In the Philippines, trademark disputes often arise between parties claiming rights to the same mark. This Supreme Court decision clarifies that while registration is important, it doesn’t automatically guarantee ownership. The Court emphasized that prior use and good faith play crucial roles in determining who has the right to a trademark, protecting the original creators of brands from those who might try to take advantage of their established reputation.

The Battle Over ‘FARLIN’: When a Distributor Tries to Claim the Brand

This case revolves around a long-standing trademark dispute between Cymar International, Inc. (Cymar), a Philippine corporation, and Farling Industrial Company, Ltd. (Farling), a Taiwanese corporation. Cymar sought to register several trademarks containing the name “FARLIN,” used for baby products. Farling opposed these registrations, arguing that it was the original owner of the FARLIN trademark and that Cymar was merely a distributor of its products. The central legal question is: Who has the right to use and register the FARLIN mark and its derivatives in the Philippines?

The legal framework for resolving this dispute involves both the old Trademark Law (Republic Act No. 166) and the Intellectual Property Code (IPC). Under the old Trademark Law, ownership of a trademark was primarily based on actual use in commerce within the Philippines. The IPC, however, shifts the focus to registration as the operative act for acquiring trademark rights. Even under the IPC, registration only creates a prima facie presumption of ownership, which can be overturned by evidence of prior use and bad faith.

The Supreme Court meticulously reviewed the evidence presented by both parties. Key to Farling’s case was demonstrating that it had been exporting FARLIN-branded products to the Philippines through Cymar since 1982. This was supported by a vast collection of shipping documents, invoices, and correspondence between the two companies. Farling also presented evidence of its trademark registration in Taiwan and other countries, as well as promotional materials predating Cymar’s claimed first use.

On the other hand, Cymar argued that it was the first to register the FARLIN mark in the Philippines and that it had invested significant resources in building the brand’s reputation. However, the Court found that Cymar’s registration was obtained in bad faith, given its knowledge of Farling’s prior use and the existence of a distribution agreement between the parties. This distribution agreement, in fact, proved critical to the Court’s decision.

The Court cited numerous precedents establishing that a mere distributor does not acquire ownership rights to its principal’s trademark. The use of a trademark by a distributor inures to the benefit of the foreign manufacturer whose goods are identified by the trademark. Moreover, the Court emphasized that Cymar could not claim prior use of the FARLIN mark because its use was pursuant to the distribution agreement with Farling. As the Court stated in Superior Commercial Enterprises, Inc. v. Kunnan Enterprises Ltd.:

As a mere distributor, [the spurned Philippine distributor] undoubtedly had no right to register the questioned mark in its name. Well-entrenched in our jurisdiction is the rule that the right to register a trademark should be based on ownership. When the applicant is not the owner of the trademark being applied for, he has no right to apply for the registration of the same. Under the Trademark Law, only the owner of the trademark, trade name or service mark used to distinguish his goods, business or service from the goods, business or service of others is entitled to register the same. An exclusive distributor does not acquire any proprietary interest in the principal’s trademark and cannot register it in his own name unless it has been validly assigned to him.

Adding to Cymar’s difficulties was a document titled “Authorization,” which Cymar claimed constituted a waiver by Farling of its trademark rights. The Court rejected this argument, finding that the Authorization pertained only to the copyright over the design of the FARLIN mark, not the trademark itself. Trademark and copyright are distinct intellectual property rights, and a waiver of copyright does not automatically transfer trademark rights. This is because trademark law protects brand names and logos used to identify products, while copyright law protects original artistic and literary works. Here, Farling had only agreed to let Cymar use the design, but not the underlying trademark.

Furthermore, the Court addressed several procedural issues raised by Cymar. Cymar argued that Farling had committed forum shopping by filing multiple cases involving the same trademark. The Court found that while the cases involved similar issues and parties, they were based on different causes of action. Each application for a distinct trademark, even if derivative of another, constitutes a distinct cause of action. This approach contrasts with a situation where a party files multiple cases based on the same set of facts and legal claims, hoping to obtain a favorable outcome in at least one forum.

The Court also addressed the admissibility of Farling’s evidence, particularly its Taiwanese trademark registration. Cymar argued that the registration was not properly authenticated and therefore had no probative value. The Court noted that proceedings before the Intellectual Property Office (IPO) are administrative in nature and not bound by the strict technical rules of evidence. This is a well-established principle in administrative law, allowing agencies to consider a wider range of evidence than would be admissible in a court of law. Additionally, the documents had already been submitted to the IPO for purposes of the 1994 Cancellation Case, making it unnecessary to resubmit the original documents each time. The Supreme Court echoed this principle:

These requirements notwithstanding, the Intellectual Property Office’s own Regulations on Inter Partes Proceedings (which governs petitions for cancellations of a mark, patent, utility model, industrial design, opposition to registration of a mark and compulsory licensing, and which were in effect when respondent filed its appeal) specify that the Intellectual Property Office “shall not be bound by the strict technical rules of procedure and evidence.”

In light of these findings, the Supreme Court upheld the IPO’s decision to deny Cymar’s trademark applications. The Court emphasized that while registration is important, it is not the sole determinant of trademark ownership. Prior use, good faith, and the circumstances of the commercial relationship between the parties are also critical factors to be considered. Here, Farling demonstrated that it was the original owner of the FARLIN trademark, and Cymar’s attempt to register the mark was tainted by bad faith and a violation of its fiduciary duty as a distributor.

FAQs

This case underscores the importance of conducting thorough due diligence before attempting to register a trademark. Companies should ensure that they are not infringing on the rights of others, particularly those who have a history of prior use. The Supreme Court’s decision serves as a reminder that trademark rights are not solely determined by registration but also by equitable principles of good faith and fair dealing.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: CYMAR INTERNATIONAL, INC. VS. FARLING INDUSTRIAL CO., LTD., G.R. Nos. 177974, 206121, 219072 and 228802, August 17, 2022

In a trademark dispute between Cymar International, Inc. and Farling Industrial Co., Ltd., the Supreme Court affirmed that merely being the first to register a trademark in the Philippines does not guarantee ownership. The Court prioritized evidence of prior use and bad faith, ruling that Farling, as the original owner and prior user of the ‘FARLIN’ trademark, had the right to prevent Cymar from registering derivative marks. This decision underscores the importance of establishing legitimate claim to a trademark beyond mere registration, especially when a distributor attempts to usurp the rights of the original manufacturer.

From Distributor to Trademark Owner? Unraveling the ‘FARLIN’ Dispute

The legal battle between Cymar International, Inc., a Philippine corporation, and Farling Industrial Co., Ltd., a Taiwanese corporation, centered on who had the rightful claim to the ‘FARLIN’ trademark and its variations. This dispute involved multiple cases before the Intellectual Property Office (IPO) and the Court of Appeals (CA), ultimately reaching the Supreme Court for a definitive resolution. At the heart of the matter was whether Cymar, as the first registrant of the trademark in the Philippines, could claim ownership despite evidence suggesting Farling’s prior use and ownership of the mark internationally.

The Supreme Court consolidated four petitions for review arising from trademark disputes between Cymar and Farling. Farling had originally filed petitions to cancel Cymar’s trademark registrations, arguing prior ownership and use of the ‘FARLIN’ mark. The IPO initially denied Farling’s petitions, but the Director General of the IPO reversed this decision, leading to appeals and counter-appeals. Cymar argued that as the first to register the trademarks in the Philippines, it should be considered the rightful owner under the ‘first-to-file’ rule. Farling countered by presenting evidence of its prior use, international registrations, and a distributorship agreement with Cymar, arguing that Cymar was merely an importer and distributor, not the owner, of the ‘FARLIN’ trademark.

The Court addressed several key issues, including forum shopping, admissibility of evidence, and the interpretation of the ‘first-to-file’ rule. The Court found that Farling did not engage in forum shopping, as each case involved distinct causes of action based on separate trademark applications by Cymar. Regarding evidence, the Court upheld the IPO’s decision to consider evidence from prior cancellation cases, emphasizing the administrative nature of IPO proceedings, which are not strictly bound by technical rules of evidence. This approach ensured a comprehensive review of the parties’ claims and commercial relationship.

The Court delved into the relationship between Cymar and Farling. Evidence showed that Cymar acted as a distributor of Farling’s products. This arrangement began as early as 1982, prior to Cymar’s registration of the FARLIN trademark. Farling authorized Cymar to sell its products, including those bearing the FARLIN brand, in the Philippines. Further, an authorization document, though presented late, was deemed insufficient to transfer trademark rights, as it pertained only to copyright over the box design. Given the distribution agreement, the Court found that Cymar could not claim prior use of the FARLIN mark, because any use it made of the mark inured to the manufacturer-exporter, Farling. This underscored the importance of the commercial relationship in determining trademark ownership.

Examining the applicability of the Intellectual Property Code (IPC), the Court clarified that while registration is the operative act for acquiring trademark rights, it does not override evidence of bad faith or prior ownership. The Court emphasized that while registration is important, ownership must be grounded in actual use and good faith. The Supreme Court highlighted that Cymar acted in bad faith by registering trademarks that belonged to Farling, particularly given their existing business relationship. This element of bad faith was critical in the Court’s decision to prioritize Farling’s rights over Cymar’s registration.

To emphasize the interplay of use and registration in trademark law, the Court cited Kolin Electronics Co., Inc. v. Kolin Philippines International, Inc., noting that each trademark application initiates a new process of determining registrability, accounting for nuances of potential damage to other parties. This approach contrasts with a system where trademark rights are awarded automatically to the first registrant, regardless of other factors. The Court referenced specific legal provisions to support its analysis. Section 134 of the IPC outlines the opposition process, allowing parties who believe they would be damaged by the registration of a mark to file an opposition. Section 151.1(b) allows for the cancellation of a trademark registration obtained fraudulently or contrary to the provisions of the IPC.

The Supreme Court also highlighted the distinct nature of copyright and trademark law by citing the case Kho v. Court of Appeals. This case clarified that trademarks and copyrights serve different purposes and provide different rights, further supporting the conclusion that the Authorization document held no weight in the trademark dispute.

Ultimately, the Supreme Court denied Cymar’s petitions, affirming the CA’s decisions. The Court’s ruling emphasized that mere registration does not guarantee trademark ownership, especially when there is evidence of prior use, a distribution agreement, and bad faith on the part of the registrant. This case reinforces the principle that trademark law aims to protect the rights of legitimate owners and prevent unfair competition. It highlights that the registration of a trademark is only one factor in determining ownership, and it can be overridden by compelling evidence of prior use and bad faith registration.

This ruling has significant implications for businesses involved in distribution agreements and trademark registration. It serves as a reminder that distributors cannot simply register trademarks of their suppliers and claim ownership. The case also highlights the importance of conducting thorough due diligence before registering a trademark, to ensure that it does not infringe on the rights of others. Further, it underscores the importance of maintaining accurate records of distribution agreements and other relevant documents, as these can be crucial in resolving trademark disputes.

FAQs

This case underscores the importance of protecting intellectual property rights and acting in good faith. For businesses, it serves as a reminder to conduct thorough due diligence and understand the legal implications of their commercial relationships.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: CYMAR INTERNATIONAL, INC. VS. FARLING INDUSTRIAL CO., LTD., G.R. Nos. 177974, 206121, 219072 and 228802, August 17, 2022