“Why cancel our trademark when we filed a petition to cancel somebody else’s trademark?”

This must have been the reaction of Shen Dar Electricity and Machinery, Inc. (Shen Dar) when it was handed the 21 October 2010 Philippines Supreme Court (SC) Philippines decision. Shen Dar had filed the appeal with the SC seeking to nullify and reverse the judgement of the Court of Appeals (CA), which had earlier ruled against Shen Dar.

Originally, Shen Dar had filed a petition for cancellation of the registration of the mark “VESPA” by E.Y. Industrial Sales, Inc. (EYIS) at the Intellectual Property Office of the Philippines (IPOPhil). Shen Dar’s petition was denied.

EYIS is a Filipino entity, whilst Shen Dar is a Taiwan-based corporation. EYIS imports air compressors from Shen Dar and distributes and sells the same in the Philippines. Prior to selling the same, EYIS attaches the mark “VESPA” on said air compressors. On the other hand, Shen Dar supplies the air compressors being imported by EYIS. From 1997 to 2004 EYIS imported air compressors from Shen Dar. There was evidence of sales contracts, on which the items were merely described as “air compressors”; there was no documentary evidence to prove the items were marked “VESPA”.

On June 9, 1997, Shen Dar filed a trademark application with the IPOPhil for the mark “VESPA, Chinese Characters and Device” for use on air compressors. Later, on July 28 1999, EYIS filed a trademark application for the mark “VESPA”, also for use on air compressors. The EYIS application was granted first, with the certificate of registration (COR) issued on January 18 2004. Subsequently, on February 8 2007, the Shen Dar application was also granted, and issued a COR.

In the meantime, on June 21, 2004, Shen Dar filed a petition for cancellation of the EYIS “VESPA” trademark with the Bureau of Legal Affairs (BLA) of the IPOPhil. Shen Dar relied on the fact that it was the first to file an application for the “VESPA” mark. It also argued that EYIS was only Shen Dar’s Philippines distributor for the air compressors bearing the mark. Shen Dar also argued that it had prior and exclusive right to the use and registration of the mark “VESPA” in the Philippines.

EYIS countered that Shen Dar was not the true owner of the mark “VESPA”. They contended that Shen Dar was the sole assembler and fabricator of air compressors. Further, the air compressors supplied by Shen Dar bore the mark “SD”, and not “VESPA.”

The Director of the BLA ruled in favour of EYIS, denying Shen Dar’s petition for cancellation, and upholding the COR granted to EYIS. Shen Dar made an appeal to the Director General (DG) of the IPP. The DG upheld the decision of the BLA, stating that despite the fact that the instant case was for the cancellation of the COR issued in favour of EYIS, the interests of justice dictates that the COR of Shen Dar must be cancelled.

The DG’s judgement was appealed to the CA. Shen Dar challenged this decision on the grounds that there was no petition for cancellation of Shen Dar’s COR, as is required under Section 151 of RA 8293, if a trademark is to be cancelled. The CA ruled in favour of Shen Dar, deciding that the IPP failed to properly apply the provisions of Section 123.1 of the IP Code, which prohibits the registration of a trademark in favour of a party when there is an earlier filed application for the same mark. Shen Dar also argued that it should be considered to be a prior user of the mark based on the statements made by the parties in their respective Declaration of Actual Use (DAU). The COA also ruled that despite the fact that Shen Dar did not formally offer its evidence before the BLA, such evidence was properly attached to the petition for cancellation. As such, Shen Dar’s evidence must properly be considered.

EYIS filed a Motion for Reconsideration (MR) of the CA’s judgement with the SC. One of the issues raised to the SC was whether it was within the DG’s powers to cancel Shen Dar’s COR in the absence of a petition for cancellation. The SC ruled that the DG had the powers to cancel Shen Dar’s COR, despite the absence of EYIS (or any other party) filing a petition to cancel Shen Dar’s trademark. The ruling of the SC came as a shock to the well-established procedure of requiring the institution of a cancellation action efore a trademark is cancelled from the Trademarks Registry.

Earlier, the IPP decided that critical facts and issues necessary in a cancellation case against Shen Dar had already been resolved during the proceedings. This is the first time that the SC upheld such a ruling of the IPP. The SC ruled that quasi-judicial and administrative bodies are not bound by technical rules of procedure. Such rules may be dispensed with as long as allegations are supported by substantial evidence. Any other outcome would offend due process.

The SC ruled that the fact that no petition for cancellation was filed against the COR issued to Shen Dar does not preclude the cancellation of Shen Dar’s COR. It also emphasized that:

“xxx…during the hearing for the cancellation of EYIS’ certificate of registration before the Bureau of Legal Affairs (BLA), Shen Dar tried to establish that it, not EYIS, was the true owner of the mark “VESPA” and, thus, entitled to have it registered. Shen Dar had more than sufficient opportunity to present its evidence and argue its case and it did. It was given its day in court and its right to due process was respected.”

The said disregard of the procedure for the cancellation of a registered mark was a valid exercise of the discretionary powers available to the IPP.

Another significant aspect of the judgement of the SC involves the departure from the “first-to file” rule in the IP Code. The SC affirmed the well established principle that

“xxx…ownership of a mark or trade name may be acquired not necessarily by registration but by adoption and use in trade or commerce. As between actual use of a mark without registration, and registration of the mark without actual use thereof, the former prevails over the latter.”

Despite the fact that Shen Dar was first to file the trademark, in order for the application to be conclusive, it must be accompanied by proof of actual use. EYIS was able to prove this more convincingly from sales invoices dating as far back as 1991. Thus the courts ruled that it was through the efforts of EYIS that the mark “VESPA” used on air compressors actually gained goodwill in the Philippines.