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ZUNECA PHARMACEUTICAL v. NATRAPHARM

FACTS:

This case is a Petition for Review on Certiorari under Rule 45 with a Prayer for Temporary Restraining Order and/or Preliminary Injunction, filed by petitioners Zuneca Pharmaceutical, Akram Arain and Venus Arain, M.D. The petitioners are challenging the Decision dated October 3, 2013, and the Resolution dated March 19, 2014, of the Court of Appeals (CA), in CA-G.R. CV No. 99787. The CA had affirmed the decision of the Regional Trial Court of Quezon City, Branch 93, dated December 2, 2011, which found Zuneca liable for trademark infringement under Sections 155 to 155.2 of Republic Act No. 8293, also known as the Intellectual Property Code of the Philippines (IP Code), and awarded damages to respondent Natrapharm, Inc. Natrapharm is a domestic corporation engaged in manufacturing, marketing, and distributing pharmaceutical products. One such product is citicoline, marketed under the trademark "ZYNAPSE," registered with the Intellectual Property Office of the Philippines (IPO) on September 24, 2007, under Certificate of Trademark Registration No. 4-2007-005596. Conversely, Zuneca Pharmaceutical, operational since 1999, imports and markets various medicines, including a drug called carbamazepine under the brand name "ZYNAPS."

Natrapharm filed a complaint against Zuneca on November 29, 2007, alleging trademark infringement, injunction, damages, and destruction with a prayer for a TRO and/or Preliminary Injunction, on the ground that “ZYNAPS” is confusingly similar to its registered trademark “ZYNAPSE.” In reply, Zuneca argued that it had been using "ZYNAPS" since 2004, after securing a Certificate of Product Registration from the Bureau of Food and Drugs (BFAD, now FDA) on April 15, 2003. Zuneca claimed that Natrapharm fraudulently registered "ZYNAPSE," knowing the prior existence of "ZYNAPS," as both brands had been advertised in the same publications and conventions.

The RTC ruled in favor of Natrapharm, enforcing the first-to-file rule for trademark registration and awarding damages. On appeal, the CA affirmed the RTC’s ruling, emphasizing the priority of registration over prior use. Zuneca, alleging a misinterpretation of the IP Code and prior use principles, elevated the case to the Supreme Court for review.

ISSUES:

  1. Whether the first-to-file trademark registrant in good faith defeats the right of the prior user in good faith, hence, Natrapharm has the right to prevent Zuneca from using or registering the trademark "ZYNAPS" or marks similar or identical thereto.

  2. Whether Natrapharm was in good faith when it registered the trademark "ZYNAPSE" for citicoline.

  3. Whether Zuneca is liable for trademark infringement and thus liable for damages and attorney's fees, and should be enjoined from the use of the trademark "ZYNAPS" and marks similar thereto; and whether Zuneca's goods and materials in connection with the trademark "ZYNAPS" must be disposed outside the channels of trade or destroyed without compensation.

  4. Whether Zuneca's counterclaims should have been dismissed for lack of merit.

  5. Whether Zuneca is barred by laches and deemed to have abandoned its trademark for failure to register “ZYNAPS” and failure to oppose Natrapharm’s application for “ZYNAPSE”.

RULING:

  1. First-to-File vs Prior User The Supreme Court ruled that under the Intellectual Property Code of the Philippines (IP Code), ownership of a trademark is acquired through registration, not prior use. Therefore, Natrapharm, being the first-to-file and register "ZYNAPSE," has the trademark rights over it. The argument that Zuneca, as the first user, had superior rights was dismissed since the IP Code adopts the rule that ownership is acquired through registration.

  2. Good Faith Registration The Supreme Court affirmed the findings of the lower courts that Natrapharm was in good faith when it registered the trademark "ZYNAPSE." There was insufficient evidence to prove that Natrapharm was aware of Zuneca’s use of "ZYNAPS" prior to its registration of “ZYNAPSE.”

  3. Trademark Infringement and Damages The Court found that Zuneca, as a prior user in good faith, is protected under Section 159.1 of the IP Code, thus it is not liable for trademark infringement. Consequently, the award of damages, injunction, and destruction of Zuneca’s goods imposed by the lower courts were set aside due to the protection accorded to Zuneca as a prior user in good faith.

  4. Counterclaims Dismissal Given that Natrapharm legally acquired ownership of the "ZYNAPSE" mark, Zuneca’s counterclaims for damages and cancellation of Natrapharm's registration were dismissed for lack of merit.

  5. Laches and Abandonment The Court did not find Zuneca barred by laches or having abandoned its trademark because it retained the right under Section 159.1 of the IP Code to continue using the mark in good faith despite Natrapharm’s subsequent registration of a similar mark.

PRINCIPLES:

  1. First-to-File Rule Ownership of a trademark is acquired through registration made validly in accordance with the IP Code.

  2. Good Faith Registration A trademark registrant who registers in good faith is presumed to have a valid registration unless proven otherwise.

  3. Protection of Prior Users Section 159.1 of the IP Code provides that a registered mark does not have an effect against a person who, in good faith, was using the mark for the purposes of his business or enterprise before the filing or priority date of the registered mark.

  4. No Infringement Liability for Prior Users Prior users in good faith are not liable for trademark infringement even if there is a likelihood of confusion with a subsequently registered mark.

  5. Transfer of Prior User Rights The rights of a prior user in good faith may only be transferred or assigned together with his enterprise or business, thereby limiting the infringement actions that can be brought against the prior user.