CASE DIGEST : Cymar International, Inc. v. Farling Industrial Co., Ltd. G.R. Nos. 177974, 206121, 219072 & 228802 August 17, 2022 GAERLAN

 

FACTS

Farling Industrial Co., Ltd. (Farling), a Taiwanese corporation engaged in the manufacture of baby products, had been using and registering the "IMAGE" trademark and its derivative marks in Taiwan and several other countries since 1978. It entered into a distributorship arrangement with Cymar International, Inc. (Cymar), a Philippine corporation, whereby Cymar imported, distributed, and promoted Farling's IMAGE-branded products in the Philippines. Documentary evidence, including invoices, shipping records, correspondence, advertisements, and import documents, showed that Cymar acted merely as Farling's distributor and even identified itself in advertisements as the "sole importer" of Farling products.

Despite the distributorship arrangement, Cymar subsequently registered in its own name several IMAGE and FARLIN LABEL trademarks in the Philippines under Republic Act No. 166 (Trademark Law). In 1994, Farling filed petitions before the Bureau of Patents, Trademarks and Technology Transfer (later the Intellectual Property Office or IPO) seeking the cancellation of Cymar's registrations, alleging that Cymar fraudulently registered marks which actually belonged to Farling. While the cancellation case was pending, the Intellectual Property Code (Republic Act No. 8293) took effect on January 1, 1998, repealing R.A. No. 166 but preserving pending trademark rights and proceedings. Farling likewise opposed several later trademark applications filed by Cymar involving IMAGE and FARLIN derivative marks.

The administrative proceedings produced conflicting rulings. Initially, the Bureau of Legal Affairs (BLA-IPO) sustained Cymar's registrations, reasoning that under the old Trademark Law actual use in the Philippines established ownership. On appeal, however, the IPO Director General reversed the ruling and cancelled Cymar's registrations after finding that Cymar was merely Farling's distributor and could not appropriate its principal's trademarks. The Court of Appeals affirmed the IPO rulings in the various cancellation and opposition cases. Cymar elevated the controversy to the Supreme Court through four consolidated petitions involving the cancellation of existing registrations and the denial of subsequent trademark applications.

Before the Supreme Court, Cymar argued that it was the first registrant and first user of the disputed marks in the Philippines, that Farling lacked capacity to sue as a foreign corporation, that the foreign trademark registrations were ineffective without Philippine registration, that Farling committed forum shopping, and that an "Authorization" executed by Farling transferred ownership of the trademarks to Cymar. Farling maintained that it was the true owner and prior user of the IMAGE mark, that Cymar merely acted as its local distributor, and that Philippine trademark law, the Paris Convention for the Protection of Industrial Property, and the Intellectual Property Code protected its ownership rights.

ISSUE

Whether Farling, despite being a foreign corporation, possessed the better right to register and own the IMAGE trademark and its derivative marks in the Philippines under Republic Act No. 166, Republic Act No. 8293 (Intellectual Property Code), and the Paris Convention for the Protection of Industrial Property.

Whether Cymar acquired ownership of the IMAGE and FARLIN trademarks by being the first registrant or alleged first user in the Philippines, and whether the first-to-file rule under the Intellectual Property Code was controlling under the circumstances.

Whether the distributorship relationship between the parties, the documentary evidence presented, and the Authorization executed by Farling transferred or waived Farling's trademark rights in favor of Cymar, thereby preventing Farling from seeking cancellation of Cymar's registrations and opposing its later trademark applications.

HELD

The Supreme Court DENIED Cymar's consolidated petitions and AFFIRMED the rulings of the IPO and the Court of Appeals recognizing Farling as the true owner of the IMAGE trademark and its derivative marks. The Court ruled that ownership of a trademark is acquired by lawful adoption and use, not merely by registration. Registration under both R.A. No. 166 and the Intellectual Property Code (R.A. No. 8293) creates only a prima facie presumption of ownership, which may be overturned by competent evidence showing that another party is the actual owner. The evidence overwhelmingly established that Farling conceived, adopted, manufactured, and internationally marketed the IMAGE brand long before Cymar registered it in the Philippines.

The Court further held that Cymar, as Farling's exclusive distributor, could not appropriate for itself the trademarks belonging to its foreign principal. Philippine trademark law and international principles embodied in the Paris Convention for the Protection of Industrial Property protect the rights of the true owner against fraudulent registration by local distributors or agents. The Court emphasized that a distributor's promotion of the principal's products and investment in advertising do not transfer trademark ownership because the goodwill generated belongs to the owner of the mark. The evidence—including invoices, shipping documents, correspondence, and advertisements—proved that Cymar itself acknowledged Farling as the manufacturer whose products it merely imported and distributed.

The Supreme Court likewise rejected Cymar's arguments on forum shopping, res judicata, and the alleged waiver through the Authorization. It ruled that the cancellation cases and the later opposition proceedings involved different trademark applications and separate causes of action; thus, Farling did not engage in forum shopping. The Authorization merely permitted Cymar to pursue copyright registration over certain packaging designs and did not transfer ownership of the IMAGE trademark or waive Farling's intellectual property rights. Consequently, the document could not be interpreted as an assignment or abandonment of Farling's trademarks.

Finally, the Court declared that the first-to-file rule under the Intellectual Property Code is not absolute and cannot defeat the rights of the true owner of a trademark. Trademark law is intended to protect ownership, prevent consumer confusion, and preserve commercial goodwill rather than reward a party who merely files an earlier application. Accordingly, the Court sustained the cancellation of Cymar's registrations and the denial of its subsequent trademark applications, while recognizing Farling's superior right to use and register the IMAGE mark and its derivatives in the Philippines. The decision reaffirmed that Philippine trademark law, read together with the Paris Convention and the Intellectual Property Code, protects genuine trademark ownership against bad-faith registration by distributors or agents.