Century Chinese Medicine Co. vs. People of the Philippines

A search warrant for violations of Sections 155 and 168 in relation to Section 170 of Republic Act No. 8293 is governed by Rule 126 of the Revised Rules of Criminal Procedure, not by A.M. No. 02‑1‑06‑SC (Rules on Search and Seizure in Civil Actions for Infringement of Intellectual Property Rights), when the application is made in anticipation of criminal prosecution. Probable cause is satisfied where the applicant presents personal knowledge of the registered trademark, test‑buy evidence of counterfeit goods bearing that mark, and a certification that the goods are counterfeit; a prior civil case over ownership that has been dismissed or an IPO administrative case that has resulted in a writ of preliminary injunction and compromise agreement does not raise a prejudicial question defeating probable cause.

Ling Na Lau, doing business as Worldwide Pharmacy, held Certificate of Registration No. 4‑2000‑009881 issued by the Intellectual Property Office on August 24, 2003, for the trademark “TOP GEL T.G. & DEVICE OF A LEAF” on papaya whitening soap. She was the sole Philippine distributor and registered owner of the mark. On November 7, 2005, her representative wrote to the NBI requesting investigation of drugstores allegedly selling counterfeit versions of her product. NBI Agent Joseph G. Furing was assigned and, together with a witness, conducted test buys on November 9 and 10, 2005, purchasing whitening soaps bearing the trademark from eight drugstores—the petitioners. The purchased items were examined by respondent’s representative, who certified on November 18, 2005 that they were counterfeit.

On November 21, 2005, Agent Furing applied for search warrants for violations of Sections 155 (trademark infringement) and 168 (unfair competition) in relation to Section 170 of the Intellectual Property Code. The RTC issued the warrants on November 23, 2005, after examining the applicant and his witnesses. Petitioners moved to quash, raising the competing trademark claim of Benjamin Yu, who held a registration for “TOP GEL MCA & MCA DEVICE.” Yu had filed a civil case against respondent, but it was dismissed; respondent had filed an IPO case against Yu and a compromise agreement was later approved acknowledging respondent’s exclusive right.

• The Registered Trademark: Ling Na Lau, doing business as Worldwide Pharmacy, was the owner of Certificate of Registration No. 4‑2000‑009881, issued by the Intellectual Property Office on August 24, 2003, for the trademark “TOP GEL T.G. & DEVICE OF A LEAF” covering papaya whitening soap. The registration was valid for ten years.

• Complaint to the NBI and Investigation: On November 7, 2005, respondent’s representative, Ping Na Lau, requested NBI assistance against drugstores selling counterfeit papaya whitening soap bearing the general appearance of respondent’s product. NBI Agent Joseph G. Furing was assigned. On November 9 and 10, 2005, Agent Furing and witness Junayd Esmael conducted test buys from a list of drugstores that included petitioners; they purchased whitening soaps bearing the trademark “TOP‑GEL,” “T.G.,” and “DEVICE OF A LEAF.” They observed commercial quantities being displayed and offered for sale. The purchased samples were brought to the NBI, and Ping Na Lau, as the authorized representative, personally examined them and issued a Certification dated November 18, 2005, confirming the soaps were counterfeit.

• Applications for Search Warrants: On November 21, 2005, Agent Furing applied for search warrants before the RTC, Branch 143, Makati City, for violations of Sections 155 and 168 in relation to Section 170 of Republic Act No. 8293 (Intellectual Property Code). His affidavit stated that the items to be seized would be used as evidence in anticipated criminal actions. After examining Agent Furing and his witnesses under oath, the RTC issued eight search warrants on November 23, 2005.

• Petitioners’ Motion to Quash: Petitioners moved to quash the warrants, contending that: (a) the issuance violated the rule against forum shopping; (b) Benjamin Yu was the sole owner and distributor of “TOP‑GEL” by virtue of Registration No. 4‑1996‑109957 for the trademark “TOP GEL MCA & MCA DEVICE”; and (c) a prejudicial question existed because Civil Case No. Q‑05‑54747, filed by Yu against respondent for trademark infringement/unfair competition, was pending in Branch 93, RTC Quezon City.

• The Competing Claim of Benjamin Yu and its Resolution: Civil Case No. Q‑05‑54747 was dismissed by the RTC on June 10, 2005, before the search warrant applications, due to the pendency of an IPO case involving the same issues and parties. The dismissal became final and executory, as evidenced by a Certificate of Finality issued on January 4, 2007. Respondent had filed IPV Case No. 10‑2005‑00001 against Yu and Heidi Cua for trademark infringement/unfair competition. On October 20, 2005, the IPO issued a writ of preliminary injunction ordering Yu, Cua, their agents, representatives, dealers, and distributors to cease and desist from using “TOP GEL T.G. & DEVICE OF A LEAF” on papaya whitening soaps. The dispositive portion of the injunction order was published in The Philippine Star on October 30, 2005. Subsequently, on March 8, 2006, the IPO approved a Compromise Agreement between respondent and Yu/Cua, in which Yu and Cua acknowledged respondent’s exclusive right over the trademark, acknowledged her as the exclusive Philippine distributor and assignee of the mark, and undertook to cease and desist from manufacturing, selling, or distributing any confusingly similar product, and to pull out all such products within 45 days.

• The RTC’s Quashal: The RTC granted the motion to quash on September 25, 2006, ruling that: (1) the search warrants were governed by the Rules on Search and Seizure in Civil Actions for Infringement of Intellectual Property Rights (A.M. No. 02‑1‑06‑SC); (2) a prejudicial question existed because of the then‑pending IPO case and Civil Case No. Q‑05‑54747; and (3) respondent failed to prove probable cause because the competing registration of Yu created doubt as to the rightful owner of the trademark.

• The Court of Appeals’ Reversal: The Court of Appeals reversed, holding that: (a) the applicable rule was Rule 126 of the Rules of Criminal Procedure because the warrants were applied for in anticipation of criminal prosecution; (b) probable cause was established by the NBI’s personal knowledge and the certification of counterfeit; (c) there was no prejudicial question since Civil Case No. Q‑05‑54747 had been dismissed before the warrant applications and the IPO case had resulted in an injunction and compromise; and (d) the seizure of all counterfeit products was justified.

• Governing Rule: Petitioners argued that the RTC correctly applied the Rules on Search and Seizure in Civil Actions for Infringement of Intellectual Property Rights because no criminal case had yet been filed and the application was civil in nature.
• Lack of Probable Cause and Ownership Dispute: Petitioners maintained that the seized TOP GEL products were genuine goods bearing the trademark of Benjamin Yu, the legitimate owner, and thus could not be the fruits of a crime or infringing products. They contended that the unresolved dispute over trademark ownership between respondent and Yu presented a prejudicial question that negated probable cause.
• Procedural Error: Petitioners asserted that the Court of Appeals erred in basing its ruling on the argument that the RTC had applied the wrong set of rules, because that argument was raised for the first time in respondent’s appellant’s brief.
• Overbreadth of Seizure: Petitioners claimed that confiscating thousands of products from each drugstore was an overkill; one or two samples from each store would have sufficed for criminal prosecution. They invoked Summerville General Merchandising Co. v. Court of Appeals.

• Governing Rule: Respondent countered that the search warrants were applied for and issued for violations of Sections 155 and 168 in relation to Section 170 of Republic Act No. 8293—criminal offenses—and that Agent Furing’s affidavit expressly stated the items would be used as evidence in anticipated criminal actions; therefore, Rule 126 of the Rules of Criminal Procedure governed.
• Probable Cause and No Prejudicial Question: Respondent argued that as the registered owner of the trademark “TOP GEL T.G. & DEVICE OF A LEAF,” she had the right to protect her intellectual property. She pointed out that Civil Case No. Q‑05‑54747 had already been dismissed with finality before the warrant applications; that the IPO had issued a writ of preliminary injunction against Yu, his agents, and distributors, which was published and binding on petitioners; and that the subsequent Compromise Agreement confirmed her exclusive right, eliminating any prejudicial question.
• Procedural Issue: Respondent maintained that petitioners were estopped from questioning the new issue for the first time on appeal, because they had squarely confronted the argument in their appellee’s brief before the Court of Appeals without objecting to its belated raising.

• Governing Rule: Whether the applicable rule for the issuance of the search warrants was Rule 126 of the Revised Rules of Criminal Procedure or A.M. No. 02‑1‑06‑SC (Rules on Search and Seizure in Civil Actions for Infringement of Intellectual Property Rights).
• Probable Cause: Whether probable cause existed for the issuance of the search warrants despite the competing trademark claim of Benjamin Yu and the pendency of administrative and civil cases.
• Procedural Issue: Whether the Court of Appeals erred in deciding the case on the basis of an argument that was raised for the first time on appeal.
• Extent of Seizure: Whether the seizure of all counterfeit products was warranted, or whether the ruling in Summerville required the return of the items except for a few samples.

• Governing Rule: Rule 126 of the Revised Rules of Criminal Procedure applied. The search warrants were applied for in anticipation of criminal actions for violations of Sections 155 and 168 in relation to Section 170 of the Intellectual Property Code. Agent Furing’s affidavit explicitly stated that the items to be seized would be used as evidence in criminal actions likely to be instituted. Consequently, A.M. No. 02‑1‑06‑SC, which governs search and seizure in civil actions for infringement, was inapplicable.
• Probable Cause: Probable cause existed. The affidavits of NBI Agent Furing and his witnesses showed they sought to protect the trademark “TOP GEL T.G. & DEVICE OF A LEAF” registered to respondent. The NBI conducted test buys, personally observed the counterfeit goods, and obtained a certification from respondent’s representative that the purchased soaps were counterfeit. These facts and circumstances would lead a reasonably discreet and prudent person to believe that an offense had been committed and the objects sought were in the places to be searched. The competing claim of Benjamin Yu did not negate probable cause: Civil Case No. Q‑05‑54747 had already been dismissed with finality before the warrant applications; a writ of preliminary injunction had been issued by the IPO against Yu, his agents, representatives, and dealers—a class that included petitioners, who admitted sourcing from Yu—and this injunction was published; moreover, a Compromise Agreement later confirmed respondent’s exclusive right over the trademark. Hence, there was no prejudicial question.
• Procedural Issue: The Court of Appeals did not err. A review of the record showed that petitioners never objected to the argument being raised for the first time before the appellate court. On the contrary, petitioners’ appellee’s brief squarely addressed the applicability of Rule 126. Petitioners were estopped from raising the procedural objection only after an unfavorable decision.
• Extent of Seizure: The case of Summerville was distinguished. In Summerville, the offending item was only the design of a plastic container case for playing cards; the playing cards themselves were genuine and were not the subject of the intellectual property violation. Here, the very products seized—the whitening soaps bearing the counterfeit trademark—were the subject of the offense. There was no overbreadth; seizure of all counterfeit articles was necessary to protect the registered owner’s right.

• Probable Cause for Search Warrants in Intellectual Property Cases — Probable cause means the existence of such facts and circumstances as would lead a reasonably discreet and prudent person to believe that an offense has been committed and that the objects sought in connection with the offense are in the place to be searched. Absent personal knowledge by the applicant or witnesses of the facts, the warrant is deemed not based on probable cause. In this case, the NBI agent and witnesses had personal knowledge of the registered mark, the test‑buy purchases, and the counterfeit nature of the goods; thus, probable cause was adequately shown. Moreover, a pending or prior dispute over trademark ownership does not constitute a prejudicial question that defeats probable cause where that dispute has been resolved by dismissal, injunction, or compromise agreement.
• Applicability of Rule 126 versus A.M. No. 02‑1‑06‑SC — Where a search warrant is sought for violations of Sections 155 and 168 in relation to Section 170 of Republic Act No. 8293, and the application states that the items are to be used as evidence in criminal actions to be instituted, the governing rule is Rule 126 of the Revised Rules of Criminal Procedure, not the special rules for civil actions for infringement of intellectual property rights. The nature of the proceeding is determined by the purpose stated in the application and the offense alleged.

• “A core requisite before a warrant shall validly issue is the existence of a probable cause, meaning ‘the existence of such facts and circumstances which would lead a reasonably discreet and prudent man to believe that an offense has been committed and that the objects sought in connection with the offense are in the place to be searched.’” — This restates the foundational test for probable cause in search warrant issuance.
• “The determination of probable cause does not call for the application of rules and standards of proof that a judgment of conviction requires after trial on the merits. As implied by the words themselves, ‘probable cause’ is concerned with probability, not absolute or even moral certainty.” — This clarifies the lower threshold for probable cause compared to that required for conviction.

• Summerville General Merchandising Co. v. Court of Appeals, G.R. No. 158767, June 26, 2007, 525 SCRA 602 — Distinguished. In Summerville, the genuine playing cards themselves were not the subject of the offense; only the design of the plastic container was. Hence, seizing numerous boxes of playing cards was unnecessary. Here, the very product—the counterfeit whitening soap—was the subject of the trademark violation, justifying seizure of all such items.
• Sony Music Entertainment (Phils.), Inc. v. Español, 493 Phil. 507 (2005) — Followed for the definition of probable cause and the requirement of personal knowledge.
• Microsoft Corporation v. Maxicorp, Inc., 481 Phil. 550 (2004) — Cited for the principle that probable cause does not require proof beyond reasonable doubt.

• Sections 155, 168, and 170, Republic Act No. 8293 (Intellectual Property Code) — Section 155 defines trademark infringement; Section 168 defines unfair competition; Section 170 prescribes criminal penalties for these acts. The search warrants were applied for based on these provisions, making the criminal nature of the anticipated actions determinative of the applicable procedural rule.
• Rule 126, Sections 3, 4, and 5, Revised Rules of Criminal Procedure — The core requisites for issuance of a search warrant were applied: probable cause in connection with one specific offense, personal determination by the judge after searching examination of the complainant and witnesses, and particular description of the place and items.
• A.M. No. 02‑1‑06‑SC (Rules on Search and Seizure in Civil Actions for Infringement of Intellectual Property Rights), Section 6 — Found inapplicable because the warrants were sought in anticipation of criminal, not civil, proceedings.

Associate Justice Presbitero J. Velasco, Jr. (Chairperson), Associate Justice Roberto A. Abad, Associate Justice Jose Catral Mendoza, Associate Justice Marvic Mario Victor F. Leonen. Chief Justice Maria Lourdes P. A. Sereno certified that the conclusions were reached in consultation.