COCA COLA BOTTLERS PHILIPPINES (CCBPI) v. QUINTIN J.

GOMEZ AND
DANILO GALICIA
G.R. NO. 154991, November 14, 2008
BRION, J.
 
On July 2, 2001, Coca-Cola (Coke) applied for a search warrant against Pepsi for hoarding Coke
empty bottles in Pepsi’s yard in Naga City, an act allegedly penalized as unfair competition
under the IP Code. Coca-Cola claimed that the bottles must be confiscated to preclude their
illegal use, destruction or concealment by the respondents. The MTC positively acted on such
application and thereafter issued the subject search warrant. The seizure of the bottles with the
help of the local police followed afterwards.

Subsequent to the seizure, Coke filed a complaint against two Pepsi officers for violation of
Sections 168.3 (c) in relation to Section 170 of the IP Code. The named respondents (Galicia and
Gomez) were Pepsi’s regional sales manager and general manager, respectively.

In their counter-affidavits, Galicia and Gomez claimed that:

(1) the bottles came from various Pepsi retailers and wholesalers who included them in their
return to make up for shortages of empty Pepsi bottles;
(2) they had no way of ascertaining beforehand the return of empty Coke bottles as they
simply received what had been delivered;
(3) the presence of the bottles in their yard was not intentional nor deliberate;
(4) there is no mention in the IP Code of the crime of possession of empty bottles; and that
(5) the ambiguity of the law, which has a penal nature, must be construed strictly against the
State and liberally in their favor. .
 
They also contended that no probable cause existed to justify the issuance of the search warrant;
the facts charged do not constitute an offense.

The Regional Trial Court ruled in favor of the respondents and held that the search warrant
issued was improper and ordered the quashal of such warrant.
 
In this petition, the petitioner argues that the IP Code was enacted into law to remedy various
forms of unfair competition accompanying globalization as well as to replace the inutile
provision of unfair competition under Article 189 of the Revised Penal Code. Section 168.3(c) of
the IP Code does not limit the scope of protection on the particular acts enumerated as it expands
the meaning of unfair competition to include other acts contrary to good faith of a nature
calculated to discredit the goods, business or services of another. The inherent element of unfair
competition is fraud or deceit, and that hoarding of large quantities of a competitors empty
bottles is necessarily characterized by bad faith. The petitioner also argues that the quashal of the
search warrant was improper because it complied with all the essential requisites of a valid
warrant. The empty bottles were concealed in Pepsi shells to prevent discovery while they were
systematically being destroyed to hamper the petitioners bottling operation and to undermine the
capability of its bottling operations in Bicol.
The respondents reiterated that the hoarding of empty Coke bottles did not cause actual or
probable deception and confusion on the part of the general public; the alleged criminal acts do
not show conduct aimed at deceiving the public; there was no attempt to use the empty bottles or
pass them off as the respondents goods. The respondents also argue that the IP Code does not
criminalize bottle hoarding, as the acts penalized must always involve fraud and deceit. The
hoarding does not make them liable for unfair competition as there was no deception or fraud on
the end-users.
 
ISSUE:
(1) Whether or not the search warrant issued was proper;
(2) Whether or not hoarding of bottles can be penalized under the IP Code provisions of
unfair competition

RULING:
(1) NO, the search warrant issued was not proper.
(2) NO, hoarding of bottles is not an offense penalized under the IP Code provisions of
unfair competition.

The Supreme Court cited the relevant provisions of the Rules of Court and held that, to simplify,
a search warrant may be issued only if there is probable cause in connection with a specific
offense alleged in an application based on the personal knowledge of the applicant and his or
her witnesses. This is the substantive requirement in the issuance of a search warrant.
Procedurally, the determination of probable cause is a personal task of the judge before whom
the application for search warrant is filed, as he has to examine under oath or affirmation the
applicant and his or her witnesses in the form of searching questions and answers in writing and
under oath. The warrant, if issued, must particularly describe the place to be searched and the
things to be seized.
 
Jurisprudence teaches us that probable cause, as a condition for the issuance of a search warrant,
is such reasons supported by facts and circumstances as will warrant a cautious man in the belief
that his action and the means taken in prosecuting it are legally just and proper. Probable cause
requires facts and circumstances that would lead a reasonably prudent man to believe that an
offense has been committed and the objects sought in connection with that offense are in the
place to be searched. Implicit in this statement is the recognition that an underlying offense must,
in the first place, exist.
  
Unfair competition, under the IP Code does not thereby cover every unfair act committed in the
course of business; it covers only acts characterized by deception or any other means
contrary to good faith in the passing off of goods and services as those of another who has
established goodwill in relation with these goods or services, or any other act calculated to
produce the same result.
 
Under Section 168.3(c) of the IP Code, a person shall be guilty of unfair competition who shall
commit any other act contrary to good faith of a nature calculated to discredit the goods, business
or services of another.
 
Jurisprudence formulated the true test of unfair competition: whether the acts of
defendant are such as are calculated to deceive the ordinary buyer making his purchases
under the ordinary conditions which prevail in the particular trade to which the
controversy relates. Deception, passing off and fraud upon the public are still the key elements
that must be present for unfair competition to exist.
 
The act alleged to violate the petitioner’s rights under Section 168.3 (c) is hoarding which we
gather to be the collection of the petitioners empty bottles so that they can be withdrawn from
circulation and thus impede the circulation of the petitioners bottled products. This, according to
the petitioner, is an act contrary to good faith a conclusion that, if true, is indeed an unfair act on
the part of the respondents.

The critical question, however, is not the intrinsic unfairness of the act of hoarding; what is
critical for purposes of Section 168.3 (c) is to determine if the hoarding, as charged, is of a
nature calculated to discredit the goods, business or services of the petitioner.
 
The Court holds that it is not. Hoarding as defined by the petitioner is not even an act within
the contemplation of the IP Code.
 
 
Hoarding - as defined and charged by the petitioner does not fall within the coverage of the IP
Code and of Section 168 in particular. It does not relate to any patent, trademark, trade name or
service mark that the respondents have invaded, intruded into or used without proper authority
from the petitioner. Nor are the respondents alleged to be fraudulently passing off their products
or services as those of the petitioner. The respondents are not also alleged to be undertaking any
representation or misrepresentation that would confuse or tend to confuse the goods of the
petitioner with those of the respondents, or vice versa. What in fact the petitioner alleges is an act
foreign to the Code, to the concepts it embodies and to the acts it regulates; as alleged, hoarding
inflicts unfairness by seeking to limit the oppositions sales by depriving it of the bottles it can
use for these sales.

Based on the foregoing, the Court concludes that the RTC correctly ruled that the petitioner’s
search warrant should properly be quashed for the petitioner’s failure to show that the acts
imputed to the respondents do not violate the cited offense. There could not have been any
probable cause to support the issuance of a search warrant because no crime in the first place was
effectively charged.