Forietrans Manufacturing Corp. vs. Davidoff Et. Cie SA

The Secretary of Justice commits grave abuse of discretion when, during preliminary investigation, he assumes the function of a trial judge by calibrating evidence and making factual determinations on the existence or non-existence of elements of a crime or the credibility of evidence, instead of merely determining whether prima facie evidence exists to support a finding of probable cause; courts may intervene in such executive determinations when the abuse is so patent and gross as to amount to an evasion of positive duty or a virtual refusal to perform a duty enjoined by law.

Respondents Davidoff Et. Cie SA (a Swiss corporation) and Japan Tobacco, Inc. (a Japanese corporation), holders of registered trademarks for DAVIDOFF and MILD SEVEN cigarettes, engaged Business Profiles, Inc. as their private investigator in the Philippines to monitor counterfeit products. BPI reported that petitioner Forietrans Manufacturing Corporation, a domestic corporation operating within the Angeles Industrial Park Special Economic Zone in Bacolor, Pampanga, was manufacturing and storing counterfeit cigarettes bearing colorable imitations of respondents' registered trademarks. Acting on this report, the Criminal Investigation and Detection Group of the Philippine National Police applied for and obtained search warrants, conducted raids on FMC's warehouses in August 2004, and seized cigarettes bearing the marks "DAGETA," "DAGETA International," and allegedly "MILD SEVEN," along with manufacturing equipment.

• Business Profiles, Inc. reported to respondents that counterfeit Davidoff and JTI products were being manufactured and stored in petitioner Forietrans Manufacturing Corporation's warehouses located at Lots 5 and 7, Angeles Industrial Park, Special Economic Zone, Barangay Calibutbut, Bacolor, Pampanga.
• On August 4, 2004, PSI Joel L. De Mesa of the CIDG filed four applications for search warrants before the Regional Trial Court of San Fernando, Pampanga, alleging that FMC stored counterfeit cigarettes bearing the name "DAGETA International" purported to be made in Germany, and the name "DAGETA" which was confusingly similar to the Davidoff trademark.
• The RTC granted the applications and issued Search Warrant Nos. 044, 045, 046, and 047, which were implemented on the same day by CIDG officers, resulting in the seizure of boxes containing raw tobacco, cigarettes, packs, and reams bearing the name DAGETA and DAGETA International, as well as machineries, receptacles, paraphernalia, sales invoices, and official receipts.
• On August 5, 2004, PSI Renato Bangayan filed an application for another search warrant regarding counterfeit cigarettes bearing JTI's MILD SEVEN trademark, resulting in the issuance of SW No. 048 and the seizure of cigarettes bearing the MILD SEVEN trademark and manufacturing machines.
• Three criminal complaints were filed before the Office of the Provincial Prosecutor of Pampanga: (1) I.S. No. OCPSF-04-H-2047 for infringement of the Davidoff trademark under Section 155 of the IP Code; (2) I.S. No. OCPSF-04-H-2048 for false designation of origin under Section 169 of the IP Code for cigarettes labeled "Made in Germany" but allegedly manufactured in Pampanga; and (3) I.S. No. OCPSF-04-H-2226 for infringement of JTI's Mild Seven trademarks.
• Petitioner Agerico Calaquian, FMC president, denied the charges, claiming the seized items were genuine Dageta cigarettes imported from Germany for re-export to Taiwan and China, and that FMC was a PEZA-registered eco-zone export enterprise authorized by the National Tobacco Administration to purchase, import, and export tobacco.
• Second Assistant Provincial Prosecutor Otto B. Macabulos issued a Joint Resolution dated September 12, 2005, dismissing the complaints for lack of probable cause, finding the affidavit of the informant insufficient and noting no confusing similarity between "Davidoff" and "Dageta," and observing that the Joint Affidavit of Arrest/Seizure did not mention Mild Seven cigarettes.
• Secretary of Justice Raul M. Gonzalez affirmed the dismissal in a Resolution dated February 10, 2006, holding that the difference in names between Davidoff and Dageta belied confusing similarity, that respondents failed to establish the falsity of the "Made in Germany" claim, and that no Mild Seven cigarettes were actually seized as evidenced by the absence of such items in the Joint Affidavit of Arrest/Seizure.

• The Court of Appeals erred in interfering with the valid exercise by the Provincial Prosecutor and Secretary of Justice of their executive power to determine the existence or non-existence of probable cause in a preliminary investigation, violating the doctrine of separation of powers.
• Respondents failed to present any proof showing probable cause to indict petitioners for the crimes of trademark infringement and false designation of origin, and no court can order the prosecution of a person against whom the prosecutor does not find sufficient evidence to support at least a prima facie case.
• The Secretary of Justice correctly dismissed the complaints based on insufficiency of evidence, as there was no proof that FMC manufactured counterfeit Davidoff or Mild Seven cigarettes, and the differences between the names "Davidoff" and "Dageta" negated confusing similarity.
• Prosecutor Macabulos properly found that the evidence presented for the issuance of search warrants was insufficient, and the Secretary of Justice correctly affirmed this finding.

• The petition should be dismissed for failure to show any special and important reason for the Supreme Court to exercise its power of review, constituting a mere rehash of arguments previously raised before the Court of Appeals.
• The Court of Appeals correctly reversed the Secretary of Justice who acted with grave abuse of discretion by completely disregarding evidence attached to the criminal complaints and wrongfully assuming the function of a trial judge in passing upon factual or evidentiary matters which are best decided after a full-blown trial on the merits.
• The Secretary of Justice made factual determinations regarding the existence of elements of the crimes and the credibility of evidence, which is evidentiary in nature and should be ventilated during trial proper rather than at the preliminary investigation level.
• The evidence on record established prima facie cases for trademark infringement and false designation of origin, and the Secretary of Justice should have found probable cause to file the corresponding informations.

• Procedural Issues: N/A
• Substantive Issues:
  • Whether the Court of Appeals erred in ruling that the Secretary of Justice committed grave abuse of discretion in finding no probable cause to charge petitioners with trademark infringement under Section 155 of the Intellectual Property Code.
  • Whether the Court of Appeals erred in ruling that the Secretary of Justice committed grave abuse of discretion in finding no probable cause to charge petitioners with false designation of origin under Section 169 of the Intellectual Property Code.

• Procedural: N/A
• Substantive:
  • The Supreme Court denied the petition and affirmed the Court of Appeals' Decision dated March 31, 2011 and Resolution dated July 5, 2011, holding that the Secretary of Justice committed grave abuse of discretion in dismissing the criminal complaints.
  • The Court distinguished between probable cause for the issuance of search warrants (a judicial function) and probable cause for the filing of criminal cases (an executive function), noting that Prosecutor Macabulos confused the two by reviewing the validity of the search warrants rather than evaluating the evidence presented during preliminary investigation.
  • The Court held that the determination of probable cause requires only prima facie evidence sufficient to engender a well-founded belief that a crime has been committed, not sufficient evidence to procure conviction, and that the Secretary of Justice erred by weighing evidence and making factual determinations regarding confusing similarity and the seizure of Mild Seven cigarettes—matters properly reserved for trial courts.
  • For the Davidoff infringement case, the Court found prima facie evidence of confusing similarity based on the packaging similarities between Davidoff and Dageta cigarettes (octagonal design, black and red covering, silver tear tape, similar wording), despite the difference in names, applying the doctrine that infringers make colorable changes to confuse the public while confusing courts.
  • For the JTI infringement case, the Court held that whether Mild Seven cigarettes were actually seized is an evidentiary matter best resolved during trial, and the Secretary of Justice improperly passed upon the credibility of the evidence and the existence of elements of the crime.
  • For the false designation of origin case, the Court found that the presence of manufacturing machines and cigarettes labeled "Made in Germany" seized from FMC's warehouse in the Philippines constituted sufficient prima facie evidence to excite the belief that petitioners were manufacturing cigarettes locally but misrepresenting their origin.

• Probable Cause — Defined as such facts as are sufficient to engender a well-founded belief that a crime has been committed and that the respondent is probably guilty thereof; it does not require an inquiry into whether there is sufficient evidence to procure conviction, but only prima facie evidence or that which is sufficient on its face to establish a given fact. Applied to emphasize that preliminary investigation requires only a determination of whether sufficient basis exists for filing a criminal information, not a full calibration of evidence.
• Separation of Powers and Non-Interference with Executive Determination of Probable Cause — Courts generally adopt a policy of non-interference with the executive determination of probable cause by the Secretary of Justice under the doctrine of separation of powers, but may intervene when there is a clear case of grave abuse of discretion.
• Grave Abuse of Discretion — Defined as a capricious and whimsical exercise of judgment equivalent to lack of jurisdiction, or an arbitrary or despotic manner of exercising power by reason of passion or personal hostility, patent and gross enough to amount to an evasion of positive duty or virtual refusal to perform a duty enjoined by law. Applied to find that the Secretary of Justice committed grave abuse by disregarding evidence and making factual determinations proper for trial courts.
• Likelihood of Confusion in Trademark Infringement — The essential element of infringement under Section 155 of the IP Code is that the infringing mark is likely to cause confusion. Applied to find that similarities in packaging (despite differences in names) can constitute prima facie evidence of confusing similarity.
• Colorable Imitation — Defendants in infringement cases do not normally copy but only make colorable changes, employing enough points of similarity to confuse the public with enough points of difference to confuse courts. Applied to analyze the similarities between Davidoff and Dageta packaging.
• Evidentiary Matters in Preliminary Investigation — The validity and merits of a party's defense or accusation, as well as the admissibility of testimonies and evidence, are better ventilated during trial proper than at the preliminary investigation level. Applied to hold that the Secretary of Justice should not have passed upon whether Mild Seven cigarettes were actually seized or whether the "Made in Germany" designation was false, as these require full-blown trial.

• "The most successful form of copying is to employ enough points of similarity to confuse the public, with enough points of difference to confuse the courts." — Cited from Del Monte Corporation v. Court of Appeals to describe the nature of trademark infringement and colorable imitation.
• "The determination of probable cause by the judge should not be confused with the determination of probable cause by the prosecutor. The first is made by the judge to ascertain whether a warrant of arrest should be issued against the accused, or for purposes of this case, whether a search warrant should be issued. The second is made by the prosecutor during preliminary investigation to determine whether a criminal case should be filed in court." — Emphasizing the distinction between judicial and executive determinations of probable cause.
• "The Secretary of Justice is not in a competent position to pass judgment on substantive matters. The bases of a part[ie]'s accusation and defenses are better ventilated at the trial proper than at the preliminary investigation." — Establishing the limited scope of preliminary investigation.
• "Probable cause, for purposes of filing a criminal action, is defined as such facts as are sufficient to engender a well-founded belief that a crime has been committed and that respondent is probably guilty thereof. It does not require an inquiry into whether there is sufficient evidence to procure conviction." — Defining the quantum of evidence required for filing criminal informations.

• Unilever Philippines, Inc. v. Tan — Cited as controlling precedent that the dismissal of a complaint by the Secretary of Justice despite ample evidence to support a finding of probable cause constitutes grave error and warrants judicial intervention and correction.
• Metropolitan Bank & Trust Co. v. Gonzales — Cited for the principle that the Secretary of Justice commits grave abuse of discretion when he assumes the function of a trial judge in calibrating evidence on record, which should be done only after a full-blown trial on the merits.
• Del Monte Corporation v. Court of Appeals — Cited for the observation that defendants in infringement cases do not normally copy but only make colorable changes to confuse the public while confusing courts.
• Skechers, U.S.A., Inc. v. Inter Pacific Industrial Trading Corp. — Cited for the definition of the essential element of trademark infringement as the likelihood of causing confusion.
• Sy v. Secretary of Justice — Cited for the definition of probable cause as facts sufficient to engender a well-founded belief that a crime has been committed.
• Miller v. Perez — Cited for the definition of prima facie evidence as that which is on its face good and sufficient to establish a given fact.
• Mendoza v. People — Cited for the distinction between probable cause for search warrants (judicial function) and probable cause for filing criminal cases (executive function).

• Republic Act No. 8293 (Intellectual Property Code of the Philippines), Section 155 — Defines trademark infringement as the use in commerce of any reproduction, counterfeit, copy, or colorable imitation of a registered mark likely to cause confusion, or the application of such marks to labels, signs, packages, wrappers, receptacles, or advertisements intended to be used in commerce.
• Republic Act No. 8293, Section 169 — Defines false designation of origin as the use of any word, term, name, symbol, or device likely to cause confusion as to the affiliation, connection, or association of a person with another person, or as to the origin, sponsorship, or approval of goods or services, or misrepresenting the nature, characteristics, qualities, or geographic origin of goods or services.
• Republic Act No. 8293, Section 170 — Provides for criminal penalties for infringement and false designation of origin.