In-N-Out Burger, Inc. vs. Sehwani, Incorporated

The Bureau of Legal Affairs and the Director General of the Intellectual Property Office exercise concurrent jurisdiction with regular courts over administrative complaints for unfair competition under Sections 10, 160, and 170 of the Intellectual Property Code; Section 163 does not confer exclusive jurisdiction upon the courts.

Petitioner In-N-Out Burger, Inc., a California corporation engaged in the restaurant business and owner of the internationally well-known marks “IN-N-OUT,” “IN-N-OUT Burger & Arrow Design,” and “IN-N-OUT Burger Logo,” had never conducted business in the Philippines. Respondent Sehwani, Incorporated, a domestic corporation, obtained a Philippine trademark registration in 1993 for “IN N OUT (the inside of the letter ‘O’ formed like a star).” Respondent Benita’s Frites, Inc. used the registered mark under a licensing agreement. Despite the registration’s depiction of a star inside the “O,” respondents actually used the mark “IN-N-OUT” without the star, together with petitioner’s “Double-Double” mark, a similar menu color scheme, wrappers, receptacles, and receipts bearing the phrase “representing IN-N-OUT Burger.” Petitioner sought cancellation of the registration and relief for unfair competition.

• Parties and Marks: Petitioner In-N-Out Burger, Inc., incorporated in California, owned the internationally well-known marks “IN-N-OUT,” “IN-N-OUT Burger & Arrow Design,” and “IN-N-OUT Burger Logo,” used in the restaurant business since 1948. Petitioner did not operate in the Philippines. Respondent Sehwani, Incorporated, a Philippine corporation, secured Trademark Registration No. 56666 on 17 December 1993 for “IN N OUT (the inside of the letter ‘O’ formed like a star)” for restaurant services. Respondent Benita’s Frites, Inc. used the mark under a licensing agreement.
• Respondents’ Actual Use: Although the registered mark featured a star inside the “O,” respondents used “IN-N-OUT” without the star on signage, wrappers, and receptacles. They also adopted petitioner’s “Double-Double” mark, copied the menu color scheme, and issued receipts stating “representing IN-N-OUT Burger.” Their restaurant opened only in 2000, after petitioner had demanded they cease claiming ownership of the mark.
• IPO Administrative Proceedings: On 22 December 2003, the IPO Director of Legal Affairs cancelled the registration of “IN N OUT,” ordered respondents to permanently cease and desist from using the “IN-N-OUT” and “Double-Double” marks, but found no unfair competition, attributing respondents’ use to good faith. Both parties sought reconsideration; these were denied.
• IPO Director General’s Ruling: On appeal by petitioner, the IPO Director General found respondents guilty of unfair competition. The Director General emphasized that respondents did not use their own registered mark; they used petitioner’s marks without authorization; the star element was absent because it was allegedly difficult to print; respondents’ overall trade dress created a confusing similarity; and fraudulent intent could be inferred. Actual damages of ₱212,574.28 (30% of gross sales, doubled for actual intent to mislead), exemplary damages of ₱500,000.00, and attorney’s fees of ₱500,000.00 were awarded.

• Jurisdiction of the IPO: Petitioner argued that the Court of Appeals erred in declaring that the IPO had no jurisdiction over administrative complaints for unfair competition. Sections 10, 160, and 170 of the Intellectual Property Code expressly confer upon the Bureau of Legal Affairs original jurisdiction over administrative complaints for violations of intellectual property rights, including unfair competition, and Section 7 vests exclusive appellate jurisdiction in the IPO Director General. Section 163 does not divest the IPO of concurrent jurisdiction.
• Formal Defects: Petitioner maintained that the Verification/Certification attached to the petition was not defective. The Secretary’s Certificate required only a jurat, not an acknowledgment. Even if notarization were imperfect, counsel’s verification substantially complied with the rules, and verification is a formal, not jurisdictional, requirement.
• Forum Shopping: Petitioner contended that respondents committed forum shopping by filing a second petition before the Court of Appeals (CA-G.R. SP No. 92785) while the first petition (CA-G.R. SP No. 88004) was pending, as both involved the same parties, sought to nullify the cancellation order, and raised substantially the same grounds.

• Jurisdiction: Respondents countered that Section 163 of the Intellectual Property Code vests jurisdiction over actions for unfair competition exclusively in regular courts. The general grant of administrative jurisdiction in Section 10 must yield to the specific provision of Section 163 found in the trademark chapter, leaving the IPO without authority to adjudicate unfair competition claims and award damages.
• Defective Verification: Respondents asserted that the Secretary’s Certificate authorizing counsel to sign the Verification/Certification was improperly notarized under Act No. 2103, and the notarial certificate of Atty. Uy lacked the required details under the 2004 Rules on Notarial Practice, rendering the petition dismissible.
• Absence of Forum Shopping: Respondents denied forum shopping, arguing that the two Court of Appeals petitions raised different issues: the first assailed the dismissal of their appeal for tardiness; the second challenged the IPO Director General’s subsequent finding of unfair competition and award of damages, an issue that had not yet ripened when the first petition was filed.
• Merits of Unfair Competition: Respondents further argued that they used the mark in good faith since 1982, that petitioner’s marks were not well-known in the Philippines, and that the complaint was barred by laches.

• Jurisdiction: Whether the Court of Appeals erred in ruling that the Intellectual Property Office has no jurisdiction over administrative complaints for unfair competition.
• Formal Defects: Whether the Petition for Review should be dismissed due to alleged defects in the verification and certification against forum shopping.
• Forum Shopping: Whether respondents were guilty of forum shopping by filing CA-G.R. SP No. 92785 while CA-G.R. SP No. 88004 was pending.
• Unfair Competition: Whether the IPO Director General correctly found respondents liable for unfair competition and properly awarded damages.

• Jurisdiction: The IPO possesses concurrent jurisdiction with regular courts over administrative complaints for unfair competition. Section 10 of the Intellectual Property Code expressly vests the Bureau of Legal Affairs with original jurisdiction over administrative complaints for violations of intellectual property rights, including the power to cancel registrations, issue cease-and-desist orders, and assess damages. Sections 160 and 170, which are specific trademark provisions, explicitly recognize the availability of civil and administrative actions for unfair competition and confirm that administrative sanctions exist independently of judicial remedies. Section 163 merely enumerates actions that “shall be brought before the proper courts” but does not state that such jurisdiction is exclusive; it cannot be read to repeal or restrict the administrative jurisdiction conferred by other provisions. The appellate jurisdiction of the IPO Director General under Section 7 encompasses appeals from BLA decisions, including those concerning unfair competition.
• Formal Defects: The verification was not fatally defective. The Secretary’s Certificate required only a jurat, not an acknowledgment; the California notary’s jurat substantially complied. Even assuming infirmity, the verification signed by counsel—who possessed personal knowledge of the petition’s truth—was sufficient. Verification is a formal, not jurisdictional, requirement; non-compliance may be excused in the interest of substantial justice, especially when pivotal jurisdictional issues are raised.
• Forum Shopping: Respondents were not guilty of forum shopping. While the two petitions involved the same parties and both sought overturning of the cancellation order, the second petition additionally raised the distinct issue of unfair competition liability and damages—a matter that was not yet adjudicated when the first petition was filed. The reassertion of the right to the mark as a defense against damages did not, by itself, constitute willful violation of the rule against forum shopping. The defective certification of non-forum shopping did not warrant dismissal because the rule is not jurisdictional, and exceptional circumstances justified relaxation.
• Unfair Competition: The IPO Director General’s finding of unfair competition was supported by substantial evidence. Respondents did not use their own registered mark but instead used petitioner’s marks “IN-N-OUT” and “Double-Double,” adopted a similar overall trade dress, and issued receipts suggesting an affiliation. The star element was omitted from actual use, belying good faith. Fraudulent intent could be inferred from the confusing similarity of the goods as packaged and offered for sale. The award of actual damages—30% of gross sales doubled under Section 156.3 for actual intent to mislead—was proper. Exemplary damages, however, were reduced from ₱500,000.00 to ₱250,000.00 to align more closely with the actual damages. Attorney’s fees of ₱500,000.00 were warranted given the protracted litigation and the need to protect intellectual property rights.

• Concurrent Jurisdiction of the IPO over Unfair Competition — The Bureau of Legal Affairs under Section 10 of the Intellectual Property Code, in conjunction with Sections 160 and 170, exercises original administrative jurisdiction over complaints for unfair competition, concurrent with that of regular courts. Section 163 does not confer exclusive jurisdiction upon the courts; it merely identifies the proper judicial forum for actions mentioned therein without negating existing administrative remedies.
• Elements of Unfair Competition — Unfair competition under the Intellectual Property Code requires (1) confusing similarity in the general appearance of the goods, which may arise from marks or from other external factors in packaging or presentation, and (2) intent to deceive the public and defraud a competitor. The intent to deceive and defraud may be inferred from the similarity of the appearance of the goods as offered for sale; proof of actual fraudulent intent is not necessary.
• Substantial Evidence Rule in Administrative Proceedings — A finding of administrative liability must rest on substantial evidence—that amount of relevant evidence a reasonable mind might accept as adequate to support a conclusion.
• Doctrine of Conclusiveness of Judgment — Issues actually and directly adjudicated in a final judgment on the merits are conclusively settled between the parties and their privies and cannot be relitigated in subsequent proceedings, regardless of whether the claims or subject matter are identical.
• Verification as a Formal Requirement — Verification is a formal, non-jurisdictional requirement; a defective verification does not automatically invalidate a pleading. A party’s representative or counsel who possesses personal knowledge of the truth of the allegations may sign the verification.

• “While Section 163 of the Intellectual Property Code vests in civil courts jurisdiction over cases of unfair competition, nothing in the said section states that the regular courts have sole jurisdiction over unfair competition cases, to the exclusion of administrative bodies. On the contrary, Sections 160 and 170 … recognize the concurrent jurisdiction of civil courts and the IPO over unfair competition cases.”
• “The essential elements of an action for unfair competition are (1) confusing similarity in the general appearance of the goods and (2) intent to deceive the public and defraud a competitor. The confusing similarity may or may not result from similarity in the marks, but may result from other external factors in the packaging or presentation of the goods.”
• “Administrative proceedings are governed by the ‘substantial evidence rule.’ A finding of guilt in an administrative case would have to be sustained for as long as it is supported by substantial evidence that the respondent has committed acts stated in the complaint or formal charge.”

• McDonald’s Corporation v. L.C. Big Mak Burger, Inc., G.R. No. 143993, 18 August 2004 — Followed for the essential elements of unfair competition under the Intellectual Property Code.
• Sehwani, Incorporated v. In-N-Out Burger, Inc., G.R. No. 171053, 15 October 2007 — Applied to preclude relitigation of the validity of the trademark cancellation and the order to cease use, under the doctrine of conclusiveness of judgment.
• Oropeza Marketing Corporation v. Allied Banking Corporation, 441 Phil. 551 (2002) — Cited to define conclusiveness of judgment.
• MSF Tire and Rubber, Inc. v. Court of Appeals, 370 Phil. 824 (1999) — Relied upon for the definition of forum shopping and the identity-of-parties-and-issues test.

• Section 10, Intellectual Property Code (R.A. No. 8293) — Vests the Bureau of Legal Affairs with original jurisdiction over administrative complaints for violations of intellectual property rights, including unfair competition, and empowers it to cancel registrations, issue cease-and-desist orders, assess damages, and impose administrative fines.
• Section 7(b), Intellectual Property Code — Confers upon the Director General exclusive appellate jurisdiction over decisions of the Director of Legal Affairs.
• Section 160, Intellectual Property Code — Expressly authorizes foreign corporations meeting the requirements of Section 3 to bring civil or administrative actions for unfair competition, confirming the availability of administrative remedies.
• Section 170, Intellectual Property Code — States that criminal penalties are “independent of the civil and administrative sanctions imposed by law,” thereby recognizing administrative sanctions for unfair competition.
• Section 163, Intellectual Property Code — Enumerates actions under specific sections (including Section 168 on unfair competition) that shall be brought before proper courts, but does not use exclusive language; interpreted as concurrent with administrative jurisdiction.
• Articles 2208(1) and 2229, Civil Code — Applied as basis for attorney’s fees and exemplary damages.

Associate Justice Consuelo Ynares-Santiago (Chairperson), Associate Justice Ma. Alicia Austria-Martinez, Associate Justice Antonio Eduardo B. Nachura, Associate Justice Ruben T. Reyes.