NBI – MICROSOFT CORPORATION & LOTUS DEVELOPMENT CORP., PETITIONERS, VS. JUDY C. HWANG, BENITO KEH & YVONNE K. CHUA/BELTRON COMPUTER PHILIPPINES INC., JONATHAN K. CHUA, EMILY K. …

NBI versus Microsoft Corporation

The Case

This is a petition for certiorari filed by Microsoft Corporation and Lotus Development Corporation against Judy C. Hwang, Benito Keh, Yvonne Chua, and the officers and directors of Beltron Computer Philippines, Incorporated and Taiwan Machinery Display and Trade Center, Incorporated. Microsoft asks the Supreme Court to annul the resolutions of the Department of Justice which dismissed, for lack of merit and insufficiency of evidence, its complaint for copyright infringement and unfair competition. The case matters because it fixes the low threshold of probable cause in preliminary investigations of intellectual property offenses, and because it teaches that the gravamen of copyright infringement is not the unauthorized manufacture of copies alone, but the unauthorized performance of any of the exclusive acts of the copyright owner.

Procedural History

Microsoft and Lotus charged the respondents before the Department of Justice with copyright infringement under Presidential Decree Number 49, as amended, and with unfair competition under Article 189 of the Revised Penal Code. The State Prosecutor recommended dismissal for lack of merit and insufficiency of evidence, and the Assistant Chief State Prosecutor approved that recommendation. Microsoft's motion for reconsideration, which included a prayer for ocular inspection of the seized articles, was denied. Microsoft appealed to the Office of the Secretary of Justice, but the Undersecretary of Justice dismissed the appeal, and denied reconsideration as well. Microsoft then came to the Supreme Court on a petition for certiorari, imputing grave abuse of discretion to the Department of Justice. In a separate track, the Regional Trial Court of Manila, Branch 23, had partially granted the respondents' motion to quash the search warrants; Microsoft appealed that ruling to the Court of Appeals, which set aside the trial court's orders in a decision that became final. That separate appeal figures in the forum-shopping issue.

Facts

Microsoft, a Delaware corporation, owns the copyright and trademark over several computer software. In May 1993 it entered into a licensing agreement with Beltron, a domestic corporation, authorizing Beltron, for a fee, to reproduce and install no more than one copy of Microsoft software on each customer system hard disk or read only memory, and to distribute and license copies of the product in object code form to end users. Microsoft terminated the agreement effective 22 June 1995 because Beltron failed to pay royalties.

Microsoft later learned that the respondents were illegally copying and selling its software. Through its Philippine agent it hired a private investigative firm and sought the help of the National Bureau of Investigation. On 10 November 1995, an investigator and an NBI agent, posing as representatives of a computer shop, bought from the respondents a central processing unit with pre-installed Microsoft Windows and MS-DOS software, a monitor, and twelve read-only memory compact discs in Microsoft packaging. At least two of the discs were so-called installers, containing several software programs. The buyers were not given the end-user license agreements, user's manuals, registration cards, or certificates of authenticity. The receipt for the unit and monitor bore the heading of the trade center and Beltron Computer, while the receipt for the discs did not indicate its source.

On 17 November 1995, the Regional Trial Court of Manila issued two search warrants. The National Bureau of Investigation searched the premises of Beltron and the trade center and seized computer hardware, software, and paraphernalia, including 2,831 compact discs containing Microsoft software. In their counter-affidavits, two respondents denied the charges, claimed that Microsoft's real intention was to pressure Beltron to pay unpaid royalties, and claimed that the confiscated discs were bought from a Microsoft dealer in Singapore. The other respondents filed no counter-affidavits.

Issues

• Whether or not Microsoft engaged in forum-shopping.
• Whether or not the Department of Justice acted with grave abuse of discretion in not finding probable cause to charge the respondents with copyright infringement and unfair competition.

Applicable Provisions

Section 5 of Presidential Decree Number 49, as amended, enumerates the exclusive rights of the copyright owner, and provides:

Copyright shall consist in the exclusive right: (A) To print, reprint, publish, copy, distribute, multiply, sell, and make photographs, photo-engravings, and pictorial illustrations of the works; xxx

This is the provision the Court construes, holding that performing any of these acts without the owner's consent is infringement.

Article 189, paragraph 1, of the Revised Penal Code defines unfair competition, and provides:

Any person who, in unfair competition and for the purpose of deceiving or defrauding another of his legitimate business, shall give his goods the general appearance of the goods of another manufacturer or dealer, or who shall offer for sale or sell such goods, shall be punished by arresto mayor or a fine ranging from 200 to 6,000 pesos, or both.

The Court uses this provision to test whether the counterfeit packaging of the discs supports a finding of probable cause for passing off.

Ruling

On the first issue, the Court held that Microsoft did not engage in forum-shopping. Forum-shopping exists where the elements of litis pendentia are present: identity of parties, identity of the rights asserted and relief prayed for founded on the same facts, and a judgment in one case that would amount to res judicata in the other. Here, the earlier appeal before the Court of Appeals concerned the trial court's orders partially quashing the search warrants, while this petition concerns the Department of Justice resolutions dismissing the criminal complaint. The rights asserted and the reliefs prayed for differ, so no judgment in the earlier case could be res judicata here.

On the second issue, the Court held that the Department of Justice acted with grave abuse of discretion. While the Court generally does not interfere with the prosecutor's determination of probable cause, this case falls under the exception. Probable cause for preliminary investigation is a low standard, met if the facts and circumstances incite a reasonable belief that the act or omission complained of constitutes the offense charged; it does not require absolute certainty nor an inquiry into whether the evidence would procure a conviction.

The Court rejected the Department of Justice's premise that the dispute was merely civil. The gravamen of copyright infringement is not merely the unauthorized manufacturing of intellectual works but the unauthorized performance of any of the acts covered by Section 5. The Court quoted its earlier ruling in Columbia Pictures:

Infringement of a copyright is a trespass on a private domain owned and occupied by the owner of the copyright, and, therefore, protected by law, and infringement of copyright, or piracy, which is a synonymous term in this connection, consists in the doing by any person, without the consent of the owner of the copyright, of anything the sole right to do which is conferred by statute on the owner of the copyright.

The Court also held that Microsoft need not await a prior court resolution of whether the licensing agreement was still binding, since Beltron never filed suit to question the termination, and since the agreement itself provided that Microsoft's rights and remedies were not exclusive and were in addition to any other rights and remedies provided by law. The installer discs were counterfeit per se, because Microsoft could not have authorized anyone to produce them. The non-installer discs and the pre-installed software were shown to be unauthorized by the absence of the standard features of authentic Microsoft products. As to the 2,831 seized discs, Beltron, the only party to the agreement, could only have acquired them from authorized distributors or replicators, and its claim that they were left for safekeeping was unsubstantiated. These circumstances gave rise to the reasonable inference that the respondents mass-produced the discs without authorization. Finally, the similarity of the counterfeit packaging to genuine Microsoft packaging implied intent to deceive, supporting probable cause for unfair competition.

Doctrine

A Bar candidate must retain these rules. First, probable cause in a preliminary investigation is a low standard: it is based on opinion and reasonable belief, not on actual and positive cause, and it does not require an inquiry into whether there is sufficient evidence to procure a conviction. Second, the gravamen of copyright infringement under Section 5 of Presidential Decree Number 49 is the unauthorized performance of any of the exclusive acts of the copyright owner, not merely unauthorized manufacture. Third, unfair competition under Article 189 of the Revised Penal Code requires intent to deceive the public, which may be inferred from the similarity of the goods or their appearance. Fourth, forum-shopping requires the elements of litis pendentia, including identity of rights asserted and relief prayed for, such that a judgment in one case would be res judicata in the other.

Disposition

The Supreme Court granted the petition, set aside the resolutions of the Department of Justice, and directed the Department of Justice to file the necessary informations against the respondents for copyright infringement and unfair competition.

Remember This

The single line worth memorizing is that copyright infringement is the unauthorized doing of any act that the statute reserves exclusively to the copyright owner, and probable cause to charge it demands only reasonable belief, not proof beyond reasonable doubt. Examiners like to use this case to test the distinction between probable cause and guilt, and to test forum-shopping through the elements of litis pendentia.