By: Augusto Rahabam G. Santos IV and Marinella Isabelle cCapistrano
In the case of Asia Pacific Resources International Holdings, Ltd. v. Paperone, Inc.,1 petitioner filed a complaint for unfair competition, trademark infringement, and damages against respondent, alleging that the use of PAPERONE by the latter in its corporate name without the former’s prior consent and authority was done in bad faith and designed to unfairly ride on and to take advantage of the former’s goodwill. The Court found respondent Paperone, Inc. guilty of unfair competition because of the existence of likelihood of confusion of business, and bad faith as may be inferred from the similarity of the appearance of the goods as offered for sale to the public. According to the Court, there exists a likely confusion of business because a consumer might conclude that PAPER ONE products are manufactured by or are products of Paperone, Inc. Respondent claims that its products are not the same as those of petitioner's. The Court, however, held that the goods of the parties are obviously related as they both are kinds of paper products.
Although Justice Leonen concurred with the majority decision, he expressed his discomfort over the prevailing doctrine that determining whether goods or services are related must be left solely to the subjective evaluation of the Philippine Intellectual Property Office or the judgment of the court. He found the conclusion of the Bureau of Legal Affairs of the IPO overly simplistic as it is based merely on ad hoc inferences of similarity in class, physical attributes or descriptive properties, purpose, or points of sale of the goods or services. In his concurring opinion, J. Leonen proposed that there should be improvements on the standard by which likelihood of confusion is measured, considering the advances in the study of competition and economics in general.
Is there a need for an objective standard in the determination of likelihood of confusion?
Likelihood of confusion is a common element in trademark infringement and unfair competition cases. Proving its existence is not black and white. In Mighty Corporation v. EJ Gallo, the Court has noted that there are two kinds of confusion: (1) Confusion of goods (product) where an ordinary prudent purchaser is induced to buy a product in the belief that he is buying the other and (2) Confusion of business (origin) where the product of the parties are different but the defendant’s product can reasonably be assumed to originate from the plaintiff and that there is a connection between the two but does not in fact exists.2 This fact alone suggests that there may be a finding of likelihood of confusion although arising out of completely different circumstances.
In Citygroup v. Citystate Savings Bank, the Court held that there is no objective test in determining whether confusion is likely.3 Determining the existence of likelihood of confusion is a mixed question of fact and law.4 Disputed evidence involving the factors involves an issue of fact.5 In contrast, whether a set of facts establishes likelihood of confusion is a question of law.6 Thus, likelihood of confusion is so relative that its determination must be determined according to the particular circumstances of the case.7
Moreover, a determination of likelihood of confusion in identical or competitive goods that have similar marks tend to be simpler. A much complicated determination covers non-identical goods or services. At first glance, it may seem that having exclusive requisites as a mandatory standard is ideal for the courts to arrive at coherent decisions. However, it must be emphasized that the determination of likelihood of confusion--a mixed question of fact and law--necessarily implies an exhaustive appreciation of the particular facts of the case.
Jurisprudence has laid out factors for the courts to consider.8 Additionally, the same has been incorporated in our Rules of Procedure for Intellectual Property Rights. However, these factors are not always relevant.9 There are cases where only some of the factors listed are applicable in the determination of likelihood of confusion.
Under the Rules of Procedure for Intellectual Property Rights Cases, this non-exclusive list of factors was provided as a guide:
1. the strength of plaintiffs mark;
2. the degree of similarity between the plaintiffs and the defendant's marks;
3. the proximity of the products or services;
4. the likelihood that the plaintiff will bridge the gap;
5. evidence of actual confusion;
6. the defendant's good faith in adopting the mark;
7. the quality of defendant's product or service; and/or
8. the sophistication of the buyers.10
Interestingly, Mr. Barton Beebe conducted a study on different US Circuit Court decisions. He claims that there are limited core factors which determine a finding of a likelihood of confusion. He further discusses that in trademark infringement cases, the most influential factor in determining likelihood of confusion is still the similarity of the marks.11 Meanwhile, the defendant’s intent is only influential when it favors likelihood of confusion. On the other hand, proximity or relatedness of the goods factor is influential only when it disfavors a likelihood of confusion.12
Beebe further suggests that the use of a multi-factor test is an attempt to have a substitute for an empirical study.13 The use of at least 8 factors is too much for the courts to consider simultaneously; It would only result into stampeding14 of less significant factors.15 According to him, a new multi-factor test with only three or four factors would be ideal to provide an illustrative basis because there are factors which may also fall under proximity of the goods. In support of this, his survey showed that in 66% of the sampled cases, the similarity of advertising or marketing factor attained the same outcome as proximity of the goods.16 Likewise, 74% of the sampled cases discussing similarity of sales produced the same outcome as proximity of the goods.17
Beebe recommended to limit the number of factors considered by the court. His recommendation adheres to the position that there is a need to have an exclusive list relevant and mandatorily applied to all cases. However, his same position is belied by the fact that not all factors in the list are always relevant. The determination of likelihood of confusion cannot be reduced to a mere ministerial function. It essentially requires an inquiry on the evidentiary weight of factors applicable at a certain case. There is no inflexible rule that can be laid down as to what will constitute the same since each case is a law unto itself.18
Essentially, when the guiding factors are applied by the courts, the factors are already being narrowed down on a case-to-case basis. The courts as guided by the factors is capable of determining likelihood of confusion objectively. It becomes necessary, however, to rule out insignificant factors and apply only the most relevant to the particular facts of the case to be objective. Contrary to the position of Beebe, the non-exclusive multifactor test we have now would not unduly burden the courts. Courts are not required to discuss all these factors simultaneously. What is necessary is that the factors are considered and then tailored accordingly. Ironically, Beebe’s suggestion of having a three or four-factored test will nonetheless be achieved. Once the most significant factors are identified, Courts may now proceed with an in-depth discussion. Hopefully, this two-step process serves as the objective standard we need.
Is the empirical approach recommended by Justice Leonen appropriate for use in all cases of trademark infringement and unfair competition?
Justice Leonen, in his separate opinion in Asia Pacific, radically proposes that the courts finally adopt objective, scientific, and economic standards to determine whether goods or services are related to assess the likelihood of confusion in cases of alleged trademark infringement or unfair competition. He argues in the main that a finding of confusing similarity should not solely depend on the subjective evaluation of the IPO or the courts but should rather hinge on a more scientific basis. More specifically, he cites the approach adopted by a US court19 which primarily considers market substitutability and cross-elasticity in determining the relatedness of goods and services. He also cites other US cases20 which considered factors such as the fact and extent of direct competition between the parties in the same market, the distribution channels of the goods, and the demographics of the purchasers of said goods to assess the finding of likelihood of confusion.
It appears that what J. Leonen seeks to highlight is the importance of objectively considering consumer preferences. Accordingly, he offers the idea that economic methods be employed to empirically evaluate the relatedness of goods and services from the viewpoint of the consumer. This is in line with the view of adopting an objective standard in determining the likelihood of confusion and ultimately paving the way for more consistent court decisions in IP cases.
As inspired by the cited US cases, J. Leonen suggests the substitutability of goods as one of the factors to be considered in confusion analysis. Substitutability is an economic concept pertaining to the quality of goods or services being interchangeable as when the consumer is willing to substitute one good for another at a constant rate.21 Another factor which he alludes to is cross-elasticity or cross-price elasticity of demand—an economic concept which refers to the responsiveness of the demand of a good to changes in the price of another good.22 J. Leonen discusses that such factor could be used to prove the relatedness of goods which may superficially appear unrelated.
J. Leonen also refers to belonging to the same relevant market as a factor which also supports a finding of relatedness despite differences in classes, purposes, or physical attributes of the subject goods. It must be observed, however, that these proposed factors are relevant only in determining whether certain goods or services are competing. In fact, in one of the cited cases, it was held that both substitutability and cross-elasticity are considered in the determination of whether certain goods are in the same relevant market and thus “directly competing.”23
The Justice also cites Philippine jurisprudence upon which his proposed objective standard can be based and further developed.24 In the cited case, the Supreme Court considered certain economic factors that were likely to have contributed to the alleged decrease of the sales of petitioner for purposes of determining defendant’s liability for unfair competition. J. Leonen explains that said case illustrates that it is possible to objectively evaluate the relatedness of competing goods and services and to not limit the analysis of confusing similarity to the general appearance of the goods. Notably, he explicitly referred to the relatedness of “competing goods and services” in discussing his proposed objective standard for evaluation. With this, it is thus argued that the acceptance of his proposal limiting the determination of relatedness of goods to the aforesaid factors would discount the possibility of confusion arising from the involvement of non-competing goods.
As previously mentioned, jurisprudence has established two types of confusion: confusion of goods and confusion of business. The requirement that the goods or services covered by allegedly similar marks should be identical, similar, or related in some manner applies to both types.25 The Court has defined “related goods and services” as those that are, though non-identical or non-similar, so logically connected that they may be reasonably assumed to originate from one manufacturer.26 Further, it has held that the scope of protection afforded to registered trademark owners extends to market areas that are the normal expansion of business of said owners.27 These prevailing doctrines in jurisprudence therefore affirm that confusion can arise from the use of marks covering goods and services which may belong to different markets and are necessarily non-competing. It must be noted, however, that said doctrines are more relevant for purposes of establishing confusion of business.
Can such a standard be developed? How will it look?
Consequently, it is asserted that J. Leonen’s proposed standard, though seemingly capable of being developed, is rather restrictive in the sense that it is strictly limited to determining the likelihood of confusion of the first type (i.e., confusion of goods) and fails to factor in the second type (i.e., confusion of business). In other words, the standard seems plausible but may be insufficient as it overlooks that there can be confusion even if the goods are not identical, similar, or otherwise competing. If J. Leonen’s proposed standard adopting the aforementioned factors is followed, only those goods or services considered as substitutes or whose cross-elasticity of demand reveals that the goods are dependent of each other would be deemed related. Such would result to a very restrictive definition of relatedness which in turn would result to a restrictive application of the confusion doctrine in trademark infringement or unfair competition. The possible impact of such restrictive application will be discussed in the succeeding paragraphs.
It must be observed that J. Leonen expresses an inclination to applying the definition of “relevant markets” as typically used in competition law. At this point, it is worthy to discuss the substantial distinctions between IP laws and competition laws and the reasons why the definition cannot strictly apply to IP cases. On the one hand, IP law grants exclusive rights to the IP right holder and allows the exclusion of third parties from directly competing with him; on the other hand, competition law tends to limit the use of such exclusive rights and seeks to facilitate direct competition.28
It is contended that the problem with the market definition in competition law is that it relies on idealistic and static assumptions about the market and presupposes product homogeneity.29 The case is utterly different in IP law. Many modern markets such as consumer markets just do not fit the simplified assumptions that the goods being sold in the market are homogenous and at quality levels which the buyers have full knowledge of.30 IP law, particularly trademark law, presupposes and recognizes product differentiation—a consequence of branding which is facilitated by the trademark system.31 The first assumption thus cannot hold. The second assumption relates to a type of market failure--also known as “asymmetric information”--which an effective trademark system addresses. Without this system, consumers will continue to be asymmetrically informed about the products in the market in that they know less about such products than the sellers.32
Recent jurisprudence affirms that the underlying economic justification for trademark protection is to bridge this information gap between consumers and producers.33 Indeed, among the functions of a trademark is to indicate ownership or origin of the goods to which they are attached and to guarantee a certain standard of quality.34 To this end, firms invest in building a brand or reputation in the marketplace with the aid of the trademark system. Branding certainly has become a central element in shaping consumer choice and affecting market outcomes.35 The market definition in competition law is, thus, deemed inapplicable as it simply fails to include brand value in the equation. Remarkably, the Court has recently affirmed the rejection of the claim of irrelevance of branding in analysing the likelihood of confusion in IP cases.36
It is maintained that, as a whole, the prevailing doctrine especially that involving the recognition of confusion of the second type is a sound doctrine. The need for further improvements in its application, however, is acknowledged. For this reason, the authors express their reservations in the adoption of J. Leonen’s recommended standard vis-à-vis the current jurisprudential doctrine. An inquiry that inevitably follows is whether the prevailing doctrine on likelihood of confusion is indeed a sound doctrine or whether there is a need for a total overhaul of the same. An assessment of the impact of a restrictive application of said doctrine will necessarily be included in such discussion.
The soundness of the prevailing doctrine is best evaluated with the ultimate objectives of trademark law in mind. The standards for the finding of confusion and infringement should therefore be set in line with the said objectives or purposes. These objectives, generally, are: (1) the promotion of competition in the market, (2) the protection of the rights of the IP owner, and (3) the protection of consumers from fraud.37In view of this, it is argued that the finding of likelihood of confusion cannot be limited to cases where the subject goods are competing goods or to those involving only confusion of the first type. It must be pointed out that confusion of business could also be detrimental to the accomplishment of said objectives.
To illustrate: even if plaintiff’s and defendant’s products are non-competing, consumers might still be confused and be led to believe that either defendant’s products are produced by plaintiff or that plaintiff is sponsoring or somehow affiliated with defendant.38 This type of confusion causes harm to consumers in that they are induced to buying defendant’s product which is of a lower quality. This also causes harm to the trademark owner when as a result of an unsatisfactory experience with defendant’s products, consumers start to think less of the owner or its products.39 The illustration is clear that even if the subject goods of similar marks are non-identical or non-similar but at the very least related, a third party may still be able to ride on the goodwill and reputation of a brand to the prejudice of the trademark owner and the consumers. It is reasonable, therefore, to uphold the recognition of the concept of confusion of business in cases of alleged trademark infringement and unfair competition.