Converse Rubber Corporation vs. Jacinto Rubber & Plastics Co., Inc.

Priority in trademark registration is not material in an action for unfair competition, the basis of which is confusing and misleading similarity in general appearance, not similarity of trademarks; actual competition between the parties is not a requisite, as the law protects goodwill as a property right regardless of whether it was established in a competitive milieu.

Converse Rubber Corporation is an American corporation manufacturing canvas rubber shoes under the trade name "Converse Chuck Taylor All Star," with trademarks registered in the United States Patent Office covering the words "All Star," the five-pointed star design, and the sole design. Edwardson Manufacturing Corporation is its exclusive Philippine licensee. Jacinto Rubber & Plastics Co., Inc. is a domestic corporation manufacturing canvas rubber shoes under the trade name "Custombuilt," with its trademark "Custombuilt Jayson's" registered with the Philippine Patent Office on November 29, 1957. The governing statutory framework is Republic Act No. 166, particularly Sections 23 and 29 governing unfair competition and remedies, together with the Paris Convention for the Protection of Industrial Property, to which both the Philippines and the United States are signatories.

Converse Rubber Corporation, an American corporation, manufactures canvas rubber shoes under the trade name "Converse Chuck Taylor All Star" and owns trademarks registered with the United States Patent Office covering the words "All Star," the representation and design of a five-pointed star, and the design of the sole. The trademark "Chuck Taylor" was registered with the Philippine Patent Office on March 3, 1966. Edwardson Manufacturing Corporation is Converse's exclusive Philippine licensee for the manufacture and sale of "Chuck Taylor" shoes. "Chuck Taylor" has been sold in the Philippines since 1946, has been used exclusively by Philippine basketball teams competing in international competitions, and is popular among players in various leagues such as the MICAA and the NCAA, retailing at P46.00 per pair. Jacinto Rubber & Plastics Co., Inc., a domestic corporation, likewise manufactures and sells canvas rubber shoes under the trade names "Custombuilt Viscount," "Custombuilt Challenger," and "Custombuilt Jayson's," the latter trademark having been registered with the Philippine Patent Office on November 29, 1957. "Custombuilt" retails at P11.00 per pair, and its gross sales from 1962 to 1965 totaled P16,474,103.76.

In 1963, Converse and Jacinto entered into protracted negotiations for a licensing agreement under which Jacinto would become Converse's exclusive Philippine licensee while retaining the right to continue manufacturing its own products. Converse insisted on the condition that Jacinto change the design of "Custombuilt" shoes to give them a general appearance different from "Chuck Taylor." After extensive discussion, Jacinto acceded and submitted a sketch of a new design, which Converse accepted. Jacinto then proposed that the licensing agreement be made in favor of its affiliate, Ace Rubber & Plastics Corporation. On January 22, 1965, Ace Rubber signed the licensing agreement while Jacinto Rubber and Arturo Jacinto signed a guarantee agreement. Both documents contained covenants acknowledging Converse's exclusive ownership of the "Converse-names and design" and undertaking not to manufacture or sell footwear likely to be confused with Converse-named products or to infringe Converse designs. The licensing agreement did not materialize, however, because Hermogenes Jacinto refused to sign the guarantee.

Converse and Edwardson then executed a licensing agreement making Edwardson the exclusive Philippine licensee for "Chuck Taylor." On June 18, 1966, plaintiffs sent a written demand to defendants to stop manufacturing and selling "Custombuilt" shoes of identical appearance as "Chuck Taylor." Defendants did not reply, prompting plaintiffs to file the suit for unfair competition. The trial court found the competing products identical in appearance except for the trade names, with the respective designs, shapes, and colors of the ankle patches, bands, toe patches, and soles exactly the same, such that at a distance of a few meters it was impossible to distinguish one from the other. The trial court further found that defendants had copied the design of "Chuck Taylor" in bad faith, noting that the volume of sales of "Custombuilt" increased from 35% to 75% of defendants' total sales after they incorporated the design and appearance of "Chuck Taylor" into their product. The trial court awarded P160,000.00 as compensatory damages for 1962 to 1965, 5% of gross sales from 1966 until compliance with the injunction, and P10,000.00 as attorney's fees.

Thereafter, plaintiffs filed contempt charges against defendants and Philippine Marketing and Management Corporation for selling "Custombuilt" shoes in violation of the permanent injunction. The trial court found that Philippine Marketing and Management Corporation was the selling arm of Jacinto Rubber, both controlled by the Jacinto family, with substantially identical stockholders and corporate officers, and that defendants had wilfully continued selling and advertising the prohibited shoes even during the pendency of the contempt proceedings. Nevertheless, the trial court dismissed the contempt charges in three separate orders, maintaining that it had lost jurisdiction by virtue of the earlier perfection of the appeals from the main decision.

• Jurisdiction: Defendants-appellants contended that the trial court lacked jurisdiction over the complaint because Converse Rubber Corporation is a non-resident, unlicensed foreign corporation with no legal right to sue in Philippine courts, citing Marshall-Wells Co. vs. Elser & Co. and Commissioner of Internal Revenue vs. United States Lines Co. They further argued that Edwardson Manufacturing Corporation, as a mere licensee of Converse, was equally without personality to sue.
• No Unfair Competition: Defendants-appellants maintained that there was no similarity in design and general appearance between "Custombuilt" and "Chuck Taylor," pointing out that "Custombuilt" is readily identifiable by the trade name "Custombuilt" appearing on the ankle patch, heel patch, and sole. They also argued that their prior registration of the "Custombuilt" trademark precluded plaintiffs' cause of action.
• No Actual Competition: Defendants-appellants contended that because "Chuck Taylor" was not sold in the local market from 1949 to 1967, no competition, fair or unfair, could have been offered to it by "Custombuilt" during that period.
• Excessive Damages: Defendants-appellants argued that the award of P160,000.00 as compensatory damages and P10,000.00 as attorney's fees was erroneous and excessive.
• Double Jeopardy (Contempt): In the contempt appeal, appellees contended that the trial court's denial orders constituted acquittals, and that further proceedings would subject them to double jeopardy, contempt proceedings being criminal in nature.

• Jurisdiction Proper: Plaintiffs-appellees countered that Section 69 of the Corporation Law does not disqualify an unlicensed foreign corporation from suing to protect its reputation, corporate name, or goodwill, citing Western Equipment and Supply Co. vs. Reyes. They further invoked Section 21(a) of Republic Act No. 166, which expressly allows foreign corporations to bring actions for unfair competition on a reciprocal basis, and the Paris Convention, to which both the Philippines and the United States are signatories.
• Unfair Competition Established: Plaintiffs-appellees argued that "Custombuilt" shoes are identical in design and general appearance to "Chuck Taylor" and that defendants had pirated plaintiffs' established goodwill in clear bad faith, as conclusively admitted by defendants in the licensing and guarantee agreements they executed.
• Damages Insufficient: Plaintiffs-appellents contended that the trial court's award was inadequate, asserting entitlement to 30% of defendants' gross sales as compensatory damages and P25,000.00 as attorney's fees, and that under Section 23 of Republic Act No. 166, damages could even be doubled given defendants' actual intent to mislead the public.
• No Double Jeopardy (Contempt): Plaintiffs-appellants argued that the contempt was civil in nature, being for the benefit of the plaintiffs rather than to vindicate the court's authority, and that the trial court's denial orders were not acquittals but were based on the erroneous assumption of lost jurisdiction.

• Jurisdiction over Foreign Corporation: Whether the trial court had jurisdiction over the complaint given that plaintiff Converse Rubber Corporation is an unlicensed, non-resident foreign corporation.
• Unfair Competition Despite Prior Trademark Registration: Whether defendants are guilty of unfair competition despite having registered the "Custombuilt" trademark prior to the registration of "Chuck Taylor" in the Philippines.
• Requirement of Actual Competition: Whether actual competition between the parties is a requisite for an action for unfair competition under Section 29 of Republic Act No. 166.
• Propriety of Damages Award: Whether the trial court's award of P160,000.00 as compensatory damages and 5% of gross sales from 1966, plus P10,000.00 as attorney's fees, was proper.
• Jurisdiction over Contempt During Appeal: Whether the trial court lost jurisdiction over contempt proceedings by virtue of the perfection of appeals from the main decision.
• Double Jeopardy in Contempt: Whether the rule on double jeopardy bars further contempt proceedings against appellees.

• Jurisdiction over Foreign Corporation: Yes. The trial court had jurisdiction, Section 21(a) of Republic Act No. 166 expressly permitting unlicensed foreign corporations to sue for unfair competition on a reciprocal basis, reinforced by the Paris Convention and U.S. Public Law 489.
• Unfair Competition Despite Prior Trademark Registration: Yes. Priority in trademark registration is immaterial in an action for unfair competition, which rests on confusing similarity in general appearance, not similarity of trademarks.
• Requirement of Actual Competition: No, actual competition is not required. Section 29 of Republic Act No. 166 protects goodwill as a property right regardless of whether it was established in a competitive milieu.
• Propriety of Damages Award: The award was modified upward. The trial court was overly liberal; defendants' deliberate bad faith warranted 15% of 75% of gross sales (P1,853,336.67) as compensatory damages, without interest, from 1962 up to finality of the decision.
• Jurisdiction over Contempt During Appeal: No, the trial court did not lose jurisdiction. Permanent injunctions in actions for injunction are immediately executory during appeal pursuant to Section 4 of Rule 39, and the trial court retained authority to enforce its injunction.
• Double Jeopardy in Contempt: No. The contempt was civil, not criminal, in nature, as the injunction was manifestly for the benefit of the plaintiffs; the rule on double jeopardy does not apply to civil contempt.

• Jurisdiction over Foreign Corporation: Defendants relied on Section 69 of the Corporation Law and cited Marshall-Wells Co. vs. Elser & Co. and Commissioner of Internal Revenue vs. United States Lines Co. The Court found these citations inapposite. In Marshall-Wells, the Court rejected a literal reading of Section 69 that would bar all suits by unlicensed foreign corporations. In Commissioner of Internal Revenue, the Court merely held that a foreign shipping company represented by a local agent was "doing business" for tax purposes, not that it could not sue. Western Equipment and Supply Co. vs. Reyes clarified that the disability is limited to suits enforcing contract rights arising from business transacted in the Philippines, whereas a suit to protect reputation, corporate name, or goodwill is permitted. Moreover, Section 21(a) of Republic Act No. 166 expressly allows foreign corporations, whether or not licensed, to bring actions for unfair competition on a reciprocal basis. The Paris Convention provides reciprocal protection for citizens of member states, and U.S. Public Law 489 grants Philippine corporations the corresponding privilege in the United States. Edwardson Manufacturing Corporation, as exclusive licensee, had a direct interest in the action because it would be directly affected by the continued manufacture and sale of confusingly identical shoes.

• Unfair Competition Despite Prior Trademark Registration: The trial court found, and the Supreme Court confirmed after independent examination of the exhibits, that the shoes manufactured by defendants contained practically all the features of plaintiffs' product — the designs, shapes, colors of the ankle patches, bands, toe patches, and soles were exactly the same. At a distance of a few meters, it was impossible to distinguish "Custombuilt" from "Chuck Taylor." The casual buyer would likely mistake one for the other or believe both were manufactured by the same entity. The Court emphasized that the basis of an action for unfair competition is confusing and misleading similarity in general appearance, not similarity of trademarks. Priority in trademark registration is therefore not material. The defendants' own covenants in the licensing and guarantee agreements constituted written admissions of Converse's exclusive ownership of the design and appearance, conclusively establishing their awareness that "Custombuilt" was identical to "Chuck Taylor."

• Requirement of Actual Competition: Defendants argued that because "Chuck Taylor" was not sold in the local market from 1949 to 1967, no competition existed. The Court rejected this contention, relying on Ang vs. Toribio, which held that as trade developed, the law of unfair competition expanded and the element of strict competition ceased to be the determining factor. The modern trend emphasizes the unfairness of the acts and treats the issue as fraud. Section 29 of Republic Act No. 166 protects goodwill as a property right and denominates as unfair competition "any acts" calculated to result in the passing off of goods, without requiring that the goodwill be established in an actual competitive situation or that the deceptive acts be committed in such a milieu. Goodwill established outside a competitive context is no less a property right deserving protection from unjust appropriation.

• Propriety of Damages Award: Under Section 23 of Republic Act No. 166, the measure of damages is either the reasonable profit the complaining party would have made, the profit the defendant actually made from the infringement, or a reasonable percentage of gross sales if actual profits cannot be ascertained. Where actual intent to mislead is shown, damages may be doubled. The trial court reduced plaintiffs' claim from 30% to 1% of gross sales, citing concern for defendants' business viability. The Supreme Court found this overly liberal. Defendants had deliberately copied the design in bad faith, tremendously increasing their volume of business and profits. The Court projected that net profit in rubber shoe manufacturing should not be less than 20 to 25% of gross sales. Rather than remand for further evidence — given the case had been pending for fourteen years — the Court awarded 15% of 75% of gross sales (P12,355,577.82 × 15% = P1,853,336.67) as compensatory damages from 1962 up to finality, without interest, with leave for plaintiffs to seek further damages by motion should defendants continue violating the injunction.

• Jurisdiction over Contempt During Appeal: The trial court dismissed the contempt charges on the assumption it had lost jurisdiction upon perfection of the appeals. The Supreme Court held this assumption erroneous, relying on Cia. General de Tabacos de Filipinas vs. Alhambra Cigar & Cigarette Manufacturing Co. Enforcement of permanent injunctions in trial court decisions is immediately executory. A preliminary injunction enforceable during the pendency of the main action cannot become less enforceable when made final after full hearing; a permanent injunction issued as part of judgment must be at least equally enforceable. Section 4 of Rule 39 expressly provides that a judgment in an action for injunction shall not be stayed after rendition and before appeal or during pendency of appeal. An action for unfair competition with prayer for injunction partakes of the nature of an action for injunction within the contemplation of this rule. The trial court therefore retained jurisdiction to entertain and decide the motion for contempt.

• Double Jeopardy in Contempt: Appellees contended that the trial court's first denial order constituted an acquittal barring subsequent jeopardy. The Court clarified that contempt proceedings may be either civil or criminal: criminal when the purpose is to vindicate the court's authority and protect its dignity, and civil when there is failure to do something ordered for the benefit of a party. The injunction in this case was manifestly for the benefit of the plaintiffs, making the contempt civil in nature. The rule on double jeopardy applies only to criminal contempt. Moreover, the trial court's first order, while issued with jurisdiction, was incomplete because it contained no statement of facts and law, violating constitutional requirements. The third order supplied the necessary findings but reiterated the erroneous jurisdictional ruling. Combining the three orders, the factual findings could stand as basis for imposing the proper penalty, as the trial court had found the injunction violated but erroneously believed itself devoid of authority to penalize.

• Unfair Competition — Confusing Similarity in General Appearance — The basis of an action for unfair competition is confusing and misleading similarity in the general appearance of goods, not similarity of trademarks. Priority in trademark registration is immaterial in an action for unfair competition, as distinguished from an action for infringement of trademark. The test is whether the ordinary purchaser, exercising ordinary caution and prudence, would likely be misled into believing that the goods are those of another manufacturer. It is not necessary that the resemblance be sufficient to deceive experts or dealers, nor is it material that a critical inspection would disclose differences.

• Unfair Competition — No Requirement of Actual Competition — Section 29 of Republic Act No. 166 protects goodwill as a property right regardless of whether it was established in an actual competitive situation. The law denominates as unfair competition "any acts" calculated to result in the passing off of goods, without requiring that the deceptive acts be committed in a competitive milieu. The modern trend emphasizes the unfairness of the acts and treats the issue as fraud, not strict competition.

• Foreign Corporation's Capacity to Sue for Unfair Competition — An unlicensed foreign corporation may sue in the Philippines to protect its reputation, corporate name, or goodwill. Section 21(a) of Republic Act No. 166 expressly permits foreign corporations, whether or not licensed to transact business, to bring actions for unfair competition on a reciprocal basis. The Paris Convention for the Protection of Industrial Property provides reciprocal protection among member states. The disability under Section 69 of the Corporation Law is limited to suits enforcing contract rights arising from business transacted in the Philippines.

• Immediate Enforceability of Permanent Injunctions During Appeal — A permanent injunction issued as part of a trial court's judgment is immediately executory during appeal. An action for unfair competition with prayer for injunction partakes of the nature of an action for injunction under Section 4 of Rule 39, which provides that such judgments shall not be stayed during appeal. The trial court retains jurisdiction to enforce its injunction and to entertain contempt proceedings for its violation.

• Civil vs. Criminal Contempt — Contempt proceedings may be either civil or criminal. Criminal contempt aims to vindicate the authority of the court and protect its outraged dignity. Civil contempt arises from failure to do something ordered by the court for the benefit of a party. The rule on double jeopardy applies only to criminal contempt. Where the injunction is manifestly for the benefit of the plaintiffs, the contempt is civil, and double jeopardy does not bar further proceedings.

• "Priority in registration in the Philippines of a trademark is not material in an action for unfair competition as distinguished from an action for infringement of trademark. The basis of an action for unfair competition is confusing and misleading similarity in general appearance, not similarity of trademarks." — This passage articulates the fundamental distinction between unfair competition and trademark infringement, establishing that the controlling test is confusing similarity in general appearance rather than priority of registration.

• "As trade has developed and commercial changes have come about, the law of unfair competition has expanded to keep pace with the times and the elements of strict competition in itself has ceased to be the determining factor. The owner of a trademark or trade-name has property right in which he is entitled to protection, since there is damage to him from confusion of reputation or goodwill in the mind of the public as well as from confusion of goods. The modern trend is to give emphasis to the unfairness of the acts and to classify and treat the issue as fraud." — Quoted from Ang vs. Toribio, this passage defines the modern doctrine that actual competition is not a requisite for unfair competition, emphasizing the property-right nature of goodwill and the focus on the unfairness of the acts.

• "Singularly absent is a requirement that the goodwill sought to be protected in an action for unfair competition must have been established in an actual competitive situation. Nor does the law require that the deception or other means contrary to good faith or any acts calculated to pass off other goods for those of one who has established a goodwill must have been committed in an actual competitive situation." — This passage, drawn from plaintiffs' brief and quoted with approval by the Court, reinforces the statutory interpretation that Section 29 of Republic Act No. 166 protects goodwill as property without requiring a competitive context.

• "It is criminal when the purpose is to vindicate the authority of the court and protect its outraged dignity. It is civil when there is failure to do something ordered by a court to be done for the benefit of a party." — This passage provides the canonical formulation of the distinction between civil and criminal contempt, which the Court applied to hold that contempt for violating an injunction benefiting a party is civil in nature and therefore not barred by double jeopardy.

• R.F. & J. Alexander & Co. Ltd. vs. Ang et al., 97 Phil. 157 — Followed. Established that the "ordinary purchaser" is the standard for determining likelihood of confusion in unfair competition, and that similarity need only be sufficient to mislead purchasers of ordinary caution and prudence.
• Ang vs. Toribio, 74 Phil. 129 — Followed. Held that the law of unfair competition has expanded beyond strict competition; the owner of a trademark has a property right entitled to protection from confusion of reputation or goodwill, and the modern trend emphasizes the unfairness of the acts and treats the issue as fraud.
• Marshall-Wells Co. vs. Elser & Co., 46 Phil. 70 — Distinguished. Defendants cited it to bar suit by an unlicensed foreign corporation; the Court held that the case actually rejected a literal reading of Section 69 and did not categorically bar all suits by foreign corporations.
• Western Equipment and Supply Co. vs. Reyes, 51 Phil. 115 — Followed. Clarified that the disability of a foreign corporation from suing is limited to suits enforcing contract rights from business transacted in the Philippines, whereas suits to protect reputation, corporate name, or goodwill are permitted.
• Cia. General de Tabacos de Filipinas vs. Alhambra Cigar & Cigarette Manufacturing Co., 33 Phil. 503 — Followed. Held that a trial court retains jurisdiction to enforce its injunction and punish contempt notwithstanding appeal from the main judgment, because the question is not whether the judgment was correct but whether it was valid and the injunction was definite and certain.
• Dy Buncio vs. Tan Tiao Bok, 42 Phil. 190 — Referenced. Referred to "ordinarily intelligent buyer" as the standard, a position later superseded by the "casual purchaser" standard.
• E. Spinner & Co. vs. Neuss Hesslein, 54 Phil. 224 — Referenced. Adopted the "casual purchaser" standard — those who know goods only by name — as the general doctrine for unfair competition.

• Section 29, Republic Act No. 166 — Defines unfair competition as the passing off of goods through deception or means contrary to good faith, and establishes that a person who has identified goods in the mind of the public has a property right in goodwill protected as other property rights. Applied as the statutory basis for finding defendants guilty of unfair competition and for holding that actual competition is not a requisite.
• Section 23, Republic Act No. 166 — Provides the measure of damages for infringement: reasonable profit the complaining party would have made, profit the defendant actually made, or a reasonable percentage of gross sales; allows doubling of damages where actual intent to mislead or defraud is shown. Applied to modify the damages award upward, the Court finding defendants' deliberate bad faith warranted a higher percentage than the 1% awarded by the trial court.
• Section 21(a), Republic Act No. 166 — Expressly permits foreign corporations, whether or not licensed to transact business in the Philippines, to bring actions for unfair competition on a reciprocal basis. Applied to uphold the jurisdiction of the trial court over the complaint filed by Converse Rubber Corporation.
• Section 69, Corporation Law — Disables unlicensed foreign corporations from maintaining suits for recovery of debts or demands arising from transacting business in the Philippines. Distinguished and held inapplicable, the suit being for protection of goodwill rather than enforcement of contract rights from business transacted locally.
• Section 4, Rule 39, Rules of Court — Provides that a judgment in an action for injunction shall not be stayed after rendition and before appeal or during pendency of appeal. Applied to hold that the trial court retained jurisdiction to enforce its permanent injunction and entertain contempt proceedings notwithstanding the pending appeals.
• Paris Convention for the Protection of Industrial Property — Provides reciprocal protection for citizens of member states to file actions for unfair competition and infringement of trademarks, patents, etc. Applied together with U.S. Public Law 489 to establish the reciprocity required under Section 21(a) of Republic Act No. 166.

Concepcion Jr., Guerrero, and De Castro, JJ., concur. Aquino, J., concurs in the result. Antonio, J., is on leave.