246 Corporation vs. Daway

A court does not gravely abuse its discretion when it denies a motion to dismiss grounded on the total-unrelatedness of the parties’ goods or services if the complaint invokes protection of a well-known mark under Section 123.1(f) of the Intellectual Property Code, because the requisites of such protection — (1) the mark is well-known internationally and in the Philippines, (2) use of the mark on unrelated goods/services indicates a connection between them and the registrant, and (3) the registrant’s interests are likely to be damaged — are questions of fact requiring trial, not resolution at a preliminary hearing.

Respondent corporations Montres Rolex S.A. and Rolex Centre Phil. Limited owned the internationally well-known trademark “Rolex” and Crown Device for watches, clocks, bracelets, and parts thereof. Petitioner 246 Corporation, doing business as “Rolex Music Lounge,” operated a KTV, disco, and party club in Quezon City and had been using the mark “Rolex” in its business name and newspaper advertisements since July 1996. Alleging unauthorized use and trademark infringement, respondents filed a civil suit for infringement and damages with a prayer for a temporary restraining order or writ of preliminary injunction. Petitioner resisted the complaint on the ground, among others, that no likely confusion could arise between its entertainment services and respondents’ horological goods, rendering the complaint devoid of a cause of action.

• The Parties: Respondents Montres Rolex S.A. and Rolex Centre Phil. Limited were the owners and proprietors of the trademark “Rolex” and Crown Device, registered for watches, clocks, bracelets, and parts thereof. Petitioner 246 Corporation operated “Rolex Music Lounge,” a KTV, disco, and party club in Quezon City, and had used the word “Rolex” in its business name and in newspaper advertisements since July 1996.
• The Complaint: On November 26, 1998, respondents instituted a suit for trademark infringement and damages against petitioner, with a prayer for a restraining order or writ of preliminary injunction. They alleged that petitioner’s unauthorized adoption and use of the mark “Rolex” constituted infringement.
• Petitioner’s Affirmative Defenses: Petitioner’s Answer raised special affirmative defenses asserting that the complaint lacked a cause of action because its entertainment business was entirely unrelated to the goods covered by respondents’ registrations, precluding any likelihood of confusion. Petitioner further argued that the complaint was not properly verified and certified against forum shopping because Atty. Alonzo Ancheta, the counsel of record who signed the verification and certification, had not shown a written authority from respondents.
• Motion for Preliminary Hearing: On July 21, 2000, petitioner filed a Motion for Preliminary Hearing on its Affirmative Defenses with Motion to Dismiss. At petitioner’s instance, the trial court issued a subpoena ad testificandum directing Atty. Ancheta to appear at the scheduled preliminary hearing.
• Opposition and Quashal: Respondents filed a Comment and Opposition traversing the merits of petitioner’s affirmative defenses and moved to quash the subpoena. In its Order of October 27, 2000, the trial court quashed the subpoena and denied petitioner’s motion, stating that the arguments raised in respondents’ Comment and Opposition appeared meritorious. The Order’s dispositive portion denied “the aforecited Motion For Preliminary Hearing On Defendant’s Affirmative Defenses With Motion To Dismiss The Instant Complaint Based On Said Affirmative Defenses” without qualification.
• Lower Court and CA Decisions: The trial court denied reconsideration. Petitioner’s certiorari petition to the Court of Appeals was dismissed. The CA agreed that no grave abuse of discretion attended the trial court’s orders.

• No Likelihood of Confusion: Petitioner argued that under the controlling precedents in Esso Standard Eastern, Inc. v. Court of Appeals and companion cases, no trademark infringement can arise where the contending parties deal in goods and services that are totally unrelated and non-competing. Its music lounge and respondents’ watches were so dissimilar that confusion was impossible as a matter of law.
• Improper Non-Dismissal: Petitioner maintained that the October 27, 2000 Order effectively denied its motion to dismiss on the merits, not merely the motion for preliminary hearing, because the dispositive text denied both without holding any ruling in abeyance. Since the complaint’s allegations, hypothetically admitted, demonstrated the absence of a cause of action, the failure to dismiss constituted grave abuse of discretion.
• Lack of Authority for Verification: Petitioner contended that the complaint’s verification and certification against forum shopping, signed by Atty. Ancheta without any special power of attorney from respondent corporations, violated the doctrine of separate corporate personality and deprived the trial court of jurisdiction over the persons of the respondents.
• Quashal of Subpoena: Petitioner claimed the trial court arbitrarily quashed the subpoena ad testificandum issued to Atty. Ancheta, in violation of the Rules of Evidence and the ruling in People v. Rivera, thereby depriving it of the opportunity to prove lack of authority.

• Well-Known Mark Protection: Respondents countered that the complaint stated a cause of action because Section 123.1(f) of Republic Act No. 8293 (Intellectual Property Code) protects well-known marks even where the goods or services are unrelated, provided the use indicates a connection and the registrant’s interests are likely to be damaged. The factual requisites for such protection could be established only at trial.
• Sufficiency of Verification: Respondents argued that the verification and certification were properly executed by their counsel of record, whose authority could be proven during trial, and that any defect did not divest the court of jurisdiction.

• Scope of the Denial Order: Whether the trial court’s October 27, 2000 Order denied only the motion for preliminary hearing or also denied the motion to dismiss on the merits.
• Denial of the Motions: Whether the trial court gravely abused its discretion in denying petitioner’s motion for preliminary hearing on affirmative defenses with motion to dismiss, given the argument that the unrelatedness of goods and services negated any cause of action for trademark infringement.
• Quashal of Subpoena: Whether the trial court gravely abused its discretion in quashing the subpoena ad testificandum issued against respondents’ counsel Atty. Ancheta.

• Scope of the Denial Order: The October 27, 2000 Order denied not merely the motion for preliminary hearing but the entirety of petitioner’s motion, including the motion to dismiss. The dispositive portion made no qualification and did not hold the motion to dismiss in abeyance. The trial court had ruled on the merits after considering respondents’ Comment and Opposition, which fully traversed the affirmative defenses. It is presumed that all matters within an issue raised were passed upon by the court.
• Denial of the Motions: No grave abuse of discretion attended the denial. The grant of a preliminary hearing under Rule 16, Section 6 of the 1997 Rules of Civil Procedure lies in the sound discretion of the trial court, employing the permissive “may.” More critically, whether trademark infringement exists under Section 123.1(f) of the Intellectual Property Code is a question of fact that must be determined at a full-blown trial. Under that provision, a well-known mark is protected even for dissimilar goods or services, subject to three requisites: (1) the mark is well-known internationally and in the Philippines; (2) the use of the mark on the unrelated goods or services would indicate a connection between those goods or services and the registrant; and (3) the interests of the owner of the well-known mark are likely to be damaged. The existence or absence of these requisites requires evidentiary proceedings, not a preliminary hearing on affirmative defenses. The same rationale applied to the issue of Atty. Ancheta’s authority to sign the verification and certification against forum shopping — it too constituted a matter properly resolved during trial.
• Quashal of Subpoena: Because the trial court did not abuse its discretion in denying the motion for preliminary hearing, there was no reason to compel Atty. Ancheta’s testimony. Quashing the subpoena ad testificandum was therefore proper and free of arbitrariness.

• Discretionary Nature of Preliminary Hearing under Rule 16, Section 6 — The use of the permissive word “may” in Rule 16, Section 6 of the 1997 Rules of Civil Procedure (like its precursor Section 5) signifies that a preliminary hearing on affirmative defenses is not a matter of right but rests in the sound discretion of the trial court. The court may, in its discretion, hold a preliminary hearing; it is never mandatorily demandable. Applied here, the trial court’s denial of such a hearing, even when the motion to dismiss was part of it, was not an abuse of discretion because the issues demanded trial.

• Protection of Well-Known Marks for Dissimilar Goods/Services under Section 123.1(f), IP Code — Section 123.1(f) of Republic Act No. 8293 modified the pre-existing jurisprudence that no trademark infringement could arise where the contending parties’ goods or services were totally unrelated. A well-known mark may now be protected against a junior user’s adoption on entirely unrelated goods or services, provided three requisites are met:

  1. The mark is well-known internationally and in the Philippines. The criteria for determining whether a mark is well-known are enumerated in Rule 102 of the Rules and Regulations on Trademarks, Service Marks, Trade Names and Marked or Stamped Containers, including: (a) duration, extent, and geographical area of use and promotion; (b) market share; (c) degree of inherent or acquired distinction; (d) quality-image or reputation; (e) extent of registration worldwide; (f) exclusivity of registration; (g) extent of worldwide use; (h) exclusivity of worldwide use; (i) commercial value; (j) record of successful protection; (k) outcome of litigations on the issue; and (l) presence or absence of identical or similar marks owned by others.
  2. The use of the well-known mark on the unrelated goods or services would indicate a connection between the unrelated goods/services and the goods/services of the registrant. This requirement refers to a likelihood of confusion as to origin, business connection, or relationship.
  3. The interests of the owner of the well-known mark are likely to be damaged — for example, if the registrant is precluded from expanding into the unrelated goods or services, or if the junior user’s inferior quality would harm the registrant’s interests.

  In the present case, these elements constituted controverted factual issues that could not be determined on a mere motion to dismiss; a full trial was necessary.

• “Under the old Trademark Law where the goods for which the identical marks are used are unrelated, there can be no likelihood of confusion and there is therefore no infringement in the use by the junior user of the registered mark on the entirely different goods. This ruling, however, has been to some extent, modified by Section 123.1(f) of the Intellectual Property Code (Republic Act No. 8293).”

• “The existence or absence of these requisites should be addressed in a full blown hearing and not on a mere preliminary hearing. The respondent must be given ample opportunity to prove its claim, and the petitioner to debunk the same.”

• “Grave abuse of discretion implies such capricious and whimsical exercise of judgment as equivalent to lack of jurisdiction, or, in other words, where the power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and it must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law.”

• Esso Standard Eastern, Inc. v. Court of Appeals, 201 Phil. 803 (1982); Hickok Manufacturing Co., Inc. v. Court of Appeals, 201 Phil. 853 (1982); Faberge, Inc. v. Intermediate Appellate Court, G.R. No. 71189, November 4, 1992, 215 SCRA 316 — These cases embodied the old rule that no trademark infringement exists when the goods are totally unrelated. Their effect was partially superseded by Section 123.1(f) of the Intellectual Property Code, as recognized in the present ruling.
• Municipality of Biñan Laguna v. Court of Appeals, G.R. No. 94733, February 17, 1993, 219 SCRA 69 — Cited for the principle that a preliminary hearing on affirmative defenses under Rule 16, Section 5 (old Rules) is discretionary, not mandatory. The interpretation was carried over to Section 6 of the 1997 Rules.
• Spouses Vicky Tan Toh v. Solid Bank Corporation, G.R. No. 154183, August 7, 2003 — Invoked for the presumption that a court has passed upon all matters within the issues raised in a case, supporting the conclusion that the trial court ruled on the motion to dismiss itself.

• Section 123.1(f), Republic Act No. 8293 (Intellectual Property Code) — Prohibits registration of a mark that is identical or confusingly similar to a well-known mark, even for dissimilar goods or services, if use would indicate a connection and the registrant’s interests are likely to be damaged. The provision shifted the inquiry from categorical unrelatedness to factual determination of well-known status, connection, and damage — requiring trial in the instant case.
• Rule 16, Section 6, 1997 Rules of Civil Procedure — Grants the trial court discretion to hold a preliminary hearing on affirmative defenses. The permissive language underscored that petitioner had no absolute right to compel such a hearing.
• Rule 102, Rules and Regulations on Trademarks, Service Marks, Trade Names and Marked or Stamped Containers — Enumerates the criteria for determining whether a mark is well-known, which the Court cited to illustrate the heavily factual nature of the inquiry under Section 123.1(f).

Davide, Jr., C.J., Panganiban, Carpio, and Azcuna, JJ., concurred.