G.R. No. 168662 - Sanrio Co. Ltd. vs. Lim

Case Summary (G.R. No. 168662)

Petitioner

Sanrio Company Limited is the copyright owner of various animated characters and, although not doing business in the Philippines, sells products locally through its exclusive distributor GGI, which licensed local manufacturers to produce certain Sanrio products for the domestic market.

Respondent

Edgar C. Lim, doing business as Orignamura Trading, a retailer in Tutuban Center, Manila, alleged to have sold imitations of petitioner’s copyrighted products.

Key Dates

May 29–30, 2000: IPMA test-buys and affidavit; search warrant No. 00-1616 issued by the Manila executive judge; NBI executed the search and seized Sanrio merchandise.
April 4, 2002: Petitioner filed complaint-affidavit (IS No. 2002-205) with DOJ TAPP.
September 25, 2002: TAPP dismissed the complaint for insufficiency of evidence.
August 29, 2003: Office of the Chief State Prosecutor affirmed TAPP dismissal.
May 3, 2005: Court of Appeals dismissed petitioner’s petition on prescription and affirmed on the merits that no probable cause existed.
February 19, 2008: Supreme Court decision denying the petition for review on certiorari.

Applicable Law and Legal Standards

Intellectual Property Code (IP Code) Section 217 (criminal penalties for copyright infringement), including subsection 217.3 regarding possession of known or should-be-known infringing copies with intent to sell, distribute, or exhibit for trade.
IP Code Sections 177 (economic rights, including reproduction and distribution) and 178 (rules on copyright ownership).
Act No. 3326 (prescription of actions penalized by special acts), including rules on when prescription begins and is interrupted.
Rules of Court, Rule 112, Section 1 (preliminary investigation defined; when required).
Standard of review on preliminary investigation decisions: prosecutors enjoy wide latitude; courts may only intervene upon a showing of grave abuse of discretion (i.e., arbitrary, capricious, whimsical, or despotic action amounting to evasion or refusal of duty). Relevant jurisprudence cited: Brillantes v. Court of Appeals; People v. Olarte; Glaxosmithkline Philippines, Inc. v. Khalid Mehmood Malik; Baviera v. Paglinawan.

Factual Background

In 2001 GGI commissioned IPMA to investigate widespread counterfeit Sanrio products. IPMA conducted test-buys and produced a joint affidavit (May 29, 2000) identifying Orignamura Trading as selling alleged imitations. The NBI secured a search warrant (May 30, 2000) and seized various Sanrio products from respondent’s premises. Petitioner later filed a complaint-affidavit with DOJ TAPP alleging violations of Section 217 of the IP Code.

Respondent’s Defense and Evidentiary Showing

Respondent asserted he was only a retailer, did not reproduce or manufacture the items, and obtained merchandise from authorized local manufacturers and distributors. He submitted receipts from JC Lucas Creative Products, Inc., Paper Line Graphics, Inc., and Melawares Manufacturing Corporation and relied on a GGI certification that those establishments were authorized to produce certain Sanrio products. Respondent contended he reasonably relied on those representations and thus lacked knowledge that the items were infringing.

TAPP Findings and Reasoning

TAPP found that respondent bought his merchandise from legitimate sources as evidenced by receipts and the certification from GGI. Although some seized items were not among products authorized for manufacture by those establishments, TAPP emphasized that respondent relied on the manufacturers’ and distributors’ representations and it was not incumbent upon him to verify the exact scope of those authorizations. TAPP concluded respondent did not possess the requisite knowledge that the items were infringing and dismissed the complaint for insufficiency of evidence.

Procedural History Post-TAPP

Petitioner moved for reconsideration at DOJ; the Office of the Chief State Prosecutor affirmed TAPP’s dismissal (August 29, 2003). Petitioner filed a petition for certiorari with the Court of Appeals, which dismissed the petition on the ground of prescription under Act No. 3326, and on the merits agreed that no probable cause was shown because respondent lacked knowledge of infringement. Petitioner sought relief in the Supreme Court by petition for review on certiorari under Rule 45.

Issues Presented to the Supreme Court

Whether the alleged violations prescribed prior to filing the complaint with DOJ or whether the filing tolled prescription.
Whether the DOJ committed grave abuse of discretion in dismissing the complaint where respondent sold counterfeit goods but claimed to have obtained them from authorized manufacturers.
Whether respondent could be held criminally liable under Section 217.3 notwithstanding his claimed reliance on legitimate suppliers.

Supreme Court Holding — Prescription

The Supreme Court held that the filing of a complaint-affidavit for purposes of preliminary investigation before the TAPP of the DOJ interrupted (tolled) the prescriptive period under Act No. 3326. Relying on Brillantes v. Court of Appeals and People v. Olarte, the Court reasoned that prescription is interrupted by the institution of proceedings against the accused, and a timely filing of the complaint-affidavit (April 4, 2002) before TAPP tolled the prescriptive period that would otherwise have begun upon the alleged offense (the May 30, 2000 search and seizure).

Supreme Court Holding — Prosecutorial Discretion and Probable Cause

The Court reaffirmed that in a preliminary investigation a public prosecutor determines whether probable cause exists to file an information; probable cause requires facts and circumstances engendering a well-founded belief that a crime has been committed and that the respondent is probably guilty. Prosecutors exercise broad discretion in evaluating evidence and sufficiency for probable cause, and courts will not

Case Syllabus (G.R. No. 168662)

Facts

Petitioner Sanrio Company Limited is a Japanese corporation owning copyrights in various animated characters including "Hello Kitty," "Little Twin Stars," "My Melody," "Tuxedo Sama" and "Zashikibuta."
Sanrio is not engaged in business in the Philippines; its products are sold locally by its exclusive distributor, Gift Gate Incorporated (GGI).
GGI entered into licensing agreements with JC Lucas Creative Products, Inc., Paper Line Graphics, Inc., and Melawares Manufacturing Corporation, permitting these local entities to manufacture certain Sanrio products for the local market.
In 2001, because of widespread counterfeit Sanrio products, GGI commissioned IP Manila Associates (IPMA) to conduct market research to identify factories, department stores, and retail outlets manufacturing and/or selling fake Sanrio items.
After several test-buys, IPMA determined that respondent Edgar C. Lim, doing business as Orignamura Trading in Tutuban Center, Manila, was selling imitations of Sanrio products.
On May 29, 2000, IPMA agents Lea A. Carmona and Arnel P. Dausan executed a joint affidavit documenting the test-buys and findings.
IPMA forwarded the affidavit to the National Bureau of Investigation (NBI), which filed an application for a search warrant with the Executive Judge of the Regional Trial Court of Manila.
After inquiry, a search warrant (No. 00-1616 issued by Executive Judge Rebecca G. Salvador) was issued on May 30, 2000; NBI agents searched Orignamura Trading the same day and seized various Sanrio products.
On April 4, 2002, Sanrio, through attorney-in-fact Teodoro Y. Kalaw IV (Quisumbing Torres law firm), filed a complaint-affidavit (docketed IS No. 2002-205) with the Task-Force on Anti-Intellectual Property Piracy (TAPP) of the Department of Justice (DOJ) for violation of Section 217 of the Intellectual Property Code (IPC) in relation to Sections 177 and 178.

Respondent’s Position and Evidence

Respondent asserted in his counter-affidavit that he was only a retailer who neither reproduced nor manufactured any of petitioner’s copyrighted items and thus did not transgress petitioner’s economic rights.
He claimed to have obtained his merchandise from authorized manufacturers of petitioner’s products.
To support his claim, respondent submitted photocopies of receipts issued by JC Lucas Creative Products, Inc. and Melawares Manufacturing Corporation as evidence.
Respondent relied upon the representations of these manufacturers and distributors that the items they sold were genuine; he contended it was not incumbent upon him to verify from these sources what items GGI authorized them to produce.

Relevant Statutory Provisions and Rules Cited

Intellectual Property Code (IPC), Section 217 (Criminal Penalties), including subsections:
- 217.1 – Prescribes imprisonment and fines for infringement (first, second, third/subsequent offenses; with amounts and terms specified).
- 217.2 – Court to consider value of infringing materials and damage suffered in determining penalty.
- 217.3 – Penalizes possession of an article which the possessor knows, or ought to know, is an infringing copy for purposes such as selling, offering for sale, distributing to an extent prejudicing the owner’s rights, or trade exhibiting in public. (Emphasis in source.)
IPC, Section 177 – Definition of copy or economic rights (including reproduction and first public distribution by sale or other forms of transfer).
IPC, Section 178 – Rules on copyright ownership (including authorship and employer/employee and commissioned works rules).
Act 3326: prescription rules for violations penalized by special acts, including Section 1 subsections (a)-(d), and Section 2 regarding when prescription begins to run and when it is interrupted.
Rules of Court, Rule 112, Section 1: defines preliminary investigation and states when required (quoted in source: preliminary investigation determines whether there is sufficient ground to engender a well-founded belief that a crime has been committed and that the respondent is probably guilty thereof; and that preliminary investigation is generally required where the penalty prescribed is at least four years, two months and one day).
Department of Justice Circular No. 70 (2000 NPS Rules on Appeal) cited as procedural basis for appealing TAPP decisions within the DOJ.

Procedural History

May 30, 2000 – NBI executed search warrant at Orignamura Trading and seized Sanrio merchandise.
April 4, 2002 – Sanrio filed complaint-affidavit before TAPP (IS No. 2002-205).
September 25, 2002 – TAPP, via State Prosecutor Aileen Marie S. Gutierrez and approved by Chief State Prosecutor Jovencito R. Zuno, dismissed the complaint for insufficiency of evidence, finding respondent bought his merchandise from legitimate sources and relied upon representations of those suppliers; some seized items were not among products authorized by GGI, but respondent had no duty to verify.
January 27, 2003 – Petitioner’s motion for reconsideration before the DOJ was denied (dated January 27, 2003).
Petitioner filed a petition for review in the Office of the Chief State Prosecutor of the DOJ; on August 29, 2003, Undersecretary Ma. Merceditas N. Gutierrez signed a resolution affirming the TAPP dismissal for lack of reversible error; a subsequent motion