Co vs. Yeung

Unfair competition is the passing off of one’s goods as those of another with the intent to deceive the public; fraudulent intent is presumed when the defendant gives his goods the general appearance of the competitor’s goods, and prior registration of a trademark is not a prerequisite to an unfair competition action.

Keng Huan Jerry Yeung owned Greenstone Pharmaceutical, a Hong Kong‑based manufacturer of traditional Chinese medicine. Its product “Greenstone Medicated Oil Item No. 16” was exclusively imported and distributed in the Philippines by Taka Trading, owned by Yeung’s wife, Emma Yeung. In April 2000, Emma Yeung’s brother purchased a bottle of Greenstone from Royal Chinese Drug Store, owned by Ling Na Lau, and suspected it was counterfeit because the smell and heating effect differed from the original. Yeung and his son then visited the store, found seven bottles of counterfeit Greenstone on display, and were told by Pinky Lau that the items came from Roberto Co of Kiao An Chinese Drug Store. The spouses Yeung subsequently sued for trademark infringement and unfair competition.

• Nature of the action: The spouses Yeung filed a civil complaint for trademark infringement and unfair competition against Ling Na Lau, Pinky Lau, and Roberto Co, alleging conspiracy in selling counterfeit “Greenstone Medicated Oil” products to the public.

• The original product: Greenstone Medicated Oil Item No. 16 was manufactured by Greenstone Pharmaceutical (Hong Kong) owned by Keng Huan Jerry Yeung, and exclusively imported and distributed in the Philippines by Taka Trading, owned by his wife, Emma Yeung.

• Discovery of counterfeit goods: On April 24, 2000, Emma Yeung’s brother, Jose Ruivivar III, bought a bottle of Greenstone from Royal Chinese Drug Store in Binondo, Manila (owned by Ling Na Lau). He doubted its authenticity because the smell and heating effect were different from the original he frequently used. After being informed, Jerry Yeung and his son went to the store on May 4, 2000 and found seven bottles of counterfeit Greenstone displayed for sale. Pinky Lau (the store’s proprietor) told them the items had been supplied by Roberto Co of Kiao An Chinese Drug Store, who had offered the products on April 28, 2000 as “Tienchi Fong Sap Oil Greenstone.” At Yeung’s urging, Pinky Lau wrote a note recounting these events.

• Defense of the defendants: Roberto Co denied supplying counterfeit items, maintaining that his Greenstone stocks came only from Taka Trading. The Laus denied selling Greenstone and claimed the seven bottles of “Tienchi” were left by an unidentified man at the store counter and were surrendered to Yeung when he threatened to report the matter. They also alleged that Pinky Lau was forced by Yeung to sign the note.

• Trial court findings: The RTC found that the spouses Yeung had proved by preponderance of evidence that the Laus and Co conspired to sell counterfeit Greenstone products identical in packaging to the original, causing confusion and deception to the public. The court did not find liability for trademark infringement because there was no proof that the “Greenstone” trademark was registered at the time the acts were committed in May 2000.

• Factual Denial: Petitioner Roberto Co maintained that he did not supply counterfeit Greenstone products to Royal Chinese Drug Store and asserted that all of his Greenstone stocks originated solely from Taka Trading, the exclusive Philippine distributor.

• Lack of Conspiracy: Petitioner argued that no evidence established a conspiracy with the Laus to sell counterfeit items, contending that Pinky Lau’s handwritten note was coerced and should not be given weight.

• Misappreciation of Evidence: Petitioner insisted that the Court of Appeals misapprehended the facts and that the findings of the trial court lacked sufficient evidentiary support, thereby invoking exceptions to the general rule that factual questions are not reviewable under Rule 45.

• Conspiracy and Counterfeit Sale: Respondents, the spouses Yeung, countered that the evidence demonstrated a clear conspiracy between the Laus and Co to palm off counterfeit Greenstone products as genuine, with Pinky Lau’s note and the recovered counterfeit bottles constituting sufficient proof of Co’s role as the supplier.

• Deception of the Public: Respondents argued that the counterfeit products were packaged in bottles identical to the original Greenstone, creating a likelihood of confusion and establishing the fraudulent intent essential to unfair competition.

• Damages: Respondents maintained that the damage to their goodwill justified the awards of temperate, moral, and exemplary damages, as actual pecuniary loss could not be quantified with precision.

• Unfair Competition: Whether the Court of Appeals correctly upheld Roberto Co’s liability for unfair competition.

• Unfair Competition: The petition was denied. Unfair competition consists in passing off one’s goods as those of another with the end and probable effect of deceiving the public. The evidence established that Co conspired with the Laus to sell counterfeit Greenstone products packaged in bottles identical to the original, which, pursuant to Section 6, Rule 18 of the Rules of Procedure for Intellectual Property Rights Cases, gave rise to a presumption of fraudulent intent. Because the factual findings of the RTC, as affirmed by the CA, were supported by the record and Co only interposed a bare denial, those findings were deemed final and conclusive. Consequently, Co’s liability for unfair competition was sustained. The awards of temperate damages (in recognition of unquantified pecuniary loss from damage to goodwill), moral damages, exemplary damages, attorney’s fees, and costs were upheld. The distinction between trademark infringement and unfair competition was clarified: prior registration of the trademark is a prerequisite for infringement but not for unfair competition, and fraudulent intent is essential only for the latter. The absence of proof that the “Greenstone” trademark was registered in May 2000 thus properly exculpated Co from infringement while leaving his unfair competition liability intact.

• Unfair Competition (Passing Off) — Unfair competition is the passing off (or palming off), or attempting to pass off, upon the public the goods or business of one person as the goods or business of another with the end and probable effect of deceiving the public. It takes place where the defendant gives his goods the general appearance of his competitor’s goods with the intention of deceiving the public that the goods are those of the competitor. In this case, the use of identical bottles to package counterfeit Greenstone products satisfied this definition.

• Presumption of Fraudulent Intent in Unfair Competition — Under Section 6, Rule 18 of the Rules of Procedure for Intellectual Property Rights Cases (A.M. No. 10-3-10-SC), intent to defraud or deceive the public is presumed (a) when the defendant passes off a product as his by using imitative devices, signs or marks on the general appearance of the goods that mislead prospective purchasers into buying his merchandise as that of the competitor; (b) when the defendant makes any false statement in the course of trade to discredit the goods and business of another; or (c) where the similarity in the appearance of the goods as packed and offered for sale is so striking. The identical packaging of the counterfeit Greenstone products triggered this presumption against Co.

• Distinction Between Trademark Infringement and Unfair Competition — Trademark infringement is the unauthorized use of a trademark, while unfair competition is the passing off of one’s goods as those of another. Fraudulent intent is unnecessary in trademark infringement but essential in unfair competition. Prior registration of the trademark is a pre-requisite to an action for infringement but not for unfair competition. Because the registration of the “Greenstone” trademark in May 2000 was not proven, the infringement claim failed, but the unfair competition action succeeded.

• Temperate Damages for Goodwill Loss — Under Article 2224 of the Civil Code, temperate or moderate damages may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty. Damage to goodwill is a recognized unquantifiable loss that justifies an award of temperate damages.

• “Unfair competition is defined as the passing off (or palming off) or attempting to pass off upon the public of the goods or business of one person as the goods or business of another with the end and probable effect of deceiving the public. This takes place where the defendant gives his goods the general appearance of the goods of his competitor with the intention of deceiving the public that the goods are those of his competitor.” — This formulation encapsulates the essence of unfair competition under Philippine law and was directly applied to the counterfeit Greenstone products.

• “[T]he distinctions between suits for trademark infringement and unfair competition prove useful: (a) the former is the unauthorized use of a trademark, whereas the latter is the passing off of one's goods as those of another; (b) fraudulent intent is unnecessary in the former, while it is essential in the latter; and (c) in the former, prior registration of the trademark is a pre-requisite to the action, while it is not necessary in the latter.” — This passage concisely distinguishes the two intellectual property causes of action and was used to explain why Co was exculpated from infringement but held liable for unfair competition.

• Republic Gas Corporation v. Petron Corporation, G.R. No. 194062, June 17, 2013, 698 SCRA 666 — Cited as authority for the definition of unfair competition as the passing off of goods with intent to deceive.

• Del Monte Corporation v. Court of Appeals, 260 Phil. 435 (1990) — Relied upon for the tripartite distinction between trademark infringement and unfair competition regarding unauthorized use versus passing off, fraudulent intent, and the prerequisite of prior registration.

• Guevarra v. People, G.R. No. 170462, February 5, 2014 — Referenced to support the rule that factual questions are not reviewable in petitions under Rule 45, subject to certain exceptions, and that factual findings of the trial court when affirmed by the Court of Appeals are entitled to great weight.

• Section 6, Rule 18, A.M. No. 10-3-10-SC (Rules of Procedure for Intellectual Property Rights Cases) — Provides the instances when intent to defraud or deceive the public is presumed in an action for unfair competition. The Court applied this provision to hold that Co’s sale of counterfeit products in bottles identical to the original raised a presumption of fraudulent intent.

• Article 2224, Civil Code — Governs the recovery of temperate or moderate damages when some pecuniary loss is suffered but the amount cannot be proven with certainty. The provision supported the award of ₱300,000.00 as temperate damages for the unquantifiable damage to the goodwill of the spouses Yeung.

Presbitero J. Velasco, Jr. (designated Acting Member), Teresita J. Leonardo-De Castro (Acting Chairperson), Lucas P. Bersamin, Jose Portugal Perez

None.