‘I have voluminous receipts!’: When a commercial relationship sours (1)

It is not uncommon even for commercial entities to give importance to personal relationships, (sometimes) even over clear and more detailed contractual provisions.

The case of Cymar International Inc. v. Farling Industrial Limited Inc. illustrates how a well advised and a more carefully detailed agreement could have avoided a long-drawn out battle between two parties over the ownership and use of a mark.

In 1994, Farling filed petitions with the then Bureau of Patents, Trademarks and Technology Transfer (now the Intellectual Property Office) seeking the cancellation of several trademark certificates of registration issued to Cymar covering assorted infant care products. Farling claimed that (i) it authorized Cymar to sell the former’s products in the Philippines, including those bearing the Farlin mark, and submitted proofs of implementation of the parties’ agreement, and (ii) Cymar was merely a distributor of Farling’s Farlin-marked products.

Notably, the Court only quoted a very short portion of an undated agreement that Farling relied upon for its claim, viz: “[Farling] hereby authorize[s] [Cymar] to sell the products manufactured by it [Farling], including those bearing the ‘FARLIN’ brand in the Philippines and apply to competent authorities in Philippines for the related documents.”

While Cymar won at the initial level, in 2003 the IPO Director General (DG) granted Farling’s petitions and cancelled Cymar’s trademark registrations. During the pendency of the cancellation case, Cymar in turn filed three separate trademark applications over the derivatives of the basic Farlin mark for various infant care products, which Farling all opposed.

One of Cymar’s arguments in claiming to have a better right over the Farlin mark was because it was the party responsible for promoting the brand reputation of the “FARLIN” name in the Philippines. Hence, coupled with this fact, it only seemed fair, as far as Cymar was concerned, that as the first registrant and first user of the mark in the Philippines, the law should side in its favor.

But in 2022 (or more than two decades since the initial cancellation case was filed), the Supreme Court disagreed with Cymar. As the factual narration failed to disclose the contractual provisions that would govern the ownership and use of the marks involved, it was fortunate for Farling that it was able to present more than “1,500 pages of shipping documents, invoices, bills of lading, and bank documents which showed that Farling shipped volumes of assorted Farlin-marked baby products to the Philippines on Cymar’s consignment,” showing that Cymar was a mere distributor and therefore whatever use of the mark it had inured to the benefit of the manufacturer.

The Court likewise relied on correspondence showing that the parties were closely coordinating the marketing and promotion of Farlin-marked baby products in the Philippines even if, over time, disagreements over the sharing of marketing and promotion expenses emerged.

In short, Farling was able to prove it had a better right to the Farlin mark, even if Cymar was the first registrant (and technically first user) in the Philippines, through a sheer volume of evidence establishing the nature of the commercial relationship between the parties as manufacturer-distributor/exporter-importer.

Fortunately, the Intellectual Property Code that took effect a few years after Farling filed its cancellation case provides for a much simpler avenue to, among other things, document this relationship via a “technology transfer arrangement” (TTA) or other similar agreement.

A TTA refers to “contracts or agreements involving the transfer of systematic knowledge for the manufacture of a product, the application of a process, or the rendering of a service, including management contracts; and the transfer, assignment or licensing of all forms of intellectual property rights, including licensing of computer software, except computer software developed for the mass market.”

(To be continued)

For more of Dean Nilo Divina’s legal tidbits, please visit www.divinalaw.com. For comments and questions, please send an email to cad@divinalaw.com.