Assignee's fraudulent trademark registrations cancelled

In Superior Commercial Enterprises Inc v Kunnan Enterprises Inc (CA GR SP 87928, August 30 2007), the Court of Appeals has reaffirmed established principles of trademark law.

Kunnan Enterprises Inc, a corporation organized under the laws of China, is the owner of the marks KENNEX and PRO-KENNEX (and design) for tennis rackets and other sporting goods.

Kunnan entered into a distributorship agreement with Superior Commercial Enterprises Inc, whereby Superior was allowed to sell tennis rackets and sports accessories bearing the trademarks KENNEX and PRO-KENNEX. Superior represented to Kunnan that the marks should be registered in its name because Kunnan, as a foreign corporation, could not register trademarks. Kunnan thus assigned the marks to Superior, stipulating that it would reacquire them on demand when the distributorship agreement ceased.

Subsequently, Kunnan concluded a distributorship agreement with another company and demanded the reassignment of the marks. Superior refused to comply. When Kunnan started supplying its new licensee with tennis rackets and other accessories for sale in the Philippines, Superior sued Kunnan and its new licensee for trademark infringement based on the trademark registration certificates in Superior's name.

Kunnan filed a petition for cancellation of Superior's trademark registrations and asked the IP Office to reassign the certificates to it. Kunnan claimed that Superior was only a distributor which had registered the trademarks as a result of its fraudulent representation. Kunnan argued that Superior could not acquire ownership of the trademarks based on its fraudulent conduct.

In the trademark infringement case filed by Superior, the first instance court found Kunnan liable for trademark infringement and damages. The infringement and cancellation cases eventually reached the Court of Appeals, which decided the trademark dispute in favour of Kunnan.

With regard to the trademark infringement issue, the Court of Appeals held as follows:

"The decision of the Regional Trial Court in the infringement case was duly appealed to this court, which decided the issue of the rightful ownership of the trademarks KENNEX and PRO-KENNEX in favour of respondent Kunnan. In the present petition, we are asked to determine whether the director general properly cancelled the registrations in the name of petitioner Superior based on the issue of the rightful ownership of the trademarks."

With regard to the reassignment issue, the Court of Appeals stated as follows:

"From the above terms and conditions, it is beyond dispute that, except for the first whereas clause, the terms of the agreement clearly show that the petitioner is only a distributor. However, the whereas clause alone - unsupported by the rest of the agreement - cannot prevail over the latter and must be given a reasonable construction in accordance with the law.

As a mere distributor, petitioner Superior had no right to register the marks in its name. The rule that the right to register a trademark is based on ownership is well entrenched in our jurisdiction. Where the applicant is not the owner of the trademark, it cannot apply for the registration of the trademark. Under the Trademark Law, only the owner of the trademark, trade name or service mark used to distinguish its goods, business or services from the goods, business or services of others is entitled to register the trademark. An exclusive distributor acquires no proprietary interest in the principal's trademark and cannot register it in its own name, unless the trademark has been validly assigned to it."

The Court of Appeals declared that Superior did not lawfully own the trademarks KENNEX and PRO-KENNEX, as ownership was fraudulently obtained. In its application to the IP Office, Superior claimed ownership of the marks, but failed to disclose that it was a mere distributor of Kunnan's products in the Philippines.

Therefore, Superior breached its agreement with Kunnan when it refused to reassign the trademarks.

Vicente B Amador, SyCip Salazar Hernandez & Gatmaitan, Manila