On 08 September 2020, the Supreme Court of the Philippines (“Supreme Court”) promulgated its decision in the case of Zuneca Pharmaceutical v. Natrapharm Inc. (“Decision”) which clarified that ownership over a trademark may also be acquired through prior use in good faith versus registration^[1]. This ruling is of stark difference from the previous rulings of the Supreme Court where the first person or entity to register a trademark defeats the right of the first person or entity to use the trademark in good faith.

Facts

The case involves a dispute between the use and ownership of the confusingly similar marks “ZYNAPS” and “ZYNAPSE”.

Zuneca Pharmaceutical (“Zuneca”) has been engaged in the sale of “ZYNAPS”, an anti-convulsant used to control all types of seizure disorders like epilepsy^[2] as early as 2004. Natrapharm, Inc. (“Natrapharm”), on the other hand, has also been engaged in the sale of “ZYNAPSE” for the treatment of cerebrovascular disease or stroke^[3], and is the registrant of the “ZYNAPSE” mark which was registered with the Intellectual Property Office of the Philippines (“IPO”) on 24 September 2007.[4]

On 29 November 2007, Natrapharm filed a Trademark Infringement case against Zuneca, alleging that “ZYNAPS” is confusingly similar to its registered trademark “ZYNAPSE”. While Zuneca argued that as the first entity to use the mark in good faith, it was the rightful owner of the mark “ZYNAPS”.

Ruling on How Trademark Ownership is Acquired

The Supreme Court held that the language of the Intellectual Property Code of the Philippines (“IP Code”) clearly provides that ownership of a mark is acquired through registration. Furthermore, the Supreme Court stated that the intention of the lawmakers was to abandon the rule that ownership of a mark is acquired through prior use, and that the rule on ownership used in Berris Agricultural Co., Inc. v. Abyadang (“Berris”)[5]and E. Y. Industrial Sales, Inc. et al. v. Shen Dar Electricity and Machinery Co., Ltd. (“E. Y Industrial Sales, Inc.”)[6] is inconsistent with the IP Code regime of acquiring ownership through registration.

Language of the IP Code

Section 122 of the IP Code provides how marks are acquired:

SECTION 122. How Marks are Acquired. -The rights in a mark shall be acquired through registration made validly in accordance with the provisions of this law. (Sec. 2-A, R.A. No. 166a) (Emphasis and underscoring supplied)[7]

The language of the IP Code as to the acquisition of ownership of a mark provides for a stark contrast with that of the old Trademark Law, which provided that prior use and non-abandonment of a mark banned future registration of an identical or confusingly similar mark by a different proprietor. Such a change effectively connotes that prior use no longer determines acquisition.[8]

While doubts have been expressed by Associate Justices Leonen and Lazaro-Javier over the supposed abandonment of the requirement of actual use, the Supreme Court clarified that the filing of the Declaration of Actual Use (“DAU”) is not a prerequisite for the acquisition of ownership of a mark as it is only necessary to maintain ownership over the registered Trademark. On the other hand, the prima facie nature of the Certificate of Registration (“COR”) is only meant to recognize the instances when the COR is no longer reflective of the ownership of the holder thereof, such as, but not limited to, cases when the first registrant subsequently lost its ownership due to non-use or abandonment.[9]

Rule on Ownership – Berris and E. Y. Industrial Sales, Inc.

Zuneca erred in using the cases of Berris and E. Y Industrial Sales, Inc. as bases for its arguments.

The ruling in Berris was based on the fact that Berris, Inc. was the first to file the application and register the mark under the IP Code. The fact of prior use was only mistakenly given undue weight.[10]

On the other hand, the earliest dates of use by both parties in E. Y Industrial Sales, Inc.wereduring the effectivity of the old Trademark Law, as amended. E.Y. Industrial Sales, Inc. had applied and registered the mark under the IP Code, while Shen Dar Electricity and Machinery Co. Ltd. had applied for the mark under the old Trademark Law.

Thus, both Berris and E. Y Industrial Sales, Inc. cannot be applied in cases where the marks of both parties are used and/or registered under the IP Code.

Bad Faith in Trademark Registration and Use

Zuneca likewise claims that Natrapharm was in bad faith when they registered its mark with the IPO. In cases of registration of a mark by means of fraud or bad faith, a party may pray for its cancellation at any time by filing a petition for cancellation under Section 151 (b) of the IP Code,

“SECTION 151. Cancellation. – 151.1. A petition to cancel a registration of a mark under this Act may be filed with the Bureau of Legal Affairs by any person who believes that he is or will be damaged by the registration of a mark under this Act as follows:

xxx

(b) At any time, if the registered mark becomes the generic name for the goods or services, or a portion thereof, for which it is registered, or has been abandoned, or its registration was obtained fraudulently or contrary to the provisions of this Act xxx (Underscoring supplied)”

The presence of bad faith alone renders a trademark registration void because the marks should not have been registered in the first place. Hence, even if the marks are registered subsequently, the registration will not confer the registrant any of the rights under Section 147.1[11] of the IP Code.

As a rule, good faith is always presumed, and upon him who alleges bad faith on the part of a possessor rests the burden of proof. In this case, not only was Natrapharm able to explain the origin of the name, it was also able to show that it had checked the IMS-PPI^[12], IPO, and Bureau of Food and Drug Administration Philippines (“BFAD”) databases and found that there was no brand name which was confusingly similar to “ZYNAPSE”.[13]

Since Natrapharm was not proven to have been in bad faith, it was thus considered to have acquired all the rights of a trademark owner under the IP Code upon the registration of the “ZYNAPSE” mark.

Prior User in Good Faith

While Natrapharm is the owner of the “ZYNAPSE” mark, this does not, however, automatically mean that its complaint against Zuneca is with merit. Prior users in good faith are also protected in the sense that they will not be made liable for trademark infringement even if they are using a mark that was subsequently registered by another person. Section 159.1 of the IP Code provides:

“Notwithstanding the provisions of Section 155 hereof, a registered mark shall have no effect against any person who, in good faith, before the filing date or the priority date, was using the mark for the purposes of his business or enterprise: Provided, That his right may only be transferred or assigned together with his enterprise or business or with that part of his enterprise or business in which the mark is used. (Underscoring supplied)”

The application of Section 159.1 of the IP Code in the case at bar results in Zuneca’s exemption from liability for trademark infringement.

Section 159.1 of the IP Code clearly contemplates that a prior user in good faith may continue to use its mark even after the registration of the mark by the first-to-file registrant in good faith. In any event, the application of Section 159.1 necessarily results in the co-existence of at least two entities – the unregistered prior user in good faith, on one hand; and the first-to-file registrant in good faith on the other – using identical or confusingly similar marks in the market at the same point in time, even if there exists the likelihood of confusion. [14]

Essentially, the decision indisputably pronounced that, under the IP Code, the ownership of a trademark is acquired by its registration, with the exception created by Section 159.1 of the IP Code.

Implications of the Decision Today

Co-Existence of Confusingly Similar Marks

The pronouncement of the Supreme Court allows clients and individuals interested in the registration of a mark an assurance that, in the absence of bad faith, the approval of the registration of their proposed mark will surely give rise to rights under the IP Code. Even if there may exist another individual or entity who make use of the same or similar mark, the rights resulting from the registered mark will not be affected.

Nonetheless, the same ruling creates a scenario where a mark, which was successfully registered with the IPO, may have the risk of being in co-existence with a confusingly similar mark, in the case where a prior user in good faith exists.

In the case of Zuneca and Natrapharm, both parties engage in the sale of medicine – one an anti-convulsant, while the other, a treatment for cerebrovascular disease. In such cases, the customers and patients go to the pharmacy with the specific medicine and its purpose in mind. Likewise, the personnel handling the medicine are professionals who have expertise over the matter, which may reduce the confusion that may arise from the similarity of the marks.

However, should the same condition happen in a different market where customers and clients are not as particular, the confusion created by the co-existence of the confusingly similar marks may defeat the very purpose of the trademark, and may negatively affect the goodwill of the owner of the mark.

Awareness of IP rights

The Decision highlights the importance and necessity of trademark owners to be aware of their rights and to register their marks as early as possible. While failure to register a mark may not deprive a prior user in good faith of their trademark, the non-registration of such mark may create the absurdity of co-existence for the same or confusingly similar mark owned by a later registrant. Granting co-existence may be better than deprivation of rights over the mark, it is still best and prudent for the first user to take advantage of the system of registration in the IP Code and register the mark avoiding the absurd situation of co-existence.

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[1] Zuneca Pharmaceutical v. Natrapharm, Inc., G.R. No. 211850, [September 8, 2020]

[2]  Carbamazepine – Zynaps.” Food and Drug Administration Philippines, ww2.fda.gov.ph/index.php/consumers-corner/registered-drugs-2/338000-DR-XY28546.

[3] Team, Created by MIMSOnline. “Zynapse 500/Zynapse 1000.” Zynapse 500/Zynapse 1000 Full Prescribing Information, Dosage & Side Effects | MIMS Philippines, www.mims.com/philippines/drug/info/zynapse%20500-zynapse%201000?type=full.

[4] Zuneca Pharmaceutical v. Natrapharm, Inc., supra note 1.

[5] Berris Agricultural Co., Inc. v. Abyadang, G.R. No. 183404, [October 13, 2010], 647 PHIL 517-534.

[6] E.Y. Industrial Sales, Inc. v. Shen Dar Electricity and Machinery Co., Ltd., G.R. No. 184850, [October 20, 2010], 648 PHIL 572-596.

[7] Intellectual Property Code of the Philippines, Republic Act No. 8293, [June 6, 1997]

[8] Zuneca Pharmaceutical v. Natrapharm, Inc., supra note 1.

[9] Id.

[10] Zuneca Pharmaceutical v. Natrapharm, Inc., supra note 1, footnote 100 “NB. In disposing the ownership issue, the Court stated: “Therefore, Berris, as prior user and prior registrant, is the owner of the mark ‘D-10 80 WP.”‘ (Underscoring supplied). Id. at 530.”

[11] SECTION 147. Rights Conferred. — 147.1. The owner of a registered mark shall have 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 or services 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. In case of the use of an identical sign for identical goods or services, a likelihood of confusion shall be presumed.||| (Intellectual Property Code of the Philippines, Republic Act No. 8293, [June 6, 1997])

[12] IMS-PPI is a research tool which lists the pharmaceutical products marketed in the Philippines, and in this case, any other cerebroprotective products (CO4A) that [are] confusingly similar with “ZYNAPSE”.

[13] Zuneca Pharmaceutical v. Natrapharm, Inc., supra note 1.

[14] Zuneca Pharmaceutical v. Natrapharm, Inc., supra note 1.