First to File or First to Use? The Philippine Supreme Court in Zuneca v. Natrapharm

Photo: Sasun Bughdaryan / Unsplash

Many brand owners still assume that the business that used a mark first owns it. In much of ASEAN that assumption is wrong, and the Philippine Supreme Court spelled out why in an en banc decision that is now a standard reference: Zuneca Pharmaceutical v. Natrapharm, Inc., G.R. No. 211850, decided on 8 September 2020.

The facts

Two pharmaceutical businesses used nearly identical names for different medicines. Zuneca said it had sold carbamazepine, an anti-convulsant, under ZYNAPS since 2004. Natrapharm registered ZYNAPSE with the Philippine Intellectual Property Office on 24 September 2007 for citicoline, a stroke treatment, after clearing the name against the IPO and drug regulator databases.

Natrapharm sued Zuneca for infringement. Zuneca argued that as the earlier user it owned the mark, and that Natrapharm had registered in bad faith. As proof of knowledge, it said that Natrapharm had promoted its own products in the same publications where Zuneca advertised ZYNAPS, such as the Philippine Pharmaceutical Directory, and that both companies had advertised their products at the same medical conventions.

The trial court ruled for Natrapharm, awarded damages, and ordered Zuneca to stop using ZYNAPS. The Court of Appeals affirmed.

What the Supreme Court decided

The Supreme Court held that under the Intellectual Property Code (Republic Act No. 8293), which took effect on 1 January 1998, ownership of a mark is acquired through registration made validly under the Code. Section 122 says so directly, and Section 123.1(d) bars registration of a mark identical or confusingly similar to an earlier-filed mark. The court found that lawmakers intended to abandon the older rule that ownership comes from use, and that earlier decisions applying the use-based rule were inconsistent with the Code.

The court then defined bad faith in registration. A registrant acts in bad faith if it applied knowing that someone else had created, used or registered the mark. A mark registered in bad faith is void from the start, confers no rights, and must be cancelled.

On the evidence, Zuneca lost that argument. The trial court had found that a directory listing and shared conventions did not prove that Natrapharm knew of ZYNAPS when it filed, and the Supreme Court saw no reason to disturb that finding. Natrapharm's registration stood.

Zuneca still kept something. Section 159.1 of the Code says a registered mark has no effect against a person who, in good faith, was using the mark before the filing or priority date. The court declared Zuneca a prior user in good faith, set aside the infringement finding, the damages and the injunction, and allowed Zuneca to keep using ZYNAPS. Because two similar drug names would remain on the market, it ordered both companies to state on their packaging what each drug treats and does not treat, and sent the decision to the Food and Drug Administration for monitoring.

Why it matters outside the Philippines

The prior-user defence protected Zuneca's existing business. It did not give Zuneca the registration, the right to stop Natrapharm, or the right to expand freely, since Section 159.1 lets that right pass only together with the business that uses the mark. For a foreign brand that enters a market late, that is a weak position.

Indonesia follows the same registration principle. Article 3 of Law No. 20 of 2016 provides that the right to a mark is obtained after registration. Indonesia's bad-faith ground in Article 21(3), explained in its Elucidation, also centres on an applicant's intention to imitate or copy another party's mark. In both systems the brand owner carries the burden of proving that the registrant knew, and general market presence may not be enough.

Lessons for brand owners filing in ASEAN

File in each target market before launch, or at least before distributors and trade show contacts learn the brand. Use does not create ownership in the Philippines or Indonesia.

Build proof of knowledge, not just proof of your own use. Correspondence, distribution talks, or a registrant's own references to your brand are far stronger than directory listings.

Search the drug or product regulator's lists as well as the trademark register where your sector has one. Natrapharm's clearance against official databases supported its good faith.

Treat a prior-user defence as a fallback. It can keep a business running, but it leaves the registration with someone else.

Sources

• Zuneca Pharmaceutical v. Natrapharm, Inc., G.R. No. 211850 (En Banc, 8 September 2020), full text (LawPhil)
• Supreme Court of the Philippines E-Library, G.R. No. 211850
• WIPO Lex, judgment record for G.R. No. 211850
• Law No. 20 of 2016 on Marks and Geographical Indications (Indonesia), English translation (ARISE+ / EU)