Supreme Court revokes entrepreneur's licence to use OTTO mark

Philippines

The Supreme Court has stripped an individual named Wilfro Luminlun of his licence to use the trademark OTTO on the grounds that he had violated the terms of a licence granted by Manuel Samson, the owner of the mark (March 26 2008).

In 1981 Samson registered the trademark OTTO with the then Bureau of Patents and Trademarks. Samson subsequently granted Luminlun a licence to use the mark OTTO "for jeans only". The licensing agreement explicitly provided that Luminlun's use of the mark OTTO would remain valid unless:

"[Luminlun] carried out or caused to be carried out any act which in any way prejudices or discredits the trademark OTTO in connection not only with its use for jeans, but also for other products enumerated in the registration certificate."

Luminlun subsequently started to use the mark for skirts, shorts, trousers, buttons, belts and bags.

Samson filed an application for the revocation of the licence with the Bureau of Patents and Trademarks. He also sent a cease and desist letter demanding that Luminlun stop manufacturing and distributing OTTO-branded jeans. In response, Luminlun filed a complaint with the Regional Trial Court contesting the validity of the revocation application and seeking compensation for lost sales.

The Regional Trial Court revoked Luminlun's licence to use the OTTO mark, but denied Samson's claim for royalties. On appeal, the Court of Appeals held that the revocation of the licence could not be justified only on the grounds that Luminlun had failed to pay royalties. The court thus awarded damages to Luminlun.

The case reached the Supreme Court, which held as follows:

"The licence to use the OTTO trademark was limited to use for jeans only. Under the agreement, Samson could revoke the licence if Luminlun carried out or caused to be carried out any act which would in any way prejudice or discredit the trademark OTTO."

According to the Supreme Court, the trial court had correctly found that Luminlun manufactured OTTO-branded belts, buttons and bags, as well as clothing bearing the mark OTTO LTD, in violation of the terms and conditions of the licence. Such use of the mark adversely affected Samson and discredited his products. Further, the Supreme Court held that although Luminlun had a license to use the trademark OTTO, he had used the mark in bad faith as the licence clearly stated that it applied to jeans only.

Under Section 150(1) of the Intellectual Property Code, the owner and licensor of a trademark has the right to exercise "effective control… over the quality of the goods or services of the licensee in connection with which the mark is used". According to the court, Samson was clearly entitled to limit Luminlun's use of the mark "to jeans only". Therefore, Luminlun's use of the trademark for other products violated Samson's right under Section 150(1).

The Supreme Court thus reversed the decision of the Court of Appeals and reinstated the decision of the Regional Trial Court in favour of Samson.

Vicente B Amador, SyCip Salazar Hernandez & Gatmaitan, Manila

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