Emzee Foods, Inc. vs. Elarfoods, Inc.

Ownership of an unregistered trademark is transferred by the incorporators to their corporation by operation of law and through overt acts manifesting intent to transfer, even without a written assignment. A registered trademark owner’s exclusive right to use the mark is presumed upon registration, and the use of a confusingly similar mark on identical goods, applying the dominancy test, constitutes unfair competition under Section 168 of the Intellectual Property Code.

Sometime in 1970, spouses Jose and Leonor Lontoc began selling Filipino food and roasted pigs under the name “ELARS Lechon.” In 1989, desiring to leave a legacy, they incorporated Elarfoods, Inc. (respondent), which continued the food business and actively used the marks “ELARS LECHON,” “ROASTED PIG DEVICE,” and “ON A BAMBOO TRAY.” Without respondent’s consent, petitioner Emzee Foods, Inc. — a corporation formed by Manuel Enrique Zalamea and Manuel Jose Zalamea, heirs of the Lontocs and former employees of respondent — sold roasted pigs using “ELARZ LECHON,” “ELAR LECHON,” “PIG DEVICE,” and “ON A BAMBOO TRAY,” making it appear that petitioner was a branch or franchise of respondent.

• The ELARS LECHON Business: In 1970, spouses Jose and Leonor Lontoc began selling Filipino food and roasted pigs under the name “ELARS Lechon.” The mark “Elar” was derived from the initials of their family names, Lontoc-Rodriguez. On May 19, 1989, to leave a legacy, the spouses incorporated Elarfoods, Inc. (respondent). Thereafter, respondent actively used the marks “ELAR'S LECHON ON A BAMBOO TRAY,” “ROASTED PIG DEVICE” (a design of a roasted pig on a bamboo stick over a tray), and “ELARS LECHON” in its business. The spouses personally managed respondent, and Jose Lontoc, as President and General Manager, wrote a letter in 1996 stating that “we are one of the biggest lechon producers in the country under our brand name — ‘ELAR LECHON on a BAMBOO TRAY’.”

• Petitioner’s Entry and Use of Similar Marks: Without respondent’s knowledge or permission, Emzee Foods, Inc. (petitioner) — incorporated by Manuel Enrique Zalamea and Manuel Jose Zalamea, heirs of the Lontocs and former employees of respondent — sold roasted pigs using the marks “ELARZ LECHON,” “ELAR LECHON,” “PIG DEVICE,” and “ON A BAMBOO TRAY.” Petitioner’s packaging and signages resembled respondent’s, making it appear that petitioner was a branch or franchise of respondent. No notice was given to the public that petitioner’s products were not respondent’s.

• Registration and Demand: Respondent filed trademark applications for “ELARS LECHON” on September 25, 2001, and for “ON A BAMBOO TRAY” and “ROASTED PIG DEVICE” on October 1, 2001. On October 2, 2001, respondent sent a cease-and-desist letter, which petitioner ignored. Certificates of Registration were subsequently issued by the IPO: for “ON A BAMBOO TRAY” on February 10, 2005; for “ELARS LECHON” on April 28, 2006; and for “ROASTED PIG DEVICE” on October 2, 2006. All were valid for ten years and were later renewed.

• Proceedings before the IPO: Respondent filed three complaints for unfair competition and intellectual property rights violation, which were consolidated. Petitioner argued that the Estate of the spouses Lontoc owned the marks because the spouses created them for the Lontoc-Rodriguez clan, not solely for respondent. The BLA Director dismissed the complaints on August 8, 2005, holding that ownership vested in the spouses by prior commercial use under Section 2-A of R.A. No. 166; that respondent had at most a usufruct; and that the real party-in-interest was the Estate. The Director further noted that the absence of a written assignment meant goodwill accrued to the Estate, and the BLA lacked probate jurisdiction. Respondent appealed to the Director General.

• Director General’s Reversal: On December 20, 2013, IPO Director General Blancaflor reversed the BLA. He found that the spouses transferred ownership of the marks to respondent upon incorporation, as they acted to make respondent the repository of their legacy. The absence of a written assignment was not fatal because the marks were unregistered at the time of transfer; under Articles 1624 and 1475 of the Civil Code, assignment of incorporeal rights is perfected by mere consent. The Director General held petitioner liable for unfair competition (pre-registration) and trademark infringement (post-registration) and awarded moral damages (₱500,000), exemplary damages (₱400,000), attorney’s fees (₱500,000), and costs. However, the dispositive portion did not expressly order petitioner to cease and desist.

• CA Ruling: The CA affirmed with modification. It applied the dominancy test and held that “ELARZ LECHON” and “ELAR LECHON” were confusingly similar to “ELARS LECHON” and used on identical goods (lechon), creating a likelihood of confusion. Petitioner’s use of identical product presentation without a disclaimer constituted unfair competition. The CA deleted moral damages because respondent, as an artificial being, cannot suffer mental anguish, but retained exemplary damages and attorney’s fees.

• Ownership by the Estate: Petitioner maintained that the rightful owner of the marks “ELARS LECHON,” “ROASTED PIG DEVICE,” and “ON A BAMBOO TRAY” was the Estate of spouses Lontoc. The marks were created by the spouses for the exclusive use of the Lontoc-Rodriguez clan, not for any single corporation. Through succession, Manuel Enrique Zalamea (President of petitioner), Manuel Jose Zalamea, and other heirs are co-owners of the marks.

• Lack of Valid Assignment and Real Party-in-Interest: Petitioner asserted that respondent was not the real party-in-interest to file the complaint. No valid assignment of the subject marks had been made in favor of respondent; absent a written assignment, any goodwill generated by the marks accrued to the Estate. Respondent was merely a business conduit or alter ego without proprietary rights.

• Improper Damages: Petitioner contended that the award of exemplary damages and attorney’s fees lacked factual and legal basis. Petitioner’s officers, as heirs of the Lontocs, inherited the right to use the marks and did not act in a wanton, fraudulent, oppressive, or malevolent manner; thus, there was no deliberate intent to commit unfair competition.

• Ownership by Registration and Prior Use: Respondent countered that it was the legal owner of the marks. Pursuant to Section 236 of R.A. No. 8293 in relation to Section 2 of R.A. No. 166, respondent acquired vested legal rights. Upon incorporation in 1989, the spouses tacitly transferred ownership of ELARS Lechon and the subject marks to respondent, which thereafter continuously used the marks under the spouses’ direct management. The IPO’s issuance of Certificates of Registration confirmed respondent’s ownership, precluding the heirs from using identical or similar marks without authority.

• Public Recognition and Investment: Respondent argued that it invested time and money promoting “ELARS LECHON ON A BAMBOO TRAY,” which gained notoriety as “ELAR’S LECHON.” The spouses’ overt acts — incorporating respondent, actively managing it, and representing ELARS Lechon to the public as respondent’s business — established that the brand was transferred to respondent.

• Bad Faith and Entitlement to Damages: Respondent stressed that petitioner’s officers were former trusted employees who acquired confidential information. Incorporating petitioner to engage in the same business on the same street, soliciting franchises under the pretense of being the original “ELARS LECHON,” and using substantially identical marks constituted fraudulent and oppressive conduct justifying exemplary damages, attorney’s fees, and costs.

• Ownership of the Marks: Whether the respondent or the Estate of spouses Lontoc is the lawful owner of the trademarks “ELARS LECHON,” “ROASTED PIG DEVICE,” and “ON A BAMBOO TRAY.”

• Unfair Competition: Whether petitioner’s use of “ELARZ LECHON,” “ELAR LECHON,” “PIG DEVICE,” and “ON A BAMBOO TRAY” constitutes unfair competition.

• Damages: Whether the award of exemplary damages and attorney’s fees was proper.

• Injunction: Whether petitioner should be ordered to cease and desist from using the subject marks.

• Ownership of the Marks: Ownership of the marks was vested in respondent, not the Estate. Under the current Intellectual Property Code (R.A. No. 8293), ownership of a mark is acquired through valid registration — not prior use. Respondent filed the applications and was issued Certificates of Registration, which carry a presumption of validity, ownership, and the exclusive right to use. Even before registration, under the prior law (R.A. No. 166, Section 2-A), respondent’s continuous use since 1989 confirmed its ownership. The spouses, by incorporating respondent, actively managing it, and publicly representing ELARS Lechon as respondent’s business, transferred ownership of the marks to respondent. The absence of a written assignment did not negate the transfer because the marks were unregistered at the time; under Articles 1624 and 1475 of the Civil Code, the assignment of incorporeal rights like an unregistered mark is perfected by mere consent. Jose Lontoc’s own letter on respondent’s letterhead confirmed the transfer. Petitioner’s admission that respondent was an alter ego of the spouses reinforced the identity of rights.

• Unfair Competition: Petitioner’s use of “ELARZ LECHON,” “ELAR LECHON,” “PIG DEVICE,” and “ON A BAMBOO TRAY” constituted unfair competition under Section 168 of the IP Code. Applying the dominancy test, the marks used by petitioner were confusingly similar to respondent’s registered marks. Both used the dominant word “ELAR,” differed only in final letters (Z vs. S) that sound alike when pronounced, and were used on identical goods (lechon). Petitioner clothed its goods with the general appearance of respondent’s products and issued no notice distinguishing its products, evidencing a clear intent to deceive the public.

• Damages: Exemplary damages of ₱400,000 and attorney’s fees of ₱500,000 were proper. Exemplary damages may be imposed when the defendant deliberately engaged in unfair competition, as here, where petitioner’s officers were former employees who knew the marks belonged to respondent. The award serves as an example for the public good and enhances intellectual property protection. Attorney’s fees were justified under Article 2208(1) of the Civil Code because exemplary damages were awarded, and respondent was compelled to litigate to protect its rights. Moral damages were correctly deleted by the CA because respondent is a corporation incapable of mental anguish.

• Injunction: Although both the IPO Director General and the CA found petitioner liable for unfair competition, neither expressly ordered a cease-and-desist. To afford full relief under Section 156.4 of the IP Code, petitioner was ordered to cease and desist from using the marks “ELARZ LECHON,” “ELAR LECHON,” “PIG DEVICE,” and “ON A BAMBOO TRAY.”

• Acquisition of Trademark Ownership under the IP Code — Under Section 122 of R.A. No. 8293, rights in a mark are acquired through registration validly made in accordance with the law. Prior use no longer determines ownership; the first-to-file rule prevails. The registrant enjoys a presumption of validity, ownership, and exclusive right to use the mark. Here, respondent’s Certificates of Registration were conclusive proof of ownership, which petitioner failed to rebut.

• Assignment of Unregistered Marks — A trademark, even if unregistered, is an incorporeal right that may be transferred without a written assignment. Under Articles 1624 and 1475 of the Civil Code, the assignment of incorporeal rights is perfected by mere consent. The overt acts of the transferor — incorporation of the business, active management, public representations — may establish the transfer. The absence of a written assignment is not fatal when the mark was neither registered nor the subject of a pending application at the time of transfer.

• Dominancy Test in Trademark Infringement and Unfair Competition — Likelihood of confusion is determined by focusing on the similarity of the prevalent or dominant features of competing marks that might cause confusion, mistake, or deception. Greater weight is given to aural and visual impressions; minor differences are disregarded. Confusion may be of goods (product confusion) or of business (source or origin confusion). In this case, the dominant word “ELAR,” coupled with phonetic similarity (Z and S), on identical goods (lechon), created a high likelihood of confusion.

• Unfair Competition under Section 168, IP Code — Unfair competition arises when a person employs deception or means contrary to good faith to pass off his goods or business as those of another who has established goodwill. Specifically, giving goods the general appearance of another’s goods through packaging, devices, words, or other features likely to deceive the public constitutes unfair competition. The absence of a disclaimer distinguishing the source reinforces the intent to deceive.

• Exemplary Damages in Unfair Competition — Exemplary damages may be awarded when the party deliberately engaged in unfair competition, to provide an example for the public good, enhance protection of intellectual property, and deter similar acts. Knowledge of the complainant’s prior and continuous use of the marks, especially by former employees, establishes bad faith.

• “Once the IP Code took effect, however, the general rule on ownership was changed and repealed. At present, as expressed in the language of the provisions of the IP Code, prior use no longer determines the acquisition of ownership of a mark in light of the adoption of the rule that ownership of a mark is acquired through registration made validly in accordance with the provisions of the IP Code.” — This passage articulates the fundamental shift in Philippine trademark law from a prior-use to a registration-based system.

• “The Dominancy Test focuses on the similarity of the prevalent or dominant features of the competing trademarks that might cause confusion, mistake, and deception in the mind of the purchasing public. Duplication or imitation is not necessary; neither is it required that the mark sought to be registered suggests an effort to imitate. Given more consideration are the aural and visual impressions created by the marks on the buyers of goods, giving little weight to factors like prices, quality, sales outlets, and market segments.” — This defines the standard applied to assess confusing similarity.

• “Notably, this lacuna was filled by IPO Director General Blancaflor who explained that the fact of the transfer may not be disproven by the absence of a written assignment. A trademark, like any incorporeal right may be disposed of not only by way of formal assignment.” — This underscores the principle that an unregistered mark can be transferred by informal means, including overt conduct.

• Zuneca Pharmaceutical, et al. v. Natrapharm, Inc., G.R. No. 211850, September 8, 2020 — Exhaustively traced the evolution of trademark ownership from the Spanish Royal Decree to the IP Code, establishing that registration, not prior use, is the current rule. Followed as controlling.

• UFC Philippines, Inc. v. Barrio Fiesta Manufacturing Corporation, 778 Phil. 763 (2016) — Defined the two types of confusion (product confusion and source/origin confusion) and the dominancy and holistic tests for likelihood of confusion. Cited as the framework for the confusion analysis.

• Wilton Dy and/or Philites Electronics & Lighting Products v. Koninklijke Philips Electronics. N. V., 807 Phil. 819 (2017) — Applied the dominancy test to find “PHILITES” confusingly similar to “PHILIPS.” Used as an illustration of the test’s application.

• McDonald’s Corp. v. L.C. Big Mak Burger, Inc., 840 Phil. 402 (2004) — Applied the dominancy test to “Big Mak” and “Big Mac,” focusing on aural and visual similarity. Cited for the rule that minor spelling differences do not avoid confusion.

• In-N-Out Burger, Inc. v. Sehwani Incorporated and/or Benita’s Frites, Inc., 595 Phil. 1119 (2008) — Held that exemplary damages may be imposed when unfair competition is deliberate, to serve as an example for the public good. Applied to justify the award of exemplary damages.

• Asia Pacific Resources International Holdings, Ltd. v. Paperone, Inc., G.R. Nos. 213365-66, December 10, 2018 — Affirmed the BLA and IPO Director General’s order to cease and desist from using complainant’s marks in an unfair competition case. Used to support the issuance of a permanent injunction.

• Section 122, R.A. No. 8293 (Intellectual Property Code) — “Rights in a mark shall be acquired through registration made validly in accordance with the provisions of this law.” This provision overrides the prior use rule; applied to hold that respondent acquired ownership upon registration.

• Section 147.1, R.A. No. 8293 — Grants the owner of a registered mark the exclusive right to prevent third parties from using identical or similar signs for identical or similar goods where such use would result in a likelihood of confusion. Supported the finding of infringement post-registration.

• Section 168, R.A. No. 8293 — Defines unfair competition as the employment of deception or means contrary to good faith to pass off goods or services as those of another who has established goodwill, and enumerates specific acts (including clothing goods with the appearance of another’s). Served as the statutory basis for the liability for unfair competition.

• Section 156.4, R.A. No. 8293 — Provides that the complainant, upon proper showing, may be granted an injunction. Used to order the cease-and-desist remedy that lower tribunals omitted.

• Section 2-A, R.A. No. 166 (Trademark Law) — Provided that ownership of a trademark is acquired by actual use. Although superseded by the IP Code, it confirmed respondent’s ownership during the period before the new law took effect.

• Articles 1624 and 1475, Civil Code — An assignment of incorporeal rights is perfected under the rules on sale, i.e., by mere consent upon meeting of the minds. Applied to validate the transfer of the unregistered marks from the spouses to respondent despite the absence of a written instrument.

• Article 2208(1), Civil Code — Allows recovery of attorney’s fees when exemplary damages are awarded. Justified the award of ₱500,000.00 as attorney’s fees.

Peralta, C.J., Caguioa, Carandang, and Zalameda, JJ., concurred.