01 October 2007
There are a number of ways in which IP owners can tackle parallel imports in the Philippines. Ignacio S Sapalo of Sapalo Velez Bundang & Bulilan outlines the options Regardless of where we live, in Asia, America and Europe, we find a large quantity and variety of goods that have been imported from other countries in our department stores. This shows that governments and international organizations have succeeded in promoting the flow of goods between different markets worldwide. Technology and the worldwide web have hastened the pace of this phenomenon. The Philippines is a developing country in a region experiencing the fastest economic growth. It is therefore timely to discuss the Philippines laws on parallel imports.
TRADE MARKS
The law on trade marks in the Philippines, Section 166 of Republic Act 8293, the Intellectual Property Code (IP Code), allows the importation of merchandise that are genuine products, sourced from the owner and registrant of the brand that the product bears. Our Bureau of Customs issued the Customs Administrative Order (CAO) 6-2002 to implement the IP Code and determine which goods to seize at the border. It prohibits goods which copy or simulate any mark or trade name registered with the Intellectual Property Office (IPO) in accordance with the IP Code, without the
authorization of the registrant. In addition, COA 6-2002 prohibits goods that copy or simulate wellknown marks and those that unfairly compete with products bearing marks, whether registered or not.
CAO 6-2002 adheres to the rule set by the trade mark law allowing the entry of parallel goods at the border. This arrangement facilitates the entry of cheaper imported products, which the lower cost of production in the country of manufacture makes possible. It poses a serious problem to local licensees or distributors of the same product in the domestic market as they wish to protect their market share. They frequently take legal measures to prevent the entry of parallel imports to the Philippine market as the two cases, which I will now discuss.
YU V COURT OF APPEALS
In Yu v Court of Appeals 217 SCRA 329, the exclusive distributor of House of Mayfair wallcovering products in the Philippines brought proceedings against his former goods dealer, Unisia Merchandising Co. They had purchased merchandise from the House of Mayfair in England and sold it in the Philippines. The Supreme Court ruled:
Injunction is the appropriate remedy to prevent a wrongful interference with contracts by strangers. Although its liability does not emanate from the four corners of the contract establishing the exclusive license agreement, in respect of which Unisia is not a party, its accountability is an independent act generative of civil liability … To our mind, the right to perform an exclusive distributorship agreement and to reap the profits resulting from such performance are proprietary rights which a party may protect, which otherwise may not be diminished, may be rendered illusory by the expedient act of utilizing or interposing a person or firm to obtain goods from the supplier to defeat the very purpose for which the exclusive distributorship was conceptualized, at the expense of the sole authorized distributor.
This does not necessarily mean that when a trade mark owner appoints an exclusive licensee or distributor to market his products in the Philippines and a person other than the exclusive licensee or distributor imports the products, that person is liable for damages. The court must find that fraud or deceit is present. In Yu v Court of Appeals , the court found:
that the House of Mayfair in England was duped into believing that the goods ordered by the defendant were to be shipped to Nigeria only, but the goods were actually sent to and sold in the Philippines. A ploy of this character is akin to the scenario of a third person who induces a party to renege or violate his undertaking under a contract thereby entitling the offended part to legal relief (Article 1314, New Civil Code).
Solid Triangle Sales v The Sheriff of RTC Quezon City
In Solid Triangle Sales Corp v The Sheriff of RTC Quezon City, Branch 93 , 370 SCRA 509, a criminal action for unfair competition was brought by Solid Triangle, the exclusive distributor of Mitsubishi Corporation of Japan, against Sanly Corporation, the importer of Mitsubishi photographic paper, under the law on trade marks. The court dismissed the action because Sanly Corporation did not pass off the Mitsubishi photographic paper it was selling as the product of another company. Solid Triangle in fact admitted that the goods Sanly Corporation sold were genuine Mitsubishi photographic paper.
The trade mark law allows the parallel importation of drugs and medical goods, but the goods are subject to the requirements of the Food, Drug and Cosmetics Law before they can be sold to the public. Although imported drugs are genuine, it is vital for them to comply with these requirements, particularly registration with the Bureau of Food and Drugs. Otherwise they cannot be sold to consumers. The Special Law on Counterfeit Drugs, Republic Act 8203, classifies as counterfeit an unregistered imported drug.
COPYRIGHT
If the law on trade marks does not address categorically the issues related to the importation of the so-called parallel goods, the law on copyright is equally nebulous. Section 190 of the IP Code is the only part of our copyright law that has any relevance to parallel importation. It authorizes the importation of works in cases where copies of the work are not available in the Philippines and when they form part of the personal baggage of arriving persons. The imported works must not exceed three copies. This rule adds another limitation to the rights of the author or copyright owner. It refers to genuine or authentic works and contains no provision for the importation of authentic copyrighted works in commercial quantities.
The lack of a clear-cut rule on parallel importation and of rules stating when and in what conditions exhaustion of copyright takes place creates gaps in our intellectual property system. The issuance of erroneous rules or regulations formulated by enforcement agencies is one result. In its administrative order CAO 6-2002, the Bureau of Customs included in its enumeration of prohibited goods those “which constitute a piratical copy or likeness of any work, whether published or unpublished, on which a copyright subsists.” The implication is that parallel importation is not prohibited. It is inconsistent with the conclusion we deduced from the provisions of Section 190 of the IP Code. The IP Code needs amendments to cover parallel importation.
PATENTS
The deficiency in our laws on trade marks and copyright with respect to parallel importation, fortunately, is not found in our law on patents. The IP Code squarely addresses the issue of parallel importation of products embodying patent inventions. The law on patents grants the patentee the right to restrain, prohibit and prevent any unauthorized person from making, using, offering for sale, selling or importing that product. In the section relating to limitations of patent rights, the law adopts the principle of domestic exhaustion only. One of the limitations to these rights is the withdrawal of the patentee’s right to prevent third parties from performing without his authorization, using a patented product which has been put on the market in the Philippines by its owner.
ESSENTIAL MEDICINES
The expense of many essential drugs and medicines in the Philippines has been the subject of much debate. When the subject arises there is media hype which always includes the issue of the parallel importation of medicine or drugs. A popular notion is that the law of the principle of domestic exhaustion helps keep the price of drugs high. People say that this policy enabled pharmaceutical companies to dictate the price of medicine in the Philippines because it prevented the entry of cheaper medicines from elsewhere. It is not surprising that a prominent member of the Senate has filed a proposal to amend the IP Code. One feature of the amendment is to replace the provision allowing the domestic exhaustion of patents with a provision adopting the principle of international exhaustion, as far as drugs or medicine are concerned; patent rights to these products would be exhausted after they have been introduced anywhere in the world by the patent owner, or by any party authorized to use the product.
The pharmaceutical industry has opposed this proposal. Its main argument is that international exhaustion does not guarantee the quality of drugs made in other countries. Product recall, a further aspect of regulation and accountability, becomes a concern. Patent safety and public health may be put at risk.
The adoption of international exhaustion has the support of the majority of our legislators. It is of interest to the entire population of the country to make affordable medicine available to the public. Even the President of the Republic has endorsed this measure. Although it failed to become law in the last congress and is encountering strong opposition from the pharmaceutical industry, it is likely that it will finally be enacted as law by the current congress. From then on the principle of international exhaustion will apply to drugs or medicine.
IGNACIO S SAPALO
Ignacio S Sapalo is the managing partner of Sapalo Velez Bundang & Bulilan. He obtained a BSc degree in 1963, majoring in engineering, and his bachelor of law from Ateneo de Manila in 1967. He was director of the Philippine Bureau of Patents, Trademarks and Technology Transfer from 1987 to 1996. During this time he led the group which drafted the 1998 IP Code of the Philippines. He is the author of Background Reading Material on the Intellectual Property System of the Philippines (WIPO, 1994) and has been professor of IP at the Ateneo School of Law since 1991. He has also lectured at WIPO seminars and acts as a consultant on intellectual property matters for the Department of Trade and Industry of the Philippines. He worked for the Association of Southeast Asian Nations Secretariat in 1998 and acted as WIPO consultant to Cambodia in 1999. He is the founder and president of the Intellectual Property Foundation, President of Iprobe (an IP investigation and consulting firm), a member of the executive board of the International Chamber of Commerce of the Philippines, and of the board of trustees of the Philippine Dispute Resolution Center. He is also a member of the Integrated Bar of the Philippines, the Philippine Bar Association, Association Internationale pour la Protection de la Propriété Intellectuelle, the Asian Patent Attorney’s Association, and Intellectual Property Association of the Philippines.
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