Sao Paulo Alpargatas S.A. vs. Kentex Manufacturing Corporation and Ong King Guan

A case becomes moot and academic when supervening events, such as the execution of a compromise agreement between the parties, terminate the justiciable controversy and render judicial adjudication of no practical value or use, notwithstanding the existence of substantive issues concerning the validity of search warrants in intellectual property enforcement actions.

Sao Paulo Alpargatas S.A. (SPASA), a Brazilian corporation and registered owner of the "Havaianas" footwear brand and associated marks in the Philippines, sought enforcement of its intellectual property rights against Kentex Manufacturing Corporation and its president Ong King Guan, who manufactured and distributed footwear under the "Havana" brand. SPASA alleged that respondents' products bore confusing similarity to its registered "Havaianas" trademarks, including the "Rice Pattern Logo" and "Greek Pattern Logo," and constituted colorable imitations. Respondents countered that they possessed a Certificate of Copyright Registration for "Havana Footwear" dated June 16, 1995, and pending industrial design applications for slipper and sole designs filed with the Intellectual Property Office (IPO) in 2009.

• Nature of the Dispute: SPASA, owner of registered "Havaianas" trademarks in the Philippines including the "Havaianas Rice Pattern Logo" and "Havaianas Greek Pattern Logo," initiated enforcement actions against Kentex Manufacturing Corporation and Ong King Guan for manufacturing and distributing footwear under the "Havana" brand, which allegedly bore confusing similarity to SPASA's registered marks and constituted colorable imitations.
• Investigation and Seizure: Following a letter-complaint from SPASA's counsel to the National Bureau of Investigation (NBI), NBI Agent Terrence Agustin and market researchers conducted surveillance and observed delivery trucks loading and unloading "Havana" and "Havaianas" products at Kentex's Caloocan warehouse. On September 6, 2010, Agent Agustin applied for search warrants alleging violation of Republic Act No. 8293. The RTC issued Search Warrant Nos. 10-16378 to 81 on September 7, 2010, covering Kentex's premises in Valenzuela and Caloocan, resulting in the seizure of respondents' products.
• Respondents' Defense: In their Motion to Quash, respondents submitted Certificate of Copyright Registration No. O-95-571 dated June 16, 1995 for "Havana Footwear" registered with the National Library, and pending applications with the IPO: Trademark Application for "Havana Sandals (Stylized)" filed October 9, 2009; Application for Industrial Design No. 3-2009-000657 for "Slipper" filed October 9, 2009; and Application for Industrial Design No. 3-2009-000658 for "Sole" filed October 19, 2009.
• Petitioner's Opposition: SPASA opposed the motion, presenting Certificates of Registration for the "Havaianas" word mark (filed December 2, 2002, June 19, 2007, and December 5, 2008) and the "Rice Pattern Logo" and "Greek Pattern Logo" (filed April 2, 2009). SPASA also filed petitions for cancellation of respondents' industrial design registrations and a complaint for trademark infringement with the IPO, which subsequently issued a Writ of Preliminary Injunction on June 1, 2012.
• Lower Court Rulings: The RTC denied the Motion to Quash, finding probable cause based on confusing similarity between respondents' "Havana" products and SPASA's registered trademarks. The Court of Appeals reversed, holding that respondents' industrial design registrations created a presumption of validity that negated probable cause for the search warrants.
• IPO Cancellation Proceedings: On December 20, 2013, the IPO issued Decision Nos. 2013-243 and 2013-244 cancelling respondents' industrial design registrations for "Sole" and "Slipper," respectively, ruling that SPASA's prior trademark registrations constituted prior art under Section 24.1 of the IP Code.
• Settlement Agreement: On March 28, 2019, the parties executed a Settlement Agreement wherein respondents admitted that only SPASA was entitled to sell, import, or distribute "Havaianas" products in the Philippines; undertook to respect SPASA's intellectual property rights; consented to the destruction of seized items; and warranted cessation of infringing activities. Respondents also executed a separate Undertaking acknowledging they no longer manufactured or possessed infringing inventories.

• Validity of Search Warrants: Petitioner argued that the Court of Appeals erred in refusing to review the findings of fact of the RTC regarding the confusing similarity of the marks, and in failing to apply the "First-to-File" Rule and the Dominancy Test under the Intellectual Property Code.
• Prior Registration and Use: SPASA maintained that as the prior user and registrant of the "Havaianas" word marks and logos, it possessed the exclusive right under Section 147 of the IP Code to prevent third parties from using identical or similar signs likely to cause confusion, and that its trademark registrations predated respondents' industrial design applications.
• Distinction of Intellectual Property Rights: Petitioner contended that trademarks, copyrights, and industrial design registrations are distinct and separate, and that respondents' copyright registration for "Havana Footwear" could not be used to claim trademark rights or defeat a search warrant for trademark infringement.
• Prematurity Argument: SPASA argued that the existence of pending cancellation proceedings before the IPO did not render the search warrant applications premature, as infringement actions may proceed independently of cancellation proceedings, and that industrial design registrations do not enjoy a presumption of validity sufficient to negate probable cause.

• Legitimate Business Defense: Respondents countered that they were engaged in lawful business for nearly two decades under the "Havana" brand, supported by their 1995 Certificate of Copyright Registration, and that their target market (low-end) differed from petitioner's (high-end), precluding confusion.
• Industrial Design Registration: Respondents argued that their industrial design registrations for "Slipper" and "Sole" created a presumption of validity that should prevail over the search warrants, and that the CA correctly ruled that confiscation could not be used to suppress an apparent legitimate right to pursue a livelihood.
• Prematurity of Search Warrants: Respondents maintained that pending the resolution of the inter partes cancellation proceedings before the IPO, the applications for search warrants were premature.
• Dissimilarity of Marks: Respondents insisted that applying the Dominancy and Holistic Tests, the "Havana" and "Havaianas" marks were not similar, and that petitioner's witnesses provided unreliable, hearsay testimony.

• Mootness: Whether the petition for review on certiorari had become moot and academic by virtue of the parties' settlement agreement.
• Validity of Search Warrants: Whether the Court of Appeals erred in reversing the RTC's denial of the motion to quash search warrants.
• Industrial Design vs. Trademark Rights: Whether respondents' industrial design registrations could defeat petitioner's prior trademark rights and negate probable cause for the issuance of search warrants.
• Prior Art: Whether petitioner's prior trademark registrations constituted prior art sufficient to invalidate respondents' industrial design registrations.

• Mootness: The petition was dismissed as moot and academic. The execution of the Settlement Agreement on March 28, 2019 constituted a supervening event that terminated the justiciable controversy between the parties, rendering any adjudication on the validity of the search warrants or the underlying trademark infringement claims of no practical value or use.
• Binding Effect of Settlement: The parties were bound by the terms of the Settlement Agreement under the parol evidence rule, which provides that a written agreement contains all terms agreed upon and precludes extrinsic evidence of other terms. The agreement expressly provided for the dismissal of pending cases and put the litigation to an end.
• Abstention from Ruling: The Court abstained from expressing its opinion on the substantive issues raised regarding the validity of the search warrants, the application of the First-to-File Rule, and the relationship between industrial design and trademark registrations, as no substantial legal relief remained necessary following the settlement.

• Mootness Doctrine — A case or issue is considered moot when it ceases to present a justiciable controversy by virtue of supervening events, such that an adjudication would be of no practical value or use. Courts decline jurisdiction over moot cases because the judgment will not serve any useful purpose or have any practical legal effect as it cannot be enforced.
• Parol Evidence Rule — When the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon, and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement.
• Prior Art in Industrial Design — Under Section 24.1 of the Intellectual Property Code, everything which has been made available to the public anywhere in the world before the filing date or priority date of the application claiming the invention constitutes prior art; this includes prior trademark registrations that have been disclosed to the public, which may invalidate subsequently filed industrial design registrations for substantially identical designs.
• Independence of Infringement and Cancellation Proceedings — An action for trademark infringement or unfair competition may proceed independently or simultaneously with an action for administrative cancellation of a registration issued by the IPO, and the pendency of cancellation proceedings does not necessarily preclude the issuance of search warrants or the prosecution of criminal infringement actions.

• "A case or issue is considered moot when it ceases to present a justiciable controversy by virtue of supervening events, so that an adjudication of the case or a declaration on the issue would be of no practical value or use."
• "The parol evidence rule provides that when the terms of an agreement have been reduced into writing, it is considered containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement."
• "Section 24.1. Everything which has been made available to the public anywhere in the world, before the filing date or priority date of the application claiming the invention."
• "Where the issues have become moot and academic, there ceases to be any justiciable controversy and where there is no substantial relief to which petitioner will be entitled, courts will decline jurisdiction."

• Burgundy Realty Corp. v. MAA General Assurance Phils., Inc., G.R. No. 225610, February 19, 2020 — Cited for the definition of mootness and the principle that courts decline jurisdiction over cases that cease to present justiciable controversies.
• Peñafrancia Sugar Mill, Inc. v. Sugar Regulatory Administration, 728 Phil. 535 (2014) — Cited for the proposition that moot cases present no actual substantial relief to which a petitioner would be entitled.
• Cuadra v. San Miguel Corp., G.R. No. 194467, July 13, 2020 — Cited for the principle that a settlement agreement puts litigation between parties to an end.
• Goldlink Security and Investigative Services, Inc. v. Quiñones, G.R. No. 214434, March 4, 2020 — Cited for the rule that courts abstain from expressing opinions in cases where no substantial legal relief is necessary.

• Republic Act No. 8293 (Intellectual Property Code of the Philippines), Section 147 — Grants the owner of a registered trademark the exclusive right to prevent all third parties not having the owner's consent from using in the course of trade identical or similar signs or containers for goods which are identical or similar to those in respect of which the trademark is registered, where such use would result in a likelihood of confusion.
• Republic Act No. 8293, Section 24.1 — Defines prior art for industrial designs as everything which has been made available to the public anywhere in the world before the filing date or priority date of the application claiming the invention.
• Rules of Court, Rule 130, Section 9 (Parol Evidence Rule) — Provides that when the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon and there can be no evidence of such terms other than the contents of the written agreement.

Leonen (Chairperson), Inting, Delos Santos, and J. Lopez, JJ.