Sonic Steel Industries, Inc. vs. Atty. Chua

A lawyer who deliberately conceals from the court a material fact—the expiration of a patent underlying a search warrant application—so as to facilitate the warrant's issuance violates the duties of candor, fairness, and good faith to the court under Canon 10, Rule 10.01 and the prohibition against dishonest and deceitful conduct under Canon 1, Rule 1.01 of the Code of Professional Responsibility, warranting suspension from the practice of law.

Complainant Sonic Steel Industries, Inc. is a corporation engaged in the manufacture and distribution of zinc and aluminum-zinc coated metal sheets marketed under the brands Superzinc and Superlume. Respondent Atty. Nonnatus P. Chua serves as Vice-President, Corporate Legal Counsel, and Assistant Corporate Secretary of Steel Corporation (STEELCORP), a competitor that produces aluminum-zinc alloy-coated metal sheets under the brand name GALVALUME under a license from BIEC International, Inc. The license arrangement between STEELCORP and BIEC International, Inc. was governed by a Technical Information and Patent License Agreement that defined "technical information" and "Licensed Patent" (Patent No. 16269) as separate and distinct components of the licensed process. Philippine Patent No. 16269, entitled "Hot Dip Coating of Ferrous Strands," was issued on August 25, 1983, and had a lifetime of 17 years under the old law (or 20 years under R.A. No. 8293), meaning it had lapsed and entered the public domain by 2000.

Sonic Steel Industries, Inc. is a corporation engaged in the manufacture and distribution of zinc and aluminum-zinc coated metal sheets sold under the brands Superzinc and Superlume. Steel Corporation (STEELCORP) is a competitor that produces aluminum-zinc alloy-coated metal sheets under the brand GALVALUME, using technology licensed from BIEC International, Inc. under a Technical Information and Patent License Agreement. That agreement defined two separate and distinct components: "technical information," referring to BIEC's proprietary data, know-how, and technical information relating to aluminum-zinc alloy-coated sheet and strip; and "Licensed Patent," referring specifically to Patent No. 16269, entitled "Hot Dip Coating of Ferrous Strands." Respondent Atty. Nonnatus P. Chua served as STEELCORP's Vice-President, Corporate Legal Counsel, and Assistant Corporate Secretary.

On September 5, 2005, STEELCORP, assisted by the National Bureau of Investigation, applied for and obtained a search warrant from the Regional Trial Court of Cavite City, Branch 17, directed against Sonic Steel. The application was supported by the affidavit of Antonio Lorenzana, STEELCORP's Executive Vice-President, which stated that STEELCORP was the exclusive licensee of the technical information and the patent on Hot Dip Coating of Ferrous Strands with Patent Registration No. 16269, licensed by BIEC International, Inc. to STEELCORP for over US$2,500,000. The affidavit asserted that Sonic Steel's SUPERLUME products were produced using the same technical information and registered patent exclusively licensed to STEELCORP, constituting unfair competition under Republic Act No. 8293. During the searching inquiry conducted by Judge Melchor Sadang, Lorenzana confirmed that STEELCORP held a patent exclusively licensed by BIEC International. When Judge Sadang asked whether Lorenzana had a document to show the patent, Lorenzana replied that it was in the office. Respondent, who was present, interjected twice—first reserving the presentation of the "trademark license" and then reserving the right to present the patent at another time.

On the strength of the search warrant, Sonic Steel's factory was searched and properties were seized. A week later, STEELCORP filed a complaint for violation of Section 168, in relation to Section 170, of Republic Act No. 8293 before the Department of Justice against Sonic Steel and its officers. Respondent subscribed to and filed the complaint-affidavit, which reiterated that STEELCORP was the exclusive licensee of Patent No. 16269 and accused Sonic Steel of deceptive use of the technical information and patent.

What the affidavits and representations omitted was that Philippine Patent No. 16269 had been issued on August 25, 1983, and had already lapsed—rendering it part of the public domain as early as 2000, more than five years before the search warrant application. Under the old law, a patent had a lifetime of 17 years; under R.A. No. 8293, 20 years. Either way, the patent had expired by the time STEELCORP sought the warrant and filed the DOJ complaint. The IBP's Commission on Bar Discipline found that STEELCORP's license was severable into (a) rights as licensee of the technical information and (b) rights as licensee of Patent No. 16269, and that upon the patent's expiration, STEELCORP retained only the residual right to use the technical information, not the patent. Sonic Steel filed the disbarment complaint, alleging that respondent had deliberately misled the RTC and the DOJ by making it appear that STEELCORP held an exclusive license to a patent that had long been in the public domain, and by refusing to provide the court a copy of the patent that would have revealed its expiration.

• Deliberate Misrepresentation to the Court: Complainant asserted that respondent deliberately misled the RTC of Cavite City, Branch 17, by stating that STEELCORP was the exclusive licensee of Philippine Patent No. 16269, when in fact the patent had already lapsed and formed part of the public domain as early as 2000, rendering it incapable of being the basis for an infringement case or a search warrant application.
• Intentional Concealment of the Patent's Expiration: Complainant contended that respondent intentionally deceived the court by refusing to provide a copy of the patent during the searching inquiry, knowing that even the first page of the patent would reveal that it had already expired, and that had the judge seen it, the search warrant would not have been issued.
• Misleading the Department of Justice: Complainant maintained that respondent's complaint-affidavit before the DOJ reiterated the false claim that STEELCORP was the exclusive licensee of Patent No. 16269, thereby misleading the DOJ as well.

• No Claim of Patent Ownership: Respondent countered that he never made an allegation or reservation that STEELCORP owned Philippine Patent No. 16269, asserting that he merely reserved the right to present the trademark license exclusively licensed to STEELCORP by BIEC International, Inc.
• Exclusive Licensee of the Process, Not the Patent: Respondent argued that the complaint-affidavit filed before the DOJ did not categorically claim that STEELCORP was the owner of the patent, but simply stated that STEELCORP was the exclusive licensee of the process by which GALVALUME is produced, which comprised a combination of technical information and the patent.

• Candor and Honesty to the Court: Whether respondent violated his duty of candor, fairness, and good faith to the court under Canon 10, Rule 10.01 of the Code of Professional Responsibility by concealing the expiration of Patent No. 16269 during the search warrant application proceedings.
• Dishonest and Deceitful Conduct: Whether respondent engaged in unlawful, dishonest, or deceitful conduct under Canon 1, Rule 1.01 of the Code of Professional Responsibility by representing STEELCORP as the exclusive licensee of a patent that had already lapsed.
• Impropriety of Penalty: Whether the penalty of six months' suspension imposed by the IBP Board of Governors was appropriate.

• Candor and Honesty to the Court: Yes. Respondent violated Canon 10, Rule 10.01 by deliberately concealing from Judge Sadang the fact that Patent No. 16269 had expired, interjecting reservations to present the patent at another time instead of disclosing its lapse, thereby facilitating the issuance of the search warrant through artifice.
• Dishonest and Deceitful Conduct: Yes. Respondent violated Canon 1, Rule 1.01 by making it appear in both the search warrant application and the DOJ complaint-affidavit that STEELCORP held an exclusive license to Patent No. 16269, when the patent had been in the public domain for over five years, and STEELCORP retained only residual rights to the technical information.
• Impropriety of Penalty: Yes. The six-month suspension with admonition was affirmed in toto, the Court adopting the IBP Board of Governors' modified recommendation.

• Candor and Honesty to the Court: Lawyers are officers of the court, called upon to assist in the administration of justice and to act as vanguards of the legal system. The Code of Professional Responsibility enjoins lawyers from committing or consenting to any falsehood in court, or from allowing courts to be misled by any artifice. The IBP's investigation established that Patent No. 16269 had been in expiry for more than five years when Judge Sadang propounded his questions about the patent. Respondent, instead of disclosing the patent's expiration, twice interjected reservations to present the patent at a later time. The Court found that it logically appeared respondent was trying to conceal the patent's expiration from the judge so as to facilitate the grant of the search warrant. Even at the risk of jeopardizing STEELCORP's application, respondent should have informed the court of the patent's expiration to allow an informed decision given all available and pertinent facts. His failure to do so contravened the exacting standards of conduct required of a member of the Bar.

• Dishonest and Deceitful Conduct: The Technical Information and Patent License Agreement between STEELCORP and BIEC International, Inc. defined "technical information" and "Licensed Patent" as separate and distinct. STEELCORP's rights as a licensee of the process were severable into (a) rights as licensee of the technical information and (b) rights as licensee of Patent No. 16269. By the time the search warrant was applied for and the complaint-affidavit was filed before the DOJ, Patent No. 16269 had long expired and become free for anyone's use, including Sonic Steel. STEELCORP possessed only the residual right to use the technical information—an incomplete license over the process. The expiration of the patent negated and rendered irrelevant respondent's defense of the subsistence of the contract. Respondent was "less than candid" in asserting that STEELCORP had rights to the entire process during the relevant periods, constituting dishonest and deceitful conduct.

• Impropriety of Penalty: The practice of law is not a right but a privilege bestowed by the State upon those who possess, and continue to possess, the qualifications required by law. Candor in all dealings is the very essence of honorable membership in the legal profession. Lawyers are required to act with the highest standard of truthfulness, fair play, and nobility in the conduct of litigation. Given respondent's breach of his solemn oath not to do any falsehood nor consent to the doing of any in court, the six-month suspension with admonition was a fitting sanction, and the Court affirmed the IBP Board of Governors' resolution in toto.

• Duty of Candor to the Court (Canon 10, Rule 10.01) — A lawyer shall do no falsehood, nor consent to the doing of any in court, nor shall he mislead or allow the court to be misled by any artifice. Lawyers are officers of the court expected to act with honesty in all their dealings, especially with the court. The duty requires affirmative disclosure of material facts that would affect the court's decision, even if such disclosure is detrimental to the client's cause. In this case, respondent should have informed the court of the patent's expiration so as to allow the latter to make an informed decision given all available and pertinent facts.

• Prohibition Against Dishonest and Deceitful Conduct (Canon 1, Rule 1.01) — A lawyer shall not engage in unlawful, dishonest, immoral, or deceitful conduct. This prohibition extends to representations made in affidavits and pleadings filed before quasi-judicial bodies such as the DOJ. The Court found that respondent's assertion of STEELCORP's exclusive license to a patent that had already lapsed constituted deceitful conduct, as the license was severable and the patent component had entered the public domain.

• Practice of Law as a Privilege, Not a Right — The practice of law is not a right but merely a privilege bestowed by the State upon those who show that they possess, and continue to possess, the qualifications required by law. One of those requirements is the observance of honesty and candor. Failure to meet this standard justifies suspension from the practice of law.

• "Lawyers are officers of the court, called upon to assist in the administration of justice. They act as vanguards of our legal system, protecting and upholding truth and the rule of law. They are expected to act with honesty in all their dealings, especially with the court." — This passage articulates the foundational principle underlying the lawyer's duty of candor and the rationale for disciplining attorneys who mislead tribunals.

• "Given that Patent No. 16269 had been in expiry for more than five (5) years when Judge Sadang propounded his questions, it logically appears that respondent, in making such reservations in open court, was trying to conceal from the former the fact of the patent's expiration so as to facilitate the grant of the search warrant in favor of STEELCORP." — This passage states the Court's finding of deliberate concealment, the factual basis for the violation of the duty of candor.

• "even at the risk of jeopardizing the probability of prevailing on STEELCORP's application for a search warrant, respondent should have informed the court of the patent's expiration so as to allow the latter to make an informed decision given all available and pertinent facts." — This formulation establishes the affirmative disclosure obligation: a lawyer must reveal material facts to the court even when detrimental to the client's cause.

• Plus Builders, Inc. vs. Revilla, Jr., 533 Phil. 250 (2006) — Cited for the proposition that lawyers are officers of the court, called upon to assist in the administration of justice, and expected to act with honesty in all their dealings, especially with the court. Followed as supporting authority for the duty of candor.

• Yap-Paras vs. Paras, 491 Phil. 382 (2005) — Cited for the principle that the practice of law is not a right but a privilege bestowed by the State, and that candor in all dealings is the very essence of honorable membership in the legal profession. Followed as supporting authority for the standard of truthfulness and fidelity required of lawyers.

• Canon 1, Rule 1.01, Code of Professional Responsibility — "A lawyer shall not engage in unlawful, dishonest and immoral or deceitful conduct." Applied to find that respondent's representation of STEELCORP as exclusive licensee of a lapsed patent, and his concealment of the patent's expiration, constituted dishonest and deceitful conduct.

• Canon 10, Rule 10.01, Code of Professional Responsibility — "A lawyer shall do no falsehood, nor consent to the doing of any in Court, nor shall he mislead or allow the Court to be misled by any artifice." Applied to find that respondent's reservations during the searching inquiry, which concealed the patent's expiration from Judge Sadang, constituted misleading the court by artifice.

• Section 168, in relation to Section 170, Republic Act No. 8293 (Intellectual Property Code) — The statutory provision under which STEELCORP filed its unfair competition complaint against Sonic Steel before the DOJ. The complaint was predicated on the exclusive license to Patent No. 16269, which had already lapsed, rendering the legal basis for the complaint untenable.

Velasco, Jr. (Chairperson), Abad, Mendoza, and Leonen, JJ., concurred.