Case Summary (G.R. No. 147043)
Key Dates and Transactional Facts
Licensing Agreement between Microsoft and Beltron: entered May 1993, amended January 1994. Microsoft terminated the Agreement effective 22 June 1995 for alleged non-payment of royalties. Test-buy by PCS employee and NBI agent: 10 November 1995 (purchase of CPU, monitor and 12 CD‑ROMs). Microsoft applied for and obtained search warrants on 17 November 1995; NBI executed warrants and seized computer hardware and software, including 2,831 CD‑ROMs. Motion to quash certain search warrants was partially granted by RTC (Order of 16 April 1996), denial of reconsideration by RTC (19 July 1996); CA reversed RTC Orders (Decision of 29 November 2001, final 27 December 2001). DOJ issued Resolutions dismissing Microsoft’s complaint (26 October 1999; 3 December 1999; 3 August 2000; 22 December 2000).
Applicable Law and Procedural Rules
Constitutional basis: 1987 Philippine Constitution (applicable to decisions rendered after 1990). Statutory and regulatory framework relied upon in the decision: Presidential Decree No. 49 (PD 49) — specifically Section 5 (exclusive rights of copyright owners) and Section 29 (criminal penalty for infringement) — and the Revised Penal Code (Article 189(1) on unfair competition). Subsequent statutory developments noted in the record include Republic Act No. 8293 (Intellectual Property Code) which later superseded certain PD 49 and Revised Penal Code provisions. Procedural rules referenced: Rule 65 of the Rules of Civil Procedure (certiorari) and Rule 7 Section 5 (certification against forum-shopping).
Procedural Posture Before the Supreme Court
Microsoft filed a criminal complaint (I.S. No. 96‑193) with the DOJ alleging copyright infringement and unfair competition based on the test-buy items and seized articles. DOJ prosecutors dismissed the complaint for lack of merit and insufficiency of evidence, and Microsoft’s motions for reconsideration and appeal within the DOJ were denied. Microsoft separately appealed RTC orders concerning the search warrants to the Court of Appeals, which restored the warrants; the CA decision became final. Microsoft then filed a petition for certiorari under Rule 65 in the Supreme Court to challenge the DOJ Resolutions dismissing the criminal complaint.
DOJ’s Reasoning for Dismissal
The DOJ framed two central questions: (i) whether Beltron and/or its stockholders should be held criminally liable; and (ii) whether prima facie case existed against TMTC. The DOJ concluded, first, that the underlying dispute appeared civil in nature — involving alleged monetary obligations under the licensing agreement — and that the prosecutorial office should not resolve contractual issues better suited for a civil court. Second, DOJ found that TMTC produced import documentation and receipts indicating acquisition of the MS‑DOS boxes from an authorized dealer in Singapore (R.R. Donnelley), negating the intent to defraud required under Article 189(1). DOJ also held that Microsoft had not presented sufficient evidence to prove that seized items were counterfeit rather than merely “unauthorized,” and therefore recommended dismissal for insufficiency of evidence.
Issues Presented to the Supreme Court
(1) Whether Microsoft engaged in forum‑shopping by pursuing both the CA appeal on search-warrant orders and a separate administrative criminal complaint proceeding before the DOJ; and (2) whether the DOJ acted with grave abuse of discretion in finding no probable cause to charge respondents with copyright infringement under PD 49 and with unfair competition under Article 189(1).
Forum‑Shopping Analysis and Holding
The Court analyzed the litis pendentia elements (identity of parties, identity of rights asserted and reliefs, and potential for res judicata) and Rule 7 Section 5 certification requirements. It held that Microsoft did not engage in forum‑shopping. Although parties overlapped, the CA appeal concerned the legality of the RTC orders partially quashing the search warrants (a distinct procedural issue), while the DOJ administrative criminal proceeding concerned the existence of probable cause to charge criminal offenses. The rights asserted and reliefs sought in each proceeding were different, so the CA judgment would not operate as res judicata in the DOJ matter.
Probable Cause Standard and Prosecutorial Discretion
The Court reiterated that an inquiry into probable cause during preliminary investigation applies a low evidentiary threshold: probable cause exists if the facts and circumstances would lead a reasonable belief that an offense was committed. While prosecutorial discretion is generally broad and respected, the Supreme Court will intervene where there is grave abuse of discretion — i.e., arbitrary or despotic exercise equating to virtual refusal to perform a duty. The Court applied these standards in reviewing DOJ’s dismissal.
Legal Elements of the Charged Offenses
- Copyright infringement under PD 49 (Section 5 in relation to Section 29): infringement consists of the unauthorized performance of any of the exclusive rights enumerated in Section 5 (copying, distribution, sale, reproduction, etc.). Liability may be civil and criminal where exclusive rights are exercised without the copyright owner’s consent. The Court cited precedent that infringement is a trespass on the copyright owner’s domain.
- Unfair competition under Article 189(1), Revised Penal Code: requires (a) giving goods the general appearance of another’s goods (in product, packaging, device, words, or other appearance feature), (b) offering or selling those goods with intent to deceive the public or defraud a competitor; intent may be inferred from similarity.
Court’s Assessment of the Evidence as Sufficient for Probable Cause
The Court examined the three evidentiary clusters Microsoft presented to support probable cause: (1) the 12 CD‑ROMs purchased in the test‑buy (including “installer” CDs), (2) the CPU with pre‑installed Microsoft software bought in the test‑buy, and (3) the 2,831 CD‑ROMs seized during the search of respondents’ premises.
- Installer CD‑ROMs: The Court regarded certain “installer” CD‑ROMs as counterfeit per se because Microsoft does not authorize production of such installer compilations (i.e., discs produced by copying genuine Microsoft software onto multi‑title installer discs). This means such discs are infringing regardless of any contractual license that permitted limited reproduction or installation.
- CPU with pre‑installed software: The absence of standard indicia of genuine Microsoft products (end‑user license agreements, user manuals, registration cards, certificates of authenticity) supported an inference that the pre‑installed software was not an authorized distribution, corroborating liability for infringement and unfair competition.
- 2,831 seized CD‑ROMs: The Agreement between Microsoft and Beltron limited Beltron’s rights to reproduce and install no more than one copy per customer system hard disk/ROM and to distribute copies reproduced under that narrow authorization or acquired from an authorized replicator or distributor. The Court found that mass quantities of CD‑ROMs could not have been legitimately produced under those limited rights. Resp
Case Syllabus (G.R. No. 147043)
The Nature of the Proceeding
- Petition for certiorari under Rule 65 of the 1997 Rules of Civil Procedure contesting Department of Justice (DOJ) Resolutions dated 26 October 1999, 3 December 1999, 3 August 2000, and 22 December 2000 that dismissed Microsoft Corporation’s complaint for lack of merit and insufficiency of evidence.
- Relief sought: review and setting aside of DOJ Resolutions dismissing complaint for 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.
- Petition raises allegations of grave abuse of discretion by the DOJ in its preliminary-investigation determinations and seeks reinstatement of criminal charges to permit indictment and trial.
Parties and Corporate Identities
- Petitioner: Microsoft Corporation (hereafter “Microsoft”), a Delaware, United States corporation owning copyrights and trademarks to numerous computer software titles (e.g., Microsoft Windows, Windows 95, Excel, Word, Access, Works, PowerPoint, Office, Flight Simulator, FoxPro) (Rollo, p. 20).
- Co-petitioner initially named: Lotus Development Corporation (Lotus Corporation), which later desisted from pursuing its complaint (Rollo, p. 143).
- Corporate respondents:
- Beltron Computer Philippines, Inc. (Beltron), a domestic corporation; Benito Keh (President/Managing Director) and Yvonne Keh (General Manager); directors include Jonathan K. Chua, Emily K. Chua, Benito T. Sanchez, Nancy I. Velasco.
- Taiwan Machinery Display & Trade Center, Inc. (TMTC), a domestic corporation; directors include Alfonso Chua, Alberto Chua, Judy K. Chua Hwang, Sophia Ong, Deanna Chua.
- Other individual respondents named in the complaint: Judy C. Hwang, Benito Keh, Yvonne K. Chua, Jonathan K. Chua, Emily K. Chua, Benito T. Sanchez, Nancy I. Velasco, Alfonso Chua, Alberto Chua, Sophia Ong, Deanna Chua.
- Office of the Solicitor General filed comments defending DOJ action; DOJ officials involved in resolutions included State Prosecutor Jocelyn A. Ong and Assistant Chief State Prosecutor Lualhati R. Buenafe; DOJ Undersecretary Regis V. Puno dismissed the administrative appeal.
The Licensing Agreement Between Microsoft and Beltron
- Microsoft and Beltron entered into a Licensing Agreement in May 1993; the Agreement was amended in January 1994 (Rollo, p. 81).
- Under Section 2(a) as amended, Microsoft authorized Beltron, for a fee, to:
- Reproduce and install no more than one (1) copy of Microsoft software on each customer system hard disk or Read Only Memory (ROM); and
- Distribute directly or indirectly and license copies of the Product in object code form to end users, provided such copies were reproduced as permitted or acquired from an Authorized Replicator or Authorized Distributor.
- The Agreement provided definitions and constraints:
- Authorized replicator: third party approved by Microsoft to reproduce and manufacture Microsoft Products for Beltron (Agreement, Section 1(i), Rollo, p. 66).
- Authorized distributor: third party approved by Microsoft from which Beltron could purchase MED (Microsoft Easy Distribution Package) Product (Agreement, Section 1(j), Rollo).
- Obligations upon termination were set out in Section 11, including return or destruction of copies and cessation of use of product names and trademarks; some rights and obligations were to survive termination (Rollo, pp. 72-73).
- Section 10(b) of the Agreement provided that contractual rights and remedies were not exclusive and were in addition to remedies provided by law or the Agreement (Rollo, p. 72).
Termination of the Agreement
- Microsoft terminated the Agreement effective 22 June 1995 for Beltron’s non-payment of royalties (source statement).
- The Agreement explicitly provided remedies and obligations upon termination, including return of unauthorized copies and cessation of use (Rollo, pp. 72-73).
- Microsoft alleged noncompliance with Agreement provisions as background to subsequent investigative and enforcement actions.
Investigation, Test-Buy and Assistance
- After learning of alleged illegal copying and sale of Microsoft software by respondents, Microsoft, through Philippine counsel Quisumbing Torres, hired Pinkerton Consulting Services (PCS), a private investigative firm, and sought assistance from the National Bureau of Investigation (NBI).
- On 10 November 1995, PCS employee John Benedic Sacriz (also spelled Benedicta) and NBI agent Dominador Samiano, Jr., posing as representatives of Phardette Computer Shop, conducted a test purchase from respondents:
- They purchased computer hardware (a CPU and monitor) and software (12 CD-ROMs in ROM format) from respondents.
- The CPU contained pre-installed Microsoft Windows 3.1 and MS-DOS software (hard-loaded).
- The 12 CD-ROMs, packaged in plastic containers with Microsoft packaging, contained Microsoft software; at least two of these were “installer” CD-ROMs containing multiple software titles (Microsoft-only or mixed Microsoft and non-Microsoft).
- Sacriz and Samiano were not given Microsoft end-user license agreements, user manuals, registration cards, or certificates of authenticity for the items purchased.
- The CPU and monitor receipt bore the heading “T.M.T.C. (PHILS.) INC. BELTRON COMPUTER.” The receipt for the 12 CD-ROMs did not indicate source though the name “Gerlie” appears under “delivered by.” (Rollo, pp. 125, 131, 142).
Application for Search Warrants and Seizure
- On 17 November 1995 Microsoft applied for two search warrants in the Regional Trial Court (RTC), Branch 23, Manila, presided by Judge William M. Bayhon (Rollo, p. 135–140).
- The RTC granted Microsoft’s application and issued Search Warrant Nos. 95-684 and 95-685.
- Executions of the warrants by the NBI resulted in seizure of numerous items from Beltron and TMTC premises, including:
- 59 boxes of MS-DOS 6.2 manuals (20 pcs per box),
- 2,831 compact discs (CD-ROMs),
- various trays, J cases, labels, CD files, delivery receipts, credit memo files,
- multiple monitors, keyboards, CPUs (including multiple Central Processing Units and notebooks), mice, printers and other computer paraphernalia,
- alleged delivery receipts and a credit memo for Microsoft Windows 95 for third persons (Rollo, pp. 141, 243; exhibit list).
- Microsoft alleged that among these seized items were 2,831 CD-ROMs containing Microsoft software, and that some materials were “installers” (Rollo, pp. 126–129, 141–143).
Criminal Complaints Filed Before the DOJ
- Based on items obtained from respondents, Microsoft and Lotus Development Corporation charged respondents before the Department of Justice with:
- Copyright infringement under Section 5(A) in relation to Section 29 of PD 49 (the Decree on Intellectual Property), and
- Unfair competition under Article 189(1) of the Revised Penal Code (both provisions later superseded by RA 8293 as noted in the source).
- The Complaint was docketed as I.S. No. 96-193 and indorsed by the NBI (Rollo, pp. 48–60, 142–152).
- Lotus Development Corporation later desisted from pursuing its complaint (Rollo, p. 143).
Respondents’ Counter-Affidavits, Motions and Assertions
- Only two respondents filed counter-affidavits: Yvonne Keh and Emily K. Chua. Their principal denials and averments included:
- Allegation that Microsoft’s real intention was to pressure Beltron to pay alleged unpaid royalties (US$135,121.32), hence Microsoft should have pursued a civil collection suit rather than criminal charges.
- TMTC purchased the 59 boxes of MS-DOS CDs from a Microsoft dealer in Singapore (R.R. Donnelley), accompanied by pro forma invoices, bank debt advice, official receipts from Bureau of Customs, and import entry declarations.
- Respondents were not the source of pre-installed Microsoft Windows 3.1 in the CPU sold to Sacriz and Samiano, claiming only responsibility for MS-DOS software (admitted source of pre-installed MS-DOS in counter-affidavit).
- The receipt for the 12 CD-ROMs did not indicate source; therefore, Microsoft’s proof of purchase was inconclusive.
- Several individual respondents were allegedly nominal stockholders of Beltron and TMTC and thus could not be held criminally liable.
- Other respondents did not file counter-affidavits.
- Respondents moved to quash Search Warrant Nos. 95-684 and 95-685; the RTC partially granted their motion on 16 April 1996 and denied Microsoft’s motion for reconsideration on 19 July 1996.
Judicial Review of Search Warrants and Related Appeals
- Microsoft appealed the RTC Orders (partial quash and denial of reconsideration) to the Court of Appeals in CA-G.R. CV No. 54600.
- On 29 November 2001 the Court of Appeals granted Microsoft’s appeal and set aside the RTC Orders of 16 April 1996 and 19 July 1996; that decision became final on 27 December 2001.
- The RTC’s earlier observations in its July 19, 1996 Order suggested Microsoft might have used search warrants as leverage to collect alleged monetary obligations; DOJ referenced that Order in its preliminary-investigation reasoning.
DOJ Preliminary Investigation Resolutions and Rationale
- DOJ State Prosecutor Jocelyn A. Ong recommended dismissal of Microsoft’s complaint for lack o