one-click reply options offered by the
networking site as well as by the speed with which such reactions are disseminated down the
line to other internet users. Whether these reactions to defamatory statement posted on the
internet constitute aiding and abetting libel, acts that Section 5 of the cybercrime law punishes,
is another matter that the Court will deal with next in relation to Section 5 of the law.
Section 5 of the Cybercrime Law
Section 5 provides:
Sec. 5. Other Offenses. — The following acts shall also constitute an offense:
(a) Aiding or Abetting in the Commission of Cybercrime. – Any person who willfully abets
or aids in the commission of any of the offenses enumerated in this Act shall be held
liable.
(b) Attempt in the Commission of Cybercrime. — Any person who willfully attempts to
commit any of the offenses enumerated in this Act shall be held liable.
Petitioners assail the constitutionality of Section 5 that renders criminally liable any person who
willfully abets or aids in the commission or attempts to commit any of the offenses enumerated
as cybercrimes. It suffers from overbreadth, creating a chilling and deterrent effect on
protected expression.
The Solicitor General contends, however, that the current body of jurisprudence and laws on
aiding and abetting sufficiently protects the freedom of expression of "netizens," the multitude
that avail themselves of the services of the internet. He points out that existing laws and
jurisprudence sufficiently delineate the meaning of "aiding or abetting" a crime as to protect
the innocent. The Solicitor General argues that plain, ordinary, and common usage is at times
sufficient to guide law enforcement agencies in enforcing the law.51 The legislature is not
required to define every single word contained in the laws they craft.
Aiding or abetting has of course well-defined meaning and application in existing laws. When a
person aids or abets another in destroying a forest,52 smuggling merchandise into the
country,53 or interfering in the peaceful picketing of laborers,54 his action is essentially physical
and so is susceptible to easy assessment as criminal in character. These forms of aiding or
abetting lend themselves to the tests of common sense and human experience.
But, when it comes to certain cybercrimes, the waters are muddier and the line of sight is
somewhat blurred. The idea of "aiding or abetting" wrongdoings online threatens the
heretofore popular and unchallenged dogmas of cyberspace use.
According to the 2011 Southeast Asia Digital Consumer Report, 33% of Filipinos have accessed
the internet within a year, translating to about 31 million users.55 Based on a recent survey, the
Philippines ranks 6th in the top 10 most engaged countries for social networking. 56 Social
networking sites build social relations among people who, for example, share interests,
activities, backgrounds, or real-life connections.57
Two of the most popular of these sites are Facebook and Twitter. As of late 2012, 1.2 billion
people with shared interests use Facebook to get in touch.58 Users register at this site, create a
personal profile or an open book of who they are, add other users as friends, and exchange
messages, including automatic notifications when they update their profile.59 A user can post a
statement, a photo, or a video on Facebook, which can be made visible to anyone, depending
on the user’s privacy settings.
If the post is made available to the public, meaning to everyone and not only to his friends,
anyone on Facebook can react to the posting, clicking any of several buttons of preferences on
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the program’s screen such as "Like," "Comment," or "Share." "Like" signifies that the reader
likes the posting while "Comment" enables him to post online his feelings or views about the
same, such as "This is great!" When a Facebook user "Shares" a posting, the original "posting"
will appear on his own Facebook profile, consequently making it visible to his down-line
Facebook Friends.
Twitter, on the other hand, is an internet social networking and microblogging service that
enables its users to send and read short text-based messages of up to 140 characters. These are
known as "Tweets." Microblogging is the practice of posting small pieces of digital content—
which could be in the form of text, pictures, links, short videos, or other media—on the
internet. Instead of friends, a Twitter user has "Followers," those who subscribe to this
particular user’s posts, enabling them to read the same, and "Following," those whom this
particular user is subscribed to, enabling him to read their posts. Like Facebook, a Twitter user
can make his tweets available only to his Followers, or to the general public. If a post is
available to the public, any Twitter user can "Retweet" a given posting. Retweeting is just
reposting or republishing another person’s tweet without the need of copying and pasting it.
In the cyberworld, there are many actors: a) the blogger who originates the assailed statement;
b) the blog service provider like Yahoo; c) the internet service provider like PLDT, Smart, Globe,
or Sun; d) the internet café that may have provided the computer used for posting the blog; e)
the person who makes a favorable comment on the blog; and f) the person who posts a link to
the blog site.60 Now, suppose Maria (a blogger) maintains a blog on WordPress.com (blog
service provider). She needs the internet to access her blog so she subscribes to Sun Broadband
(Internet Service Provider).
One day, Maria posts on her internet account the statement that a certain married public
official has an illicit affair with a movie star. Linda, one of Maria’s friends who sees this post,
comments online, "Yes, this is so true! They are so immoral." Maria’s original post is then
multiplied by her friends and the latter’s friends, and down the line to friends of friends almost
ad infinitum. Nena, who is a stranger to both Maria and Linda, comes across this blog, finds it
interesting and so shares the link to this apparently defamatory blog on her Twitter account.
Nena’s "Followers" then "Retweet" the link to that blog site.
Pamela, a Twitter user, stumbles upon a random person’s "Retweet" of Nena’s original tweet
and posts this on her Facebook account. Immediately, Pamela’s Facebook Friends start Liking
and making Comments on the assailed posting. A lot of them even press the Share button,
resulting in the further spread of the original posting into tens, hundreds, thousands, and
greater postings.
The question is: are online postings such as "Liking" an openly defamatory statement,
"Commenting" on it, or "Sharing" it with others, to be regarded as "aiding or abetting?" In libel
in the physical world, if Nestor places on the office bulletin board a small poster that says,
"Armand is a thief!," he could certainly be charged with libel. If Roger, seeing the poster, writes
on it, "I like this!," that could not be libel since he did not author the poster. If Arthur, passing
by and noticing the poster, writes on it, "Correct!," would that be libel? No, for he merely
expresses agreement with the statement on the poster. He still is not its author. Besides, it is
not clear if aiding or abetting libel in the physical world is a crime.
But suppose Nestor posts the blog, "Armand is a thief!" on a social networking site. Would a
reader and his Friends or Followers, availing themselves of any of the "Like," "Comment," and
"Share" reactions, be guilty of aiding or abetting libel? And, in the complex world of cyberspace
expressions of thoughts, when will one be liable for aiding or abetting cybercrimes? Where is
the venue of the crime?
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Except for the original author of the assailed statement, the rest (those who pressed Like,
Comment and Share) are essentially knee-jerk sentiments of readers who may think little or
haphazardly of their response to the original posting. Will they be liable for aiding or abetting?
And, considering the inherent impossibility of joining hundreds or thousands of responding
"Friends" or "Followers" in the criminal charge to be filed in court, who will make a choice as to
who should go to jail for the outbreak of the challenged posting?
The old parameters for enforcing the traditional form of libel would be a square peg in a round
hole when applied to cyberspace libel. Unless the legislature crafts a cyber libel law that takes
into account its unique circumstances and culture, such law will tend to create a chilling effect
on the millions that use this new medium of communication in violation of their
constitutionally-guaranteed right to freedom of expression.
The United States Supreme Court faced the same issue in Reno v. American Civil Liberties
Union,61 a case involving the constitutionality of the Communications Decency Act of 1996. The
law prohibited (1) the knowing transmission, by means of a telecommunications device, of
"obscene or indecent" communications to any recipient under 18 years of age; and (2) the
knowing use of an interactive computer service to send to a specific person or persons under 18
years of age or to display in a manner available to a person under 18 years of age
communications that, in context, depict or describe, in terms "patently offensive" as measured
by contemporary community standards, sexual or excretory activities or organs.
Those who challenged the Act claim that the law violated the First Amendment’s guarantee of
freedom of speech for being overbroad. The U.S. Supreme Court agreed and ruled:
The vagueness of the Communications Decency Act of 1996 (CDA), 47 U.S.C.S. §223, is a matter
of special concern for two reasons. First, the CDA is a content-based regulation of speech. The
vagueness of such a regulation raises special U.S. Const. amend. I concerns because of its
obvious chilling effect on free speech. Second, the CDA is a criminal statute. In addition to the
opprobrium and stigma of a criminal conviction, the CDA threatens violators with penalties
including up to two years in prison for each act of violation. The severity of criminal sanctions
may well cause speakers to remain silent rather than communicate even arguably unlawful
words, ideas, and images. As a practical matter, this increased deterrent effect, coupled with
the risk of discriminatory enforcement of vague regulations, poses greater U.S. Const. amend. I
concerns than those implicated by certain civil regulations.
xxxx
The Communications Decency Act of 1996 (CDA), 47 U.S.C.S. § 223, presents a great threat of
censoring speech that, in fact, falls outside the statute's scope. Given the vague contours of the
coverage of the statute, it unquestionably silences some speakers whose messages would be
entitled to constitutional protection. That danger provides further reason for insisting that the
statute not be overly broad. The CDA’s burden on protected speech cannot be justified if it
could be avoided by a more carefully drafted statute. (Emphasis ours)
Libel in the cyberspace can of course stain a person’s image with just one click of the mouse.
Scurrilous statements can spread and travel fast across the globe like bad news. Moreover,
cyberlibel often goes hand in hand with cyberbullying that oppresses the victim, his relatives,
and friends, evoking from mild to disastrous reactions. Still, a governmental purpose, which
seeks to regulate the use of this cyberspace communication technology to protect a person’s
reputation and peace of mind, cannot adopt means that will unnecessarily and broadly sweep,
invading the area of protected freedoms.62
If such means are adopted, self-inhibition borne of fear of what sinister predicaments await
internet users will suppress otherwise robust discussion of public issues. Democracy will be
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threatened and with it, all liberties. Penal laws should provide reasonably clear guidelines for
law enforcement officials and triers of facts to prevent arbitrary and discriminatory
enforcement.63 The terms "aiding or abetting" constitute broad sweep that generates chilling
effect on those who express themselves through cyberspace posts, comments, and other
messages.64 Hence, Section 5 of the cybercrime law that punishes "aiding or abetting" libel on
the cyberspace is a nullity.
When a penal statute encroaches upon the freedom of speech, a facial challenge grounded on
the void-for-vagueness doctrine is acceptable. The inapplicability of the doctrine must be
carefully delineated. As Justice Antonio T. Carpio explained in his dissent in Romualdez v.
Commission on Elections,65 "we must view these statements of the Court on the inapplicability
of the overbreadth and vagueness doctrines to penal statutes as appropriate only insofar as
these doctrines are used to mount ‘facial’ challenges to penal statutes not involving free
speech."
In an "as applied" challenge, the petitioner who claims a violation of his constitutional right can
raise any constitutional ground – absence of due process, lack of fair notice, lack of
ascertainable standards, overbreadth, or vagueness. Here, one can challenge the
constitutionality of a statute only if he asserts a violation of his own rights. It prohibits one from
assailing the constitutionality of the statute based solely on the violation of the rights of third
persons not before the court. This rule is also known as the prohibition against third-party
standing.66
But this rule admits of exceptions. A petitioner may for instance mount a "facial" challenge to
the constitutionality of a statute even if he claims no violation of his own rights under the
assailed statute where it involves free speech on grounds of overbreadth or vagueness of the
statute.
The rationale for this exception is to counter the "chilling effect" on protected speech that
comes from statutes violating free speech. A person who does not know whether his speech
constitutes a crime under an overbroad or vague law may simply restrain himself from speaking
in order to avoid being charged of a crime. The overbroad or vague law thus chills him into
silence.67
As already stated, the cyberspace is an incomparable, pervasive medium of communication. It
is inevitable that any government threat of punishment regarding certain uses of the medium
creates a chilling effect on the constitutionally-protected freedom of expression of the great
masses that use it. In this case, the particularly complex web of interaction on social media
websites would give law enforcers such latitude that they could arbitrarily or selectively enforce
the law.
Who is to decide when to prosecute persons who boost the visibility of a posting on the
internet by liking it? Netizens are not given "fair notice" or warning as to what is criminal
conduct and what is lawful conduct. When a case is filed, how will the court ascertain whether
or not one netizen’s comment aided and abetted a cybercrime while another comment did
not?
Of course, if the "Comment" does not merely react to the original posting but creates an
altogether new defamatory story against Armand like "He beats his wife and children," then
that should be considered an original posting published on the internet. Both the penal code
and the cybercrime law clearly punish authors of defamatory publications. Make no mistake,
libel destroys reputations that society values. Allowed to cascade in the internet, it will destroy
relationships and, under certain circumstances, will generate enmity and tension between

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social or economic groups, races, or religions, exacerbating existing tension in their
relationships.
In regard to the crime that targets child pornography, when "Google procures, stores, and
indexes child pornography and facilitates the completion of transactions involving the
dissemination of child pornography," does this make Google and its users aiders and abettors in
the commission of child pornography crimes?68 Byars highlights a feature in the American law
on child pornography that the Cybercrimes law lacks—the exemption of a provider or notably a
plain user of interactive computer service from civil liability for child pornography as follows:
No provider or user of an interactive computer service shall be treated as the publisher or
speaker of any information provided by another information content provider and cannot be
held civilly liable for any action voluntarily taken in good faith to restrict access to or availability
of material that the provider or user considers to be obscene...whether or not such material is
constitutionally protected.69
When a person replies to a Tweet containing child pornography, he effectively republishes it
whether wittingly or unwittingly. Does this make him a willing accomplice to the distribution of
child pornography? When a user downloads the Facebook mobile application, the user may
give consent to Facebook to access his contact details. In this way, certain information is
forwarded to third parties and unsolicited commercial communication could be disseminated
on the basis of this information.70 As the source of this information, is the user aiding the
distribution of this communication? The legislature needs to address this clearly to relieve users
of annoying fear of possible criminal prosecution.
Section 5 with respect to Section 4(c)(4) is unconstitutional. Its vagueness raises apprehension
on the part of internet users because of its obvious chilling effect on the freedom of expression,
especially since the crime of aiding or abetting ensnares all the actors in the cyberspace front in
a fuzzy way. What is more, as the petitioners point out, formal crimes such as libel are not
punishable unless consummated.71 In the absence of legislation tracing the interaction of
netizens and their level of responsibility such as in other countries, Section 5, in relation to
Section 4(c)(4) on Libel, Section 4(c)(3) on Unsolicited Commercial Communications, and
Section 4(c)(2) on Child Pornography, cannot stand scrutiny.
But the crime of aiding or abetting the commission of cybercrimes under Section 5 should be
permitted to apply to Section 4(a)(1) on Illegal Access, Section 4(a)(2) on Illegal Interception,
Section 4(a)(3) on Data Interference, Section 4(a)(4) on System Interference, Section 4(a)(5) on
Misuse of Devices, Section 4(a)(6) on Cyber-squatting, Section 4(b)(1) on Computer-related
Forgery, Section 4(b)(2) on Computer-related Fraud, Section 4(b)(3) on Computer-related
Identity Theft, and Section 4(c)(1) on Cybersex. None of these offenses borders on the exercise
of the freedom of expression.
The crime of willfully attempting to commit any of these offenses is for the same reason not
objectionable. A hacker may for instance have done all that is necessary to illegally access
another party’s computer system but the security employed by the system’s lawful owner could
frustrate his effort. Another hacker may have gained access to usernames and passwords of
others but fail to use these because the system supervisor is alerted. 72 If Section 5 that
punishes any person who willfully attempts to commit this specific offense is not upheld, the
owner of the username and password could not file a complaint against him for attempted
hacking. But this is not right. The hacker should not be freed from liability simply because of the
vigilance of a lawful owner or his supervisor.
Petitioners of course claim that Section 5 lacks positive limits and could cover the
innocent.73 While this may be true with respect to cybercrimes that tend to sneak past the area
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of free expression, any attempt to commit the other acts specified in Section 4(a)(1), Section
4(a)(2), Section 4(a)(3), Section 4(a)(4), Section 4(a)(5), Section 4(a)(6), Section 4(b)(1), Section
4(b)(2), Section 4(b)(3), and Section 4(c)(1) as well as the actors aiding and abetting the
commission of such acts can be identified with some reasonable certainty through adroit
tracking of their works. Absent concrete proof of the same, the innocent will of course be
spared.
Section 6 of the Cybercrime Law
Section 6 provides:
Sec. 6. All crimes defined and penalized by the Revised Penal Code, as amended, and special
laws, if committed by, through and with the use of information and communications
technologies shall be covered by the relevant provisions of this Act: Provided, That the penalty
to be imposed shall be one (1) degree higher than that provided for by the Revised Penal Code,
as amended, and special laws, as the case may be.
Section 6 merely makes commission of existing crimes through the internet a qualifying
circumstance. As the Solicitor General points out, there exists a substantial distinction between
crimes committed through the use of information and communications technology and similar
crimes committed using other means. In using the technology in question, the offender often
evades identification and is able to reach far more victims or cause greater harm. The
distinction, therefore, creates a basis for higher penalties for cybercrimes.
Section 7 of the Cybercrime Law
Section 7 provides:
Sec. 7. Liability under Other Laws. — A prosecution under this Act shall be without prejudice to
any liability for violation of any provision of the Revised Penal Code, as amended, or special
laws.
The Solicitor General points out that Section 7 merely expresses the settled doctrine that a
single set of acts may be prosecuted and penalized simultaneously under two laws, a special
law and the Revised Penal Code. When two different laws define two crimes, prior jeopardy as
to one does not bar prosecution of the other although both offenses arise from the same fact, if
each crime involves some important act which is not an essential element of the other. 74 With
the exception of the crimes of online libel and online child pornography, the Court would rather
leave the determination of the correct application of Section 7 to actual cases.
Online libel is different. There should be no question that if the published material on print, said
to be libelous, is again posted online or vice versa, that identical material cannot be the subject
of two separate libels. The two offenses, one a violation of Article 353 of the Revised Penal
Code and the other a violation of Section 4(c)(4) of R.A. 10175 involve essentially the same
elements and are in fact one and the same offense. Indeed, the OSG itself claims that online
libel under Section 4(c)(4) is not a new crime but is one already punished under Article 353.
Section 4(c)(4) merely establishes the computer system as another means of
publication.75 Charging the offender under both laws would be a blatant violation of the
proscription against double jeopardy.76
The same is true with child pornography committed online. Section 4(c)(2) merely expands the
ACPA’s scope so as to include identical activities in cyberspace. As previously discussed, ACPA’s
definition of child pornography in fact already covers the use of "electronic, mechanical, digital,
optical, magnetic or any other means." Thus, charging the offender under both Section 4(c)(2)
and ACPA would likewise be tantamount to a violation of the constitutional prohibition against
double jeopardy.
Section 8 of the Cybercrime Law
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Section 8 provides:
Sec. 8. Penalties. — Any person found guilty of any of the punishable acts enumerated in
Sections 4(a) and 4(b) of this Act shall be punished with imprisonment of prision mayor or a fine
of at least Two hundred thousand pesos (Ph₱200,000.00) up to a maximum amount
commensurate to the damage incurred or both.
Any person found guilty of the punishable act under Section 4(a)(5) shall be punished with
imprisonment of prision mayor or a fine of not more than Five hundred thousand pesos
(Ph₱500,000.00) or both.
If punishable acts in Section 4(a) are committed against critical infrastructure, the penalty of
reclusion temporal or a fine of at least Five hundred thousand pesos (Ph₱500,000.00) up to
maximum amount commensurate to the damage incurred or both, shall be imposed.
Any person found guilty of any of the punishable acts enumerated in Section 4(c)(1) of this Act
shall be punished with imprisonment of prision mayor or a fine of at least Two hundred
thousand pesos (Ph₱200,000.00) but not exceeding One million pesos (Ph₱1,000,000.00) or
both.
Any person found guilty of any of the punishable acts enumerated in Section 4(c)(2) of this Act
shall be punished with the penalties as enumerated in Republic Act No. 9775 or the "Anti-Child
Pornography Act of 2009:" Provided, That the penalty to be imposed shall be one (1) degree
higher than that provided for in Republic Act No. 9775, if committed through a computer
system.
Any person found guilty of any of the punishable acts enumerated in Section 4(c)(3) shall be
punished with imprisonment of arresto mayor or a fine of at least Fifty thousand pesos
(Ph₱50,000.00) but not exceeding Two hundred fifty thousand pesos (Ph₱250,000.00) or both.
Any person found guilty of any of the punishable acts enumerated in Section 5 shall be
punished with imprisonment one (1) degree lower than that of the prescribed penalty for the
offense or a fine of at least One hundred thousand pesos (Ph₱100,000.00) but not exceeding
Five hundred thousand pesos (Ph₱500,000.00) or both.
Section 8 provides for the penalties for the following crimes: Sections 4(a) on Offenses Against
the Confidentiality, Integrity and Availability of Computer Data and Systems; 4(b) on Computer-
related Offenses; 4(a)(5) on Misuse of Devices; when the crime punishable under 4(a) is
committed against critical infrastructure; 4(c)(1) on Cybersex; 4(c)(2) on Child Pornography;
4(c)(3) on Unsolicited Commercial Communications; and Section 5 on Aiding or Abetting, and
Attempt in the Commission of Cybercrime.
The matter of fixing penalties for the commission of crimes is as a rule a legislative prerogative.
Here the legislature prescribed a measure of severe penalties for what it regards as deleterious
cybercrimes. They appear proportionate to the evil sought to be punished. The power to
determine penalties for offenses is not diluted or improperly wielded simply because at some
prior time the act or omission was but an element of another offense or might just have been
connected with another crime.77 Judges and magistrates can only interpret and apply them and
have no authority to modify or revise their range as determined by the legislative department.
The courts should not encroach on this prerogative of the lawmaking body.78
Section 12 of the Cybercrime Law
Section 12 provides:
Sec. 12. Real-Time Collection of Traffic Data. — Law enforcement authorities, with due cause,
shall be authorized to collect or record by technical or electronic means traffic data in real-time
associated with specified communications transmitted by means of a computer system.

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Traffic data refer only to the communication’s origin, destination, route, time, date, size,
duration, or type of underlying service, but not content, nor identities.
All other data to be collected or seized or disclosed will require a court warrant.
Service providers are required to cooperate and assist law enforcement authorities in the
collection or recording of the above-stated information.
The court warrant required under this section shall only be issued or granted upon written
application and the examination under oath or affirmation of the applicant and the witnesses
he may produce and the showing: (1) that there are reasonable grounds to believe that any of
the crimes enumerated hereinabove has been committed, or is being committed, or is about to
be committed; (2) that there are reasonable grounds to believe that evidence that will be
obtained is essential to the conviction of any person for, or to the solution of, or to the
prevention of, any such crimes; and (3) that there are no other means readily available for
obtaining such evidence.
Petitioners assail the grant to law enforcement agencies of the power to collect or record traffic
data in real time as tending to curtail civil liberties or provide opportunities for official abuse.
They claim that data showing where digital messages come from, what kind they are, and
where they are destined need not be incriminating to their senders or recipients before they
are to be protected. Petitioners invoke the right of every individual to privacy and to be
protected from government snooping into the messages or information that they send to one
another.
The first question is whether or not Section 12 has a proper governmental purpose since a law
may require the disclosure of matters normally considered private but then only upon showing
that such requirement has a rational relation to the purpose of the law, 79 that there is a
compelling State interest behind the law, and that the provision itself is narrowly drawn. 80 In
assessing regulations affecting privacy rights, courts should balance the legitimate concerns of
the State against constitutional guarantees.81
Undoubtedly, the State has a compelling interest in enacting the cybercrime law for there is a
need to put order to the tremendous activities in cyberspace for public good. 82 To do this, it is
within the realm of reason that the government should be able to monitor traffic data to
enhance its ability to combat all sorts of cybercrimes.
Chapter IV of the cybercrime law, of which the collection or recording of traffic data is a part,
aims to provide law enforcement authorities with the power they need for spotting, preventing,
and investigating crimes committed in cyberspace. Crime-fighting is a state business. Indeed, as
Chief Justice Sereno points out, the Budapest Convention on Cybercrimes requires signatory
countries to adopt legislative measures to empower state authorities to collect or record
"traffic data, in real time, associated with specified communications."83 And this is precisely
what Section 12 does. It empowers law enforcement agencies in this country to collect or
record such data.
But is not evidence of yesterday’s traffic data, like the scene of the crime after it has been
committed, adequate for fighting cybercrimes and, therefore, real-time data is superfluous for
that purpose? Evidently, it is not. Those who commit the crimes of accessing a computer
system without right,84 transmitting viruses,85 lasciviously exhibiting sexual organs or sexual
activity for favor or consideration;86 and producing child pornography87 could easily evade
detection and prosecution by simply moving the physical location of their computers or laptops
from day to day. In this digital age, the wicked can commit cybercrimes from virtually
anywhere: from internet cafés, from kindred places that provide free internet services, and
from unregistered mobile internet connectors. Criminals using cellphones under pre-paid
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arrangements and with unregistered SIM cards do not have listed addresses and can neither be
located nor identified. There are many ways the cyber criminals can quickly erase their tracks.
Those who peddle child pornography could use relays of computers to mislead law
enforcement authorities regarding their places of operations. Evidently, it is only real-time
traffic data collection or recording and a subsequent recourse to court-issued search and
seizure warrant that can succeed in ferreting them out.
Petitioners of course point out that the provisions of Section 12 are too broad and do not
provide ample safeguards against crossing legal boundaries and invading the people’s right to
privacy. The concern is understandable. Indeed, the Court recognizes in Morfe v. Mutuc 88 that
certain constitutional guarantees work together to create zones of privacy wherein
governmental powers may not intrude, and that there exists an independent constitutional
right of privacy. Such right to be left alone has been regarded as the beginning of all
freedoms.89
But that right is not unqualified. In Whalen v. Roe,90 the United States Supreme Court classified
privacy into two categories: decisional privacy and informational privacy. Decisional privacy
involves the right to independence in making certain important decisions, while informational
privacy refers to the interest in avoiding disclosure of personal matters. It is the latter right—
the right to informational privacy—that those who oppose government collection or recording
of traffic data in real-time seek to protect.
Informational privacy has two aspects: the right not to have private information disclosed, and
the right to live freely without surveillance and intrusion.91 In determining whether or not a
matter is entitled to the right to privacy, this Court has laid down a two-fold test. The first is a
subjective test, where one claiming the right must have an actual or legitimate expectation of
privacy over a certain matter. The second is an objective test, where his or her expectation of
privacy must be one society is prepared to accept as objectively reasonable.92
Since the validity of the cybercrime law is being challenged, not in relation to its application to a
particular person or group, petitioners’ challenge to Section 12 applies to all information and
communications technology (ICT) users, meaning the large segment of the population who use
all sorts of electronic devices to communicate with one another. Consequently, the expectation
of privacy is to be measured from the general public’s point of view. Without reasonable
expectation of privacy, the right to it would have no basis in fact.
As the Solicitor General points out, an ordinary ICT user who courses his communication
through a service provider, must of necessity disclose to the latter, a third person, the traffic
data needed for connecting him to the recipient ICT user. For example, an ICT user who writes a
text message intended for another ICT user must furnish his service provider with his cellphone
number and the cellphone number of his recipient, accompanying the message sent. It is this
information that creates the traffic data. Transmitting communications is akin to putting a
letter in an envelope properly addressed, sealing it closed, and sending it through the postal
service. Those who post letters have no expectations that no one will read the information
appearing outside the envelope.
Computer data—messages of all kinds—travel across the internet in packets and in a way that
may be likened to parcels of letters or things that are sent through the posts. When data is sent
from any one source, the content is broken up into packets and around each of these packets is
a wrapper or header. This header contains the traffic data: information that tells computers
where the packet originated, what kind of data is in the packet (SMS, voice call, video, internet
chat messages, email, online browsing data, etc.), where the packet is going, and how the
packet fits together with other packets.93 The difference is that traffic data sent through the
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internet at times across the ocean do not disclose the actual names and addresses (residential
or office) of the sender and the recipient, only their coded internet protocol (IP) addresses. The
packets travel from one computer system to another where their contents are pieced back
together.
Section 12 does not permit law enforcement authorities to look into the contents of the
messages and uncover the identities of the sender and the recipient.
For example, when one calls to speak to another through his cellphone, the service provider’s
communication’s system will put his voice message into packets and send them to the other
person’s cellphone where they are refitted together and heard. The latter’s spoken reply is sent
to the caller in the same way. To be connected by the service provider, the sender reveals his
cellphone number to the service provider when he puts his call through. He also reveals the
cellphone number to the person he calls. The other ways of communicating electronically
follow the same basic pattern.
In Smith v. Maryland,94 cited by the Solicitor General, the United States Supreme Court
reasoned that telephone users in the ‘70s must realize that they necessarily convey phone
numbers to the telephone company in order to complete a call. That Court ruled that even if
there is an expectation that phone numbers one dials should remain private, such expectation
is not one that society is prepared to recognize as reasonable.
In much the same way, ICT users must know that they cannot communicate or exchange data
with one another over cyberspace except through some service providers to whom they must
submit certain traffic data that are needed for a successful cyberspace communication. The
conveyance of this data takes them out of the private sphere, making the expectation to
privacy in regard to them an expectation that society is not prepared to recognize as
reasonable.
The Court, however, agrees with Justices Carpio and Brion that when seemingly random bits of
traffic data are gathered in bulk, pooled together, and analyzed, they reveal patterns of
activities which can then be used to create profiles of the persons under surveillance. With
enough traffic data, analysts may be able to determine a person’s close associations, religious
views, political affiliations, even sexual preferences. Such information is likely beyond what the
public may expect to be disclosed, and clearly falls within matters protected by the right to
privacy. But has the procedure that Section 12 of the law provides been drawn narrowly
enough to protect individual rights?
Section 12 empowers law enforcement authorities, "with due cause," to collect or record by
technical or electronic means traffic data in real-time. Petitioners point out that the phrase
"due cause" has no precedent in law or jurisprudence and that whether there is due cause or
not is left to the discretion of the police. Replying to this, the Solicitor General asserts that
Congress is not required to define the meaning of every word it uses in drafting the law.
Indeed, courts are able to save vague provisions of law through statutory construction. But the
cybercrime law, dealing with a novel situation, fails to hint at the meaning it intends for the
phrase "due cause." The Solicitor General suggests that "due cause" should mean "just reason
or motive" and "adherence to a lawful procedure." But the Court cannot draw this meaning
since Section 12 does not even bother to relate the collection of data to the probable
commission of a particular crime. It just says, "with due cause," thus justifying a general
gathering of data. It is akin to the use of a general search warrant that the Constitution
prohibits.
Due cause is also not descriptive of the purpose for which data collection will be used. Will the
law enforcement agencies use the traffic data to identify the perpetrator of a cyber attack? Or
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will it be used to build up a case against an identified suspect? Can the data be used to prevent
cybercrimes from happening?
The authority that Section 12 gives law enforcement agencies is too sweeping and lacks
restraint. While it says that traffic data collection should not disclose identities or content data,
such restraint is but an illusion. Admittedly, nothing can prevent law enforcement agencies
holding these data in their hands from looking into the identity of their sender or receiver and
what the data contains. This will unnecessarily expose the citizenry to leaked information or,
worse, to extortion from certain bad elements in these agencies.
Section 12, of course, limits the collection of traffic data to those "associated with specified
communications." But this supposed limitation is no limitation at all since, evidently, it is the
law enforcement agencies that would specify the target communications. The power is virtually
limitless, enabling law enforcement authorities to engage in "fishing expedition," choosing
whatever specified communication they want. This evidently threatens the right of individuals
to privacy.
The Solicitor General points out that Section 12 needs to authorize collection of traffic data "in
real time" because it is not possible to get a court warrant that would authorize the search of
what is akin to a "moving vehicle." But warrantless search is associated with a police officer’s
determination of probable cause that a crime has been committed, that there is no opportunity
for getting a warrant, and that unless the search is immediately carried out, the thing to be
searched stands to be removed. These preconditions are not provided in Section 12.
The Solicitor General is honest enough to admit that Section 12 provides minimal protection to
internet users and that the procedure envisioned by the law could be better served by
providing for more robust safeguards. His bare assurance that law enforcement authorities will
not abuse the provisions of Section 12 is of course not enough. The grant of the power to track
cyberspace communications in real time and determine their sources and destinations must be
narrowly drawn to preclude abuses.95
Petitioners also ask that the Court strike down Section 12 for being violative of the void-for-
vagueness doctrine and the overbreadth doctrine. These doctrines however, have been
consistently held by this Court to apply only to free speech cases. But Section 12 on its own
neither regulates nor punishes any type of speech. Therefore, such analysis is unnecessary.
This Court is mindful that advances in technology allow the government and kindred
institutions to monitor individuals and place them under surveillance in ways that have
previously been impractical or even impossible. "All the forces of a technological age x x x
operate to narrow the area of privacy and facilitate intrusions into it. In modern terms, the
capacity to maintain and support this enclave of private life marks the difference between a
democratic and a totalitarian society."96 The Court must ensure that laws seeking to take
advantage of these technologies be written with specificity and definiteness as to ensure
respect for the rights that the Constitution guarantees.
Section 13 of the Cybercrime Law
Section 13 provides:
Sec. 13. Preservation of Computer Data. — The integrity of traffic data and subscriber
information relating to communication services provided by a service provider shall be
preserved for a minimum period of six (6) months from the date of the transaction. Content
data shall be similarly preserved for six (6) months from the date of receipt of the order from
law enforcement authorities requiring its preservation.
Law enforcement authorities may order a one-time extension for another six (6) months:
Provided, That once computer data preserved, transmitted or stored by a service provider is
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used as evidence in a case, the mere furnishing to such service provider of the transmittal
document to the Office of the Prosecutor shall be deemed a notification to preserve the
computer data until the termination of the case.
The service provider ordered to preserve computer data shall keep confidential the order and
its compliance.
Petitioners in G.R. 20339197 claim that Section 13 constitutes an undue deprivation of the right
to property. They liken the data preservation order that law enforcement authorities are to
issue as a form of garnishment of personal property in civil forfeiture proceedings. Such order
prevents internet users from accessing and disposing of traffic data that essentially belong to
them.
No doubt, the contents of materials sent or received through the internet belong to their
authors or recipients and are to be considered private communications. But it is not clear that a
service provider has an obligation to indefinitely keep a copy of the same as they pass its
system for the benefit of users. By virtue of Section 13, however, the law now requires service
providers to keep traffic data and subscriber information relating to communication services for
at least six months from the date of the transaction and those relating to content data for at
least six months from receipt of the order for their preservation.
Actually, the user ought to have kept a copy of that data when it crossed his computer if he was
so minded. The service provider has never assumed responsibility for their loss or deletion
while in its keep.
At any rate, as the Solicitor General correctly points out, the data that service providers
preserve on orders of law enforcement authorities are not made inaccessible to users by reason
of the issuance of such orders. The process of preserving data will not unduly hamper the
normal transmission or use of the same.
Section 14 of the Cybercrime Law
Section 14 provides:
Sec. 14. Disclosure of Computer Data. — Law enforcement authorities, upon securing a court
warrant, shall issue an order requiring any person or service provider to disclose or submit
subscriber’s information, traffic data or relevant data in his/its possession or control within
seventy-two (72) hours from receipt of the order in relation to a valid complaint officially
docketed and assigned for investigation and the disclosure is necessary and relevant for the
purpose of investigation.
The process envisioned in Section 14 is being likened to the issuance of a subpoena. Petitioners’
objection is that the issuance of subpoenas is a judicial function. But it is well-settled that the
power to issue subpoenas is not exclusively a judicial function. Executive agencies have the
power to issue subpoena as an adjunct of their investigatory powers.98
Besides, what Section 14 envisions is merely the enforcement of a duly issued court warrant, a
function usually lodged in the hands of law enforcers to enable them to carry out their
executive functions. The prescribed procedure for disclosure would not constitute an unlawful
search or seizure nor would it violate the privacy of communications and correspondence.
Disclosure can be made only after judicial intervention.
Section 15 of the Cybercrime Law
Section 15 provides:
Sec. 15. Search, Seizure and Examination of Computer Data. — Where a search and seizure
warrant is properly issued, the law enforcement authorities shall likewise have the following
powers and duties.

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Within the time period specified in the warrant, to conduct interception, as defined in this Act,
and:
(a) To secure a computer system or a computer data storage medium;
(b) To make and retain a copy of those computer data secured;
(c) To maintain the integrity of the relevant stored computer data;
(d) To conduct forensic analysis or examination of the computer data storage medium;
and
(e) To render inaccessible or remove those computer data in the accessed computer or
computer and communications network.
Pursuant thereof, the law enforcement authorities may order any person who has knowledge
about the functioning of the computer system and the measures to protect and preserve the
computer data therein to provide, as is reasonable, the necessary information, to enable the
undertaking of the search, seizure and examination.
Law enforcement authorities may request for an extension of time to complete the
examination of the computer data storage medium and to make a return thereon but in no
case for a period longer than thirty (30) days from date of approval by the court.
Petitioners challenge Section 15 on the assumption that it will supplant established search and
seizure procedures. On its face, however, Section 15 merely enumerates the duties of law
enforcement authorities that would ensure the proper collection, preservation, and use of
computer system or data that have been seized by virtue of a court warrant. The exercise of
these duties do not pose any threat on the rights of the person from whom they were taken.
Section 15 does not appear to supersede existing search and seizure rules but merely
supplements them.
Section 17 of the Cybercrime Law
Section 17 provides:
Sec. 17. Destruction of Computer Data. — Upon expiration of the periods as provided in
Sections 13 and 15, service providers and law enforcement authorities, as the case may be,
shall immediately and completely destroy the computer data subject of a preservation and
examination.
Section 17 would have the computer data, previous subject of preservation or examination,
destroyed or deleted upon the lapse of the prescribed period. The Solicitor General justifies this
as necessary to clear up the service provider’s storage systems and prevent overload. It would
also ensure that investigations are quickly concluded.
Petitioners claim that such destruction of computer data subject of previous preservation or
examination violates the user’s right against deprivation of property without due process of
law. But, as already stated, it is unclear that the user has a demandable right to require the
service provider to have that copy of the data saved indefinitely for him in its storage system. If
he wanted them preserved, he should have saved them in his computer when he generated the
data or received it. He could also request the service provider for a copy before it is deleted.
Section 19 of the Cybercrime Law
Section 19 empowers the Department of Justice to restrict or block access to computer data:
Sec. 19. Restricting or Blocking Access to Computer Data.— When a computer data is prima
facie found to be in violation of the provisions of this Act, the DOJ shall issue an order to restrict
or block access to such computer data.
Petitioners contest Section 19 in that it stifles freedom of expression and violates the right
against unreasonable searches and seizures. The Solicitor General concedes that this provision

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may be unconstitutional. But since laws enjoy a presumption of constitutionality, the Court
must satisfy itself that Section 19 indeed violates the freedom and right mentioned.
Computer data99 may refer to entire programs or lines of code, including malware, as well as
files that contain texts, images, audio, or video recordings. Without having to go into a lengthy
discussion of property rights in the digital space, it is indisputable that computer data,
produced or created by their writers or authors may constitute personal property.
Consequently, they are protected from unreasonable searches and seizures, whether while
stored in their personal computers or in the service provider’s systems.
Section 2, Article III of the 1987 Constitution provides that the right to be secure in one’s papers
and effects against unreasonable searches and seizures of whatever nature and for any purpose
shall be inviolable. Further, it states that no search warrant shall issue except upon probable
cause to be determined personally by the judge. Here, the Government, in effect, seizes and
places the computer data under its control and disposition without a warrant. The Department
of Justice order cannot substitute for judicial search warrant.
The content of the computer data can also constitute speech. In such a case, Section 19
operates as a restriction on the freedom of expression over cyberspace. Certainly not all forms
of speech are protected. Legislature may, within constitutional bounds, declare certain kinds of
expression as illegal. But for an executive officer to seize content alleged to be unprotected
without any judicial warrant, it is not enough for him to be of the opinion that such content
violates some law, for to do so would make him judge, jury, and executioner all rolled into
one.100
Not only does Section 19 preclude any judicial intervention, but it also disregards
jurisprudential guidelines established to determine the validity of restrictions on speech.
Restraints on free speech are generally evaluated on one of or a combination of three tests: the
dangerous tendency doctrine, the balancing of interest test, and the clear and present danger
rule.101 Section 19, however, merely requires that the data to be blocked be found prima facie
in violation of any provision of the cybercrime law. Taking Section 6 into consideration, this can
actually be made to apply in relation to any penal provision. It does not take into consideration
any of the three tests mentioned above.
The Court is therefore compelled to strike down Section 19 for being violative of the
constitutional guarantees to freedom of expression and against unreasonable searches and
seizures.
Section 20 of the Cybercrime Law
Section 20 provides:
Sec. 20. Noncompliance. — Failure to comply with the provisions of Chapter IV hereof
specifically the orders from law enforcement authorities shall be punished as a violation of
Presidential Decree No. 1829 with imprisonment of prision correctional in its maximum period
or a fine of One hundred thousand pesos (Php100,000.00) or both, for each and every
noncompliance with an order issued by law enforcement authorities.
Petitioners challenge Section 20, alleging that it is a bill of attainder. The argument is that the
mere failure to comply constitutes a legislative finding of guilt, without regard to situations
where non-compliance would be reasonable or valid.
But since the non-compliance would be punished as a violation of Presidential Decree (P.D.)
1829,102 Section 20 necessarily incorporates elements of the offense which are defined therein.
If Congress had intended for Section 20 to constitute an offense in and of itself, it would not
have had to make reference to any other statue or provision.
P.D. 1829 states:
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Section 1. The penalty of prision correccional in its maximum period, or a fine ranging from
1,000 to 6,000 pesos, or both, shall be imposed upon any person who knowingly or willfully
obstructs, impedes, frustrates or delays the apprehension of suspects and the investigation and
prosecution of criminal cases by committing any of the following acts:
x x x.
Thus, the act of non-compliance, for it to be punishable, must still be done "knowingly or
willfully." There must still be a judicial determination of guilt, during which, as the Solicitor
General assumes, defense and justifications for non-compliance may be raised. Thus, Section 20
is valid insofar as it applies to the provisions of Chapter IV which are not struck down by the
Court.
Sections 24 and 26(a) of the Cybercrime Law
Sections 24 and 26(a) provide:
Sec. 24. Cybercrime Investigation and Coordinating Center.– There is hereby created, within
thirty (30) days from the effectivity of this Act, an inter-agency body to be known as the
Cybercrime Investigation and Coordinating Center (CICC), under the administrative supervision
of the Office of the President, for policy coordination among concerned agencies and for the
formulation and enforcement of the national cybersecurity plan.
Sec. 26. Powers and Functions.– The CICC shall have the following powers and functions:
(a) To formulate a national cybersecurity plan and extend immediate assistance of real time
commission of cybercrime offenses through a computer emergency response team (CERT); x x
x.
Petitioners mainly contend that Congress invalidly delegated its power when it gave the
Cybercrime Investigation and Coordinating Center (CICC) the power to formulate a national
cybersecurity plan without any sufficient standards or parameters for it to follow.
In order to determine whether there is undue delegation of legislative power, the Court has
adopted two tests: the completeness test and the sufficient standard test. Under the first test,
the law must be complete in all its terms and conditions when it leaves the legislature such that
when it reaches the delegate, the only thing he will have to do is to enforce it.1avvphi1 The
second test mandates adequate guidelines or limitations in the law to determine the
boundaries of the delegate’s authority and prevent the delegation from running riot. 103
Here, the cybercrime law is complete in itself when it directed the CICC to formulate and
implement a national cybersecurity plan. Also, contrary to the position of the petitioners, the
law gave sufficient standards for the CICC to follow when it provided a definition of
cybersecurity.
Cybersecurity refers to the collection of tools, policies, risk management approaches, actions,
training, best practices, assurance and technologies that can be used to protect cyber
environment and organization and user’s assets.104 This definition serves as the parameters
within which CICC should work in formulating the cybersecurity plan.
Further, the formulation of the cybersecurity plan is consistent with the policy of the law to
"prevent and combat such [cyber] offenses by facilitating their detection, investigation, and
prosecution at both the domestic and international levels, and by providing arrangements for
fast and reliable international cooperation."105 This policy is clearly adopted in the interest of
law and order, which has been considered as sufficient standard.106 Hence, Sections 24 and
26(a) are likewise valid.
WHEREFORE, the Court DECLARES:
1. VOID for being UNCONSTITUTIONAL:

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 a. Section 4(c)(3) of Republic Act 10175 that penalizes posting of unsolicited
commercial communications;
b. Section 12 that authorizes the collection or recording of traffic data in real-
time; and
c. Section 19 of the same Act that authorizes the Department of Justice to
restrict or block access to suspected Computer Data.
2. VALID and CONSTITUTIONAL:
a. Section 4(a)(1) that penalizes accessing a computer system without right;
b. Section 4(a)(3) that penalizes data interference, including transmission of
viruses;
c. Section 4(a)(6) that penalizes cyber-squatting or acquiring domain name over
the internet in bad faith to the prejudice of others;
d. Section 4(b)(3) that penalizes identity theft or the use or misuse of identifying
information belonging to another;
e. Section 4(c)(1) that penalizes cybersex or the lascivious exhibition of sexual
organs or sexual activity for favor or consideration;
f. Section 4(c)(2) that penalizes the production of child pornography;
g. Section 6 that imposes penalties one degree higher when crimes defined
under the Revised Penal Code are committed with the use of information and
communications technologies;
h. Section 8 that prescribes the penalties for cybercrimes;
i. Section 13 that permits law enforcement authorities to require service
providers to preserve traffic data and subscriber information as well as specified
content data for six months;
j. Section 14 that authorizes the disclosure of computer data under a court-
issued warrant;
k. Section 15 that authorizes the search, seizure, and examination of computer
data under a court-issued warrant;
l. Section 17 that authorizes the destruction of previously preserved computer
data after the expiration of the prescribed holding periods;
m. Section 20 that penalizes obstruction of justice in relation to cybercrime
investigations;
n. Section 24 that establishes a Cybercrime Investigation and Coordinating
Center (CICC);
o. Section 26(a) that defines the CICC’s Powers and Functions; and
p. Articles 353, 354, 361, and 362 of the Revised Penal Code that penalizes libel.
Further, the Court DECLARES:
1. Section 4(c)(4) that penalizes online libel as VALID and CONSTITUTIONAL with respect
to the original author of the post; but VOID and UNCONSTITUTIONAL with respect to
others who simply receive the post and react to it; and
2. Section 5 that penalizes aiding or abetting and attempt in the commission of
cybercrimes as VA L I D and CONSTITUTIONAL only in relation to Section 4(a)(1) on
Illegal Access, Section 4(a)(2) on Illegal Interception, Section 4(a)(3) on Data
Interference, Section 4(a)(4) on System
Interference, Section 4(a)(5) on Misuse of Devices, Section 4(a)(6) on Cyber-squatting, Section
4(b)(1) on Computer-related Forgery, Section 4(b)(2) on Computer-related Fraud, Section
4(b)(3) on Computer-related Identity Theft, and Section 4(c)(1) on Cybersex; but VOID and
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UNCONSTITUTIONAL with respect to Sections 4(c)(2) on Child Pornography, 4(c)(3) on
Unsolicited Commercial Communications, and 4(c)(4) on online Libel.1âwphi1
Lastly, the Court RESOLVES to LEAVE THE DETERMINATION of the correct application of Section
7 that authorizes prosecution of the offender under both the Revised Penal Code and Republic
Act 10175 to actual cases, WITH THE EXCEPTION of the crimes of:
1. Online libel as to which, charging the offender under both Section 4(c)(4) of Republic
Act 10175 and Article 353 of the Revised Penal Code constitutes a violation of the
proscription against double jeopardy; as well as
2. Child pornography committed online as to which, charging the offender under both
Section 4(c)(2) of Republic Act 10175 and Republic Act 9775 or the Anti-Child
Pornography Act of 2009 also constitutes a violation of the same proscription, and, in
respect to these, is VOID and UNCONSTITUTIONAL.
SO ORDERED.
ROBERTO A. ABAD
Associate Justice

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