Microsoft Corporation v. Hwang

Probable cause for copyright infringement and unfair competition is established where the evidence—including test‑buy CDs that are installers containing unauthorized combinations of software, software lacking authenticating documents, and a mass of seized CD‑ROMs inconsistent with a limited reproduction license—incites a reasonable belief that the accused performed acts exclusively vested in the copyright owner and passed off goods with intent to deceive. The pendency of a related contractual dispute and the absence of a prior judicial declaration on the validity of a license termination do not preclude a finding of probable cause; the copyright owner retains independent criminal and civil remedies.

Microsoft Corporation, a Delaware corporation, owned copyrights and trademarks for numerous computer software programs. In May 1993, Microsoft and Beltron Computer Philippines, Inc. entered into a Licensing Agreement authorizing Beltron, for a royalty fee, to reproduce and install no more than one copy of Microsoft software on each customer’s hard disk or ROM and to distribute licensed copies. Microsoft terminated the Agreement effective 22 June 1995 due to Beltron’s non‑payment of royalties. Following termination, Microsoft obtained information that respondents were illegally duplicating and selling Microsoft software.

• The Licensing Agreement and its termination: Microsoft and Beltron Computer Philippines, Inc. executed a Licensing Agreement in May 1993, amended in January 1994, authorizing Beltron to reproduce and install one copy of Microsoft software on each customer’s hard disk or ROM and to distribute licensed copies. Microsoft terminated the Agreement on 22 June 1995 for non‑payment of royalties. Under the Agreement, upon termination Beltron was obliged to return unpaid copies and cease all use of Microsoft trademarks, and Microsoft’s rights and remedies were declared non‑exclusive and cumulative with those provided by law.

• The test‑buy operation: On 10 November 1995, an NBI agent and a Pinkerton Consulting Services employee, posing as representatives of a computer shop, purchased from respondents a central processing unit (CPU) and a computer monitor, together with 12 CD‑ROMs in separate Microsoft‑branded plastic containers. The CPU contained pre‑installed Microsoft Windows 3.1 and MS‑DOS software. Of the 12 CD‑ROMs, at least two were “installer” CDs containing multiple software programs, mixing Microsoft‑only or both Microsoft and non‑Microsoft titles. None of the purchased items was accompanied by Microsoft end‑user license agreements, user’s manuals, registration cards, or certificates of authenticity. The receipt for the CPU bore the heading “T.M.T.C. (PHILS.) INC. BELTRON COMPUTER”; the receipt for the 12 CD‑ROMs did not state a source and merely indicated “delivered by Gerlie.”

• Search and seizure: Search warrants were issued by the Regional Trial Court of Manila. NBI agents seized 2,831 CD‑ROMs containing Microsoft software from the respondents’ premises, along with other items. No authentication documents accompanied the CD‑ROMs.

• Respondents’ defenses in the preliminary investigation: In their joint counter‑affidavit, respondents Yvonne Keh and Emily Chua denied the charges. They alleged that the complaint was a pressure tactic to collect unpaid royalties and that the proper remedy was a civil collection suit. They claimed that 59 boxes of MS‑DOS CDs seized from Taiwan Machinery Display & Trade Center, Inc. (TMTC) were purchased from an authorized Microsoft dealer in Singapore. They asserted that the pre‑installed Microsoft Windows 3.1 in the CPU did not originate from them, only the MS‑DOS. They argued the receipt for the 12 CD‑ROMs was inconclusive because it lacked a source. They contended that the other individual respondents were nominal stockholders who could not be held criminally liable. The remaining respondents did not file counter‑affidavits.

• DOJ resolutions: The DOJ State Prosecutor recommended dismissal, finding that the obligations between the parties were civil in nature, the validity of the Agreement’s termination must first be resolved in a proper civil court, and Microsoft failed to present evidence that the seized items were counterfeit. The DOJ gave credence to TMTC’s documentation showing purchase from a Singaporean dealer for the 59 boxes of MS‑DOS and held that, at most, the products were “unauthorized” rather than counterfeit. The DOJ Secretary upheld the dismissal.

• Civil vs. criminal nature: The DOJ erred in ruling that the respondents’ liability was merely civil by virtue of the Licensing Agreement. Microsoft, as copyright owner, was entitled to pursue criminal remedies under P.D. No. 49 and the Revised Penal Code independently of any contractual dispute.

• Misappreciation of evidence: The DOJ failed to appreciate that the articles purchased during the test‑buy and the items seized from respondents’ premises—particularly the installer CD‑ROMs and software lacking authentication documents—conclusively showed illegal importation, sale, and distribution of counterfeit software.

• Misappreciation of law: The DOJ misapprehended the elements of copyright infringement and unfair competition. The gravamen of infringement is the unauthorized performance of any act exclusively vested in the copyright owner, not merely manufacturing. The presence of installer CD‑ROMs and the absence of standard Microsoft documentation sufficed to establish probable cause.

• Effect of non‑filing of counter‑affidavits: Only two of the nine respondents submitted counter‑affidavits; as to the seven others, the charges remained uncontroverted, thus strengthening the basis for a finding of probable cause.

• Forum‑shopping: Microsoft argued that the present petition was not barred by forum‑shopping because its earlier appeal to the Court of Appeals (CA‑G.R. CV No. 54600) concerned the partial quashal of the search warrants, a matter distinct from the dismissal of the criminal complaint. The rights asserted and the reliefs prayed for were not identical, and a judgment in the search warrant case would not amount to res judicata in this case.

• Forum‑shopping: Respondents maintained that Microsoft was guilty of forum‑shopping because the petition in CA‑G.R. CV No. 54600 was filed ahead and involved the same parties and a common interest with the present case.

• Legitimate source and lack of counterfeit proof: The articles seized were either owned by other persons, purchased from legitimate sources, or not produced by Microsoft. The 59 boxes of MS‑DOS CDs were imported from an authorized Singaporean dealer, supported by invoices and customs documents. Microsoft failed to prove that any of the seized items were counterfeit rather than merely unauthorized.

• Scope of the license: The Licensing Agreement entitled Beltron to “copy and replicate or reproduce” Microsoft products. Thus, the reproduction of software could not be automatically deemed illegal.

• Safekeeping defense: The 2,831 CD‑ROMs confiscated were left with respondents for safekeeping by a third‑party corporation; respondents were not engaged in unauthorized reproduction.

• Lack of proof of pre‑installed software: The receipt for the CPU did not mention “software hard disk,” thus the allegation that pre‑installed Microsoft software was sold could not be substantiated.

• No grave abuse of discretion: The DOJ maintained that it acted within its discretion in dismissing the complaint for insufficiency of evidence and that its resolution did not amount to arbitrary or despotic exercise of power warranting certiorari.

• Forum‑Shopping: Whether Microsoft’s filing of this petition while the search‑warrant case (CA‑G.R. CV No. 54600) was pending or had been resolved constituted forum‑shopping.

• Grave Abuse of Discretion: Whether the Department of Justice committed grave abuse of discretion in not finding probable cause to charge respondents with copyright infringement and unfair competition.

• Forum‑Shopping: No forum‑shopping was committed. Forum‑shopping requires identity of parties, identity of rights asserted and reliefs prayed for, and such identity that a judgment in the pending case would amount to res judicata in the other. Here, although the parties were identical, the rights asserted and reliefs prayed for were not: the earlier Court of Appeals case involved the quashal of search warrants, while the present petition challenged the dismissal of the criminal complaint. Hence, the requisite identity of causes of action was absent.

• Grave Abuse of Discretion: The DOJ acted with grave abuse of discretion. The standard of probable cause requires only a reasonable belief that the offense charged has been committed; it does not demand proof beyond reasonable doubt. The DOJ erred in treating the dispute as purely civil and in requiring a prior judicial determination on the validity of the Agreement’s termination. The evidence adduced by Microsoft was sufficient to establish probable cause.

• Copyright infringement: The gravamen of infringement under Section 5 of P.D. No. 49 is the unauthorized performance of any exclusive right of the copyright owner, including copying, distributing, multiplying, and selling. The installer CD‑ROMs purchased during the test‑buy were counterfeit per se because Microsoft never authorized, and could not have authorized, the bundling of multiple software (Microsoft and non‑Microsoft) on a single CD‑ROM in that manner. The non‑installer CD‑ROMs and the pre‑installed software in the CPU lacked the standard authenticating features—end‑user license agreements, user’s manuals, registration cards, and certificates of authenticity—normally accompanying genuine Microsoft products. The 2,831 CD‑ROMs seized from respondents could not be justified under Beltron’s limited reproduction license, which allowed only one copy per customer’s hard disk or ROM and distribution of copies obtained from authorized replicators or distributors. Respondents’ belated claim of safekeeping was unsubstantiated and had not been raised in the counter‑affidavits. These circumstances, taken together, generated a reasonable belief that respondents had engaged in unauthorized reproduction and distribution of copyrighted software.

• Unfair competition: The elements of unfair competition under Article 189(1) of the Revised Penal Code were likewise sufficiently established. The counterfeit non‑installer CD‑ROMs bore packaging that was indistinguishable from that of genuine Microsoft products. The similarity of the packaging and the content, coupled with the sale of the goods, gave rise to an inference of intent to deceive the public and pass off the goods as those of Microsoft.

• Independence from contractual issues: The pendency of a contractual dispute over unpaid royalties did not preclude criminal prosecution. Section 10(b) of the Agreement expressly stated that Microsoft’s rights and remedies under the contract were not exclusive and were in addition to any other rights and remedies provided by law. Consequently, Microsoft could pursue remedies under P.D. No. 49 and the Revised Penal Code regardless of whether the Agreement’s termination was contested.

• Probable cause in preliminary investigation — Probable cause does not mean “actual and positive cause” nor absolute certainty. It is a reasonable belief, based on the facts and circumstances, that the act or omission complained of constitutes the offense charged. The inquiry is not whether the evidence suffices for conviction but whether it incites a reasonable belief that the offense was committed, leaving the reception of full evidence to the trial.

• Gravamen of copyright infringement — Copyright infringement consists in the doing, without the consent of the copyright owner, of any act the sole right to do which is conferred by statute on the owner. Under Section 5(A) of P.D. No. 49, the exclusive rights include copying, distributing, multiplying, and selling. The offense is not limited to unauthorized manufacturing.

• Counterfeit per se doctrine (installer CD‑ROMs) — A CD‑ROM that combines multiple copyrighted software programs—whether exclusively from a single owner or mixed with programs of other owners—without the copyright owner’s authorization is counterfeit per se. Its reproduction and distribution are illegal even if the actor is a licensee.

• Unfair competition under Article 189(1), Revised Penal Code — The elements are: (a) giving one’s goods the general appearance of another manufacturer’s or dealer’s goods; (b) the general appearance is shown in the goods themselves, their wrapping, or any other feature of their appearance; (c) offering or selling those goods; and (d) actual intent to deceive the public or defraud a competitor. Intent to deceive may be inferred from the similarity of the goods or their appearance.

• Independence of criminal remedies from contractual disputes — A copyright owner’s criminal complaint for infringement and unfair competition is not barred by the existence of a related contractual dispute. The rights and remedies under the intellectual property law are cumulative, and a license agreement’s provision stating that remedies are non‑exclusive reinforces the owner’s ability to seek criminal sanctions.

• Forum‑shopping — Forum‑shopping is the filing of multiple suits involving the same parties, either simultaneously or successively, to secure a favorable judgment. It requires identity of parties, identity of rights asserted and reliefs prayed for, and such identity that any judgment in the first action would constitute res judicata in the second.

• “Infringement of a copyright is a trespass on a private domain owned and occupied by the owner of the copyright, and, therefore, protected by law, and infringement of copyright, or piracy, which is a synonymous term in this connection, consists in the doing by any person, without the consent of the owner of the copyright, of anything the sole right to do which is conferred by statute on the owner of the copyright.” — defining the core of copyright infringement, reaffirmed from Columbia Pictures, Inc. v. Court of Appeals.

• “The term [probable cause] does not mean ‘actual and positive cause’ nor does it import absolute certainty. It is merely based on opinion and reasonable belief. Thus, a finding of probable cause does not require an inquiry into whether there is sufficient evidence to procure a conviction. It is enough that it is believed that the act or omission complained of constitutes the offense charged.” — articulating the standard for a preliminary investigation.

• “These articles are counterfeit per se because Microsoft does not (and could not have authorized anyone to) produce such CD‑ROMs. The copying of the genuine Microsoft software to produce these fake CD‑ROMs and their distribution are illegal even if the copier or distributor is a Microsoft licensee.” — on the inherent illegality of unauthorized installer CDs.

• “The gravamen of copyright infringement is not merely the unauthorized ‘manufacturing’ of intellectual works but rather the unauthorized performance of any of the acts covered by Section 5.” — clarifying the scope of prohibited acts.

• Columbia Pictures, Inc. v. Court of Appeals, 329 Phil. 875 (1996) — Followed; defined copyright infringement as the unauthorized performance of acts exclusively vested in the copyright owner, including distribution and sale, not merely manufacturing.

• Pilapil v. Sandiganbayan, G.R. No. 101978, 7 April 1993, 221 SCRA 349 — Followed; established the standard of probable cause for preliminary investigation as based on reasonable belief, not absolute certainty.

• Spouses Melo v. Court of Appeals, 376 Phil. 204 (1999) and Casupanan v. Laroya, 436 Phil. 582 (2002) — Applied; laid down the elements of forum‑shopping requiring identity of parties, rights asserted, and reliefs prayed for sufficient for res judicata.

• Filadams Pharma, Inc. v. Court of Appeals, G.R. No. 132422, 30 March 2004, 426 SCRA 460 and Dr. Baylon v. Ombudsman, 423 Phil. 705 (2001) — Cited; recognized that courts will not interfere with the prosecutor’s discretion unless grave abuse is shown.

• Rueda Hermanos & Co. v. Feliz Paglinawan & Co., 33 Phil. 196 (1916) — Cited; supported the principle that intent to deceive in unfair competition may be inferred from the similarity of goods or their appearance.

• Section 5(A), Presidential Decree No. 49 (The Decree on Intellectual Property) — Vested the copyright owner with the exclusive right to print, reprint, publish, copy, distribute, multiply, and sell the work. The Court relied on this enumeration to hold that unauthorized copying and selling, not merely manufacturing, constituted infringement.

• Section 29, Presidential Decree No. 49 — Penalized copyright infringement with imprisonment and fine. Applied as the penal provision under which respondents could be indicted.

• Article 189(1), Revised Penal Code — Defined and penalized unfair competition, requiring that the offender gives his goods the general appearance of another’s goods, with intent to deceive. The Court applied its elements to the test‑buy CD‑ROMs whose packaging was indistinguishable from genuine Microsoft products.

• Section 5, Rule 7, 1997 Rules of Civil Procedure — Required a certification against forum‑shopping. The Court used the requirements of this rule to analyze the forum‑shopping charge and concluded that no identity of causes of action existed.

• Rule 65, 1997 Rules of Civil Procedure — The procedural vehicle for the petition for certiorari, invoked to correct the DOJ’s grave abuse of discretion.

Davide, Jr., C.J. (Chairman), Quisumbing, Ynares-Santiago, and Azcuna, JJ., concurred.