ADAMA RESORTS AND HOTELS, INC., PETITIONER, VS. PRIME SMARTECH APPLIANCES CORPORATION, RESPONDENT.

Adama Resorts and Hotels versus Prime Smartech Appliances

The Case

This is a petition for review on certiorari brought by Adama Resorts and Hotels, Inc., a corporation engaged in the hotel and resort business, against Prime Smartech Appliances Corporation, a corporation engaged in the distribution and sale of electric appliances. The dispute is a trademark opposition: Adama holds registered marks for KURA HOTEL and KURA RESORT, and it opposed Prime's application to register the mark KURA for air conditioners. The case matters because the Supreme Court settles how the likelihood of confusion between competing marks is determined under the Intellectual Property Code, confirming that the dominancy test governs the similarity of marks, that the abandoned holistic test may no longer be invoked, and that similarity of dominant features alone does not automatically bar registration where the goods and services are unrelated.

Procedural History

Adama opposed Prime's trademark application before the Intellectual Property Office of the Philippines. The Bureau of Legal Affairs ruled in Adama's favor, sustaining the opposition and directing that Prime's application be returned to the Bureau of Trademarks for appropriate action. Prime appealed to the Director of the Bureau of Legal Affairs, who dismissed the appeal and affirmed that a likelihood of confusion existed. Prime then elevated the matter to the Office of the Director General, which reversed and granted Prime's appeal, finding no likelihood of confusion because air conditioners are not within the normal potential expansion of Adama's business. Adama filed a petition for review with the Court of Appeals, which denied the petition, agreeing that the dominancy test applies and that the marks share KURA as their dominant feature, but holding that commonality of dominant features is not equivalent to likelihood of confusion. Adama then elevated the matter to the Supreme Court by a petition for review on certiorari under Rule 45 of the Rules of Court.

Facts

Adama and Prime are both Philippine corporations. On May 5, 2019, Adama registered the trademarks KURA HOTEL and KURA RESORT with the Intellectual Property Office of the Philippines, covering product class 32 for beer and certain non-alcoholic beverages, and service classes 39, 41, 43, and 45, which include travel arrangement, entertainment, the provision of food and drink and temporary accommodation, and personal and social services.

On April 21, 2020, Prime applied for registration of the trademark KURA for product class 11, covering air conditioners. Adama opposed the application, arguing that Prime's mark is confusingly similar to its own because they share the same dominant feature, the word KURA, and use almost identical font styles. Adama claimed both product and source confusion, since air conditioners are widely used in its business. Prime answered that its mark is dissimilar in appearance, style, and composition, and that confusion is negligible because air conditioners and hospitality services are sold in different ways.

The Bureau of Legal Affairs sustained Adama's opposition, and its Director dismissed Prime's appeal. The Office of the Director General reversed, finding no likelihood of confusion because the parties have different product lines and businesses, and because an ordinary consumer purchasing an air conditioner is likely to be more cautious. The Court of Appeals denied Adama's petition, and Adama came to the Supreme Court.

Issues

• Whether or not the registration of Prime's KURA mark is likely to cause confusion between its air conditioners and the hotel and resort services and products offered by Adama under its KURA HOTEL and KURA RESORT marks.

Applicable Provisions

Section 123.1(d)(ii) of the Intellectual Property Code provides:

Section 123.1. A mark cannot be registered if it: (d) Is identical with a registered mark belonging to a different proprietor or a mark with an earlier filing or priority date, in respect of: (ii) Closely related goods or services, or if it nearly resembles such a mark as to be likely to deceive or cause confusion.

This provision bars registration of a mark identical to a prior mark in respect of closely related goods and services, and it frames the relatedness inquiry the Court applies.

Section 123.1(d)(iii) of the same Code provides:

Section 123.1. A mark cannot be registered if it: (d) Is identical with a registered mark belonging to a different proprietor or a mark with an earlier filing or priority date, in respect of: (iii) Nearly resembles such a mark as to be likely to deceive or cause confusion.

This provision bars registration of a mark that nearly resembles a prior mark as to be likely to deceive or cause confusion, and it supplies the confusion standard the Court construes.

Section 155.1 of the Intellectual Property Code provides:

Section 155.1. Infringement. — A person shall be liable for infringement of a mark registered under this Act or of a trade name duly registered under the provisions of the Corporation Code of the Philippines if he shall, without the consent of the owner of the registered mark, use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark or the same container or a dominant feature thereof in connection with the sale, offering for sale, distribution, advertising of any goods or services including other preparatory steps necessary to carry out the sale of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive.

This provision defines infringement as the colorable imitation of a registered mark or a dominant feature thereof, and it is the basis for the Court's holding that the dominancy test, not the holistic test, governs similarity of marks.

Ruling

The Court denied the petition and found no reversible error in the Court of Appeals. On the sole issue, the Court held that the registration of Prime's KURA mark is not likely to cause confusion with Adama's KURA HOTEL and KURA RESORT marks.

The Court first held that Prime's insistence on the holistic test is incorrect, because the holistic test has been abandoned in this jurisdiction by its omission from the Intellectual Property Code and the enshrinement of the dominancy test in Section 155.1, which defines infringement as the colorable imitation of a registered mark or a dominant feature thereof. The Court noted that all three levels of the adjudicative machinery and the Court of Appeals agreed that the marks are visually and aurally similar insofar as they share the word KURA as the dominant feature, and it was bound by that finding.

The Court then applied the multifactor test, holding that the determination of confusing similarity does not stop at a comparison of the aesthetic and semiotic characteristics of the marks; the relatedness of the goods or services must also be considered. Goods and services are related when they have some functional or economic relation or similarity likely to cause confusion as to source among ordinary purchasers if covered by the same or similar marks. The Court found a fundamental difference between air conditioners, which are machines and discrete tangible commodities sold and packaged individually, and hotel and resort services, which are a collection of services. Air conditioners are semi-permanent fixtures marketed and sold through physical stores or internet retail platforms and used in any enclosed structure, while hotel and resort services can only be availed of at the hotel or resort itself, usually through prior reservation, and cannot be readily purchased in physical stores. Even the internet platforms for selling air conditioners and for booking hotel reservations are usually distinct and separate. The Court held that complementarity pertains to complementarity or commonality not only of use, but also of marketing channels and appeal to purchasers, and Adama failed to support its claims that its services are bought and sold through the same marketing channels or cover the same market as Prime's air conditioners.

On the remaining components of the multifactor test, the Court held that Adama's marks based on the word KURA are arbitrary marks, since the listed meanings of the word bear little to no relation to hotel and resort services, and arbitrary marks rank high in the mark strength continuum and enjoy broad protection. However, the other factors militated against Adama. The Court found no bad faith in Prime's registration, since bad faith in trademark registration means knowledge of prior creation, use, or registration of an identical or similar mark, and Adama merely charged Prime with knowledge by virtue of prior registration without other evidence that Prime deliberately copied its marks. Adama submitted no evidence of actual confusion. The natural potential expansion of Adama's business does not cover air conditioners, and Adama adduced no evidence that it is normal for luxury resorts and hotels to expand into the business of selling air conditioners. Finally, on the sophistication of buyers, the Court held that air conditioners and hotel and resort services are purchased and used very differently, that both are expensive and may even be considered luxury goods commanding a higher level of care and attention, and that air conditioners are subject to the Philippine Energy Labeling Program. The Court also noted that the competing marks are both composite marks: while they share a common dominant feature, they have distinct ancillary features, different colors, and different font styles, with Prime's mark including a prominent half-snowflake design absent from Adama's marks, and Adama's marks including an emblem showing a geometric pattern of lines enclosed within a circle absent from Prime's mark.

Doctrine

The sole test for determining the similarity of marks under the Intellectual Property Code is the dominancy test, which asks whether one mark is the colorable imitation of a registered mark or a dominant feature thereof. The holistic test has been abandoned in this jurisdiction by its omission from the Code and the enshrinement of the dominancy test in Section 155.1.

Similarity of marks is only one factor. Under the multifactor test, the determination of confusing similarity also requires consideration of the relatedness of the goods or services covered by the marks, as laid down in Section 123.1(d)(ii). Goods and services are related when they have some functional or economic relation or similarity likely to cause confusion as to source among ordinary purchasers if covered by the same or similar marks.

The other components of the multifactor test are the strength of the plaintiff's mark, the likelihood that the plaintiff will bridge the gap or expand its product offerings to cover the product areas of the defendant, evidence of actual confusion, the defendant's good faith in adopting the mark, the quality of the defendant's product or service, and the sophistication of the buyers.

Commonality of dominant features is not equivalent to likelihood of confusion. The normal or natural potential expansion doctrine extends trademark protection to cases where prospective purchasers would be misled into thinking that the complaining party has extended its business into the field, or where it forestalls the normal potential expansion of that business; the field of normal potential expansion corresponds to the set of goods and services related to those covered by its marks. Bad faith in trademark registration means knowledge of prior creation, use, or registration of an identical or similar mark.

Disposition

The petition for review on certiorari was denied, and the Decision and Resolution of the Court of Appeals were affirmed; Prime Smartech Appliances Corporation prevailed, and its KURA mark for air conditioners may be registered.

Remember This

Memorize this line: the dominancy test is the sole test for similarity of marks, but similarity of dominant features alone does not establish likelihood of confusion, because the relatedness of the goods or services must also be considered under the multifactor test. Examiners like to use this case to test whether a candidate knows that the holistic test has been abandoned and that the normal potential expansion of business is measured by the relatedness of the goods and services covered by the marks.