FACTS: Respondent Gallo Winery is a foreign corporation not doing business in the Philippines but organized and existing under the laws of the State of California, United States of America (U.S.), where all its wineries are located. Gallo Winery produces different kinds of wines and brandy products and sells them in many countries under different registered trademarks, including the GALLO and ERNEST & JULIO GALLO wine trademarks.

Respondent domestic corporation, Andresons, has been Gallo Winerys exclusive wine importer and distributor in the Philippines since 1991, selling these products in its own name and for its own account.

Gallo Winerys GALLO wine trademark was registered in the principal register of the Philippine Patent Office (now Intellectual Property Office) on November 16, 1971 under Certificate of Registration No. 17021 which was renewed on November 16, 1991 for another 20 years. Gallo Winery also applied for registration of its ERNEST & JULIO GALLO wine trademark on October 11, 1990 under Application Serial No. 901011-00073599-PN but the records do not disclose if it was ever approved by the Director of Patents.

On the other hand, petitioners Mighty Corporation and La Campana and their sister company, Tobacco Industries of the Philippines (Tobacco Industries), are engaged in the cultivation, manufacture, distribution and sale of tobacco products for which they have been using the GALLO cigarette trademark since 1973.

The Bureau of Internal Revenue (BIR) approved Tobacco Industries use of GALLO 100s cigarette mark on September 14, 1973 and GALLO filter cigarette mark on March 26, 1976, both for the manufacture and sale of its cigarette products. In 1976, Tobacco Industries filed its manufacturers sworn statement as basis for BIRs collection of specific tax on GALLO cigarettes.

On February 5, 1974, Tobacco Industries applied for, but eventually did not pursue, the registration of the GALLO cigarette trademark in the principal register of the then Philippine Patent Office.

In May 1984, Tobacco Industries assigned the GALLO cigarette trademark to La Campana which, on July 16, 1985, applied for trademark registration in the Philippine Patent Office. On July 17, 1985, the National Library issued Certificate of Copyright Registration No. 5834 for La Campanas lifetime copyright claim over GALLO cigarette labels.Subsequently, La Campana authorized Mighty Corporation to manufacture and sell cigarettes bearing the GALLO trademark. BIR approved Mighty Corporations use of GALLO 100s cigarette brand, under licensing agreement with Tobacco Industries, on May 18, 1988, and GALLO SPECIAL MENTHOL 100s cigarette brand on April 3, 1989.

Petitioners claim that GALLO cigarettes have been sold in the Philippines since 1973, initially by Tobacco Industries, then by La Campana and finally by Mighty Corporation.

On the other hand, although the GALLO wine trademark was registered in the Philippines in 1971, respondents claim that they first introduced and sold the GALLO and ERNEST & JULIO GALLO wines in the Philippines circa 1974 within the then U.S. military facilities only. By 1979, they had expanded their Philippine market through authorized distributors and independent outlets.

Respondents claim that they first learned about the existence of GALLO cigarettes in the latter part of 1992 when an Andresons employee saw such cigarettes on display with GALLO wines in a Davao supermarket wine cellar section. Forthwith, respondents sent a demand letter to petitioners asking them to stop using the GALLO trademark, to no avail.

The Legal Dispute

On March 12, 1993, respondents sued petitioners in the Makati RTC for trademark and tradename infringement and unfair competition, with a prayer for damages and preliminary injunction.

Respondents charged petitioners with violating Article 6bis of the Paris Convention for the Protection of Industrial Property (Paris Convention) and RA 166 (Trademark Law), specifically, Sections 22 and 23 (for trademark infringement), 29 and 30 (for unfair competition and false designation of origin) and 37 (for tradename infringement). They claimed that petitioners adopted the GALLO trademark to ride on Gallo Winerys GALLO and ERNEST & JULIO GALLO trademarks established reputation and popularity, thus causing confusion, deception and mistake on the part of the purchasing public who had always associated GALLO and ERNEST & JULIO GALLO trademarks with Gallo Winerys wines. Respondents prayed for the issuance of a writ of preliminary injunction and ex parte restraining order, plus P2 million as actual and compensatory damages, at least P500,000 as exemplary and moral damages, and at least P500,000 as attorneys fees and litigation expenses.

In their answer, petitioners alleged, among other affirmative defenses, that: petitioners GALLO cigarettes and Gallo Winerys wines were totally unrelated products; Gallo Winerys GALLO trademark registration certificate covered wines only, not cigarettes; GALLO cigarettes and GALLO wines were sold through different channels of trade; GALLO cigarettes, sold at P4.60 for GALLO filters and P3 for GALLO menthols, were low-cost items compared to Gallo Winerys high-priced luxury wines which cost between P98 to P242.50; the target market of Gallo Winerys wines was the middle or high-income bracket with at least P10,000 monthly income while GALLO cigarette buyers were farmers, fishermen, laborers and other low-income workers; the dominant feature of the GALLO cigarette mark was the rooster device with the manufacturers name clearly indicated as MIGHTY CORPORATION while, in the case of Gallo Winerys wines, it was the full names of the founders-owners ERNEST & JULIO GALLO or just their surname GALLO; by their inaction and conduct, respondents were guilty of laches and estoppel; and petitioners acted with honesty, justice and good faith in the exercise of their right to manufacture and sell GALLO cigarettes.

In an order dated April 21, 1993, the Makati RTC denied, for lack of merit, respondents prayer for the issuance of a writ of preliminary injunction, holding that respondents GALLO trademark registration certificate covered wines only, that respondents wines and petitioners cigarettes were not related goods and respondents failed to prove material damage or great irreparable injury as required by Section 5, Rule 58 of the Rules of Court.

On August 19, 1993, the Makati RTC denied, for lack of merit, respondents motion for reconsideration. The court reiterated that respondents wines and petitioners cigarettes were not related goods since the likelihood of deception and confusion on the part of the consuming public was very remote. The trial court emphasized that it could not rely on foreign rulings cited by respondents because the[se] cases were decided by foreign courts on the basis of unknown facts peculiar to each case or upon factual surroundings which may exist only within their jurisdiction. Moreover, there [was] no showing that [these cases had] been tested or found applicable in our jurisdiction.

On February 20, 1995, the CA likewise dismissed respondents petition for review on certiorari, docketed as CA-G.R. No. 32626, thereby affirming the Makati RTCs denial of the application for issuance of a writ of preliminary injunction against petitioners.

After trial on the merits, however, the Makati RTC, on November 26, 1998, held petitioners liable for, and permanently enjoined them from, committing trademark infringement and unfair competition with respect to the GALLO trademark

ISSUE: Petitioners now seek relief from this Court contending that the CA did not follow prevailing laws and jurisprudence when it held that: [a] RA 8293 (Intellectual Property Code of the Philippines [IP Code]) was applicable in this case; [b] GALLO cigarettes and GALLO wines were identical, similar or related goods for the reason alone that they were purportedly forms of vice; [c] both goods passed through the same channels of trade and [d] petitioners were liable for trademark infringement, unfair competition and damages.

HELD: THE CA IS INCORRECT. 

THE TRADEMARK LAW AND THE PARIS CONVENTION ARE THE APPLICABLE LAWS, NOT THE INTELLECTUAL PROPERTY CODE

We note that respondents sued petitioners on March 12, 1993 for trademark infringement and unfair competition committed during the effectivity of the Paris Convention and the Trademark Law.

Yet, in the Makati RTC decision of November 26, 1998, petitioners were held liable not only under the aforesaid governing laws but also under the IP Code which took effect only on January 1, 1998, or about five years after the filing of the complaint. It is a fundamental principle that the validity and obligatory force of a law proceed from the fact that it has first been promulgated. A law that is not yet effective cannot be considered as conclusively known by the populace. To make a law binding even before it takes effect may lead to the arbitrary exercise of the legislative power. Nova constitutio futuris formam imponere debet non praeteritis. A new state of the law ought to affect the future, not the past. Any doubt must generally be resolved against the retroactive operation of laws, whether these are original enactments, amendments or repeals. There are only a few instances when laws may be given retroactive effect, none of which is present in this case.

The IP Code, repealing the Trademark Law, was approved on June 6, 1997. Section 241 thereof expressly decreed that it was to take effect only on January 1, 1998, without any provision for retroactive application. Thus, the Makati RTC and the CA should have limited the consideration of the present case within the parameters of the Trademark Law and the Paris Convention, the laws in force at the time of the filing of the complaint.

THE ACTUAL COMMERCIAL USE IN THE PHILIPPINES OF GALLO CIGARETTE TRADEMARK PRECEDED THAT OF GALLO WINE TRADEMARK.

By respondents own judicial admission, the GALLO wine trademark was registered in the Philippines in November 1971 but the wine itself was first marketed and sold in the country only in 1974 and only within the former U.S. military facilities, and outside thereof, only in 1979. To prove commercial use of the GALLO wine trademark in the Philippines, respondents presented sales invoice no. 29991 dated July 9, 1981 addressed to Conrad Company Inc., Makati, Philippines and sales invoice no. 85926 dated March 22, 1996 addressed to Andresons Global, Inc., Quezon City, Philippines. Both invoices were for the sale and shipment of GALLO wines to the Philippines during that period. Nothing at all, however, was presented to evidence the alleged sales of GALLO wines in the Philippines in 1974 or, for that matter, prior to July 9, 1981.

On the other hand, by testimonial evidence supported by the BIR authorization letters, forms and manufacturers sworn statement, it appears that petitioners and its predecessor-in-interest, Tobacco Industries, have indeed been using and selling GALLO cigarettes in the Philippines since 1973 or before July 9, 1981.

Respondents GALLO trademark registration is limited to wines only

We also note that the GALLO trademark registration certificates in the Philippines and in other countries expressly state that they cover wines only, without any evidence or indication that registrant Gallo Winery expanded or intended to expand its business to cigarettes.

Thus, by strict application of Section 20 of the Trademark Law, Gallo Winerys exclusive right to use the GALLO trademark should be limited to wines, the only product indicated in its registration certificates.

NO LIKELIHOOD OF CONFUSION, MISTAKE OR DECEIT AS TO THE IDENTITY OR SOURCE OF PETITIONERS AND RESPONDENTS GOODS OR BUSINESS

Applying the Dominancy and Holistic Tests, we find that the dominant feature of the GALLO cigarette trademark is the device of a large rooster facing left, outlined in black against a gold background. The roosters color is either green or red green for GALLO menthols and red for GALLO filters. Directly below the large rooster device is the word GALLO. The rooster device is given prominence in the GALLO cigarette packs in terms of size and location on the labels.

The GALLO mark appears to be a fanciful and arbitrary mark for the cigarettes as it has no relation at all to the product but was chosen merely as a trademark due to the fondness for fighting cocks of the son of petitioners president. Furthermore, petitioners adopted GALLO, the Spanish word for rooster, as a cigarette trademark to appeal to one of their target markets, the sabungeros (cockfight aficionados).

Also, as admitted by respondents themselves, on the side of the GALLO cigarette packs are the words MADE BY MIGHTY CORPORATION, thus clearly informing the public as to the identity of the manufacturer of the cigarettes.

On the other hand, GALLO Winerys wine and brandy labels are diverse. In many of them, the labels are embellished with sketches of buildings and trees, vineyards or a bunch of grapes while in a few, one or two small roosters facing right or facing each other (atop the EJG crest, surrounded by leaves or ribbons), with additional designs in green, red and yellow colors, appear as minor features thereof. Directly below or above these sketches is the entire printed name of the founder-owners, ERNEST & JULIO GALLO or just their surname GALLO, which appears in different fonts, sizes, styles and labels, unlike petitioners uniform casque-font bold-lettered GALLO mark.

Moreover, on the labels of Gallo Winerys wines are printed the words VINTED AND BOTTLED BY ERNEST & JULIO GALLO, MODESTO, CALIFORNIA.

The many different features like color schemes, art works and other markings of both products drown out the similarity between them the use of the word GALLO ― a family surname for the Gallo Winerys wines and a Spanish word for rooster for petitioners cigarettes.

WINES AND CIGARETTES ARE NOT IDENTICAL, SIMILAR, COMPETING OR RELATED GOODS

Confusion of goods is evident where the litigants are actually in competition; but confusion of business may arise between non-competing interests as well.

Thus, apart from the strict application of Section 20 of the Trademark Law and Article 6bis of the Paris Convention which proscribe trademark infringement not only of goods specified in the certificate of registration but also of identical or similar goods, we have also uniformly recognized and applied the modern concept of related goods. Simply stated, when goods are so related that the public may be, or is actually, deceived and misled that they come from the same maker or manufacturer, trademark infringement occurs.

Non-competing goods may be those which, though they are not in actual competition, are so related to each other that it can reasonably be assumed that they originate from one manufacturer, in which case, confusion of business can arise out of the use of similar marks. They may also be those which, being entirely unrelated, cannot be assumed to have a common source; hence, there is no confusion of business, even though similar marks are used. Thus, there is no trademark infringement if the public does not expect the plaintiff to make or sell the same class of goods as those made or sold by the defendant.

In resolving whether goods are related, several factors come into play:

(a) the business (and its location) to which the goods belong

(b) the class of product to which the goods belong

(c) the product’s quality, quantity, or size, including the nature of the package, wrapper or container 

(d) the nature and cost of the articles

(e) the descriptive properties, physical attributes or essential characteristics with reference to their form, composition, texture or quality

(f) the purpose of the goods

(g) whether the article is bought for immediate consumption, that is, day-to-day household items

(h) the fields of manufacture

(i) the conditions under which the article is usually purchased and

(j) the channels of trade through which the goods flow, how they are distributed, marketed, displayed and sold.

Applying these legal precepts to the present case, petitioners use of the GALLO cigarette trademark is not likely to cause confusion or mistake, or to deceive the ordinarily intelligent buyer of either wines or cigarettes or both as to the identity of the goods, their source and origin, or identity of the business of petitioners and respondents.

Obviously, wines and cigarettes are not identical or competing products. Neither do they belong to the same class of goods. Respondents GALLO wines belong to Class 33 under Rule 84[a] Chapter III, Part II of the Rules of Practice in Trademark Cases while petitioners GALLO cigarettes fall under Class 34.

We are mindful that product classification alone cannot serve as the decisive factor in the resolution of whether or not wines and cigarettes are related goods. Emphasis should be on the similarity of the products involved and not on the arbitrary classification or general description of their properties or characteristics. But the mere fact that one person has adopted and used a particular trademark for his goods does not prevent the adoption and use of the same trademark by others on articles of a different description. Both the Makati RTC and the CA held that wines and cigarettes are related products because: (1) they are related forms of vice, harmful when taken in excess, and used for pleasure and relaxation and (2) they are grouped or classified in the same section of supermarkets and groceries.

We find these premises patently insufficient and too arbitrary to support the legal conclusion that wines and cigarettes are related products within the contemplation of the Trademark Law and the Paris Convention.

First, anything – not only wines and cigarettes ― can be used for pleasure and relaxation and can be harmful when taken in excess. Indeed, it would be a grave abuse of discretion to treat wines and cigarettes as similar or related products likely to cause confusion just because they are pleasure-giving, relaxing or potentially harmful. Such reasoning makes no sense.

Second, it is common knowledge that supermarkets sell an infinite variety of wholly unrelated products and the goods here involved, wines and cigarettes, have nothing whatsoever in common with respect to their essential characteristics, quality, quantity, size, including the nature of their packages, wrappers or containers.

Wines are bottled and consumed by drinking while cigarettes are packed in cartons or packages and smoked. There is a whale of a difference between their descriptive properties, physical attributes or essential characteristics like form, composition, texture and quality.

GALLO cigarettes are inexpensive items while GALLO wines are not. GALLO wines are patronized by middle-to-high-income earners while GALLO cigarettes appeal only to simple folks like farmers, fishermen, laborers and other low-income workers. Indeed, the big price difference of these two products is an important factor in proving that they are in fact unrelated and that they travel in different channels of trade. There is a distinct price segmentation based on vastly different social classes of purchasers.

GALLO cigarettes and GALLO wines are not sold through the same channels of trade. GALLO cigarettes are Philippine-made and petitioners neither claim nor pass off their goods as imported or emanating from Gallo Winery. GALLO cigarettes are distributed, marketed and sold through ambulant and sidewalk vendors, small local sari-sari stores and grocery stores in Philippine rural areas, mainly in Misamis Oriental, Pangasinan, Bohol, and Cebu. On the other hand, GALLO wines are imported, distributed and sold in the Philippines through Gallo Winerys exclusive contracts with a domestic entity, which is currently Andresons. By respondents own testimonial evidence, GALLO wines are sold in hotels, expensive bars and restaurants, and high-end grocery stores and supermarkets, not through sari-sari stores or ambulant vendors.

THE GALLO WINE TRADEMARK IS NOT A WELL-KNOWN MARK IN THE CONTEXT OF THE PARIS CONVENTION IN THIS CASE SINCE WINES AND CIGARETTES ARE NOT IDENTICAL OR SIMILAR GOODS

First, the records bear out that most of the trademark registrations took place in the late 1980s and the 1990s, that is, after Tobacco Industries use of the GALLO cigarette trademark in 1973 and petitioners use of the same mark in 1984.

GALLO wines and GALLO cigarettes are neither the same, identical, similar nor related goods, a requisite element under both the Trademark Law and the Paris Convention.

Second, the GALLO trademark cannot be considered a strong and distinct mark in the Philippines. Respondents do not dispute the documentary evidence that aside from Gallo Winerys GALLO trademark registration, the Bureau of Patents, Trademarks and Technology Transfer also issued on September 4, 1992 Certificate of Registration No. 53356 under the Principal Register approving Productos Alimenticios Gallo, S.As April 19, 1990 application for GALLO trademark registration and use for its noodles, prepared food or canned noodles, ready or canned sauces for noodles, semolina, wheat flour and bread crumbs, pastry, confectionery, ice cream, honey, molasses syrup, yeast, baking powder, salt, mustard, vinegar, species and ice.

Third and most important, pursuant to our ruling in Canon Kabushiki Kaisha vs. Court of Appeals and NSR Rubber Corporation, GALLO cannot be considered a well-known mark within the contemplation and protection of the Paris Convention in this case since wines and cigarettes are not identical or similar goods:

Consent of the Registrant and Other air, Just and Equitable Considerations

Each trademark infringement case presents a unique problem which must be answered by weighing the conflicting interests of the litigants.

Respondents claim that GALLO wines and GALLO cigarettes flow through the same channels of trade, that is, retail trade. If respondents assertion is true, then both goods co-existed peacefully for a considerable period of time. It took respondents almost 20 years to know about the existence of GALLO cigarettes and sue petitioners for trademark infringement. Given, on one hand, the long period of time that petitioners were engaged in the manufacture, marketing, distribution and sale of GALLO cigarettes and, on the other, respondents delay in enforcing their rights (not to mention implied consent, acquiescence or negligence) we hold that equity, justice and fairness require us to rule in favor of petitioners. The scales of conscience and reason tip far more readily in favor of petitioners than respondents.

Moreover, there exists no evidence that petitioners employed malice, bad faith or fraud, or that they intended to capitalize on respondents goodwill in adopting the GALLO mark for their cigarettes which are totally unrelated to respondents GALLO wines. Thus, we rule out trademark infringement on the part of petitioners.

PETITIONERS ARE ALSO NOT LIABLE FOR UNFAIR COMPETITION

Under Section 29 of the Trademark Law, any person who employs deception or any other means contrary to good faith by which he passes 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 commits any acts calculated to produce said result, is guilty of unfair competition. It includes the following acts:

(a) Any person, who in selling his goods shall give 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;

(b) 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;

(c) 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.

The universal test question is whether the public is likely to be deceived. Nothing less than conduct tending to pass off one mans goods or business as that of another constitutes unfair competition. Actual or probable deception and confusion on the part of customers by reason of defendants practices must always appear. On this score, we find that petitioners never attempted to pass off their cigarettes as those of respondents. There is no evidence of bad faith or fraud imputable to petitioners in using their GALLO cigarette mark.

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