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 plaintiffs-appellees. (Pp. 21-22, Id.)

In a desperate attempt to escape liability, in their first assigned error,

defendants-appellants 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 and Commissioner of Internal Revenue vs. United States
Lines Co., G. R. No. L-16850, 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 plaintiff-appellee 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. 11-14.)

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, plaintiffs-appellants 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 defendants-appellants 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 trade-mark, 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 vice-president, 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.