Title
Zuneca Pharmaceutical vs. Natrapharm, Inc.
Case
G.R. No. 211850
Decision Date
Sep 8, 2020
Zuneca's "ZYNAPS" infringed Natrapharm's registered "ZYNAPSE" trademark; court ruled for Natrapharm, citing confusion risk in pharmaceutical use.
trademark infringement
ownership
registration
A

Case Summary (G.R. No. 170984)

Procedural history and relief sought

Natrapharm filed suit in RTC for injunction, trademark infringement, damages and destruction (with TRO/preliminary injunction). RTC ruled for Natrapharm and ordered damages, exemplary damages, attorneys’ fees, and destruction/impounding of infringing materials; CA affirmed. Zuneca elevated the case to the Supreme Court by petition for review on certiorari. Zuneca also advanced counterclaims seeking cancellation of Natrapharm’s registration and damages for alleged fraudulent registration.

Key factual findings at trial

  • Natrapharm testified its mark “ZYNAPSE” was conceived in good faith, derived from the neurological term “synapse,” and checked against IMS-PPI, IPO, and BFAD databases before filing. Natrapharm’s witnesses denied knowledge of Zuneca’s “ZYNAPS” prior to filing.
  • Zuneca proved prior use of “ZYNAPS” in commerce beginning 2004 and a BFAD CPR from 2003 (renewed to 2013). Zuneca pointed to advertisements and inclusion in pharmaceutical publications and participation in the same conventions as evidence that Natrapharm should have known of prior use.
  • The lower courts accepted Natrapharm’s evidence of searches and found no sufficient proof of Natrapharm’s bad faith in registration; they also found confusing similarity between marks and likelihood of confusion.

Legal issues presented to the Supreme Court

The Court identified and distilled the main legal questions: (1) how trademark ownership is acquired under the IP Code; (2) whether a first-to-file registrant in good faith defeats a prior user in good faith; (3) whether Natrapharm registered in bad faith; (4) whether Zuneca is liable for infringement despite prior use (application of Section 159.1); and (5) whether Zuneca’s counterclaims (cancellation, damages) were correctly dismissed.

Statutory framework on acquisition of ownership (IP Code vs prior regimes)

  • The Court surveyed historical trademark regimes: Spanish Royal Decree (ownership by registration), Act No. 666 (1903) and R.A. 166 (1947)/R.A. 638 (1951) (ownership by actual use), Civil Code article referencing registration subject to special laws, and then the IP Code (effective Jan 1, 1998).
  • Section 122 of the IP Code: “The rights in a mark shall be acquired through registration made validly in accordance with the provisions of this law.” Section 123.1(d) implements the first-to-file rule by making registrability contingent on absence of identical or earlier-filed or confusingly similar marks.
  • The IP Code removed the Trademark Law’s phrase protecting “previously used… and not abandoned” marks from the registrability provision, indicating legislative intent to adopt registration (first-to-file) as the primary rule for acquiring ownership, while retaining remedies for bad faith and non-use.

Court’s holding on how trademark ownership is acquired

The Court held that under the IP Code ownership of a trademark is acquired by valid registration with the IPO (first-to-file rule). The decision reasoned that (a) the language of Sections 122 and 123.1(d) prioritize registration and first-to-file, (b) the legislative history (sponsorship speech) shows intent to abandon the prior-use ownership regime in order to comply with international commitments (Paris Convention, TRIPS) and to create a uniform registration-based system, and (c) prior jurisprudence that emphasized use as the determinative mode of ownership (cases decided under the old Trademark Law) are inconsistent with the IP Code and must be harmonized where possible.

Bad faith, fraud, and cancellation under the IP Code

The Court emphasized that registration must be made in good faith; registrations obtained in bad faith or by fraud are voidable and subject to cancellation under Section 151.1(b). The Court adopted established descriptions of bad faith: knowledge of another’s prior creation, use, or registration of an identical or similar mark. Fraud includes false claims about origin, ownership, or use in the application. Registrations void for bad faith do not confer the rights in Section 147.1. The Court also noted that cancellation on grounds of bad faith or registration contrary to law may be pursued at any time.

Application of law to the facts: first-to-file vs prior user; bad faith findings

  • The undisputed facts before the Court: Natrapharm was the first-to-file registrant of “ZYNAPSE” (registered Sept. 24, 2007); Zuneca had been using “ZYNAPS” in commerce since 2004; the marks are confusingly similar.
  • The Court deferred to the factual findings of the RTC and CA concerning Natrapharm’s good faith in registering “ZYNAPSE,” finding no sufficient evidence that Natrapharm knew of Zuneca’s prior use such that registration was in bad faith. Evidence on searches conducted and internal authoring of the name supported Natrapharm. Zuneca’s proofs (listing in PPD, attendance at same conventions) were held insufficient to establish Natrapharm’s knowledge of prior use.

Effect of Section 159.1 (prior user in good faith) and result on infringement liability

  • The Court construed Section 159.1 as an express limitation on remedies for infringement: a registered mark “shall have no effect” against any person who, in good faith, was using the mark for business purposes prior to the filing date or priority date — provided the prior user’s right may only be transferred with the business or that part where the mark is used.
  • The Court rejected the narrower CA/Natrapharm reading that the prior-user immunity only covers use before filing/priority date and that later continued use is liable as infringement. The Supreme Court held Section 159.1 allows the prior user in good faith to continue using the mark even after the subsequent registration by another, i.e., a concurrent coexistence is contemplated by the statute. Because Zuneca was a prior user in good faith, Zuneca could not be held liable for trademark infringement under Sections 155, 156 and 157 despite Natrapharm’s registration.

Remedies, directives, and the Court’s disposition

  • The Supreme Court’s ultimate disposition: it affirmed the lower courts insofar as they declared Natrapharm the lawful registrant of “ZYNAPSE.” It set aside the portions that held petitioners liable for infringement, awarded damages, ordered destruction of petitioner’s goods, and enjoined petitioners from using “ZYNAPS.” The petition was partly granted in that Zuneca was declared a prior user in good faith protected under Section 159.1. Petitioners’ TRO/preliminary injunction application was denied.
  • In light of public safety concerns given the confusing similarity of two medicines, the Court ordered both parties to indicate on their respective packaging, in plain lay language, the medical conditions their respective drugs treat and to include warnings indicating what their product is not supposed to treat. The Court directed submission of compliance reports within 30 days and furnished a copy of the decision to the Food and Drug Administration (FDA) to monitor compliance. Copies were also sent to the Senate President, Speaker of the House, and the IPO for information and guidance.

Rationale on policy and system stability

The Court explained the policy rationale for the IP Code’s registration-based ownership regime: registration offers a uniform, easily verifiable system that promotes stability, attracts foreign investment, and reduces litigation over prior use. The system protects registrants who act and maintain registrations in good faith, while also providing protections and limited rights to prior users in good faith (Section 159.1) and remedies against registrations obtained in bad faith (Section 151).

Concurring opinion (Perlas‑Bernabe): support for prior-user protection and concerns

Justice Perlas‑Bernabe concurred in the result (recognizing Zuneca as prior user in good faith under Section 159.1) but expressed concern about the tension between the IP Code’s registration regime and the prior-user exception. She warned that Section 159.1 undermines the IP Code’s move to registration-based ownership by incentivizing non-registration and permitting coexistence of confusingly similar marks, which may dilute registered owners’ rights and generate consumer confusion. She suggested that resolving the tension is a matter for Congress and cautioned against judicial rewriting of the statute.

Dissenting opinion (Leonen): public-health centric view and integration with FDA regulation

Justice Leonen dissented. While acknowledging the majority’s articulation of the general first-to-file rule, he argued this case presents an exception because trademarks for medicines implicate public health and safety. He urged that trademark registration for medicines should be read in harmony with FDA regulatory requirements: good-faith registration for a pharmaceutical mark should be conditioned on compliance with health-product regulatory rules. Leonen asserted that market participants (registrants) should be deemed to know w

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