ZUNECA PHARMACEUTICAL, AKRAM ARAIN AND/OR VENUS ARAIN, M.D.

DBA
ZUNECA PHARMACEUTICAL, Petitioners, v. NATRAPHARM, INC., Respondent.

Facts:

Respondent is an all-Filipino pharmaceutical company which manufactures and sells a medicine

bearing the generic name "CITICOLINE," which is indicated for heart and stroke patients. The
said medicine is marketed by respondent under its registered trademark "ZYNAPSE," which
respondent obtained from the Intellectual Property Office (IPO) on September 24, 2007 under
Certificate of Trademark Registration No. 4-2007-005596. With its registration, the trademark
"ZYNAPSE" enjoys protection for a term of 10 years from September 24, 2007.
Early 2001, petitioners have been selling a medicine imported from Lahore, Pakistan bearing the
generic name "CARBAMAZEPINE," an anti-convulsant indicated for epilepsy, under the brand
name "ZYNAPS," which trademark is however not registered with the IPO. "ZYNAPS" is
pronounced exactly like "ZYNAPSE."
Respondent claimed that the drug CARBAMAZEPINE has one documented serious and
disfiguring side-effect called "Stevens-Johnson Syndrome," and that the sale of the medicines
"ZYNAPSE" and "ZYNAPS" in the same drugstores will give rise to medicine switching.

Petitioners claimed that they had prior use of the name "ZYNAPS" since year 2003, having been
issued by the BFAD a Certificate of Product Registration (CPR) on April 15, 2003, which allowed
them to sell CARBAMAZEPINE under the brand name "ZYNAPS."

Respondent filed a complaint against petitioners for trademark infringement for violation of
Republic Act (R.A.) No. 8293, or the Intellectual Property Code of the Philippines (IPC).

In their answer, petitioners argued that they enjoyed prior use in good faith of the brand name
"ZYNAPS," having submitted their application for CPR with the BFAD on October 2, 2001, with
the name "ZYNAPS" expressly indicated thereon. The CPR was issued to them on April 15,
[Link] averred that under Section 159 of the IPC their right to use the said mark is
protected.

The Regional Trial Court (RTC) denied respondent's application for a TRO, ruling that even if
respondent was able to first register its mark "ZYNAPSE" with the IPO in 2007, it is nevertheless
defeated by the prior actual use by petitioners of "ZYNAPS" in 2003.

In this Court's objective evaluation, neither party is, at this point, entitled to any injunctive solace.
Plaintiff, while admittedly the holder of a registered trademark under the IPC, may not invoke
ascendancy or superiority of its CTR [certificate of trademark registration] over the CPR
[certificate of product registration of the BFAD] of the defendants, as the latter certificate is, in the
Court's opinion, evidence of its "prior use". Parenthetically, the plaintiff would have been entitled
to an injunction as against any or all third persons in respect of its registered mark under normal
conditions, that is, in the event wherein Section 159 would not be invoked by such third person.
Such is the case however in this litigation. Section 159 of the IPC explicitly curtails the registrant's
rights by providing for limitations on those rights as against a "prior user" under Section 159.

CA issued a Resolution denying respondent's application for TRO and/or preliminary injunction
for lack of merit. The CA found no compelling reason to grant the application for TRO and/or
preliminary injunction because there was no showing that respondent had a clear and existing
right that will be violated by petitioners. Respondent moved for reconsideration but was denied
by the CA in its July 31, 2008 Resolution.

Issue: Whether the CA may order a permanent injunction in deciding a petition

for certiorari against the denial of an application for a preliminary injunction issued by the RTC?

Held:
Rule 58 of the Rules of Court provides for both preliminary and permanent injunction. Section 1,
Rule 58 provides for the definition of preliminary injunction:
SECTION 1. Preliminary injunction defined; classes. — A preliminary injunction is an order
granted at any stage of an action or proceeding prior to the judgment or final order,
requiring a party or a court, agency or a person to refrain from a particular act or acts. It
may also require the performance of a particular act or acts, in which case it shall be known as a
preliminary mandatory injunction.

On the other hand, Section 9 of the same Rule defines a permanent injunction in this wise:
SEC. 9. When final injunction granted. — If after the trial of the action it appears that the
applicant is entitled to have the act or acts complained of permanently enjoined, the court shall
grant a final injunction perpetually restraining the party or person enjoined from the commission
or continuance of the act or acts or confirming the preliminary mandatory injunction.

A writ of preliminary injunction is generally based solely on initial and incomplete evidence. The
evidence submitted during the hearing on an application for a writ of preliminary injunction is not
conclusive or complete for only a sampling is needed to give the trial court an idea of the
justification for the preliminary injunction pending the decision of the case on the merits. As such,
the findings of fact and opinion of a court when issuing the writ of preliminary injunction
are interlocutory in nature and made even before the trial on the merits is commenced or
terminated.

By contrast a permanent injunction, based on Section 9, Rule 58 of the Rules of Court, forms part
of the judgment on the merits and it can only be properly ordered only on final judgment. A
permanent injunction may thus be granted after a trial or hearing on the merits of the case and a
decree granting or refusing an injunction should not be entered until after a hearing on the merits
where a verified answer containing denials is filed or where no answer is required, or a rule to
show cause is equivalent to an answer.

As such a preliminary injunction, like any preliminary writ and any interlocutory order, cannot
survive the main case of which it is an incident; because an ancillary writ of preliminary injunction
loses its force and effect after the decision in the main petition.

This Court is being asked to determine whether the CA erred by issuing a permanent injunction
in a case which questioned the propriety of the denial of an ancillary writ. But with the RTC's
December 2, 2011 Decision on the case for "Injunction, Trademark Infringement, Damages and
Destruction," the issues raised in the instant petition have been rendered moot and academic.
We note that the case brought to the CA on a petition for certiorari merely involved the RTC's
denial of respondent's application for a writ of preliminary injunction, a mere ancillary writ. Since
a decision on the merits has already been rendered and which includes in its disposition a
permanent injunction, the proper remedy is an appeal from the decision in the main case.

Consider the brands “ZYNAPS” and “ZYNAPSE.” Are these two related? Do they refer to the
same product? These were the questions that hounded a recent decision of the Supreme Court
(SC) in Trademark Law which once and for all settled the rule on whose trademark shall prevail
between the “first filer” and the “first user.”
In Zuneca Pharmaceutical vs Natrapharm Inc. (GR 211850, 8 September 2020), the two
competing marks involved were “ZYNAPS” and “ZYNAPSE.” They were admitted by both parties
to be confusingly similar with each other.
“ZYNAPS” (without an e) is owned by Zuneca. It is a drug for the treatment of seizures like
epilepsy. On the other hand, Natrapharm owns “ZYNAPSE” (with an e), which is also a medicine,
but for stroke.
This is the interesting part. Zuneca never registered its trademark “ZYNAPS” with the Intellectual
Property (IP) Office, but it has been using it since 2004. Meanwhile, Natrapharm has registered
its trademark “ZYNAPSE” on 24 September 2007.
With that, Natrapharm sued Zuneca for trademark infringement for using a confusingly similar
trademark in the same field of drugs or medicine.
Zuneca counter-sued and alleged that Natrapharm was the one in bad faith since it (Natrapharm)
knows Zuneca’s usage of “ZYNAPS” as a mark since 2004 considering that they both presented
their products in the same pharmaceutical convention years prior.
The trial court found Zuneca liable for trademark infringement, essentially saying that Natrapharm
was the first one to register the trademark in good faith. The trial court found no bad faith on the
part of Natrapharm either since Zuneca failed to prove that Natrapharm actually knew the
existence of Zuneca’s “ZYNAPS.” The Court of Appeals affirmed this decision.
The SC partly affirmed the lower courts’ decision. It definitively ruled that the only mode of
acquiring ownership of a trademark is through registration (and not use).
According to the SC: “(i) the language of the IP Code provisions clearly conveys the rule that
ownership of a mark is acquired through registration; (ii) the intention of the lawmakers was to
abandon the rule that ownership of a mark is acquired through use; and (iii) the rule on ownership
used in Berris and E.Y.
Industrial Sales Inc. (cases) is inconsistent with the IP Code regime of acquiring ownership though
registration.”
Indeed, Section 122 of the IP Code states, “(T)he rights in a mark shall be acquired through
registration made validly in accordance with the provisions of this law.”
In effect, the SC abandoned its previous rulings that the first user in good faith defeats the right
of the first filer in good faith. Trademark is acquired solely through registration.
To this decision, a couple of Justices dissented. They could not accept interpretation that the
present IP Code abandoned “use” as a mode of acquiring ownership of a trademark.
They said that that the IP Code equally requires the registered owner of the mark to file a
Declaration of Actual Use (Sec. 124.2, IP Code) and the law expressly states that the certificate
of registration shall be “ prima facie evidence of the validity of the registration, the registrant’s
ownership of the mark, and of the registrant’s exclusive right to use the same….” (Sec. 138, IP
Code). According to the dissenters, these provisions show that prior use is still required before an
entity could acquire ownership of a mark.
To these objections, J. Caguioa (ponente) stated that the requirement of filing a Declaration of
Actual Use does not refer to the mode of acquisition but is a requirement to maintain ownership
of a mark.
The rule on the prima facie validity of a certificate of registration is merely meant to recognize the
instances when such certificate is not reflective of ownership such as, among others, when the
registration was done contrary to the IP Code.
In order to erase doubts, the SC unearthed Congress’ deliberations when it was crafting the
present IP Code. The SC quoted the late Senator Raul Roco’s sponsorship speech to show that
it was Congress’s intent to abandon “use” as a mode of acquiring ownership of a mark in order to
be consistent with the Paris Convention and other Trademark Laws of the world.
In short, the SC held that Natrapharm’s “ZYNAPSE” must prevail over Zuneca’s “ZYNAPS” since
the former was first registered.
Although, the SC absolved Zuneca from being liable for trademark infringement because SC
found Zuneca to be a prior user in good faith. According to the SC, Section 159.1 of the IP Code
contemplates that a prior user in good faith may continue to use its mark even after the registration
of the mark by the first to file registrant in good faith.

In Zuneca Pharmaceutical vs. Natrapharm, Inc. [G.R. No. 211850, 08 September 2020], the
Supreme Court held that, under the Intellectual Property Code of the Philippines, prior use no
longer determines the acquisition of ownership over a mark. This landmark decision overturns
and abandons the rulings in previous cases such as Berris Agricultural Co., Inc. v. Abyadang
[G.R. No. 183404, 13 October 2010] and E. Y. Industrial Sales, Inc. et al. v. Shen Dar Electricity
and Machinery Co., Ltd. [G.R. No. 184850, 20 October 2010] stating that the rights of a prior user
of a mark prevail over the rights of a first registrant of a confusingly similar mark. The decision
unequivocally pronounced that, under the Intellectual Property Code, the ownership of a
trademark is acquired by its registration.

The Supreme Court emphasized that the language of the Intellectual Property Code (unlike its
predecessor, the Trademark Law) clearly conveys the rule that ownership of a mark is acquired
through registration. Even if a mark was previously used and not abandoned by another person,
a good faith applicant may still register the same and thus become the owner thereof, and the
prior user cannot ask for the cancellation of the latter’s registration. While the Intellectual Property
Code mandates that the applicant or registrant of a mark must prove continued actual use of such
mark, this does not imply that actual use is still a recognized mode of acquisition of ownership.
Rather, this requirement is put in place in order for the registered owner of a mark to maintain his
ownership.

Similarly, the prima facie nature of the certificate of registration is not indicative of the fact that
prior use is still a recognized mode of acquiring ownership under the Intellectual Property Code.
Rather, it is meant to recognize the instances when the certificate of registration is not reflective
of ownership of the holder thereof, such as when: (1) the first registrant has acquired ownership
of the mark through registration but subsequently lost the same due to non-use or abandonment;
(2) the registration was done in bad faith; (3) the mark itself becomes generic; (4) the mark was
registered contrary to the Intellectual Property Code (e.g., when a generic mark was successfully
registered for some reason); or (5) the registered mark is being used by, or with the permission
of, the registrant so as to misrepresent the source of the goods or services on or in connection
with which the mark is used.

Nevertheless, under the Intellectual Property Code, the existence of bad faith in trademark
registrations may be a ground for its cancellation at any time by filing a petition for cancellation,
bad faith being defined as knowledge of prior creation, use and/or registration by another of an
identical or similar trademark. Thus, the first-to-file registrant must be in good faith to allow such
registrant to acquire all the rights in a mark. In the same vein, prior users in good faith are also
protected under the Intellectual Property Code in the sense that they will not be made liable for
trademark infringement even if they are using a mark that was subsequently registered by another
person.

In arriving at this decision, the Supreme Court considered the following undisputed facts: (1)
Respondent Natrapharm was the registrant of the “ZYNAPSE” mark which was registered on 24
September 2007; (2) Petitioner Zuneca has been using the “ZYNAPS” brand as early as 2004;
and (3) “ZYNAPSE” and “ZYNAPS” were confusingly similar and both were used for medicines.
It was clear that Respondent Natrapharm was the first-to-file registrant of “ZYNAPSE” mark and
that Petitioner Zuneca was the prior user of a confusingly similar mark, “ZYNAPS”. What remained
contentious was Respondent Natrapharm’s good or bad faith in registering its “ZYNAPSE” mark,
and the Supreme Court affirmed the findings of the lower courts that Petitioner Zuneca failed to
show Respondent Natrapharm’s bad faith.

Since Natrapharm was not shown to have been in bad faith, it was considered to have acquired
all the rights of a trademark owner upon the registration of the “ZYNAPSE” mark. However, under
the Intellectual Property Code, a prior user in good faith may continue to use its mark even after
the registration of the mark by the first-to-file registrant in good faith, subject to the condition that
any transfer or assignment of the mark by the prior user in good faith should be made together
with the enterprise or business or with that part of his enterprise or business in which the mark is
used. Thus, the Supreme Court found that Petitioner Zuneca was exempted from liability for
trademark infringement for being a prior user in good faith.
On 08 September 2020, the Supreme Court of the Philippines (“Supreme Court”) promulgated its
decision in the case of Zuneca Pharmaceutical v. Natrapharm Inc. (“Decision”) which clarified that
ownership over a trademark may also be acquired through prior use in good faith versus
registration[1]. This ruling is of stark difference from the previous rulings of the Supreme Court
where the first person or entity to register a trademark defeats the right of the first person or entity
to use the trademark in good faith.
Facts:
The case involves a dispute between the use and ownership of the confusingly similar marks
“ZYNAPS” and “ZYNAPSE”.
Zuneca Pharmaceutical (“Zuneca”) has been engaged in the sale of “ZYNAPS”, an anti-
convulsant used to control all types of seizure disorders like epilepsy[2] as early as 2004.
Natrapharm, Inc. (“Natrapharm”), on the other hand, has also been engaged in the sale of
“ZYNAPSE” for the treatment of cerebrovascular disease or stroke[3], and is the registrant of the
“ZYNAPSE” mark which was registered with the Intellectual Property Office of the Philippines
(“IPO”) on 24 September 2007.[4]
On 29 November 2007, Natrapharm filed a Trademark Infringement case against Zuneca, alleging
that “ZYNAPS” is confusingly similar to its registered trademark “ZYNAPSE”. While Zuneca
argued that as the first entity to use the mark in good faith, it was the rightful owner of the mark
“ZYNAPS”.
Ruling on How Trademark Ownership is Acquired
The Supreme Court held that the language of the Intellectual Property Code of the Philippines
(“IP Code”) clearly provides that ownership of a mark is acquired through registration.
Furthermore, the Supreme Court stated that the intention of the lawmakers was to abandon the
rule that ownership of a mark is acquired through prior use, and that the rule on ownership used
in Berris Agricultural Co., Inc. v. Abyadang (“Berris”)[5]and E. Y. Industrial Sales, Inc. et al. v.
Shen Dar Electricity and Machinery Co., Ltd. (“E. Y Industrial Sales, Inc.”)[6] is inconsistent with
the IP Code regime of acquiring ownership through registration.

Language of the IP Code

Section 122 of the IP Code provides how marks are acquired:
SECTION 122. How Marks are Acquired. -The rights in a mark shall be acquired through
registration made validly in accordance with the provisions of this law. (Sec. 2-A, R.A. No. 166a)
(Emphasis and underscoring supplied)[7]
The language of the IP Code as to the acquisition of ownership of a mark provides for a stark
contrast with that of the old Trademark Law, which provided that prior use and non-abandonment
of a mark banned future registration of an identical or confusingly similar mark by a different
proprietor. Such a change effectively connotes that prior use no longer determines acquisition.

While doubts have been expressed by Associate Justices Leonen and Lazaro-Javier over the
supposed abandonment of the requirement of actual use, the Supreme Court clarified that the
filing of the Declaration of Actual Use (“DAU”) is not a prerequisite for the acquisition of ownership
of a mark as it is only necessary to maintain ownership over the registered Trademark. On the
other hand, the prima facie nature of the Certificate of Registration (“COR”) is only meant to
recognize the instances when the COR is no longer reflective of the ownership of the holder
thereof, such as, but not limited to, cases when the first registrant subsequently lost its ownership
due to non-use or abandonment.[9]

Rule on Ownership – Berris and E. Y. Industrial Sales, Inc.

Zuneca erred in using the cases of Berris and E. Y Industrial Sales, Inc. as bases for its
arguments.
The ruling in Berris was based on the fact that Berris, Inc. was the first to file the application and
register the mark under the IP Code. The fact of prior use was only mistakenly given undue weight.
On the other hand, the earliest dates of use by both parties in E. Y Industrial Sales, [Link]
the effectivity of the old Trademark Law, as amended. E.Y. Industrial Sales, Inc. had applied and
registered the mark under the IP Code, while Shen Dar Electricity and Machinery Co. Ltd. had
applied for the mark under the old Trademark Law.
Thus, both Berris and E. Y Industrial Sales, Inc. cannot be applied in cases where the marks of
both parties are used and/or registered under the IP Code.

Zuneca - Prior user in good faith

Bad Faith in Trademark Registration and Use Natrapharm - first-to-file registrant in good faith

Zuneca likewise claims that Natrapharm was in bad faith when they registered its mark with the
IPO. In cases of registration of a mark by means of fraud or bad faith, a party may pray for its
cancellation at any time by filing a petition for cancellation under Section 151 (b) of the IP Code,
“SECTION 151. Cancellation. – 151.1. A petition to cancel a registration of a mark under this Act
may be filed with the Bureau of Legal Affairs by any person who believes that he is or will be
damaged by the registration of a mark under this Act as follows:xxx(b) At any time, if the registered
mark becomes the generic name for the goods or services, or a portion thereof, for which it is
registered, or has been abandoned, or its registration was obtained fraudulently or contrary to the
provisions of this Act xxx (Underscoring supplied)”
The presence of bad faith alone renders a trademark registration void because the marks should
not have been registered in the first place. Hence, even if the marks are registered subsequently,
the registration will not confer the registrant any of the rights under Section 147.1[11] of the IP
Code.
As a rule, good faith is always presumed, and upon him who alleges bad faith on the part of a
possessor rests the burden of proof. In this case, not only was Natrapharm able to explain the
origin of the name, it was also able to show that it had checked the IMS-PPI-IPO, and Bureau of
Food and Drug Administration Philippines (“BFAD”) databases and found that there was no brand
name which was confusingly similar to “ZYNAPSE”.
Since Natrapharm was not proven to have been in bad faith, it was thus considered to have
acquired all the rights of a trademark owner under the IP Code upon the registration of the
“ZYNAPSE” mark.

Prior User in Good Faith

While Natrapharm is the owner of the “ZYNAPSE” mark, this does not, however, automatically
mean that its complaint against Zuneca is with merit. Prior users in good faith are also protected
in the sense that they will not be made liable for trademark infringement even if they are using a
mark that was subsequently registered by another person. Section 159.1 of the IP Code provides:
“Notwithstanding the provisions of Section 155 hereof, a registered mark shall have no effect
against any person who, in good faith, before the filing date or the priority date, was using the
mark for the purposes of his business or enterprise: Provided, That his right may only be
transferred or assigned together with his enterprise or business or with that part of his enterprise
or business in which the mark is used. (Underscoring supplied)”
The application of Section 159.1 of the IP Code in the case at bar results in Zuneca’s exemption
from liability for trademark infringement.
Section 159.1 of the IP Code clearly contemplates that a prior user in good faith may continue to
use its mark even after the registration of the mark by the first-to-file registrant in good faith. In
any event, the application of Section 159.1 necessarily results in the co-existence of at least two
entities – the unregistered prior user in good faith, on one hand; and the first-to-file registrant in
good faith on the other – using identical or confusingly similar marks in the market at the same
point in time, even if there exists the likelihood of confusion. [14]
Essentially, the decision indisputably pronounced that, under the IP Code, the ownership of a
trademark is acquired by its registration, with the exception created by Section 159.1 of the IP
Code.

Implications of the Decision Today

Co-Existence of Confusingly Similar Marks
The pronouncement of the Supreme Court allows clients and individuals interested in the
registration of a mark an assurance that, in the absence of bad faith, the approval of the
registration of their proposed mark will surely give rise to rights under the IP Code. Even if there
may exist another individual or entity who make use of the same or similar mark, the rights
resulting from the registered mark will not be affected.
Nonetheless, the same ruling creates a scenario where a mark, which was successfully registered
with the IPO, may have the risk of being in co-existence with a confusingly similar mark, in the
case where a prior user in good faith exists.
In the case of Zuneca and Natrapharm, both parties engage in the sale of medicine – one an anti-
convulsant, while the other, a treatment for cerebrovascular disease. In such cases, the
customers and patients go to the pharmacy with the specific medicine and its purpose in mind.
Likewise, the personnel handling the medicine are professionals who have expertise over the
matter, which may reduce the confusion that may arise from the similarity of the marks.
However, should the same condition happen in a different market where customers and clients
are not as particular, the confusion created by the co-existence of the confusingly similar marks
may defeat the very purpose of the trademark, and may negatively affect the goodwill of the owner
of the mark.

Awareness of IP rights
The Decision highlights the importance and necessity of trademark owners to be aware of their
rights and to register their marks as early as possible. While failure to register a mark may not
deprive a prior user in good faith of their trademark, the non-registration of such mark may create
the absurdity of co-existence for the same or confusingly similar mark owned by a later registrant.
Granting co-existence may be better than deprivation of rights over the mark, it is still best and
prudent for the first user to take advantage of the system of registration in the IP Code and register
the mark avoiding the absurd situation of co-existence.