Lim and Paland vs. See

The first-to-file rule in trademark registration does not apply when the registration was obtained in bad faith—i.e., when the applicant or registrant had knowledge of prior creation, use, or registration by another of an identical or similar trademark—rendering the registration void and incapable of transmitting ownership rights.

Gerd Paland is the President of Gerd Paland Solingen, a manufacturer of nipper products based in Solingen, Germany, and claims ownership of the contested marks through his company and its predecessor entities, Gunter Schirndig Solingen and SchiSo-Cutlery, G. Schirnding GmbH & Co., which had manufactured and distributed nipper products for over fifty years. Edmond Lim is the President of Mondes International Beauty Products, the exclusive Philippine distributor of nippers, scissors, nail cutters, and cutlery bearing Paland's marks. Catalina See is the proprietor of Lena's Enterprises, a sole proprietorship engaged in the wholesale of general merchandise including nipper products, and is the assignee of trademark applications originally filed by Chai Seng Ang, who had supplied nipper products to See's father at the Nightingale Bazaar in Quiapo, Manila. The dispute concerns six trademark applications filed by Ang on March 20, 2000, covering marks used on nippers, scissors, nail cutters, cutlery, files, spoons, forks, and knives, which Lim and Paland opposed on the ground that the marks belonged to Paland and Ang was merely an importer or distributor.

On March 20, 2000, Chai Seng Ang filed six applications for trademark registration with the Intellectual Property Office covering the marks "CROWN DEVICE," "JOWIKA & DEVICE," "SCHISO & DEVICE," "DEVICE MARK," "CROWN," and "ORO & DEVICE," all used to designate nippers, scissors, nail cutters, cutlery, files, spoons, and knives. On February 26, 2003, Ang executed Assignments of Trademark dated March 22, 2000, transferring the subject applications in favor of Catalina See, and on the same day, See filed Declarations of Actual Use for the subject applications.

Sometime in 2004, Edmond Lim learned that See was in the process of registering the subject marks. Lim, as President of Mondes International Beauty Products, was the exclusive Philippine distributor of nipper products bearing the contested marks, which were owned and manufactured by Gerd Paland through his company, Gerd Paland Solingen, based in Solingen, Germany. Paland claimed that Gerd Paland Solingen and its predecessor companies—Gunter Schirndig Solingen and SchiSo-Cutlery, G. Schirnding GmbH & Co.—had been manufacturing and distributing nipper products for over fifty years, owning and using the "SCHISO AND DEVICE" mark since 1970 and the marks "CROWN," "ORO," "JOWIKA," and "STORK" since 1974. When SchiSo-Cutlery was dissolved in 2002, Paland continued the business under Gerd Paland Solingen. According to Paland, nipper products bearing the subject marks had been distributed worldwide, including in the Philippines, since January 1985 through various distributors such as Aaron Bros & Company, Trademan Commercial Inc., Wha An Trading & Co., Inc., Tong Tah Trading Enterprise in Singapore, and Joint Venture SLEC in Hong Kong. Paland obtained registration of the subject marks in Germany between June and October 2004.

On October 26, 2004, Lim and Paland filed a verified Opposition with the IPO Bureau of Legal Affairs, contending that the marks See sought to register were identical to marks owned and used by Paland, and that the packaging See used was likewise identical to Paland's, including the use of the words "Solingen" and "Germany." They submitted affidavits, an exclusive distributorship agreement, authenticated German certificates of registration, photographs of products and packaging, special powers of attorney, sales and delivery invoices covering shipments to various countries including the Philippines, and a certified copy of the Articles of Partnership of Aaron Bros. and Company.

For her part, See claimed to be the proprietor of Lena's Enterprises, a sole proprietorship established on July 1, 1981, engaged in the wholesale of general merchandise including nipper products bearing the brands "JOWIKA," "ORO," "CROWN," "CROWN DEVICE," "STORK," and "SCHISO and DEVICE." She testified that as early as 1968, when she was eight years old, she saw these brands being sold at the Nightingale Bazaar in Quiapo, Manila, a store owned by her grandfather and managed by her father, Joaquin Siy. According to See, her father told her that he and Ang had given or supplied the marks to the nipper products, and instructed her to take care of the brands because they were their family's. After her father's death on October 10, 1981, Lena's Enterprises continued ordering nipper products from Ang. See claimed that the sale of nippers bearing the subject marks proceeded smoothly until 1999, when she received complaints about counterfeit products, which prompted Ang to apply for registration. In recognition of the financial support Ang received from See's father and Lena's Enterprises, Ang voluntarily assigned the trademark applications to See in 2000. Two witnesses corroborated See's testimony: Se Ye Sze, a former store assistant at the Nightingale Bazaar, testified that the bazaar had sold nippers using the subject trademarks since 1963, and Sheila Siy testified that she found through an internet search that the subject marks were not listed on Gerd Paland Solingen's website.

The Bureau of Legal Affairs, in its December 22, 2006 decisions, granted the opposition for SCHISO & DEVICE but denied the oppositions against the other marks, giving credence to See's testimony of prior adoption and use and finding no distributorship agreement between Gerd Paland Solingen and Ang. On appeal, the Office of the Director General reversed the BLA, finding that nothing in the records established Ang's ownership of the marks, noting the disparity between See's testimony of use since 1963 and her sworn declaration of first use in 1978, and concluding that Paland was the manufacturer, producer, source, and origin of the products. The Court of Appeals then reversed the ODG, reinstating the BLA decisions on the ground that See, as the first to apply, was in a better position to register under the first-to-file principle, and that Paland had failed to prove his connection to the alleged predecessor companies. Lim and Paland's motion for reconsideration was denied, giving rise to the present petition.

• Self-Serving and Hearsay Evidence: Petitioners maintained that the BLA erred in giving credence to See's self-serving allegations regarding the prior adoption and use of the subject marks by her predecessors, arguing that See resorted to hearsay testimony and submitted documents that did not prove her predecessors used the subject marks as owners.
• Ang's Lack of Ownership: Petitioners argued that Ang was a mere importer or distributor of products bearing the subject trademarks manufactured by Paland and his predecessor companies, and therefore possessed no right to register the trademarks in his name, nor could See as Ang's assignee.
• No Commissioning Arrangement: Petitioners asserted that there was no proof whatsoever that See or her predecessors commissioned Paland or his predecessor companies to manufacture products with instructions to attach the subject marks.
• Verification Compliance: Petitioners contended that verification was substantially complied with through Lim's signature, given the alignment of Lim's and Paland's interests in the outcome of the case.

• First-to-File Rule: Respondent argued that since ownership of trademarks is acquired through registration, See, being the first to apply for registration of the marks by virtue of being Ang's assignee, was by law in a better position to acquire ownership and registration of the trademarks.
• Prior Adoption and Use: Respondent claimed that she and her predecessors had adopted and used the subject marks as owners, not as mere importers or distributors, citing the sale of nippers bearing the marks at the Nightingale Bazaar as early as 1963.
• Insufficient Proof of Paland's Connection: Respondent argued that Paland failed to provide evidence proving his connection to Gerd Paland Solingen's alleged predecessor companies or the transfer or assignment of ownership rights from those companies to Paland.
• Invoices as Mere Delivery Proof: Respondent contended that the sales and delivery invoices merely proved delivery of nippers ordered by Ang and did not establish Paland's ownership of the subject trademarks.
• Verification Defect: Respondent argued that Lim's signature on the verification was insufficient because it was Paland, not Lim, who claimed to be the owner of the subject trademarks.

• Verification: Whether the verification signed only by Lim, and not by Paland, constitutes substantial compliance with the requirement under Rule 45 of the Rules of Court.
• Entitlement to Trademark Registration: Whether Catalina See is entitled to register the subject trademarks in accordance with the provisions of the Intellectual Property Code of the Philippines, notwithstanding the claim that Ang was a mere importer or distributor who registered the marks in bad faith.

• Verification: Yes. Verification is deemed substantially complied with when one who has ample knowledge to swear to the truth of the allegations in the petition signs it, and Lim was in such a position given the alignment of his and Paland's interests.
• Entitlement to Trademark Registration: No. See is not entitled to register the subject trademarks because Ang, her predecessor, registered the marks in bad faith, knowing they were created and used by another, rendering the registration void and incapable of transmitting ownership rights.

• Verification: The purpose of verification is to secure an assurance that the allegations in the petition are true and correct and made in good faith. Verification is deemed substantially complied with when one who has ample knowledge to swear to the truth of the allegations signs the verification. Considering that Lim is the exclusive Philippine distributor of Paland's products and that his interests are aligned with Paland's in the outcome of the case, Lim was clearly in a position to provide the requisite assurance. The Court therefore found substantial compliance with the verification requirement under Rule 45.

• Entitlement to Trademark Registration: Under Section 122 of the Intellectual Property Code, rights in a mark are acquired through registration made validly in accordance with the law. While the first-to-file rule generally affords the first registrant all rights in a mark, this rule is not absolute: registration must be made in good faith. Citing Zuneca Pharmaceutical vs. Natrapharm, Inc. and Emzee Foods, Inc. vs. Elarfoods, Inc., the Court reiterated that the lawful owner of a mark is the person who first registers it in good faith, and that a registration obtained in bad faith or contrary to the provisions of the Intellectual Property Code is void. Bad faith in trademark registration means the applicant or registrant has knowledge of prior creation, use, or registration by another of an identical or similar trademark.

  Applying this standard, the Court found that Ang acted in bad faith. First, nothing in the evidence presented by See established Ang's ownership of the subject marks; See's entire claim rested on hearsay and self-serving statements drawn from recollections at age eight, with no documentary evidence tracing Ang's connection to the trademarks. Second, the sales and delivery invoices submitted by Lim and Paland demonstrated that products bearing the subject marks were delivered and sold through various distribution channels in the Philippines and abroad for over a decade, unrefuted by See, indicating that Ang was but one of several distributors rather than the exclusive owner. Third, See admitted during cross-examination that SCHISO & DEVICE did not belong to her father, yet proceeded with its application—a clear example of trademark squatting that illuminated her attitude toward the other marks as well. Fourth, Paland adequately established his connection to the predecessor companies through his testimony, the sales and delivery invoices bearing his name in the footer, and his German certificates of registration. Because See bore the burden of proving ownership in the opposition proceedings and failed to do so on the strength of her own evidence, the Court concluded that the registrations were void for bad faith and the first-to-file rule could not shield them.

• First-to-File Rule Not Absolute — While ownership of a trademark is acquired through registration made validly in accordance with the Intellectual Property Code, the first-to-file rule does not apply when the registration was obtained in bad faith. A registrant who had knowledge of prior creation, use, or registration of an identical or similar mark by another is a registrant in bad faith, and the resulting registration is void, transmitting no ownership rights. The Court applied this doctrine by finding that Ang knew the marks belonged to Paland and his predecessor companies, rendering See's registrations void ab initio.

• Bad Faith in Trademark Registration — Bad faith means that the applicant or registrant has knowledge of prior creation, use, or registration by another of an identical or similar trademark; in other words, it is copying and using somebody else's trademark. Fraud may be committed by making false claims in connection with the trademark application and registration, particularly on issues of origin, ownership, and use. The Court found Ang and See acted in bad faith because Ang knew he was not the creator of the marks and See continued the applications despite admitting SCHISO & DEVICE belonged to another.

• Trademark Squatting — Trademark squatting occurs when a party registers another's trademark as their own in a jurisdiction where the original trademark owner has yet to register, in order to gain benefits from the original marks or real trademark owners. The Court identified See's conduct as an example of trademark squatting, noting that she gambled on getting ahead of the rightful owner in registering the subject marks.

• Burden of Proof in Opposition Proceedings — Where a trademark application is opposed, the respondent-applicant has the burden of proving ownership. The applicant must establish her claim of ownership on the strength of her own evidence and not on the perceived weakness of the oppositor's case. The Court applied this rule by holding that See should have presented solid proof of ownership but failed to do so.

• Prima Facie Nature of Certificate of Registration — Registration merely creates a prima facie presumption of the validity of the registration, of the registrant's ownership of the trademark, and of the exclusive right to the use thereof. Such presumption is rebuttable and must give way to evidence to the contrary, especially when the registration was done in bad faith.

• Substantial Compliance with Verification — Verification is deemed substantially complied with when one who has ample knowledge to swear to the truth of the allegations in the complaint or petition signs the verification, and when matters alleged have been made in good faith or are true and correct. The Court found substantial compliance where Lim, whose interests were aligned with Paland's, signed the verification.

• "The first-to-file rule does not apply if bad faith attended the trademark registration." — This passage states the controlling rule of the case: that the first-to-file principle cannot shield a registrant who obtained registration in bad faith.

• "Bad faith means that the applicant or registrant has knowledge of prior creation, use and/or registration by another of an identical or similar trademark. In other words, it is copying and using somebody else's trademark." — This is the canonical formulation of bad faith in trademark registration as adopted by the Court, drawn from Zuneca Pharmaceutical vs. Natrapharm, Inc., and is frequently cited in subsequent intellectual property jurisprudence.

• "a registration not in good faith is equivalent to no registration at all and hence, no ownership rights were transmitted." — This passage, quoted from Justice Perlas-Bernabe's concurring opinion in Zuneca, articulates the consequence of bad faith registration: the registration is void ab initio and incapable of conferring ownership.

• "See gambled on getting ahead of the rightful owner in registering the subject trademarks—a clear example of trademark squatting." — This characterization of See's conduct illustrates the Court's application of the trademark squatting doctrine to the facts, demonstrating how knowledge of another's prior rights negates good faith.

• Zuneca Pharmaceutical vs. Natrapharm, Inc., G.R. No. 211850, Sept. 8, 2020 — Controlling precedent. The Court relied on Zuneca to clarify that prior use no longer determines ownership of a mark and that ownership is acquired through valid registration in good faith. Zuneca established that bad faith registration is void and transmits no ownership rights. The present case was resolved in a manner consistent with Zuneca.

• Emzee Foods, Inc. vs. Elarfoods, Inc., G.R. No. 220558, Feb. 17, 2021 — Followed. Cited for the proposition, drawn from Zuneca, that the lawful owner of a mark is the person or entity who first registers it in good faith.

• Birkenstock Orthopaedie GmbH and Co. KG vs. Phil. Shoe Expo Marketing Corp., 721 Phil. 867 (2013) — Followed. Cited for the principle that the prima facie presumption created by a certificate of registration is rebuttable and must yield to evidence to the contrary.

• Mustang-Bekleidungswerke GmbH + Co. KG vs. Hung Chiu Ming — Cited through Zuneca for the definition of bad faith in trademark registration as knowledge of prior creation, use, or registration by another of an identical or similar trademark.

• Emerald Garment Manufacturing Corp. vs. CA, 321 Phil. 1001 (1995) — Cited for the principle that sales invoices provide the best proof of actual sales in the country and actual use of a trademark.

• Fernandez vs. Villegas, 741 Phil. 689 (2014) — Cited for the doctrine on substantial compliance with verification requirements.

• Section 121.1, Republic Act No. 8293 (Intellectual Property Code of the Philippines) — Defines "trademark" as "any visible sign capable of distinguishing the goods." The Court cited this provision to explain the function of a trademark in pointing out the origin or ownership of goods and protecting the manufacturer against substitution.

• Section 122, Republic Act No. 8293 — Provides that rights in a mark are acquired through registration made validly in accordance with the provisions of the law. The Court applied this provision as the statutory basis for the first-to-file rule, while clarifying that valid registration requires good faith.

• Section 134, Republic Act No. 8293 — Governs opposition proceedings, allowing any person who believes they would be damaged by the registration of a mark to file an opposition within thirty days after publication. The Court noted that opposition proceedings are essentially a review of trademark applications to determine compliance with registrability requirements.

• Section 151(b), Republic Act No. 8293 — Authorizes cancellation of a trademark registration at any time if the registration was obtained fraudulently or contrary to the provisions of the Act. The Court cited this provision to underscore that registration in bad faith renders the registration void.

• Rule 45, Rules of Court — Governs Petitions for Review on Certiorari before the Supreme Court, including the verification requirement. The Court found that Lim and Paland substantially complied with verification under this rule.

Leonen, SAJ. (Chairperson), Lazaro-Javier, Inting, and Kho, Jr., JJ., concurred.