Key Takeaway: The Importance of Distinguishing Your Products to Avoid Unfair Competition

Elidad Kho and Violeta Kho v. Summerville General Merchandising & Co., Inc., G.R. No. 213400, August 4, 2021

Imagine walking into a store to buy your favorite facial cream, only to find a product that looks strikingly similar to the one you trust, but it’s not the same brand. This scenario played out in a legal battle that reached the Supreme Court of the Philippines, highlighting the complexities of unfair competition laws. In the case of Elidad Kho and Violeta Kho versus Summerville General Merchandising & Co., Inc., the court had to determine whether the Kho’s product, which bore a confusingly similar appearance to Summerville’s, constituted unfair competition.

The case centered on the Kho’s medicated facial cream, which was packaged in a pink, oval-shaped container labeled with the trademark “Chin Chun Su”—the same as Summerville’s product. The central legal question was whether this similarity in appearance, despite different manufacturers, amounted to unfair competition under Philippine law.

Legal Context: Unfair Competition in the Philippines

Unfair competition is a significant concern in the business world, particularly in the Philippines, where the Intellectual Property Code (Republic Act No. 8293) governs such disputes. Section 168.3 (a) of the Code specifically addresses unfair competition, stating:

“Any person, who is selling his goods and gives 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…”

This provision aims to protect businesses from competitors who might mislead consumers by mimicking the appearance of their products. The key elements of an unfair competition claim under Philippine law include:

• Confusing similarity in the general appearance of the goods.
• Intent to deceive the public and defraud a competitor.

These elements can be inferred from the overall presentation of the product, not just from the trademark itself. For instance, if two competing products are packaged similarly and share similar names, it may lead to consumer confusion, even if the manufacturer’s name is clearly indicated.

Case Breakdown: The Journey Through the Courts

The legal saga began when Summerville accused the Khos of unfair competition by selling a facial cream that mimicked their product’s appearance. The City Prosecutor’s Office of Manila recommended filing an unfair competition case against the Khos, leading to an Information being filed in the Regional Trial Court (RTC).

The Khos challenged the prosecutor’s decision, leading to a series of appeals and motions. Initially, the Department of Justice (DOJ) dismissed the complaint against the Khos, but upon Summerville’s motion for reconsideration, the DOJ ordered the case to be re-evaluated. This back-and-forth continued, with the RTC initially withdrawing the Information against the Khos, only to have it reinstated after further appeals.

The case eventually reached the Court of Appeals (CA), which found that the RTC had committed grave abuse of discretion in dismissing the case due to lack of probable cause. The CA’s decision was based on the finding that the Khos’ product was confusingly similar to Summerville’s, stating:

“The ordinary purchaser would not normally inquire about the manufacturer of the product and therefore, petitioners’ act of labeling their product with the manufacturer’s name would not exculpate them from liability…”

The Supreme Court upheld the CA’s decision, emphasizing that the determination of probable cause for unfair competition is based on the overall appearance of the product and the likelihood of consumer confusion. The Court noted:

“The similarities far outweigh the differences. The general appearance of (petitioners’) product is confusingly similar to (respondent).”

The Supreme Court also addressed the issue of double jeopardy, ruling that the reinstatement of the Information did not violate the Khos’ rights against double jeopardy, as the case had not been terminated in a manner that would trigger such protection.

Practical Implications: Navigating Unfair Competition Laws

This ruling underscores the importance of ensuring that your products are distinctly different from those of your competitors, especially in terms of packaging and labeling. Businesses must be cautious not to inadvertently create a product that could be mistaken for another, as this could lead to legal action for unfair competition.

For individuals and businesses, the key lessons from this case are:

• Distinctive Packaging: Ensure your product’s packaging and labeling are unique to avoid confusion with competitors.
• Legal Consultation: Seek legal advice before launching a product that might be similar to an existing one.
• Consumer Awareness: Educate consumers about your product’s unique features to minimize confusion.

Frequently Asked Questions

What constitutes unfair competition under Philippine law?
Unfair competition occurs when a product’s appearance is confusingly similar to another, leading to consumer deception and potential harm to the competitor’s business.

Can a product be considered unfair competition even if it has a different manufacturer’s name?
Yes, if the overall appearance of the product is similar enough to cause confusion, the presence of a different manufacturer’s name may not be sufficient to avoid liability.

What should businesses do to avoid unfair competition claims?
Businesses should ensure their products are distinctly different from competitors, particularly in packaging and labeling, and seek legal advice to ensure compliance with intellectual property laws.

How does the court determine probable cause in unfair competition cases?
The court looks at the overall appearance of the product and whether it is likely to cause consumer confusion, not just at the trademark or manufacturer’s name.

What are the potential consequences of being found guilty of unfair competition?
Consequences can include legal penalties, financial damages, and the requirement to cease selling the offending product.

ASG Law specializes in intellectual property and unfair competition law. Contact us or email hello@asglawpartners.com to schedule a consultation.