G.R. No. 147043 - NBI vs. Microsoft Corp. vs. Hwang

Case Summary (G.R. No. 147043)

Factual Background

Microsoft Corporation owned copyrights and trademarks in various computer software. In May 1993 Microsoft and Beltron Computer Philippines, Inc. entered into a Licensing Agreement, amended January 1994, that limited Beltron’s rights to reproduce and install a single copy per customer system and to distribute copies reproduced under that limitation or acquired from authorized replicators or distributors. Microsoft terminated the Agreement effective 22 June 1995 for Beltron’s alleged non-payment of royalties. Microsoft engaged Pinkerton Consulting Services and sought NBI assistance after learning of alleged illegal copying and sale of Microsoft software by respondents. On 10 November 1995 a Pinkerton employee and an NBI agent, posing as computer-shop representatives, purchased a CPU with pre-installed Microsoft Windows 3.1 and MS-DOS and twelve CD‑ROMs in Microsoft packaging from respondents. The purchasers did not receive Microsoft end-user license agreements, manuals, registration cards, or certificates of authenticity. Microsoft applied for and obtained search warrants; the NBI executed them and seized numerous computer items, including 2,831 CD‑ROMs containing Microsoft software.

Criminal Complaint and Charges

Based on the test-buy purchases and the seizure, Microsoft and Lotus Development Corporation filed criminal complaints before the Department of Justice alleging copyright infringement under Section 5(A) in relation to Section 29 of PD 49 and unfair competition under Article 189(1) of the Revised Penal Code. The NBI indorsed the complaint. Respondents filed counter-affidavits denying liability and raised defenses that the matter was civil, that some seized items were legitimately purchased from a Microsoft dealer in Singapore, that certain software was not supplied by them, and that some respondents were nominal shareholders not criminally liable. Some respondents did not file counter-affidavits.

Pretrial Motions and Intermediate Rulings

Respondents moved to quash Search Warrant Nos. 95-684 and 95-685. The RTC partially granted the motion in its 16 April 1996 Order and denied reconsideration by Microsoft in its 19 July 1996 Order. Microsoft appealed to the Court of Appeals in CA-G.R. CV No. 54600. The Court of Appeals, in a decision dated 29 November 2001, granted Microsoft’s appeal and set aside the RTC orders; that decision became final on 27 December 2001.

Department of Justice Resolutions

In the Resolution of 26 October 1999, State Prosecutor Jocelyn A. Ong recommended dismissal of Microsoft’s complaint for lack of merit and insufficiency of evidence; Assistant Chief State Prosecutor Lualhati R. Buenafe approved the recommendation. The DOJ concluded two core issues: whether Beltron and/or its stockholders should be held liable, and whether a prima facie case existed against TMTC. The DOJ gave weight to the RTC’s earlier view that Microsoft used the search warrants as leverage to collect unpaid royalties, treated the dispute as civil in nature, found that TMTC produced documents purporting to show legitimate importation from R.R. Donnelley in Singapore, and ruled that Microsoft failed to prove the seized items were counterfeit. Microsoft’s motions for reconsideration and for ocular inspection were denied in subsequent DOJ Resolutions dated 3 December 1999, 3 August 2000, and 22 December 2000.

Petition, Issues, and Procedural Posture

Microsoft filed a petition for certiorari under Rule 65, Rules of Court seeking to set aside the DOJ Resolutions dismissing the complaint. The petition raised two principal issues: whether Microsoft engaged in forum-shopping, and whether the DOJ acted with grave abuse of discretion in concluding no probable cause existed to charge respondents with copyright infringement and unfair competition.

Contentions of the Parties

Microsoft contended that the DOJ erred in treating the dispute as civil and in failing to appreciate the evidence of illegal importation, sale, and distribution of counterfeit software obtained through the test-buy and the seizure; Microsoft also argued that the charges against seven respondents remained uncontroverted because they did not file counter-affidavits. The DOJ, through the Solicitor General, defended its decisions. Respondents maintained Microsoft engaged in forum-shopping, reiterated that seized items were legitimately acquired or owned by others, argued that the Licensing Agreement authorized replication within its terms, and asserted that some items were left in their custody for safekeeping or that the CPU receipt did not evidence pre-installed software.

Legal Standards Applied

The Court framed the applicable standards on forum-shopping and probable cause. Forum-shopping entails filing multiple suits on the same issues and reliefs and is tested by the elements of litis pendentia. Rule 7, Section 5 of the 1997 Rules of Civil Procedure prescribes certification against forum-shopping. Probable cause for a criminal charge in a preliminary investigation requires a reasonable belief from facts and circumstances that the act constitutes the offense charged; this is a lower standard than proof beyond reasonable doubt, as explained in Pilapil v. Sandiganbayan. The Court also recalled the exclusive rights enumerated in Section 5 of PD 49 and the criminal sanction in Section 29, and stated the elements of unfair competition under Article 189(1) of the Revised Penal Code. The Court cited Columbia Pictures, Inc. v. Court of Appeals for the principle that copyright infringement is a trespass on a private domain.

Forum-shopping Determination

Applying the test for forum-shopping, the Court found that Microsoft did not engage in forum-shopping. The appeals in the Court of Appeals concerned the RTC orders partially quashing the search warrants, whereas the present petition concerned DOJ Resolutions dismissing the criminal complaint; the rights asserted and reliefs sought in each proceeding were not identical such that one judgment would operate as res judicata in the other.

Merits — Grave Abuse of Discretion by the DOJ

The Court held that the DOJ committed grave abuse of discretion in dismissing the complaint. The Court explained that Microsoft, as copyright owner, had the right to initiate criminal proceedings based on incriminating evidence. The DOJ’s reliance on the RTC Order as proof that Microsoft sought warrants merely to pressure Beltron was irregular, particularly because the Court of Appeals later set aside the RTC Order and that ruling became final. The Court rejected the DOJ’s view that Microsoft had to await a judicial determination on the validity of the Agreement’s termination before filing criminal charges

Case Syllabus (G.R. No. 147043)

Parties and Procedural Posture

Microsoft Corporation and Lotus Development Corporation were the petitioners before the Department of Justice and later petitioners in this certiorari under Rule 65 of the 1997 Rules of Civil Procedure.
Beltron Computer Philippines, Inc., Taiwan Machinery Display & Trade Center, Inc., and the individual persons named in the caption were respondents in the criminal complaint for copyright infringement and unfair competition.
Microsoft filed a criminal complaint with the NBI and the Department of Justice resulting in Department of Justice Resolutions dated 26 October 1999, 3 December 1999, 3 August 2000, and 22 December 2000, which Microsoft challenged by petition for certiorari.
The Regional Trial Court, Branch 23, Manila issued Search Warrant Nos. 95-684 and 95-685 and later partially quashed them in 1996, a ruling reversed by the Court of Appeals in CA-G.R. CV No. 54600 on 29 November 2001, which became final on 27 December 2001.
Lotus Development Corporation later desisted from pursuing its complaint before the Department of Justice as reflected in the record.

Key Factual Allegations

Microsoft Corporation owned the copyright and trademark to numerous software titles including Microsoft Windows, MS-DOS, Microsoft Word, and others identified in the record.
Microsoft and Beltron entered into a Licensing Agreement in May 1993, amended January 1994, which authorized limited reproduction, installation, distribution, and licensing of Microsoft products subject to royalty payments.
Microsoft terminated the Agreement effective 22 June 1995 for Beltron's alleged non-payment of royalties.
Microsoft hired Pinkerton Consulting Services and enlisted the National Bureau of Investigation (NBI) to investigate suspected illegal copying and sale of Microsoft software by respondents.
On 10 November 1995 NBI agent Dominador Samiano, Jr. and Pinkerton employee John Benedic Sacriz conducted a test-buy from respondents and purchased a CPU with pre-installed Microsoft Windows 3.1 and twelve CD-ROMs in packaging bearing Microsoft markings, at least two of which were installers.
On 17 November 1995 Microsoft secured two search warrants from the RTC under Judge William M. Bayhon, and NBI executed the warrants and seized numerous items including 2,831 CD-ROMs and 59 boxes of MS-DOS manuals and disks among other computer hardware and documents.
Microsoft and Lotus Development Corporation filed Complaint I.S. No. 96-193 before the Department of Justice charging respondents with copyright infringement under Section 5(A) in relation to Section 29 of Presidential Decree No. 49 (PD 49) and unfair competition under Article 189(1) of the Revised Penal Code.

Agreement Terms

The Licensing Agreement authorized Beltron to reproduce and install no more than one copy of Microsoft software on each customer system hard disk or ROM and to distribute or license copies reproduced as permitted or acquired from an Authorized Replicator or Authorized Distributor.
The Agreement provided obligations upon termination including return or destruction of certain copies and restraint on further use, and affirmed that contractual rights and remedies were not exclusive and were in addition to other rights provided by law or the Agreement under Section 10(b).
The Agreement defined Authorized Replicator and Authorized Distributor and limited Beltron's reproduction and distribution rights accordingly.

Investigative Acts and Seizures

Microsoft retained Pinkerton Consulting Services and coordinated with the NBI to conduct undercover purchases and evidentiary seizures.
The test-buy on 10 November 1995 produced a CPU with pre-installed Microsoft software and twelve CD-ROMs packaged with Microsoft markings, and the receipts bore references to T.M.T.C. (PHILS.) INC. BELTRON COMPUTER and a deliverer name "Gerlie."
The execution of Search Warrant Nos. 95-684 and 95-685 resulted in the seizure of the inventory list that included 59 boxes of MS-DOS manuals and 2,831 compact discs among various hardware, packaging materials, and documentation.

DOJ Proceedings and Resolutions

State Prosecutor Jocelyn A. Ong recommended dismissal of Microsoft's complaint for lack of merit and insufficiency of evidence in the Resolution dated 26 October 1999, a recommendation approved by Assistant Chief State Prosecutor Lualhati R. Buenaf