Manufacturers versus distributors: who owns the trademarks?
On April 20, 2010, the Supreme Court promulgated its decision in Superior Commercial Enterprises, Inc. v. Kunnan Enterprises Ltd., affirming its previous ruling that the registration of a trademark by an exclusive distributor belongs to the manufacturer.
Kunnan appointed Superior on October 1, 1982, as its exclusive distributor in the Philippines under an agreement providing that:
“Kunnan intends to acquire ownership of the Kennex trademark registered by Superior Commercial in the Philippines. Superior Commercial is desirous of being appointed as the sole distributor of Kunnan products in the Philippines.”
On the basis of Superior’s erroneous advice that it could not acquire trademark rights in the Philippines, Kunnan assigned its applications to register ‘Pro Kennex’ as a trademark to Superior, on condition that Superior acknowledged that Kunnan was still the real owner of the mark and agreed to return it to Kunnan on request.
Upon termination of the parties’ distributorship agreement, Kunnan published a notice in a newspaper stating that it owned the Kennex and Pro Kennex marks. Superior then filed a civil complaint for trademark infringement and unfair competition against Kunnan.
“An exclusive distributor does not acquire any proprietary interest in the principal’s trademark and cannot register it, unless the owner has assigned the right.”
Prior to and during the infringement and unfair competition case, Kunnan filed petitions for the cancellation of registration and oppositions to applications for trademark registrations involving Kennex and Pro Kennex with the Bureau of Patents, Trademarks and Technology Transfer (BPTTT). It claimed that Superior had fraudulently registered and appropriated these trademarks. These cases were resolved in favour of Kunnan by the BPTTT and the Court of Appeals. This decision became final.
Trademark infringement
The Supreme Court said that to establish trademark infringement, Superior needed to prove its ownership of the mark.
This was decided when the registration was cancelled, depriving Superior of protection from infringement.
In addition, as a mere distributor, Superior had no right to register Kennex and Pro Kennex in its name. The right to register a trademark is based on ownership, and therefore only the owner can register it. An exclusive distributor does not acquire any proprietary interest in the principal’s trademark and cannot register it, unless the owner has assigned the right.
In finding that Kunnan owned the marks, the court considered the distributorship agreement and the so-called assignment agreement in their entirety; it confirmed that Superior had sought to be Kunnan’s exclusive distributor.
In the case of Gabriel v. Perez, the Supreme Court declared that in the absence of any inequitable conduct on the part of the manufacturer, an exclusive distributor that employs the trademark of the manufacturer does not acquire proprietary rights to the mark, and a registration of the trademark by the distributor belongs to the manufacturer.
Unfair competition
Under Section 29 of the Trademark Law, the essential elements of unfair competition are:
