Unfair competition (Article 28, Civil Code)

Unfair competition in agricultural, commercial or industrial enterprises or in labor through the use of force, intimidation, deceit, machination or any other unjust, oppressive or highhanded method shall give rise to a right of action by the person who thereby suffers damage. (Article 28 of the Civil Code) Article 28 is the counterpart of Article 189 of the Revised Penal Code (Act 3815). The latter punished "unfair competition, fraudulent registration of trade-mark, trade-name or service mark, fraudulent designation of origin, and false description." Article 189 punishes:
  1. Any person who, in unfair competition and for the purposes of deceiving or defrauding another of his legitimate trade or the public in general, shall sell his goods giving 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 device or words thereon or in any other features of their appearance which would be likely to induce the public to believe that the goods offered are those of a manufacturer or dealer other than the actual manufacturer or dealer or shall give other persons a chance or opportunity to do the same with a like purpose;
  2. Any person who shall affix, apply, annex or use in connection with any goods or services or any container or containers for goods a false designation of origin or any false description or representation and shall sell such goods or services; and
  3. Any person who by means of false or fraudulent representation or declarations orally or in writing or by other fraudulent means shall procure from the patent office or from any other office which may hereafter be established by law for the purposes the registration of a trade-name, trade-mark or service mark or of himself as the owner of such trade-name, trade-mark or service mark or an entry respecting a trade-name, trade-mark or service mark.
According to Albano, while competition in business is healthy, if one uses force, intimidation, deceit, machination or any other unjust, oppressive or high-handed method to get ahead of competitors, an action for damages may prosper. In fact, Article 28 is a more specific way of saying: "Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith." (Article 19, Civil Code)

According to Paras, citing the Code Commission, Article 28 is necessary in a system of free enterprise. "Democracy becomes a veritable mockery if any person or group of persons by any unjust or high-handed method may deprive others of a fair chance to engage in business or to earn a living." Unfair competition, both among enterprises and among laborers, is discouraged in a good society because it tends to undermine free enterprise. While competition is necessary, it must not be unfair. (Report, Code Commission, p. 31)

According to Garcia and Alba, in a democratic form of government like ours, free enterprise and fair competition are essential. However, reality is that "free enterprise is stifled, if not altogether supplanted, by rich enterprises of the rich, by the rich, and for the rich." (Garcia and Alba, Civil of Code of the Phils., Commentaries and Jurisprudence, 1950 ed., p. 77) Because of this, the distribution of wealth becomes tilted in favor of the rich while the poor become poorer. Garcia and Alba continue to explain: "the pernicious and evil effects of unfair competition and cut-throat rivalries in commerce, business, trade and other gainful occupations and undertakings [are the reason] that has prompted the Code Commission to insert a regulatory, if not a repressive, measure as contemplated in this article."

In the case of Yu v. Court of Appeals (G.R. No. 86683, January 21, 1993), preliminary injunction was sought because petitioner Yu, the exclusive distributor of the House of Mayfair wallcovering products in the Philippines, cried foul when his former dealer of the same goods, herein private respondent, purchased the merchandise from the House of Mayfair in England through FNF Trading in West Germany and sold said merchandise in the Philippines. The problem was that the petitioner Yu was seeking injunction against a non-party to the contract.

According to the Supreme Court, injunction is the appropriate remedy to prevent a wrongful interference with contracts by strangers to such contracts where the legal remedy is insufficient and the resulting injury is irreparable (Gilchrist vs. Cuddy, 29 Phil. 542 [1915]; 4-A Padilla, Civil Code Annotated, 1988 Ed. p. 90) The liability of private respondent, if any, does not emanate from the four corners of the contract for undoubtedly. Unisia Merchandising Co., Inc. is not a party thereto but its accountability is "an independent act generative of civil liability" (Daywalt vs. Corporacion de PP. Agustinos Recoletos, 39 Phil. 587 [1919]; 4 Paras, Civil Code of the Philippines Annotated, 1981 10th Ed., p. 439; 4 Tolentino, Commentaries and Jurisprudence on the Civil Code, 1986 Ed., p. 439)

Yu v. Court of Appeals (G.R. No. 86683, January 21, 1993) laid down the "irreparable mischief" test in the issuance of injunction against strangers in cases of unfair competition. (Cited in G.R. No. 175284, September 19, 2012)

In CompaƱia v. Alhambra Cigar (G.R. No. 10251, February 10, 1916), the High Court said an "action to prevent unfair competition is based exclusively on fraud; and it would seem from the wording of the statute that it refers to the fraud committed on the public rather than to the fraud committed on the plaintiff." (Note that, at the time, the New Civil Code did not yet exist.) In this case, plaintiff claims to have appropriated and to own the exclusive right to use the word "Isabela" on cigarettes, citing unfair competition. Deciding the case, the Court said: "We do not believe, however, that the word "Isabela" can be appropriated or could be appropriated at the time plaintiff claimed that it began to use that word as descriptive of its products. The Royal Decree of 1888 prohibited the use of a geographical name as a trade-name or trade-mark and that decree was in force before the use of the word "Isabela" began, even under plaintiff's claim."

In the world of intellectual property, the essential elements of an action for unfair competition are (1) confusing similarity in the general appearance of the goods, and (2) intent to deceive the public and defraud a competitor. The confusing similarity may or may not result from similarity in the marks, but may result from other external factors in the packaging or presentation of the goods. The intent to deceive and defraud may be inferred from the similarity of the appearance of the goods as offered for sale to the public. Actual fraudulent intent need not be shown. (McDonald’s v. Big Mak, G.R. No. 143993, August 18, 2004)

Unfair competition is broader than trademark infringement and includes passing off goods with or without trademark infringement. Trademark infringement is a form of unfair competition. Trademark infringement constitutes unfair competition when there is not merely likelihood of confusion, but also actual or probable deception on the public because of the general appearance of the goods. There can be trademark infringement without unfair competition as when the infringer discloses on the labels containing the mark that he manufactures the goods, thus preventing the public from being deceived that the goods originate from the trademark owner. (McDonald’s v. Big Mak, supra, citing Co Tiong Sa v. Director of Patents, G.R. No. L-5378, May 24, 1954 and Q-Tips, Inc. v. Johnson & Johnson, 108 F.Supp 845, 1952)

Against unfair competitors, exemplary or corrective damages may be imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages. (Article 2229)