Parallel Importation or Exclusive Distributorship

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No specific Philippine law governs "parallel importation" which is the unauthorized importation of original goods bearing authentic trademarks from other authorized sources and their distribution or sale in the country by entities other than the exclusive distributors.

The typical complaint of exclusive distributors or licenses of goods bearing foreign trademarks is that parallel importers, without having made any investments, capitalize on and profit from the popularity of the branded goods resulting from the promotional efforts of the exclusive distributors or licensees with whom they are, in a sense, unfairly competing. This kind of complaint has been passed upon favorably in Premier Dental Products Co. vs. Darby Dental Supply Co. (794 F2nd 850) where the court enjoined parallel imports to protect the plaintiff who, as exclusive United States wholesaler of the goods for approximately ten years, had invested time and money in the promotion of the product, guaranteed purchaser satisfaction and had been associated by the public with goodwill symbolized by the trademark in the United States.

The Philippine Trademark Law, now amended by Republic Act No. 8293 otherwise known as the Intellectual Property Code of the Philippines, which is of American origin, contains provisions similar to those of the United States Lanham Act, which are presently involved in parallel goods litigation in the United States, viz:
    1. Section 22, which prohibits the use of a trademark, which is a reproduction, counterfeit copy or colorable imitation of a registered trademark without the consent of the registrant where such use is likely to cause confusion, mistake or deception among purchasers.
    2. Section 30, which prohibits the use of a false designation of origin, or false description or representation in connection with the commercial sale of goods.
    3. Section 35, which by allowing a trademark owner to record its registered trademark with the Bureau of Customs to ban the importation of goods bearing a copy or simulation of such registered mark, implied that it does not apply to the importation of goods bearing authentic trademarks.

On the issue on whether an injunction shall be issued, the Supreme Court held that Defendants' liability "does not emanate from the four corners of the contract" but its "accountability is an independent act generative of civil liability". It further declared that "injunction is the appropriate remedy to prevent a wrongful interference with contracts by strangers to such contracts where the legal remedy is insufficient and the resulting injury is irreparable".

The right to perform an exclusive distributorship agreement and to reap the profits resulting from such performance are proprietary rights which a party may protect which may otherwise be diminished, nay, rendered illusory by the expedient act of utilizing or interposing a person or firm to obtain goods from the supplier to defeat the very purpose for which the exclusive distributorship was conceptualized, at the expense of the sole authorized distributor (43 C.J.S. 597)".

The legal consequence is that the exclusive distributor of a branded product in the Philippines has a "proprietary interest against the intrusion of a third party into his "exclusive right" to distribute such products on the theory that (i) defendant's conduct may be characterized as an inducement of breach of contract under Article 1314 of the Civil Code; or (ii) as an abuse of right under Articles 19-21 of the Civil Code, or malicious interference and unfair competition under Article 28 of the Civil Code of the Philippines.

Administrative complaint was lodged by TABAC, Inc., a domestic corporation duly organized and existing under Philippine laws against Respondent, doing business under the name and style of ""HURCHILLS CIGAR & WINE MERCHANTS""for Unfair Competition based on the following:

Since August 27, 1998 TABAC, pursuant to an Agreement with THE PACIFIC CIGAR COMPANY LTD. of Hongkong (Exclusively Distributor) of all Cuban Cigar Brands Manufactured by HABANOS S.A. of CUBA for ASIA PACIFIC including the PHILIPPINES) has been the sole and exclusive importer/distributor in the Philippines of all cigar products manufactured and sold by HABANOS S.A. of CUBA. Their product line includes, among others, raw tobacco, cigars, cigarette, cut tobacco, rappee, manufactured tobacco pipe, pipe holders, ashtray, match box, cigar case, humidor and any other smoker's articles goods included in Class No. 34 of the applicable trademark laws observed worldwide.

On June 21, 1999, TABAC wrote Respondent to cease and desist from engaging in the importing, selling and distribution of all CUBAN cigar brands manufactured by HABANOS, S.A., in the Philippines, without the written authority and consent of TABAC, but Respondent persisted in retailing, selling, importing, dealing with or distributing all CUBAN Cigar brands manufactured by HABANOS S.A. in the Philippines.

Hence, an administrative case was filed accordingly.

Prior to the conduct of the formal hearing, the Office of Legal Affairs (OLA) issued in favor of the Complainant a preliminary order (equivalent to a preliminary injunction) directing Respondents to allow Complainant to undertake an inventory of products bearing the infringing marks and have it sealed in the presence of the DTI representatives and the execution of an Undertaking on their/is part parts for submission to OLA.

On November 5, 1999, a COMPROMISE AGREEMENT, was submitted by herein Parties which provided, among others:
    1. Respondent recognition and acknowledgment of Complaint exclusive and sole authority to distribute in the Philippines of all CUBAN Cigar brands manufactured and marketed by HABANOS, S.A.;
    2. Respondent undertaken to purchase all its supplier of all CUBAN cigars exclusively from the Complainant for resale in all its outlets in the Philippines, under such regular terms and conditions that complaint may provide;
    3. Respondent undertaken to comply with all the trade, sales and marketing policies of Complainant in selling the CUBAN cigars.
    4. Respondent shall allow the Complainant to display in its entire stores the "TABAC" logo. Such display shall be placed in such conspicuous place without impending or interfering with the identity of the Respondent as an establishment.