Reasonable interchangeability test and consumer response test to determine unfair competition

SEPARATE CONCURRING OPINION in [ G.R. Nos. 213365-66, December 10, 2018 ] ASIA PACIFIC RESOURCES INTERNATIONAL HOLDINGS, LTD., PETITIONER, vs. PAPERONE, INC., RESPONDENT. LEONEN, J.: I concur in the result. Respondent should be liable for unfair competition under Section 168[1] of Republic Act No. 8293, or the Intellectual Property Code of the Philippines. I agree that we should base our decision in this case on present jurisprudence. This means, generally, that there are two types of confusion with trademarks and trade names: confusion of goods and confusion of business. A finding of confusion is highly fact-specific based on the circumstances of the case.[2] In Canon Kabushiki Kaisha v. Court of Appeals:[3]
The likelihood of confusion of goods or business is a relative concept, to be determined only according to the particular, and sometimes peculiar, circumstances of each case. Indeed, in trademark law cases, even more than in other litigation, precedent must be studied in the light of the facts of the particular case. Contrary to petitioner's supposition, the facts of this case will show that the cases of Sta. Ana vs. Maliwat, Ang vs. Teodoro and Converse Rubber Corporation vs. Universal Rubber Products, Inc. are hardly in point. The just cited cases involved goods that were confusingly similar, if not identical, as in the case of Converse Rubber Corporation vs. Universal Rubber Products, Inc. Here, the products involved are so unrelated that the public will not be misled that there is the slightest nexus between petitioner and the goods of private respondent.

In cases of confusion of business or origin, the question that usually arises is whether the respective goods or services of the senior user and the junior user are so related as to likely cause confusion of business or origin, and thereby render the trademark or tradenames confusingly similar. Goods are related when they belong to the same class or have the same descriptive properties; when they possess the same physical attributes or essential characteristics with reference to their form, composition, texture[,] or quality. They may also be related because they serve the same purpose or are sold in grocery stores.[4] (Citations omitted)
My discomfort with the prevailing doctrine is that determining whether goods or services are related is left solely to the subjective evaluation of the Philippine Intellectual Property Office or the judgment of the court. It is based on ad hoc inferences of similarity in class, physical attributes or descriptive properties, purpose, or points of sale of the goods or services. Here, the Bureau of Legal Affairs of the Intellectual Property Office, as affirmed by the Director-General, found that respondent committed unfair competition based on a simplistic conclusion that "[b]oth Complainant APRIL and Respondent's main business product is paper[;] both offer papers for sale to the public."[5] We should improve on the standard by which likelihood of confusion is measured, considering the advances in the study of competition and economics in general.

There should be objective, scientific, and economic standards to determine whether goods or services offered by two parties are so related that there is a likelihood of confusion. In a market, the relatedness of goods or services may be determined by consumer preferences. When two goods are proved to be perfect substitutes,[6] where the marginal rate of substitution, or the "consumer's willingness to substitute one good for another while maintaining the same level of satisfaction"[7] is constant, then it may be concluded that the goods are related for the purposes of determining likelihood of confusion. Even goods or services, which superficially appear unrelated, may be proved related if evidence is presented showing that these have significant cross-elasticity of demand, such that changes of price in one party's goods or services change the price of the other party's goods and services.[8] Should it be proved that goods or services belong to the same relevant market, they may be found related even if their classes, physical attributes, or purposes are different.

While not binding on this Court, jurisprudence from the United States of America on the determination of related goods or services provide clues to this approach. In Worthington Foods, Inc. v. Kellogg Co.,[9] both "reasonable interchangeability"[10] of goods and consumer response through cross-elasticity were factors in the court's assessment on whether the goods were in the same relevant market:
One analogous body of law sheds light on the issue of direct competition between goods, namely market definition under section 2 of the Sherman Anti-Trust Act, 15 U.S.C. § 2 (1982). Professor McCarthy, in his seminal trademark treatise, states that products which are "competitive" for purposes of trademark analysis are "goods which are reasonably interchangeable by buyers for the same purposes." Determining whether products are "reasonably interchangeable" is the analysis which the Court must undertake when defining the relevant product market in an action under section 2 of the Sherman Act. The Court holds that the same analysis is helpful for determining whether the parties' goods are "directly competing" for purposes of assessing palming off liability.

A relevant product market includes all products that are either identical or available substitutes for each other. To determine whether products are "available substitutes" or "reasonably interchangeable," the Court must first scrutinize the uses of the product. It must assess whether the products can perform the same function. The second factor to weigh is consumer response, or more specifically, cross-elasticity. That is, the Court must assess to what extent consumers will choose substitutes for the parties' goods in response to price increases.


The second market factor to be considered is consumer response or cross-elasticity. Unfortunately, the parties did not present evidence concerning any tendency or lack of tendency of consumers to switch from the plaintiff's products to the defendant's if Worthington were to raise its prices or vice versa. Therefore, the Court cannot conclude that the plaintiff has demonstrated cross-elasticity of the parties' products indicating that their goods are in the same relevant market.
In short, on an examination of the current record, the Court, finds that Worthington's goods are not in the same relevant market as Kellogg's cereal. The parties' products have different uses or functions. Also, the Court has no evidence of any degree of cross-elasticity between the plaintiff's foods and the defendant's cereal.[11] (Citations omitted)

The lack of evidence that the parties directly competed in the same marketplace led to a finding that no likelihood of confusion would ensue in Exxon Corporation v. Exxene Corporation.[12] In Amstar Corp. v. Dominos Pizza, Inc.,[13] among the factors used to determine that the parties' goods were unrelated were: (1) the distribution channels by which their goods were sold; and (2) the demographics of the predominant purchasers of the goods. In AMF, Inc. v. Sleekcraft Boats,[14] competition between the parties' lines of boats was found negligible despite the potential market overlap, since the respective lines catered to different kinds of activities. Similarly, in Thompson Tank Mfg. Co., Inc. v. Thompson,[15] the contested goods represented only one percent (1%) of complainant's business, while ninety percent (90%) of the defendant's business were in fields that complainant did not engage in. This also disproves the claim of likelihood of confusion.

We can build on past jurisprudence of this Court. In Shell Co. of the Philippines, Ltd. v. Inc. Petroleum Refining Co., Ltd. and CA,[16] this Court did not give credence to a complainant's claim that the entry into the market of the defendant's products, which were allegedly sold in complainant's drums, caused a decrease in complainant's sales. Thus, no unfair competition could be imputed to the defendant:
Petitioner contends that there had been a marked decrease in the volume of sales of low-grade oil of the company, for which reason it argues that the sale of respondent's low-grade oil in Shell containers was the cause. We are reluctant to share the logic of the argument. We are more inclined to believe that several factors contributed to the decrease of such sales. But let us assume, for purposes of argument, that the presence of respondent's low-grade oil in the market contributed to such decrease. May such eventuality make respondent liable for unfair competition? There is no prohibition for respondent to sell its goods, even in places where the goods of petitioner had long been sold or extensively advertised. Respondent should not be blamed if some of petitioner's dealers buy Insoil oil, as long as respondent does not deceive said dealers. If petitioner's dealers pass off Insoil oil as Shell oil, that is their responsibility. If there was any such effort to deceive the public, the dealers to whom the defendant (respondent) sold its products and not the latter, were legally responsible for such deception. The passing of said oil, therefore, as product of Shell was not performed by the respondent or its agent, but petitioner's dealers, which act respondent had no control whatsoever.[17]
These cases illustrate the many ways by which specialized agencies and courts may objectively evaluate the relatedness of allegedly competing goods and services. An analysis that ends in a mere finding of confusing similarity in the general appearance of the goods[18] should not suffice.

After determining the relevant market, the purpose of prosecuting unfair competition is to prohibit and restrict deception of the consuming public whenever persons or firms attempt to pass off their goods or services for another's.[19] Underlying the prohibition against unfair competition is that business competitors cannot do acts which deceive, or which are designed to deceive the public into buying their goods or availing their services instead.[20]

Even if products are found to be in the same market, in all cases of unfair competition, competition should be presumed. Courts should take care not to interfere in a free and fair market, or to foster monopolistic practices. Instead, they should confine themselves to prevent fraud and misrepresentation on the public. In Alhambra Cigar, etc., Co. v. Mojica:[21]
Protection against unfair competition is not intended to create or foster a monopoly and the court should always be careful not to interfere with free and fair competition, but should confine itself, rather, to preventing fraud and imposition resulting from some real resemblance in name or dress of goods. Nothing less than conduct tending to pass off one man's goods or business as that of another will constitute unfair competition. Actual or probable deception and confusion on the part of customers by reason of defendant's practices must always appear.[22]
Thus, complainants bear the burden of objectively proving that the deception or fraud has actually or has probably taken place, or that the defendant had the actual or probable intent to deceive the public.[23] This will require, in a future case, measurable standards to show that: (1) the goods or services belong to the same market; and (2) the likelihood of confusion or doubt is adequately and empirically demonstrated, not merely left to the subjective judgment of an administrative body or this Court.

Accordingly, in this case, I vote to GRANT the Petition.

[1] INTELLECTUAL PROP. CODE, sec. 168 states:

SECTION 168. Unfair Competition, Rights, Regulation and Remedies. - 168.1. A person who has identified in the mind of the public the goods he manufactures or deals in, his business or services from those of others, whether or not a registered mark is employed, has a property right in the goodwill of the said goods, business or services so identified, which will be protected in the same manner as other property rights.

168.2. Any person who shall employ deception or any other means contrary to good faith by which he shall pass off the goods manufactured by him or in which he deals, or his business, or services for those of the one having established such goodwill, or who shall commit any acts calculated to produce said result, shall be guilty of unfair competition, and shall be subject to an action therefor.

168.3. In particular, and without in any way limiting the scope of protection against unfair competition, the following shall be deemed guilty of unfair competition:

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, or any subsequent vendor of such goods or any agent of any vendor engaged in selling such goods with a like purpose;
Any person who by any artifice, or device, or who employs any other means calculated to induce the false belief that such person is offering the services of another who has identified such services in the mind of the public; or
Any person who shall make any false statement in the course of trade or who shall commit any other act contrary to good faith of a nature calculated to discredit the goods, business or services of another.

168.4. The remedies provided by Sections 156, 157 and 161 shall apply mutatis mutandis.

[2] Shell Co. of the Philippines, Ltd. v. Ins. Petroleum Refining Co., Ltd. and CA, 120 Phil. 434 (1964) [Per J. Paredes, En Banc].

[3] 391 Phil. 154 (2000) [Per J. Gonzaga-Reyes, Third Division].

[4] Id. at 162-163.

[5] Rollo, p. 374. Intellectual Property Office Decision.


[7] Id. at 86.

[8] Id. at 52.

[9] 732 F. Supp. 1417 (1990).

[10] Id. at 1437.

[11] Id. at 1436-1438.

[12] 696 F.2d 544 (7th Cir. 1982).

[13] 615 F.2d 252 (5th Cir. 1980).

[14] 599 F.2d 341 (9th Cir. 1979).

[15] 693 F.2d 991 , 993 (9th Cir. 1982).

[16] 120 Phil. 434 (1964) [Per J. Paredes, En Banc].

[17] Id. at 443.

[18] Superior Commercial Enterprises, Inc. v. Kunnan Enterprises Ltd., et al., 632 Phil. 546 (2010) [Per J. Brion, Second Division].

[19] Coca-Cola Bottlers, Phils., Inc., Naga Plant v. Gomez, 591 Phil. 642 (2008) [Per J. Brion, Second Division].

[20] E. Spinner & Co. v. Neuss Hesslein Corporation, 54 Phil. 224 (1930) [Per J . Street, En Banc].

[21] 27 Phil. 266 (1914) [Per J. Moreland, First Division].

[22] Id. at 271.

[23] Shang Properties Realty Corp., et al. v. St. Francis Dev't. Corp., 739 Phil. 244 (2014) [Per J. Perlas-­Bernabe, Second Division].