Microsoft Corporation and Adobe Systems Incorporated vs. Samir Farajallah, et al.

A search warrant is validly issued where the applicant and his witnesses personally verified the confidential informant's tip, thereby satisfying the requirement of personal knowledge; and strict compliance with the three-day notice rule may be relaxed where the adverse party was given a reasonable opportunity to study and oppose the motion.

Microsoft Corporation and Adobe Systems Incorporated are corporations organized and existing under the laws of the United States, owners of all rights, including copyright, over their respective software products and, in Microsoft's case, the registered owner of the "Microsoft" and "MS DOS" trademarks in the Philippines. Samir Farajallah, Virgilio D.C. Herce, Rachel P. Follosco, Jesusito G. Morallos, and Ma. Geraldine S. Garcia are the directors and officers of New Fields (Asia Pacific), Inc., a domestic corporation with principal office at Unit 1603, East Tower, Philippine Stock Exchange Center, Exchange Road, Ortigas Center, Pasig City. The petitioners' software products are protected by copyright, and their alleged unauthorized reproduction and use by New Fields formed the subject of the investigation that gave rise to the search warrants at issue.

Microsoft Corporation and Adobe Systems Incorporated are corporations organized and existing under the laws of the United States, owners of all rights, including copyright, over all versions and editions of their respective software and the corresponding user's manuals; Microsoft is also the registered owner of the "Microsoft" and "MS DOS" trademarks in the Philippines. Samir Farajallah, Virgilio D.C. Herce, Rachel P. Follosco, Jesusito G. Morallos, and Ma. Geraldine S. Garcia are the directors and officers of New Fields (Asia Pacific), Inc., a domestic corporation with principal office at Unit 1603, East Tower, Philippine Stock Exchange Center, Exchange Road, Ortigas Center, Pasig City.

In September 2009, petitioners were informed that New Fields was unlawfully reproducing and using unlicensed versions of their software. Orion Support, Inc. (OSI) was engaged to assist in verifying the information, and two OSI market researchers, Norma L. Serrano and Michael A. Moradoz, both trained to detect unauthorized copies of Adobe and Microsoft software, were assigned to confirm the informant's tip. On 17 March 2010, counsel for petitioners filed a letter-complaint with the Chief of the Philippine National Police Criminal Investigation and Detection Group, and the case was assigned to Police Senior Inspector Ernesto V. Padilla.

On 26 March 2010, Padilla, Serrano, and Moradoz went to the office of respondents. Using a legitimate business pretext, they were able to use two computers owned by New Fields. The first computer yielded Microsoft Windows XP Pro (Product I.D. 55274-640-1582543-23775), Microsoft Office Word 2007 Enterprise Edition 2007 (Product I.D. 89388-707-0358973-65509), and Adobe Acrobat 8 Pro (1) (serial number 1118-1061-0904-4874-2027). The second computer yielded Microsoft Windows XP Pro (Product I.D. 55274-640-1582543-23442), Microsoft Office Word 2007 Enterprise Edition 2007 (Product I.D. 89388-707-0358973-65709), and Adobe Acrobat 8 Pro (1) (serial number 1118-1061-0904-4874-2027). Padilla, who had been trained to distinguish original from counterfeit software, saw the screens of the computers used by the OSI staff, including the product identification numbers of the installed software.

In their Joint Affidavit, Serrano and Moradoz stated that at least two computers were using common product identification and/or serial numbers of Microsoft and Adobe software, an indication that the software was unlicensed or had been illegally reproduced or copied. Based on their training, all Adobe and Microsoft software should only be installed in one computer unless an Open License Agreement was obtained from the software developer, which was not the case with New Fields. The first three sets of numbers of the Product I.D. numbers of the Microsoft Windows XP Pro operating system installed in the two computer units were the same — "55274-640-1582543-xxxxx" — as were the first three sets of numbers of the Product I.D. numbers of the Microsoft Office 2007 (Word) software — "89388-707-0358973-xxxxx" — signifying that New Fields used only one installer of each program on two computers; the last five digits differed because they are computer-generated and vary with every installation. The serial numbers of the Adobe software installed in the two computer units were likewise the same, signifying that only one installer of the Adobe software program was used on two computers. They also observed that New Fields had 90 computers with Microsoft software, none of which had the Certificate of Authenticity issued by Microsoft. After being informed of the results of the investigation, petitioners issued certifications that they had not authorized New Fields to copy, print, reproduce, and/or publish unauthorized copies of Microsoft and Adobe software products.

On 20 May 2010, Padilla filed an application for search warrants before Judge Amor Reyes in her capacity as Executive Judge of the RTC, and Search Warrant Nos. 10-15912 and 10-15913 were issued on the same date. The warrants were served on respondents on 24 May 2010, with New Fields employees witnessing the search; several items were seized, including 17 CD installers and 83 computers containing unauthorized copies of Microsoft and/or Adobe software.

On 6 June 2010, New Fields filed a motion seeking to quash one of the two warrants, Search Warrant No. 10-15912. The motion was received by petitioners on 10 June 2010 and set for hearing on 11 June 2010. During the hearing, petitioners were allowed by the RTC to file their Comment/Opposition on or before 21 June 2010; in that Comment/Opposition, petitioners alleged that the motion failed to comply with the mandatory three-day notice rule, having been furnished to them only one day before the scheduled hearing. On 29 June 2010, the RTC issued an Order quashing both warrants and directing that all items seized from respondents be returned. According to the RTC, petitioners should have identified which specific computer had the pirated software, and no criminal charge had yet been filed despite the seized items having been in petitioners' possession for several weeks; the RTC also dismissed the contention that the three-day notice rule had not been complied with, because petitioners had already been notified of the motion personally.

On 8 July 2010, petitioners received a copy of the Order, and Deputy Sheriff Edgardo Reyes effected the return of the seized items in compliance with it. Petitioners filed an Urgent Manifestation and Motion for the Issuance of a Status Quo Order on the same day, alleging that they intended to file a motion for reconsideration and that the Order was not immediately executory; respondents received a copy the day it was filed. On 9 July 2010, respondents moved to expunge petitioners' motion for reconsideration for failure to comply with the three-day notice rule, with the hearing set for 13 July 2010 and a copy received by petitioners on 20 July 2010. On 15 July 2010, petitioners filed their motion for reconsideration, to which respondents filed a Comment/Opposition received by petitioners on 12 August 2010. The RTC denied the motion for reconsideration in its Order dated 27 August 2010.

The RTC's quashal rested on the factual view that petitioners should have pinpointed the specific computer containing the pirated software and that no criminal charge had been filed despite the lapse of several weeks. The Court of Appeals, for its part, sustained the quashal on the factual finding that the witnesses had no personal knowledge of the facts upon which the issuance of the warrants may be justified, and that the applicants and witnesses merely relied on the screen shots acquired from the confidential informant.

• Three-Day Notice Rule: Petitioners maintained that the motion to quash failed to comply with the mandatory three-day notice rule under the Rules of Court, having been furnished to them only one day before the scheduled hearing, and that it was therefore "nothing but a worthless piece of paper."
• Probable Cause and Personal Knowledge: Petitioners argued that the RTC committed grave abuse of discretion in granting the motion to quash despite the existence of probable cause and the personal knowledge of the warrant applicant.
• Grave Abuse of Discretion: Petitioners alleged that the RTC committed grave abuse of discretion amounting to lack or excess of jurisdiction in issuing its Orders dated 29 June 2010 and 27 August 2010, quashing the warrants and directing the immediate release of the seized items despite the pendency of appellate proceedings.

• Three-Day Notice Rule: Whether strict compliance with the three-day notice rule may be relaxed where the adverse party was given a reasonable opportunity to study and oppose the motion.
• Probable Cause: Whether there was probable cause for the issuance of Search Warrant Nos. 10-15912 and 10-15913, given the applicant's and witnesses' personal verification of the confidential informant's tip.

• Three-Day Notice Rule: Yes. The three-day notice rule is not absolute; its purpose is to safeguard the adverse party's right to due process, and that purpose was satisfied when the RTC directed petitioners to submit their Comment/Opposition before ruling on the motion.
• Probable Cause: Yes. The applicant and his witnesses personally verified the informant's tip, satisfying the requirement of personal knowledge and establishing probable cause for the issuance of both warrants.

• Three-Day Notice Rule: The Court applied the rule in Anama vs. Court of Appeals that the three-day notice rule is not absolute, its purpose being to safeguard the adverse party's right to due process. Where the adverse party is given a reasonable opportunity to study the motion and oppose it, strict compliance may be dispensed with. Here, when the court a quo ordered petitioners to submit their comment on the motion to quash, it was in effect giving them their day in court; while the three-day notice rule was not strictly observed, its purpose was still satisfied because the respondent judge did not immediately rule on the motion, giving petitioners the opportunity to study and oppose the arguments stated therein. The Court adopted the Court of Appeals' reasoning on this point.

• Probable Cause: Section 1 of Rule 45 confines petitions for review by certiorari to questions of law, and a question of fact exists when there is doubt as to the truth of certain facts, resolvable only through a reexamination of the body of evidence. In Microsoft Corporation vs. Maxicorp, Inc., the Court ruled that the existence of probable cause is a question of fact, dependent largely on the opinion and findings of the judge who conducted the examination and who had the opportunity to question the applicant and his witnesses; such findings deserve great weight and may be overturned only upon proof that the judge disregarded the facts before him or ignored the clear dictates of reason. While the Court is not a trier of facts and generally defers to the lower courts' appreciation and evaluation of evidence, the general rule admits of exceptions, including grave abuse of discretion in the appreciation of facts and the appellate court's failure to notice certain relevant facts which, if properly considered, would justify a different conclusion. The Court found reason to overturn the rulings of the RTC and CA because there was grave abuse of discretion in the appreciation of facts. The CA had sustained the quashal on the ground that the witnesses had no personal knowledge of the facts upon which the issuance of the warrants may be justified and that the applicants and witnesses merely relied on the screen shots acquired from the confidential informant. The Court disagreed, noting that the assailed CA Decision itself stated that initial hearsay information or tips from confidential informants could very well serve as basis for the issuance of a search warrant if followed up personally by the recipient and validated. The records showed that Padilla and his companions personally verified the tip of their informant: in his Affidavit submitted to Judge Amor Reyes prior to the issuance of the warrant, Padilla stated that while inside the office premises of New Fields he saw the Product Keys or Product Identification Numbers of the Adobe and Microsoft software programs installed in some of the computer units, which Serrano and Moradoz were able to pull up because they were allowed to use some of the computers under the pretext used to gain entry, and that he actively read and attentively observed the information reflected on the monitor display unit. Padilla, trained to distinguish illegally reproduced Adobe and Microsoft software, further stated in his Affidavit that he suspected the software was unauthorized because at least two computer units were using a common Product Identification Number, all Adobe and Microsoft software programs being usable on only one computer unit unless an Open License Agreement was obtained, which New Fields had not secured. The evidence on record thus clearly showed that the applicant and witnesses were able to verify the information obtained from their confidential source, and that there was probable cause for the issuance of a search warrant; the requirement of personal knowledge of the applicant and witnesses was clearly satisfied.

• Relaxation of the Three-Day Notice Rule — The three-day notice rule under the Rules of Court is not absolute. Its purpose is to safeguard the adverse party's right to due process; where the adverse party is given a reasonable opportunity to study the motion and oppose it, strict compliance may be dispensed with. The Court applied the doctrine because the RTC, instead of immediately ruling on the motion to quash, directed petitioners to submit their Comment/Opposition, thereby affording them their day in court.
• Probable Cause as a Question of Fact — The existence of probable cause is a question of fact, dependent largely on the opinion and findings of the judge who conducted the examination and who had the opportunity to question the applicant and his witnesses. Such findings deserve great weight and may be overturned only upon proof that the judge disregarded the facts before him or ignored the clear dictates of reason. The Court relied on this doctrine in justifying its review of the CA's factual conclusion that no probable cause existed.
• Personal Knowledge of the Applicant and Witnesses; Verification of an Informant's Tip — A search warrant may issue upon an informant's tip provided the applicant and his witnesses personally verify and validate the information. The Court found this requirement satisfied because Padilla, Serrano, and Moradoz entered New Fields' premises, used its computers under a business pretext, and personally observed the product identification numbers of the installed software.
• Exceptions to the Rule that the Supreme Court Is Not a Trier of Facts — Although the Court is not a trier of facts and generally defers to the lower courts' appreciation and evaluation of evidence, it may review factual findings where, among other instances, there is grave abuse of discretion in the appreciation of facts, where the conclusion is grounded entirely on speculation, surmises, or conjectures, or where the appellate court failed to notice certain relevant facts which, if properly considered, would justify a different conclusion. The Court invoked this exception in overturning the RTC and CA.

• "We rule that strict compliance with the three-day notice rule may be relaxed in this case. However, we sustain petitioners' contention that there was probable cause for issuance of a warrant, and the RTC and CA should have upheld the validity of both warrants." — This passage states the Court's dual holding and the dispositive thrust of the decision, resolving both the procedural and substantive issues in petitioners' favor.
• "The purpose of the rule is to safeguard the adverse party's right to due process. Thus, if the adverse party was given a reasonable opportunity to study the motion and oppose it, then strict compliance with the three-day notice rule may be dispensed with." — This is the canonical formulation of the relaxation doctrine applied in this case, drawn from Anama vs. Court of Appeals and adopted as the ratio for the procedural issue.
• "Probable cause is dependent largely on the opinion and findings of the judge who conducted the examination and who had the opportunity to question the applicant and his witnesses. For this reason, the findings of the judge deserve great weight. The reviewing court should overturn such findings only upon proof that the judge disregarded the facts before him or ignored the clear dictates of reason." — Quoted from Microsoft Corporation vs. Maxicorp, Inc., this passage supplies the standard of review for the finding of probable cause and explains why the Court deferred to the issuing judge's determination.
• "Initial hearsay information or tips from confidential informants could very well serve as basis for the issuance of a search warrant, if followed up personally by the recipient and validated." — Originally stated in the assailed Court of Appeals Decision and adopted by the Court, this passage anchors the ruling that personal verification of an informant's tip satisfies the requirement of personal knowledge.

• Anama vs. Court of Appeals, G.R. No. 187021, 25 January 2012, 664 SCRA 293 — Controlling authority for the holding that the three-day notice rule is not absolute and may be dispensed with where the adverse party was given a reasonable opportunity to study and oppose the motion.
• Microsoft Corporation vs. Maxicorp, Inc., 481 Phil. 550 (2004) — Cited for the rule that the existence of probable cause is a question of fact and that the findings of the judge who examined the applicant and his witnesses deserve great weight, reviewable only upon proof of disregard of facts or of the clear dictates of reason.
• Lacson vs. MJ Lacson Development Company, Inc., G.R. No. 168840, 8 December 2010, 637 SCRA 505 — Cited for the definition of a question of fact as one that exists when there is doubt as to the truth of certain facts and can only be resolved through a reexamination of the body of evidence.
• Local Superior of the Servants of Charity, Inc. vs. Jody King Construction and Development Corp., 509 Phil. 426 (2005) — Cited for the general rule that the Supreme Court is not a trier of facts and defers to the lower courts' appreciation and evaluation of evidence, as well as for the enumeration of the exceptions to that rule.

• Section 1, Rule 45, Rules of Court — Provides that petitions for review by certiorari shall raise only questions of law. The Court cited this provision in addressing the threshold question of whether the existence of probable cause — a question of fact — could be reviewed, and then applied the recognized exceptions to justify its review of the CA's factual findings.
• Three-Day Notice Rule, Rules of Court — The decision refers to the mandatory three-day notice rule under the Rules of Court governing motions, which requires service of a copy of the motion on the adverse party at least three days before the scheduled hearing. The Court held that this rule is not absolute and may be relaxed where its purpose — safeguarding the adverse party's right to due process — has been satisfied.
• Section 13, Article VIII, 1987 Constitution — Cited in the Acting Chief Justice's certification that the conclusions in the Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

• Arturo D. Brion, Associate Justice
• Mariano C. Del Castillo, Associate Justice
• Martin S. Villarama, Jr., Associate Justice (designated Acting Member per Special Order No. 1767 dated 27 August 2014)
• Marvic Mario Victor F. Leonen, Associate Justice