G.R. No.

118192 October 23, 1997

PRO LINE SPORTS CENTER, INC., and QUESTOR CORPORATION, petitioners,

FACTS:

Petitioner QUESTOR, a US-based corporation, became the owner of the trademark "Spalding" appearing in sporting goods, implements and
apparatuses by virtue of its merger with A.G. Spalding Bros., Inc., on 31 December 1971. Co-petitioner PRO LINE, a domestic corporation, is the
exclusive distributor of "Spalding" sports products in the Philippines.

Respondent UNIVERSAL, on the other had, is a domestic corporation engaged in the sale and manufacture of sporting goods while co-respondent
Monico Sehwani is impleaded in his capacity as president of the corporation.

On 11 February 1981 Manager of PRO LINE, sent a letter-complaint to the NBI regarding the alleged manufacture of fake "Spalding" balls by
UNIVERSAL.

On 23 February 1981 the NBI applied for a search warrant with the then Court of First Instance. On that same day Judge of CFI issued Search Warrant
authorizing the search of the premises of UNIVERSAL.

In the course of the search, some 1,200 basketballs and volleyballs marked "Spalding" were seized and confiscated by the NBI.

On 26 February 1981, PRO LINE and QUESTOR filed a criminal complaint for unfair competition against respondent Monico Sehwani before the
Provincial Fiscal. The complaint was dropped for the reason that it was doubtful whether QUESTOR had indeed acquired the registration rights over the
mark "Spalding" from A.G. Spalding Bros., Inc., and complainants failed to adduce an actual receipt for the sale of "Spalding" balls by UNIVERSAL.

On 9 July 1981 a petition for review seeking reversal of the dismissal of the complaint was filed with the Ministry of Justice. The Minister of Justice
issued on 10 September 1981 a Resolution overturning the earlier dismissal of the complaint and ordered the Provincial Fiscal of Rizal to file an
Information for unfair competition against Monico Sehwani. The Information was accordingly filed with then Court of First Instance.

Sehwani pleaded not guilty to the charge. But, while he admitted to having manufactured "Spalding" basketballs and volleyballs, he nevertheless stressed
that this was only for the purpose of complying with the requirement of trademark registration with the Philippine Patent Office. He cited Chapter 1, Rule
43 of the Rules of Practice on Trademark Cases, which requires that the mark applied for be used on applicant's goods for at least sixty (60) days prior to
the filing of the trademark application and that the applicant must show substantial investment in the use of the mark. He also disclosed that
UNIVERSAL applied for registration with the Patent Office on 20 February 1981.

After the prosecution rested its case, Sehwani filed a demurrer to evidence arguing that the act of selling the manufactured goods was an essential and
constitutive element of the crime of unfair competition under Art. 189 of the Revised Penal Code, and the prosecution was not able to prove that he sold
the products. In its Order of 12 January 1981 the trial court granted the demurrer and dismissed the charge against Sehwani.

Thereafter, UNIVERSAL and Sehwani filed a civil case for damages with the Regional Trial Court

charging that PRO LINE and QUESTOR maliciously and without legal basis in initiating the criminal prosecution of Monico Sehwani for unfair
competition under Art. 189 of the Penal Code to their damage and prejudice with no other purpose than to prolong the wrongful invasion of
UNIVERSAL's rights and interests.

Defendants PRO LINE and QUESTOR denied all the allegations in the complaint and filed a counterclaim for damages based mainly on the
unauthorized and illegal manufacture by UNIVERSAL of athletic balls bearing the trademark "Spalding.

1ST ISSUE: Whether private respondents Sehwani and UNIVERSAL are entitled to recover damages for the alleged wrongful recourse to court
proceedings by petitioners PRO LINE and QUESTOR

RULING: NO. PRO LINE and QUESTOR cannot be adjudged liable for damages for the alleged unfounded suit. The complainants were unable to
prove two (2) essential element of the crime of malicious prosecution, namely, absence of probable cause and legal malice on the part of petitioners.
UNIVERSAL failed to show that the filing of Crim. Case was bereft of probable cause. Probable cause is the existence of such facts and circumstances
as would excite the belief in a reasonable mind, acting on the facts within the knowledge of the prosecutor, that the person charged was guilty of the
crime for which he was prosecuted.

In the case before us, then Minister of Justice found probable cause wen he reversed the Provincial Fiscal who initially dismissed the complaint to wit.,
The intent on the part of Universal Sports to deceive the public and to defraud a competitor by the use of the trademark "Spalding" on basketballs and
volleyballs seems apparent. As President of Universal and as Vice President of the Association of Sporting Goods Manufacturers, Monico Sehwani
should have known of the prior registration of the trademark "Spalding" on basketballs and volleyballs when he filed the application for registration of
the same trademark on February 20, 1981, in behalf of Universal, with the Philippine Patent Office. He was even notified by the Patent Office through
counsel on March 9, 1981, that "Spalding" was duly registered with said office in connection with sporting goods, implements and apparatus by A.G.
Spalding & Bros., Inc. of the U.S.A

There is sufficient proof that Universal manufactured balls with the trademark "Spalding".

Jurisprudence abounds to the effect that either a seller or a manufacturer of imitation goods may be liable for violation of Section 29 of Rep. Act No.
166 .

The existence of probable cause for unfair competition by UNIVERSAL is derivable from the facts and circumstances of the case. The affidavit of
Graciano Lacanaria, a former employee of UNIVERSAL, attesting to the illegal sale and manufacture of "Spalding " balls and seized "Spalding"
products and instruments from UNIVERSAL's factory was sufficient prima facie evidence to warrant the prosecution of private respondents. That a
corporation other than the certified owner of the trademark is engaged in the unauthorized manufacture of products bearing the same trademark
engenders a reasonable belief that a criminal offense for unfair competition is being committed.

Petitioners PRO LINE and QUESTOR could not have been moved by legal malice in instituting the criminal complaint for unfair competition which led
to the filing of the Information against Sehwani. Malice is an inexcusable intent to injure, oppress, vex, annoy or humiliate. PRO LINE as the authorized
agent of QUESTOR exercised sound judgment in taking the necessary legal steps to safeguard the interest of its principal with respect to the trademark in
question. If the process resulted in the closure and padlocking of UNIVERSAL's factory and the cessation of its business operations, these were
unavoidable consequences of petitioners' valid and lawful exercise of their right.

The criminal complaint for unfair competition, including all other legal remedies incidental thereto, was initiated by petitioners in their honest belief that
the charge was meritorious. For indeed it was. The law brands business practices which are unfair, unjust or deceitful not only as contrary to public
policy but also as inimical to private interests. In the instant case, we find quite aberrant Sehwani's reason for the manufacture of 1,200 "Spalding"
balls, i.e., the pending application for trademark registration UNIVERSAL with the Patent Office, when viewed in the light of his admission that the
application for registration with the Patent Office was filed on 20 February 1981, a good nine (9) days after the goods were confiscated by the NBI. This
apparently was an afterthought but nonetheless too late a remedy. Be that as it may, what is essential for registrability is proof of actual use in commerce
for at least sixty (60) days and not the capability to manufacture and distribute samples of the product to clients.

Arguably, respondents' act may constitute unfair competition even if the element of selling has not been proved. To hold that the act of selling is an
indispensable element of the crime of unfair competition is illogical because if the law punishes the seller of imitation goods, then with more reason
should the law penalize the manufacturer.

The test of unfair competition is whether certain goods have been intentionally clothed with an appearance which is likely to deceive the ordinary
purchasers exercising ordinary care. In this case, it was observed by the Minister of Justice that the manufacture of the "Spalding" balls was obviously
done to deceive would-be buyers. The projected sale would have pushed through were it not for the timely seizure of the goods made by the NBI. That
there was intent to sell or distribute the product to the public cannot also be disputed given the number of goods manufactured and the nature of the
machinery and other equipment installed in the factory.

2ND ISSUE: Whether petitioners' counterclaim should be sustained.

RULING: NO. dismissal of petitioners' counterclaim for damages.

Petitioners' counterclaim for damages based on the illegal and unauthorized manufacture of "Spalding" balls certainly constitutes an independent cause of
action which can be the subject of a separate complaint for damages against UNIVERSAL. However, this separate civil action cannot anymore be
pursued as it is already barred by res judicata, the judgment in the criminal case (against Sehwani) involving both the criminal and civil aspects of the
case for unfair competition. To recall, petitioners PRO LINE and QUESTOR, upon whose initiative the criminal action for unfair competition against
respondent UNIVERSAL was filed, did not institute a separate civil action for damages nor reserve their right to do so. Thus the civil aspect for damages
was deemed instituted in the criminal case.

Although Art. 28 of the New Civil Code authorizes the filing of a civil action separate and distinct from the criminal proceedings, the right of petitioners
to institute the same is not unfettered. Civil liability arising from the crime is deemed instituted and determined in the criminal proceedings where the
offended party did not waive nor reserve his right to institute it separately. This is why we now hold that the final judgment rendered therein constitutes
a bar to the present counterclaim for damages based upon the same cause.