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Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. Nos. L-27425 & L-30505

April 28, 1980

CONVERSE RUBBER CORPORATION and EDWARDSON MANUFACTURING

CORPORATION, plaintiffs-appellants,
vs.
JACINTO RUBBER & PLASTICS CO., INC., and ACE RUBBER & PLASTICS
CORPORATION, defendants-appellants.

Sycip, Salazar, Luna & Associates plaintiff-appellants.

Juan R. David for defendants-appellants.

BARREDO, J.:

Direct appeal in G.R. No. L-27425 by both plaintiffs and defendants from the
decision of the Court of First Instance of Rizal in its Civil Case No. 9380, a case
alleged unfair competition, the dispositive part of which reads:

Upon the foregoing, judgment is hereby rendered:

1.
Permanently restraining the defendants, their agents, employees and other
persons acting in their behalf from manufacturing and selling in the Philippines
rubber shoes having the same or confusingly similar appearance as plaintiff
Converse Rubber's Converse Chuck Taylor All Star' rubber shoes, particularly from
manufacturing and selling in the Philippines rubber Shoes with (a) ankle patch with
a five-pointed blue star against a white background, (b) red and blue bands, (c)
white toe patch with raised diamond shaped areas, and (d) brown sole of the same
or similar design as the sole of "Converse Chuck Taylor All Star" rubber-soled canvas
footwear;

2.
Ordering defendant Jacinto Rubber & Plastics Company, Inc. to change the
design and appearance of "Custombuilt" shoes in accordance with the sketch
submitted by defendant Jacinto Rubber to plaintiff Converse Rubber on October 3,
1964 and to desist from using a star both as a symbol and as a word;

3.
Ordering defendant Jacinto Rubber & Plastics Company, Inc. to pay plaintiffs
the sum of P160,000.00 as compensatory damages for the years 1962 to 1965 plus
5% of the gross sales of "Custombuilt" shoes from 1966 until defendant Jacinto
Rubber & Plastics Company, Inc. stop selling "Custombuilt" shoes of the present
design and appearance;

4.
Ordering defendants jointly and severally to pay plaintiffs P10,000.00 as
attorney's fees.

SO ORDERED. (Pages 228-229, Record on Appeal.)

plaintiffs praying for a bigger amount of damages and defendants asking that the
decision be declared null and void for lack of jurisdiction, or, alternatively, that the
same be reversed completely by dismissing the complaint; and another direct
appeal, in G. R. No. L-30505 by above defendant Jacinto Rubber & Plastics Co., Inc.
and, a new party, Philippine Marketing and Management Corporation from the same

trial court's order in the same main civil case finding them in contempt of court "in
disregarding the permanent injunction" contained in the appealed decision.

RE G. R. NO L-27425

Being comprehensive and well prepared, We consider it sufficient to quote the

following portions of the impugned decision as basis for the resolution of the
conflicting appeals aforementioned:

This is an action for unfair competition. Plaintiff Converse Rubber Corporation, (is)
an American Corporation, manufacturer (of) canvas rubber shoes under the trade
name "Converse Chuck Taylor All Star"; in the Philippines, it has an exclusive
licensee, plaintiff Edwardson Manufacturing Corporation, for the manufacture and
sale in the Philippines of its product. Plaintiff Converse is the owner of trademarks
and patent, registered with United States Patent Office, covering the words. "All
Star", the representation and design of a five-pointed star, and the design of the
sole. The trademark "Chuck Taylor" was registered by plaintiff Converse with the
Philippines Patent Office on March 3, 1966. Since 1946, "Chuck Taylor" is being sold
in the Philippines. It has been used exclusively by Philippine basketball teams
competing in international competitions. It is also popular among players in various
basketball leagues, like the MICAA and the NCAA, because of its high quality and
attractive style. "Chuck Taylor" currently retails at P46.00 per pair.

Defendant Jacinto Rubber & Plastics Company, Inc., a local corporation, likewise,
manufactures and sells canvas rubber shoes. It sells its product under the trade
names "Custombuilt Viscount", "Custombuilt Challenger", and "Custombuilt
Jayson's". Its trademark "Custombuilt Jayson's" was registered by the Philippines
Patent Office on November 29, 1957. The gross sales from 1962 to 1965 of
"Custombuilt" shoes total P16,474,103.76."Custombuilt" is retailed at P11.00.

In 1963, plaintiff Converse and defendant Jacinto entered into protracted

negotiations for a licensing agreement whereby defendant Jacinto would be the
exclusive license of plaintiff Converse in the Philippines for the manufacture and
sale of "Chuck Taylor" shoes but with the right to continue manufacturing and
selling its own products. One of the points taken up by parties was the design and
general appearance of "Custombuilt" shoes. Plaintiff Converse insisted on the
condition that defendant Jacinto change the design of "Custombuilt" shoes so as to

give "Custombuilt" a general appearance different from "Chuck Taylor." After an

extensive discussion, defendant Jacinto gave into to the demand of plaintiff
Converse; it submitted to plaintiff Converse for the latter's approval a sketch of a
new design for "Custombuilt". This design was accepted by plaintiff Converse.
Defendant Jacinto Rubber then proposed that the licensing agreement be made in
favor of its affiliates, defendant Ace Rubber. On January 22, 1965, defendant Ace
Rubber signed the licensing agreement while defendant Jacinto Rubber and Arturo
Jacinto signed the guarantee agreement to secure the performance by defendant
Ace Rubber of its obligations under the licensing agreement. Both documents, it
should be noted, contained the following covenants:

9.
(a) Ace acknowledges that Converse is the exclusive owner of the said
Converse - names and design, as used in connection with the manufacture,
advertising and sale of footwear: that Converse has the exclusive right to use said
Converse names in such connection throughout the world. subject to the terms of
this Agreement; and that neither Ace nor any person acting by, through or under
Ace will, at anytime, question or dispute said ownership or the exclusive rights of
Converse with respect thereto

(b)
Nothing herein shall be deemed to constitute a warranty by Converse as to
the non-existence of infringements of Converse-names in the Republic of the
Philippines. The term "infringement"as used in this Agreement shall include
practices which give rise to a cause of action for damages or to injunctive relief
under Sections 23 and 29 of R. A. No. 166 of the Republic of the Philippines or any
other applicable law of said Republic. During the term thereof, Ace at its expense
shall diligently investigate all infringements of the use of said Converse-names,
whether or not such infringements violate laws pertaining to the registration of
trademarks or trade names, and shall notify Converse promptly as to any
infringements of said Converse names within said territory, and shall at its expense
use its best efforts to prevent such infringements by an reasonable means,
including the prosecution of litigation where necessary or advisable. Any award for
damages which Ace may recover in such litigation shall accrue to the benefit of, and
shall be owned and retained by Ace.

14.
Ace shall not,during the term hereof, manufacture or sell footwear which
would, by reason of its appearance and/or design, be likely, or tend, to be confused
by the public with any of the Converse-named products to be manufactured and
sold hereunder, or shall in any manner, infringe Converse designs. If at any time
and from time to time the manufacture of footwear under Converse-names for sale
hereunder does not fully utilize Ace's production capacity, Ace shalt on Converse's

order, within the limits of such surplus capacity, manufacture footwear of kinds and
in amounts specified by Converse, at a price no higher than the lowest price at
which similar footwear has been sold to customer of Ace during the period of one
(1) year immediately preceding the date of such order, and upon no less favorable
discounts and terms of sale than similar footwear is customarily offered by Ace to its
most favored customer, payable in United States funds, if the earned royalty
hereunder is then so payable, otherwise in Republic of the Philippines funds.

20.
It being the mutual intention of the parties that Converse's exclusive property
interests in the Converse-names shall at all times be protected to the full extent of
the law, Ace agrees that it will execute all amendments to this Agreement which
may be proposed from time to time by Converse for the purpose of fully protecting
said interests.

However, the licensing agreement did not materialize, because Hermogenes Jacinto
refused to sign the guarantee.

Plaintiff Converse and plaintiff Edwardson then executed licensing agreement,

making plaintiff Edwardson the exclusive Philippine licensee for the manufacture
and sale of "Chuck Taylor." On June 18, 1966, plaintiffs sent a written demand to
defendants to stop manufacturing and selling "Custombuilt" shoes of Identical
appearance as "Chuck Taylor". Defendants did not reply to plaintiffs' letter. Hence,
this suit.

Plaintiffs contend that "Custombuilt" shoes are Identical in design and General
appearance to "Chuck Taylor" and, claiming prior Identification of "Chuck Taylor" in
the mind of the buying public in the Philippines, they contend that defendants are
guilty of unfair competition by selling "Custombuilt" of the design and with the
general appearance of "Chuck Taylor". The design and appearance of both products,
as shown by the samples and photographs of both products, are not disputed.
Defendants insist that (a) there is no similarity in design and general appearance
between "Custombuilt" and "Chuck Taylor", pointing out that "Custombuilt" is
readily Identifiable by the tradename "Custombuilt" appearing on the ankle patch,
the heel patch, and on the sole. It is also vigorously contended by defendants that
the registration of defendant Jacinto Rubber's trademark "Custombuilt" being prior
to the registration in the Philippines of plaintiff Converse Rubber's trademark "Chuck
Taylor", plaintiffs have no cause of action. It appears that defendant started to
manufacture and sell "Custombuilt" of its present design and with its present

appearance in 1962. On the other hand, as earlier mentioned, "Chuck Taylor"

started to be sold in the Philippines in 1946 and has been enjoying a reputation for
quality among basketball players in the Philippines.

The Court sees no difficulty in finding that the competing products are Identical in
appearance except for the trade names. The respective designs, the shapes and the
color of the ankle patch, the bands, the toe patch and the sole of the two products
are exactly the same. At a distance of a few meters, it is impossible to distinguish
Custombuilt' from "Chuck Taylor". The casual buyer is thus liable to mistake one for
the other. Only by a close-examination and by paying attention to the trade names
will the ordinary buyer be able to tell that the product is either "Custombuilt" or
"Chuck Taylor", as the case may be. Even so, he will most likely think that the
competing products, because they are strikingly Identical in design and appearance
are manufactured by one and the same manufacturer. Clearly, this case satisfied
the test of unfair competition. Priority in registration in the Philippines of a
trademark is not material in an action for unfair competition as distinguished from
an action for infringement of trademark. The basis of an action for unfair
competition is confusing and misleading similarity in general appearance, not
similarity of trademarks.

The Court is not impressed by defendants' good faith in claiming that they have the
right to continue manufacturing "Custombuilt" of Identical design and appearance
as "Chuck Taylor". While it is true that the licensing agreement between plaintiff
Converse and defendant did not materialize, the execution of the documents by the
defendants constitute an admission on the part of plaintiff Converse Rubber's
property right in design and appearance of "Chuck Taylor". The covenants, quoted
above, show that defendants acknowledged that plaintiff Converse Rubber "is the
exclusive owner of the said Converse-names and design." Defendants further
covenanted not to "manufacture or sell footwear which would by reason of its
appearance and/or design, be likely, or tend, to be confused by the public with any
of the Converse-named products ... or shall, in any manner, infringe Converse
designs". That defendants are fully aware that "Custombuilt" is Identical in design
and appearance to "Chuck Taylor" has conclusively been admitted by them in their
correspondence with plaintiff Converse leading to the submission by defendants to
plaintiff Converse of a sketch of a new design that should give "Custombuilt" an
appearance different from that of "Chuck Taylor".

Aside from the written admission of defendants, the facts clearly indicate that
defendants copied the design of "Chuck Taylor" with intent to gain "Chuck Taylor",
as has been noted earlier, was ahead ot Custombuilt' in the Philippines market and

has been enjoining a high reputation for quality and style. Even defendants' own
exhibits leave no room for doubt that defendants copied the design and appearance
of "Chuck Taylor" for the purpose of cashing in on the reputation of "Chuck Taylor".
The samples of defendants' product show, indeed, as announced by defendants'
counsel the "metamorphosis" of defendants' product. In the beginning, the design of
defendants' product was entirely different from its present design and the design of
"Chuck Taylor". It was only in 1962, or 16 years after "Chuck Taylor" has been in the
market, that defendants adopted the present design of "Custombuilt". It is also
noteworthy that "Custombuilt" sells at P35 less than "Chuck Taylor"; thus the casual
buyer is led to believe that he is buying the same product at a lower price. Not
surprisingly, the volume of sales of "Custombuilt" increased from 35% to 75% of
defendants' total sales after they incorporated in their product the design and
appearance of "Chuck Taylor".

It is thus clear that defendants are guilty of unfair competition by giving

"Custombuilt" the same general appearance as "Chuck Taylor". It is equally clear
that defendants in so doing are guilty of bad faith. There remains for the Court to
consider the damages that defendants should be liable for to plaintiffs. Plaintiffs
claim compensatory damages equivalent to 30% of the gross sales of "Custombuilt"
and attorney's fees in the amount of P25,000.00. By defendants' own evidence, the
gross sales of "Custombuilt" from 1962, the year defendants adopted the present
design of their product, to 1965 total P16,474,103.76. If the Court should grant
plaintiffs' prayer for compensatory damages equivalent to 30% of defendants' gross
sales, the compensatory damages would amount to P4,942,231.13. Considering the
amount of gross sales of "Custombuilt", an award to plaintiffs for 30% of
defendants' annual gross sales would seriously ripple, if not bankrupt, defendant
companies. The Court is aware that defendants' investment is substantial and that
defendants support a substantial number of employees and laborers. This being so,
the Court is of the opinion that plaintiffs are entitled to only one (1) per cent of
annual gross sales of "Custombuilt" shoes of current design. As for attorney s fees,
the Court is of the opinion that, P10,000.00 is reasonable. (Pages 217-228, Record
on Appeal.)

Defendants-appellants have assigned the following alleged errors:

THE COURT A QUO ERRED IN ASSUMING JURISDICTION OVER THE COMPLAINT OF

PLAINTIFFS-APPELLEES.

II

THE COURT A QUO ERRED IN ARRIVING AT THE CONCLUSION THAT THE

DEFENDANTS ARE GUILTY OF UNFAIR COMPETITION WHEN DEFENDANT JACINTO
RUBBER & PLASTICS CO., INC., MANUFACTURED AND SOLD RUBBER-SOLED
CANVASS SHOES UNDER ITS REGISTERED TRADE MARK "CUSTOMBUILT".

III

THE COURT A QUO ERRED IN ADJUDICATING IN FAVOR OF THE PLAINTIFF THE SUM
OF P160,000.00 AS COMPENSATORY DAMAGES AND P10,000.00 AS ATTORNEY'S
FEES. (Pp. A & B, Brief for Defendants-Appellants.)

We have carefully gone over the records and reviewed the evidence to satisfy
Ourselves of the similarity of the shoes manufactured and sold by plaintiffs with
those sold by defendants, and We find the conclusions of the trial court to be correct
in all respects. In fact, in their brief, defendants do not contest at all the findings of
the trial court insofar as material Identity between the two kinds of shoes in
question is concerned. We have Ourselves examined the exhibits in detail,
particularly, the comparative pictures and other representations if the shoes in
question, and We do not hesitate in holding that he plaintiffs complaint of unfair
competition is amply justified.

From said examination, We find the shoes manufactured by defendants to contain,

as found by the trial court, practically all the features of those of the plaintiff
Converse Rubber Corporation and manufactured, sold or marketed by plaintiff
Edwardson Manufacturing Corporation, except for heir respective brands, of course.
We fully agree with the trial court that "the respective designs, shapes, the colors of
the ankle patches, the bands, the toe patch and the soles of the two products are
exactly the same ... (such that) at a distance of a few meters, it is impossible to
distinguish "Custombuilt" from "Chuck Taylor". These elements are more than
sufficient to serve as basis for a charge of unfair competition. Even if not all the
details just mentioned were Identical, with the general appearances alone of the

two products, any ordinary, or even perhaps even a not too perceptive and
discriminating customer could be deceived, and, therefore, Custombuilt could easily
be passed off for Chuck Taylor. Jurisprudence supports the view that under such
circumstances, the imitator must be held liable. In R. F. & J. Alexander & Co. Ltd. et
al. vs. Ang et al., 97 Phil. 157, at p. 160, this Court held:

By "purchasers" and "public" likely to be deceived by the appearance of the goods,

the statute means the "ordinary purchaser". And although this Court apparently
shifted its position a bit in Dy Buncio vs. Tan Tiao Bok, 42 Phil. 190, by referring to
simulations likely to mislead "the ordinarily intelligent buyer", it turned to the
general accepted doctrine in E. Spinner & Co. vs. Neuss Hesslein, 54 Phil. 224,
where it spoke of "the casual purchasers" "who knows the goods only by name."

It stands to reason that when the law speaks of purchasers' it generally refers to
ordinary or average purchasers.

... in cases of unfair competition, while the requisite degree of resemblance or

similarity between the names, brands, or other indicia is not capable of exact
definition, it may be stated generally that the similarity must be such, but need only
be such, as is likely to mislead purchasers of ordinary caution and prudence; or in
other words, the ordinary buyer, into the belief that the goods or wares are those, or
that the name or business is that, of another producer or tradesman. It is not
necessary in either case that the resemblance be sufficient to deceive experts,
dealers, or other persons specially familiar with the trademark or goods involved.
Nor is it material that a critical inspection and comparison would disclose
differences, or that persons seeing the trademarks or articles side by side would not
be deceived (52 Am. Jur. pp. 600-601). (Brief for Plaintiffs as Appellees, pp. 28-29, p.
71, Record.)

Indeed, the very text of the law on unfair competition in this country is clear
enough. It is found in Chapter VI of Republic Act 166 reading thus:

SEC. 29. Unfair competition, rights and remedies. - A person who has Identified in
the mind of the public the goods he manufactures or deals in, his business or
services from those of others, whether or not a mark or trade name is employed,
has a property right in the goodwill of the said goods, business or services so
Identified, which will be protected in the same manner as other property rights.

Such a person shall have the remedies provided in section twenty-three, Chapter V
hereof.

Any person who shall employ deception or any other means contrary to good faith
by which he shall pass off the goods manufactured by him or in which he deals, or
his business, or services of those of the one having established such goodwill, or
who shall commit any acts calculated to produce said result, shall be guilty of unfair
competition, and shall be subject to an action therefor.

In particular, and without in any way limiting the scope of unfair competition, the
following shall be deemed guilty of unfair competition:

(a)
Any person, who in selling his goods shall give them the general appearance
of goods of another manufacturer or dealer, either as to the goods themselves or in
the wrapping of the packages in which they are contained, or the devices or words
thereon, or in any other feature of their appearance, which would be likely to
influence purchasers to believe that the goods offered are those of a manufacturer
or dealer other than the actual manufacturer or dealer, or who otherwise clothes the
goods with such appearance as shall deceive the public and defraud another of his
legitimate trade, or any subsequent vendor of such goods or any agent of any
vendor engaged in selling such goods with a like purpose;

(b)
Any person who by any artifice, or device, or who employs any other means
calculated to induce the false belief that such person is offering the services of
another who has Identified such services in the mind of the public; or

(c)
Any person who shall make any false statement in the course of trade or who
shall commit any other act contrary to good faith of a nature calculated to discredit
the goods, business or services of another.

It is the theory of defendants-appellants, however, that plaintiffs-appellees have

failed to establish a case of unfair competition because "inasmuch as the former
(Converse Chuck Taylor) was not sold in the local markets from 1949 to 1967, no
competition, fair or unfair, could have been offered to it by the latter product
(Custombuilt Challenger) during the said period." While the argument, it may be
conceded, makes sense as a proposition in practical logic, as indeed, it served as a

legal defense in jurisprudence in the past, the modern view, as contended by

plaintiffs "represents a tendency to mold, and even to expand; legal remedies in this
field to conform to ethical practices." (Brief of Plaintiffs as Appellees, pp. 16-17.) As
a matter of fact, in Ang vs. Toribio, 74 Phil. 129, this Court aptly pointed out:

... As trade has developed and commercial changes have come about, the law of
unfair competition has expanded to keep pace with the times and the elements of
strict competition in itself has ceased to be the determining factor. The owner of a
trademark or trade-name has property right in which he is entitled to protection,
since there is damage to him from confusion of reputation or goodwill in the mind of
the public as well as from confusion of goods. The modern trend is to give emphasis
to the unfairness of the acts and to classify and treat the issue as fraud.

Additionally, We quote with approval counsel's contention thus:

In no uncertain terms, the statute on unfair competition extends protection to the

goodwill of a manufacturer or dealer. It attaches no fetish to the word "competition".
In plain language it declares that a "person who has Identified in the public the
goods he manufactures or deals in, his business or services from those of others,
whether or not a right in the goodwill of the said goods, business or services so
Identified, which will be protected in the same manner as other property rights." It
denominates as "unfair competition" "any acts" calculated to result in the passing
off of other goods "for those of the one having established such goodwill." Singularly
absent is a requirement that the goodwill sought to be protected in an action for
unfair competition must have been established in an actual competitive situation.
Nor does the law require that the deception or other means contrary to good faith or
any acts calculated to pass off other goods for those of one who has established a
goodwill must have been committed in an actual competitive situation.

To read such conditions, as defendants-appellants seek to do, in the plain

prescription of the law is to re-construct it. Indeed, good-will established in other
than a competitive milieu is no less a property right that deserves protection from
unjust appropriation or injury. This, to us, is precisely the clear sense of the law
when it declares without equivocation that a "person who has Identified in the mind
of the public the goods he manufactures or deals in, his business or services from
those of others, has a property right in the goodwill of the said goods, business or
services so Identified, which will be protected in the same manner as other property
rights."

Plaintiffs-appellees have a established goodwill. This goodwill, the trial court found,
defendants-appellants have pirated in clear bad faith to their unjust enrichment. It
is strange that defendants-appellants now say that they should be spared from the
penalty of the law, because they were not really in competition with plaintiffsappellees. (Pp. 21-22, Id.)

In a desperate attempt to escape liability, in their first assigned error, defendantsappellants assail the jurisdiction of the trial court, contending that inasmuch as
Converse Rubber Corporation is a non-resident corporation, it has no legal right to
sue in the courts of the Philippines, citing Marshall-Wells Co. vs. Elser & C., 46 Phil.
70 andCommissioner of Internal Revenue vs. United States Lines Co., G. R. No. L16850, May 30, 1962 (5 SCRA 175) and, furthermore, that plaintiff Edwardson
Manufacturing Corporation, although "a domestic corporation, is nothing but a
licensee of Converse Rubber Corporation in the local manufacturing, advertisement,
sale and distribution of the rubber-soled footwear", hence, it is equally without such
personality. (p. 18, Brief of Defendants-Appellants).

We are not impressed. The easy and, We hold to be correct, refutation of

defendants' position is stated adequately and understandably in plaintiffs' brief as
appellees as follows:

The disability under Section 69 of the Corporation Law of an unlicensed foreign

corporation refers to transacting business in the Philippines and maintaining a "suit
for the recovery of any debt, claim, or demand whatever" arising from its
transacting business in the Philippines. In Marshall-Wells, this Court precisely
rejected a reading of Section 69 of the Corporation Law as "would give it a literal
meaning", i.e., "No foreign corporation shall be permitted by itself or assignee any
suit for the recovery of any deed, claim, or demand unless it shall have the license
prescribed by Section 68 of the Law." "The effect of the statute," declared this
Court, "preventing foreign corporations from doing business and from bringing
actions in the local courts, except on compliance with elaborate requirements, must
not be unduly extended or improperly applied (at page 75). In Commissioner of
Internal Revenue v. United States Lines Company, this Court did not hold that an
unlicensed foreign corporation may not sue in the Philippines. The Court simply held
that a foreign shipping company, represented by a local agent, is doing business in
the Philippines so as to subject it to the "operation of our revenue and tax."

Western Equipment and Supply Co. v. Reyes, 51 Phil. 115, made clear that the
disability of a foreign corporation from suing in the Philippines is limited to suits "to
enforce any legal or contract rights arising from, or growing out, of any business
which it has transacted in thePhilippine Islands." ... On the other hand, where the
purpose of a suit is "to protect its reputation, its corporate name, its goodwill,
whenever that reputation, corporate name or goodwill have, through the natural
development of its trade, established themselves," an unlicensed foreign
corporation may sue in the Philippines (at page 128). So interpreted by the Supreme
Court, it is clear that Section 69 of the Corporation Law does not disqualify plaintiffappellee Converse Rubber, which does not have a branch office in any part of the
Philippines and is not "doing business" in the Philippines (Record on Appeal, pp.
190-191), from filing and prosecuting this action for unfair competition.

The futility of the error assigned by defendants-appellants becomes more evident in

light of the explicit provision of Section 21 (a) of Republic Act No. 166, as amended,
that a foreign corporation, whether or not licensed to transact business in the
Philippines may bring an action for unfair competition provided the country of which
it "is a citizen, or in which it is domiciled, by treaty, convention or law, grants a
similar privilege to juristic persons in the Philippines." The Convention of Paris for
the Protection of Industrial Property, to which the Philippines adheres, provides, on a
reciprocal basis that citizens of a union member may file an action for unfair
competition and infringement of trademarks, patents, etc. (610. G. 8010) in and of
the union members. The United States of America, of which Converse Rubber is a
citizen, is also a signatory to this Convention. Section 1126 (b) and (h) of Public Law
489 of the United States of America allows corporations organized under the laws of
the Philippines to file an action for unfair competition in the United States of
America, whether or not it is licensed to do business in the United States. (Annex
"H" of Partial Stipulation of Facts, Record on Appeal, p. 192).

As regards the other plaintiff-appellee, Edwardson Manufacturing Corporation, it is

indisputable that it has a direct interest in the success of this action: as exclusive
licensee of Converse Rubber in the manufacture and sale of "Chuck Taylor" shoes in
the Philippines, naturally it would be directly affected by the continued manufacture
and sale by defendants-appellants of shoes that are confusingly Identical in
appearance and design with "Chuck Taylor." (Brief of Plaintiffs as Appellees, pp. 1114.)

As can be seen, what is actually the only controversial matter in this case is that
which refers to the assessment ot damages by the trial court, which both plaintiffs
and defendants consider erroneous, defendants maintaining, of course, that it is

excessive, even baseless, while, on the other hand, plaintiffs posit that it is far short
from what the law and the relevant circumstances require.

Under Section 29 of the Republic Act 166, aforequoted, it will be observed that the
first paragraph thereof refers to the property rights in goodwill of a "person who has
Identified in the mind of the public goods he manufactures or deals in, his business
or offices from those of others, whether or not a mark or trade name is employed",
while the second paragraph speaks of "any person who shall employ deception or
any other means contrary to good faith by which he shall pass off the goods
manufactured by him ... for those of the one having established such goodwill." This
second paragraph, which may be read together with the first paragraph, makes the
deceiver or imitator "guilty of unfair competition and shall be subjected to an action
therefore", meaning what the first paragraph refers to as the "remedies provided in
Section twenty-three, Chapter V" of the Act. It is implicit in the decision of the trial
court and the briefs of the parties that everyone here concerned has acted on the
basis of the assumptions just stated.

Now, Section 23 reads:

Actions, and damages and injunction for infringement. - Any person entitled to the
exclusive use of a registered mark or trade name may recover damages in a civil
action from any person who infringes his rights, and the measure of the damages
suffered shall be either the reasonable profit which the complaining party would
have made, had the defendant not infringed his said rights, or the profit which the
defendant actually made out of the infringement, or in the event such measure of
damages cannot be readily ascertained with reasonable certainty, then the court
may award as damages a reasonable percentage based upon the amount of gross
sales of the defendant of the value of the services in connection with which the
mark or trade name was used in the infringement of the rights of the complaining
party. In cases where actual intent to mislead the public or to defraud the
complaining party shall be shown, in the discretion of the court, the damages may
be doubled.

The complaining party, upon proper showing, may also be granted injunction.

In the light of the foregoing provision, We find difficulty in seeing the basis of the
trial court for reducing the 30%, claimed by plaintiffs, of the gross earnings of

defendants from the sale of Custombuilt from 1962 to merely 1% as the measure of
compensatory damages to which plaintiffs are entitled for that period. Perhaps, as
His Honor pessimistically argued, defendants would suffer crippling of their
business. But it is quite clear from the circumstances surrounding their act of
deliberately passing off the rubber shoes produced by them for those over which
plaintiffs had priorly established goodwill, that defendants had tremendously
increased their volume of business and profits in the imitated shoes and have
precisely incurred, strictly speaking, the liability of the damages to be paid by them
be doubled, per the last sentence of Section 23.

We are of the considered opinion that the trial court was overly liberal to the
defendants-appellants. The P160,000.00 awarded by His Honor as compensatory
damages for the years 1962 to 1965 are utterly inadequate. Even the 5% of the
gross sales of "Custombuilt" shoes from 1966 until its injunction is fully obeyed are
short of what the law contemplates in cases of this nature. We hold that considering
that the gross sales of defendants-appellants increased to P16,474,103.76, (as
admitted in defendants-appellants' own brief, p. 2), only 75% of which, plaintiffsappellants generously assert corresponded to Custombuilt sales, it would be but fair
and just to award plaintiffs-appellants 15% of such 75% as compensatory damages
from 1962 up to the finality of this decision. In other words, 75% of P16,474,103.76
would be P12,355,577.82 and 15% of this last amount would be P1,853,336.67,
which should be awarded to plaintiffs-appellants for the whole period already
stated, without any interest, without prejudice to plaintiffs-appellants seeking by
motion in the trial court in this same case any further damage should defendantsappellants continue to disobey the injunction herein affirmed after the finality of this
decision.

We feel that this award is reasonable. It is not farfetched to assume that the net
profit of the imitator which, after all is what the law contemplates as basis for
damages if it were only actually ascertainable, in the manufacture of rubber shoes
should not be less than 20 to 25% of the gross sales. Regrettably, neither of the
parties presented positive evidence in this respect, and the Court is left to use as
basis its own projection in the light of usual business practices. We could, to be
sure, return this case to the lower court for further evidence on this point, but,
inasmuch as this litigation started way back about fourteen years ago and it would
take more years before any final disposition is made hereof should take the course,
We are convinced that the above straight computation, without any penalty of
interest, is in accordance with the spirit of the law governing this case.

In re G. R. No. L-30505

The subject matter of this appeal is the order of the trial court, incident to its main
decision We have just reviewed above, dismissing "for lack 6f jurisdiction the
contempt charge filed by plaintiffs against defendant Jacinto Rubber & Plastics Co.
Inc., Ace Rubber & Plastics Corporation; Philippine & Management Corporation and
their respective corporate officers.

Importantly, it is necessary to immediately clear up the minds of appellees in regard

to some aspects of the argument on double jeopardy discussed by their
distinguished counsel in his preliminary argument in his brief (pp. 9-13). It is
contended therein that inasmuch as the denial orders of August 23, 1967,
December 29, 1967 and January 24, 1968 have the character of acquittals,
contempt proceedings being criminal in nature, this appeal subjects appellees to
double jeopardy. Such contention misses, however, the important consideration that
the said denial orders, were, as explained by His Honor himself in his last two
orders, based on the assumption that he had lost jurisdiction over the incident by
virtue of the earlier perfection of the appeals of both parties from the decision on
the merits.

It is thus the effect of this assumption, revealed later by the trial judge, on the first
order of August 23, 1967 that needs clarificatory disquisition, considering that the
said first order was exclusively based on "the interests of justice" and "lack of merit"
and made no reference at all to jurisdiction. If indeed the trial court had lost
jurisdiction, it would be clear that said order could have no legal standing, and the
argument of double jeopardy would have no basis.

But after mature deliberation, and in the light of Cia General de Tabacos de Filipinas
vs. Alhambra Cigar & Cigarette Manufacturing Co., 33 Phil. 503, cited by appellant's
counsel in his brief, We are convinced that the trial court in the case at bar had
jurisdiction to entertain and decide the motion for contempt in question. Indeed, the
enforcement of either final or preliminary-made-final injunctions in decisions of trial
courts are immediately executory. The reason for this rule lies in the nature itself of
the remedy. If a preliminary injunction, especially one issued after a hearing is
enforceable immediately to protect the rights of the one asking for it, independently
of the pendency of the main action, there is no reason why when that preliminary
injunction is made final after further and fuller hearing the merits of the plaintiff's
cause of action, its enforceability should lesser, force. The same must be true with
stronger basis in the case of a permanent injunction issued as part ot the judgment.
The aim is to stop the act complained of immediately because the court has found it

necessary to serve the interests of justice involved in the litigation already resolve
by it after hearing and reception of the evidence of both parties.

As a matter ot fact, it is quite obvious that an action for unfair competition with
prayer for an injunction partakes of the nature of an action for injunction within the
contemplation of Section 4 of Rule 39, and this cited provision states explicitly that
"unless otherwise ordered by the court, a judgment in an action for injunction - shall
not be stayed after its rendition and before an appeal is taken or during the
pendency of an appeal." In the above-mentioned case of Cia. General de Tabacos,
the Court held:

The applicant contends here: First, that the injunction is indefinite and uncertain to
such an extent that a person of ordinary intelligence would be unable to comply
with it and still protect his acknowledged rights; second, that the injunction is void
for the reason that the judgment of the court on which it 's based is not responsive
to the pleadings or to the evidence in the case and has nothing in the record to
support it; third, that the court erred in assuming jurisdiction and fining defendant
after an appeal had been taken from the judgment of the court and the perpetual
injunction issued thereon. There are other objections that need no particular
discussion.

Discussing these questions generally it may be admitted, as we stated in our

decision in the main case (G. R No. 10251, ante p. 485) that, while the complaint set
forth an action on a trade-name and for unfair competition, accepting the plaintiff's
interpretation of it, the trial court based its judgment on the violation of a trademark, although the complaint contained no allegation with respect to a trade-mark
and no issue was joined on that subject by the pleadings and no evidence was
introduced on the trial with respect thereto. There Aas however, some evidence in
the case with respect to the plaintiff's ownership of the trade-name "Isabela," for
the violation of which the plaintiff was suing, and there was some evidence which
might support an action of unfair competition, if such an action could be sustained
under the statute. Therefore, although the judgment of the trial court was based on
the violation of a trade-mark, there was some evidence to sustain the judgment if it
had been founded on a violation of the trade-name or on unfair competition. The
judgment, as we have already found in the main case, was erroneous and was
reversed for that reason; but having some evidence to sustain it, it was not void and
the injunction issued in that action was one which the court had power to issue.
Although the judgment was clearly erroneous and without basis in law, it was,
nevertheless a judgment of a court of competent jurisdiction which had authority to
render that particular judgment and to issue a permanent injunction thereon.

xxx

xxx

xxx

... The question is not was the judgment correct on the law and the facts, but was it
a valid judgment? If so, and if the injunction issued thereon was definite and certain
and was within the subject matter of the judgment, the defendant was bound to
obey it, however erroneous it may have been. (Pp. 505-506, 506, 33 Phil.)

It is interesting to note that while the trial court was of the opinion that it had lost
jurisdiction over the motion for contempt, upon insistence of the plaintiffs, in its
order of January 24, 1968, it made the following findings of fact:

It is not controverted on December 14, 1966, the Philippine Marketing and

Management sold to Virginia Ventures 12 pairs of "Custombuilt" rubber shoes
bearing an Identical design and general appearance as that prohibited in the
injunction. It is likewise not controverted that subsequent to December 14, 1966 the
sale of the said rubber shoes was advertised by Philippine Marketing and
Management Corporation in several metropolitan newspapers even during the
pendency of the contempt proceedings.

The only issue of fact is whether or not in selling and advertising the sale of the
prescribed shoes the Philippine Marketing and Management Corporation conspired
with the defendants, particularly defendant Jacinto Rubber, or acted as its agent,
employee or in any other capacity with knowledge of the issuance of the said
permanent injunction. On this point, the evidence of the plaintiffs shows that
Hermogenes Jacinto, Arturo Jacinto, Fernando Jacinto and Milagros J. Jose constitute
the majority of the board of directors of the Philippine Marketing and Management
Corporation; that Hermogenes Jacinto is the president, Arturo Jacinto is the vicepresident, and Fernando Jacinto and Milagros J. Jose are directors, of defendant
Jacinto Rubber; that Milagros J. Jose is the treasurer of the Philippine Marketing and
Management Corporation; and that Ramon V. Tupas, corporate secretary of the
Philippine Marketing and Management Corporation, actively assisted by Atty. Juan T.
David, counsel of record of the defendants, in defending the defendants in this case.
It also appears from the different advertisements published in the metropolitan
papers that Philippine Marketing and Management Corporation is the exclusive
distributor of the questioned "Custombuilt" rubber shoes. Moreover, during the trial
of this case on the merits the defendants admitted that the Philippine Marketing and
Management Corporation is a sister corporation of defendant Jacinto Rubber, both

corporations having Identical stockholders, and Hermogenes Jacinto and Fernando

Jacinto are stockholders and incorporators of the Philippine Marketing and
Management Corporation.

On the other hand, the defendants, particularly defendant Jacinto Rubber, presented
no evidence to disprove its intra-corporate relationship with the Philippine Marketing
and Management Corporation. Instead it presented, over the objection of the
plaintiffs, the affidavit of its executive vice-president, Geronimo Jacinto, who
affirmed that defendant Jacinto Rubber had no knowledge of, or participation in, the
acts complained of in the motion to declare them in contempt of Court and that it
has not in any way violated any order of this Court. On its part, the Philippine
Marketing and Management Corporation presented as a witness its general
manager, Aniceto Tan, who testified that the Philippine Marketing and Management
Corporation is not an agent or sister corporation of defendant Jacinto Rubber; that
he came to know of the pendency of this case and the issuance of the permanent
injunction only on December 19, 1966 when served with a copy of plaintiffs' motion;
and that the Philippine Marketing and Management Corporation buys the
"Custombuilt Rubber" shoes from defendant Jacinto Rubber which it resells to the
general public. It is noteworthy, however, that this particular witness made several
admissions in the course of his testimony which shed light on the question at issue.
Thus, he admitted that prior to the formal organization of the Philippine Marketing
and Management Corporation in January 1966 he was the sales manager of
defendant Jacinto Rubber; that after the organization of the said corporation, he was
informed that defendant Jacinto Rubber would discontinue its sales operations and
instead give the exclusive distribution of the shoes to the Philippine Marketing and
Management Corporation; and that he was then offered the position of sales
manager of Philippine Marketing and Management because of his extensive
experience in the distribution of "Custombuilt" rubber shoes. Also, he testified that
the subscribed capital stock of the Philippine Marketing and Management
Corporation is only P100,000.00 out of which P25,000.00 has been paid whereas its
average monthly purchases of "Custombuilt" rubber shoes is between P300,000.00
to P400,000.00 or between P4,000,000.00 to P5,000,000.00 annually. Such huge
purchases Philippine Marketing and Management Corporation is able to make, in
spite of its meager capital, because defendant Jacinto Rubber allows it to buy on
credit.

Considering the substantial Identity of the responsible corporate officers of the

defendant Jacinto Rubber and the Philippine Marketing and Management
Corporation, the huge volume of alleged purchases of "Custombuilt" shoes by the
Philippine Marketing and Management Corporation compared to its paid in capital,
and the cessation of the sales operations of defendant Jacinto Rubber after the

organization of the former, the Court is convinced beyond reasonable doubt that the
Philippine Marketing and Management Corporation is the selling arm or branch of
defendant Jacinto Rubber and that both corporations are controlled by substantially
the same persons, the Jacinto family. The contention of the Philippine Marketing and
Management Corporation that it sold the 12 pairs of "Custombuilt" shoes on
December 14, 1966 without knowledge of the issuance of the injunction is belied by
its conduct of continuing the sale and the advertisement of said shoes even during
the pendency of the contempt proceedings. This conduct clearly reveals the
wilfulness and contumacy with which it had disregarded the injunction. Besides, it is
inherently improbable that defendant Jacinto Rubber and Atty. Ramon B. Tupas did
not inform the Philippine Marketing and Management Corporation of the issuance of
the injunction, a fact which undoubtedly has a material adverse effect on its
business.

Upon the foregoing, the Court is convinced that defendants and Philippine Marketing
and Management Corporation are guilty of contempt of court in disregarding the
permanent injunction issued by this Court in its decision on the merits of the main
case. However, for the reasons stated in the Order of December 29, 1967, the Court
maintains that it has lost jurisdiction over the case. (Pp. 115-120, Record on
Appeal.)

Stated differently, since the trial court had jurisdiction to take cognizance of the
motion, its findings of facts should as a rule bind the parties, and, in this connection,
appellees do not seriously challenge said findings. And since We are holding that
the trial court had jurisdiction, the above findings may be determinative of the
factual issues among the parties herein. We are thus faced with the following
situations:

The first order of dismissal of August 23, 1967, albeit issued with jurisdiction, was
incomplete because it contained no statements of facts and law on which it was
based in violation of the pertinent constitutional precept. It could not stand as it
was.

The second of December 29, 1967 was still incomplete, with the added flaw that his
Honor declared himself therein as having lost jurisdiction.

On other hand, while the third order of January 24, 1968 filled the ommissions of the
first two orders, it, however, the reiterated the erroneous ruling of the second order
regarding lost of jurisdiction of the court over the incident.

Combining the three orders, it can be seen that the result is that the trial court
found from the evidence that its injunction had been violated, but it erroneously
considered itself devoid of authority to impose the appropriate penalty, for want of
jurisdiction. Upon these premises, We hold that the factual findings of the trial court
in its third order may well stand as basis tor the imposition of the proper penalty.

To be sure, appellees are almost in the right track in contending that the first denial
order of the trial court found them not guilty. What they have overlooked however is
that such a finding cannot be equated with an acquittal in a criminal case that bars
a subsequent jeopardy. True it is that generally, contempt proceedings are
characterized as criminal in nature, but the more accurate juridical concept is that
contempt proceedings may actually be either civil or criminal, even if the distinction
between one and the other may be so thin as to be almost imperceptible. But it
does exist in law. It is criminal when the purpose is to vindicate the authority of the
court and protect its outraged dignity. It is civil when there is failure to do something
ordered by a court to be done for the benefit of a party. (3 Moran, Rules of Court, pp.
343-344, 1970 ed; see also Perkins vs. Director of Prisons, 58 Phil. 272; Harden vs.
Director of Prisons, 81 Phil. 741.) And with this distinction in mind, the fact that the
injunction in the instant case is manifestly for the benefit of plaintiffs makes of the
contempt herein involved civil, not criminal. Accordingly, the conclusion is inevitable
that appellees have been virtually found by the trial court guilty of civil contempt,
not criminal contempt, hence the rule on double jeopardy may not be invoked.

WHEREFORE, judgment is hereby rendered - in G. R. No. L-27425 - affirming the

decision of the trial court with the modification of the amount of the damages
awarded to plaintiffs in the manner hereinabove indicated; and in G.R. No. L-30505 the three orders of dismissal of the trial court of the contempt charges against
appellees are all hereby reversed, and on the basis of the factual findings made by
said court in its last order of January 24, 1968, appellees are hereby declared in
contempt of court and the records of the contempt proceedings (G. R. No. L-30505)
are ordered returned to the trial court for further proceedings in line with the above
opinion, namely for the imposition of the proper penalty, its decision being
incomplete in that respect. Costs against appellees in G. R. No. L-27425, no costs in
G. R. No. L-30505. These decisions may be executed separately.

Concepcion Jr., Guerrero and De Castro, JJ., concur.

Antonio, J., is on leave.

Aquino, J., concur in the result.

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