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 trademark opposition that became a petition for review on certiorari under Rule 45 of the Rules of Court. Adama Resorts and Hotels, Inc., which owns the registered marks KURA HOTEL and KURA RESORT, asks the Supreme Court to stop the registration of the mark KURA by Prime Smartech Appliances Corporation for air conditioners. The case matters because it gathers in one place the Court's settled approach to confusing similarity: the dominancy test for comparing marks, the multifactor test for registrability, and the requirement that the goods or services themselves be related before registration may be barred.

Procedural History

Adama opposed Prime's application before the Bureau of Legal Affairs of the Intellectual Property Office of the Philippines. The adjudicator sustained the opposition, holding that the word KURA dominates the competing marks and that confusion was likely. Prime appealed to the Director of the Bureau of Legal Affairs, who dismissed the appeal and affirmed. Prime then elevated the matter to the Office of the Director General, which reversed and granted the appeal, finding no likelihood of confusion because air conditioners are not within the normal potential expansion of a hotel and resort business. Adama went up to the Court of Appeals by petition for review under Rule 43. The Court of Appeals denied the petition. It agreed that the dominancy test governs and that KURA is the dominant feature of all the marks, but held that commonality of dominant features is not itself likelihood of confusion, and that the other factors, including the relation of the products, good faith, and buyer sophistication, all pointed against confusion. Adama then filed the present petition for review on certiorari under Rule 45 before the Supreme Court.

Facts

Adama is a Philippine corporation engaged in the hotel and resort business. On May 5, 2019, it registered the trademarks KURA HOTEL and KURA RESORT with the Intellectual Property Office of the Philippines, covering product class 32 and service classes 39, 41, 43, and 45, which include the provision of food and drink and temporary accommodation.

Prime is a Philippine corporation engaged in the distribution and sale of electric appliances. On April 21, 2020, it applied to register the trademark KURA for product class 11, covering air conditioners. Adama opposed, arguing that Prime's mark is confusingly similar to its own, since all the marks share the word KURA as their dominant feature and use almost identical font styles. Adama claimed both product confusion and source confusion, since air conditioners are widely used in its business. Prime answered that the marks differ in appearance, style, and composition, and that air conditioners and hospitality services are sold in different ways.

The adjudicator and the Director of the Bureau of Legal Affairs ruled for Adama. The Director General of the Intellectual Property Office reversed, and the Court of Appeals affirmed the reversal. The Supreme Court now reviews that affirmance.

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.
• Whether or not the likelihood of confusion between two trademarks is a question of fact, or at least a mixed question of fact and law, that lies outside the scope of a petition for review on certiorari under Rule 45.

Applicable Provisions

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

Section 123.1(d)(ii). A mark cannot be registered if it is identical with a registered mark belonging to a different proprietor or a mark with an earlier filing or priority date, in respect of the same goods or services or closely related goods or services.

This is the provision that bars registration of an identical mark over closely related goods or services, and it supplies the relatedness factor the Court applies.

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

Section 123.1(d)(iii). A mark cannot be registered if it is nearly resembles such a registered mark as to be likely to deceive or cause confusion.

This is the provision that bars registration of a mark so nearly resembling a prior mark as to cause confusion, and it frames the ultimate question in this case.

Section 155.1 of the same 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 or business name, or of a mark registered under the provisions of Presidential Decree Number 49, Presidential Decree Number 285, Presidential Decree Number 341, Presidential Decree Number 623, or Republic Act Number 166, as amended, if he, without the consent of the owner of the registered mark, trade name or business name, uses 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 is the provision that defines infringement by colorable imitation of a registered mark or a dominant feature thereof, and it is the textual basis for the dominancy test.

Ruling

On the first issue, the Court held that there is no likelihood of confusion sufficient to bar registration. The Court applied the multifactor test laid down in Kolin Electronics versus Kolin Philippines International. The first statutory factor is the degree of similarity between the marks. Here, the Court held that Prime's insistence on the holistic test is incorrect, because that 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. The adjudicators and the Court of Appeals all agreed that the marks are visually and aurally similar insofar as they share the word KURA as the dominant feature, and the Court is bound by that finding.

But the inquiry does not stop at the aesthetics of the marks. The second statutory factor is the relatedness of the goods or services. The Court defined goods and services as 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. Applying this, the Court found a fundamental difference: an air conditioner is a machine, a discrete and tangible commodity sold and packaged individually, while hotel and resort services are a collection of services, useful labor that does not produce a tangible commodity. Air conditioners are semi-permanent fixtures sold through physical stores or internet retail platforms and used in any enclosed structure with electricity. 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 stores. Even the internet platforms for selling air conditioners and for booking hotel reservations are usually distinct and separate. The Court added that complementarity under trademark law requires commonality not only of use but also of marketing channels and appeal to purchasers, and Adama failed to show that its services are sold through the same channels or cover the same market as Prime's air conditioners.

On the remaining components of the multifactor test, the Court found that Adama's marks are arbitrary, since the listed meanings of the word KURA bear little to no relation to hotel and resort services, and arbitrary marks rank high in the mark strength continuum and enjoy broad protection. But the other factors militated against Adama. There was no bad faith, because bad faith in trademark registration means knowledge of prior creation, use, or registration of an identical or similar mark, and Adama offered no evidence that Prime deliberately copied its marks. There was no evidence of actual confusion. The normal potential expansion of Adama's business does not cover air conditioners, and Adama offered no proof that it is normal for luxury resorts and hotels to expand into selling air conditioners. Finally, the buyers are sophisticated: both products are expensive and command a higher level of care, air conditioners are subject to the Philippine Energy Labeling Program, and the competing marks are composite marks with distinct ancillary features, Prime's half-snowflake design and Adama's geometric emblem within a circle, as well as different colors and font styles.

On the second issue, the Court held that the likelihood of confusion between two trademarks is a question of fact, or at the very least a mixed question of fact and law, because it requires consideration not only of the audiovisual design of the marks but also of the economic and operational circumstances of the businesses. Review under Rule 45 is limited to questions of law, so these factual matters lie outside its scope. In any event, the Court found no reversible error in the Court of Appeals' decision.

Doctrine

First, the sole test for similarity of marks under the Intellectual Property Code is the dominancy test, which asks whether the competing marks share a dominant feature such that they would be confused; the holistic test has been abandoned.

Second, similarity of marks is not enough. Under the multifactor test, registrability also turns on the relatedness of the goods or services, the strength of the plaintiff's mark, the likelihood of bridging the gap, evidence of actual confusion, the defendant's good faith, the quality of the defendant's product, and the sophistication of the buyers.

Third, 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.

Fourth, the normal potential expansion doctrine extends trademark protection only to fields the business may naturally enter, and the field of normal potential expansion corresponds to the set of goods and services related to those covered by the marks.

Fifth, bad faith in trademark registration means knowledge of prior creation, use, or registration of an identical or similar mark.

Disposition

The petition was denied, the Court of Appeals' decision and resolution were affirmed, and Prime's KURA mark may be registered for air conditioners.

Remember This

Memorize this line: the dominancy test decides similarity of marks, but the multifactor test decides registrability, and relatedness of goods or services is a question of fact. Examiners use this case to test whether a candidate knows that a shared dominant feature does not by itself bar registration when the products belong to unrelated fields.