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.

FACTS:

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.

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 RTC ruled that the first filer in good faith defeats a first user in good faith who did not file any
application for registration.34 Hence, Natrapharm, as the first registrant, had trademark rights over
"ZYNAPSE" and it may prevent others, including Zuneca, from registering an identical or confusingly
similar mark.35 Moreover, the RTC ruled that there was insufficient evidence that Natrapharm had
registered the mark "ZYNAPSE" in bad faith.

The CA affirmed the decision of RTC. Hence this case.

ISSUE:

WHETHER OR NOT THE [CA] ERRED IN AFFIRMING THE RTC'S RULING 

RULING:
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.

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.

The Court held that, to establish trademark infringement, the following elements must be proven:
(l)the trademark being infringed is registered in the IPO; (2) the trademark is reproduced,
counterfeited, copied, or colorably imitated by the infringer; (3) the infringing mark is used in
connection with the sale, offering for sale, or advertising of any goods, business, or services; or the
infringing mark is applied to labels, signs, prints, packages, wrappers, receptacles, or
advertisements intended to be used upon or in connection with such goods, business, or services;
(4) the use or application of the infringing mark is likely to cause confusion or mistake or to deceive
purchasers or others as to the goods or services themselves or as to the source or origin of such
goods or services or the identity of such business; and (5) it is without the consent of the trademark
owner or the assignee thereof.

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)

Related to this, Section 123. l(d) of the IP Code expresses the first-to-file rule as follows:

SECTION 123. Registrability. - 123.1. A mark cannot be registered if it:

xxxx

(d) Is identical with a registered mark belonging to a different proprietor or a mark with an earlier

(i) The same goods or services, or

(ii) Closely related goods or services, or

(iii) If it nearly resembles such a mark as to be likely to deceive or cause confusion[.]

To clarify, while it is the fact of registration which confers ownership of the mark and enables the
owner thereof to exercise the rights expressed in Section 14775 of the IP Code, the first-to-file rule
nevertheless prioritizes the first filer of the trademark application and operates to prevent any
subsequent applicants from registering marks described under Section 123.1(d) of the IP Code.
Reading together Sections 122 and 123. l(d) of the IP Code, therefore, a registered mark or a mark
with an earlier filing or priority date generally bars the future registration of- and the future acquisition
of rights in - an identical or a confusingly similar mark, in respect of the same or closely-related
goods or services, if the resemblance will likely deceive or cause confusion.

The current rule under the IP Code is thus in stark contrast to the rule on acquisition of ownership
under the Trademark Law, as amended. To recall, the Trademark Law, as amended, provided that
prior use and non-abandonment of a mark by one person barred the future registration of an
identical or a confusingly similar mark by a different proprietor when confusion or deception was
likely.76 It also stated that one acquired ownership over a mark by actual use

Thus, the SC held that Natrapharm’s “ZYNAPSE” must prevail over Zuneca’s “ZYNAPS” since the
former was first registered.

However, 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.

If Section 159.1 of the IP Code is only meant to exempt from an action for infringement the use in
good faith prior to the filing or priority date of the subsequently registered mark, then this entire
provision would be rendered useless and a mere surplusage. Stated otherwise, there is no point in
adding Section 159.1 of the IP Code as an exception under "Limitations to Actions for Infringement"
because it merely repeats the general rule that, after the mark has been registered, the registrant
may file an infringement case against third parties using an identical or confusingly similar mark in
commerce without its consent, when such use results in a likelihood of confusion.139  Even without
Section 159.1 of the IP Code, a third party's prior use of an unregistered mark, if said mark
subsequently becomes registered by another, could not be considered as trademark infringement
because there was no trademark registration - a requirement for a trademark infringement action to
prosper - when the third party was using its mark.

More importantly, the proviso of Section 159.1 of the IP Code states: "[t]hat [the good faith prior
user's] 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." To adhere to the theories of the CA
and Natrapharm that the prior user's use of the identical or confusingly similar mark subsequent to
the filing or registration date of the registered mark should be considered as trademark infringement
renders this proviso useless and nugatory and logically subjects the possible transferee or assignee
to inevitable liability for trademark infringement. The lawmakers could not have intended this absurd
outcome.

Read as a whole, 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, 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. The mark cannot be transferred independently of the
enterprise and business using it.

From the provision itself, it can be gleaned that while the law recognizes the right of the prior user in
good faith to the continuous use of its mark for its enterprise or business, it also respects the rights
of the registered owner of the mark by preventing any future use by the transferee or assignee that
is not in conformity with Section 159.1 of the IP Code. Notably, only the manner of use by the prior
user in good faith - that is, the use of its mark tied to its current enterprise or business - is
categorically mentioned as an exception to an action for infringement by the trademark owner. The
proviso in Section 159.1 of the IP Code ensures that, despite the transfer or assignment of its mark,
the future use by the assignee or transferee will not go beyond the specific confines of such
exception. Without the proviso, the prior user in good faith would have the free hand to transfer or
assign the "protected use" of its mark for any purpose to a third person who may subsequently use
the same in a manner unduly curtailing the rights of the trademark owner. Indeed, this unilateral
expansion of the exception by a third person could not have been intended, and is guarded against,
by the legislature through the foregoing proviso.

In any event, the application of Section 159.1 of the IP Code necessarily results in at least two
entities - the unregistered prior user in good faith or their assignee or transferee, on one hand; and
the first-to-file registrant in good faith on the other - concurrently using identical or confusingly similar
marks in the market, even if there is likelihood of confusion. While this situation may not be ideal, as
eruditely explained in the Concurring Opinion of Justice Perlas-Bernabe, the Court is constrained to
apply Section 159.1 of the IP Code as written.

ZUNECA PHARMACEUTICAL AND/OR AKRAM ARAIN AND/OR VENUS ARAIN, M.D., AND
STYLE OF ZUNECA PHARMACEUTICAL and NATRAPHARM, INC. are likewise ORDERED to: (1)
indicate on their respective packaging, in plain language understandable by people with no medical
background or training, the medical conditions that their respective drugs are supposed to treat or
alleviate and a warning indicating what "ZYNAPS" is not supposed to treat and what "ZYNAPSE"
is not supposed to treat; and (2) submit to the Court a written report showing compliance with this
directive within thirty (30) days