G.R. No. 168662 ; February 19, 2008
SANRIO COMPANY LIMITED, petitioner, vs. EDGAR C. LIM, doing business as ORIGNAMURA TRADING, respondent.

FACTS

Petitioner Sanrio Company Limited, a Japanese corporation, owns the copyright to various animated characters (e.g., “Hello Kitty”). Its products are sold locally by its exclusive distributor, Gift Gate Incorporated (GGI), which entered into licensing agreements with local manufacturers. In 2001, due to counterfeit products, GGI engaged IP Manila Associates (IPMA) to conduct market research. IPMA confirmed that respondent Edgar C. Lim’s Orignamura Trading was selling imitation Sanrio items. On May 30, 2000, the National Bureau of Investigation (NBI), acting on an affidavit from IPMA and a search warrant, seized various Sanrio products from respondent’s premises. On April 4, 2002, petitioner filed a complaint-affidavit with the Department of Justice Task-Force on Anti-Intellectual Property Piracy (TAPP) against respondent for violation of Section 217 (in relation to Sections 177 and 178) of the Intellectual Property Code. Respondent countered that he was merely a retailer who obtained his merchandise from petitioner’s authorized manufacturers (JC Lucas Creative Products, Inc., Paper Line Graphics, Inc., and Melawares Manufacturing Corporation) and did not reproduce or manufacture any items. The TAPP dismissed the complaint on September 25, 2002, finding respondent relied on representations from legitimate sources and lacked knowledge the items were counterfeit. Petitioner’s motion for reconsideration and subsequent petition for review to the Office of the Chief State Prosecutor were denied. Petitioner then filed a petition for certiorari in the Court of Appeals (CA). The CA dismissed the petition on the ground of prescription, ruling the offense prescribed two years after its commission (May 30, 2000) as no complaint was filed in court within that period under Act No. 3326 . The CA also found no grave abuse of discretion by the DOJ, agreeing petitioner failed to prove respondent knew the goods were counterfeit.

ISSUE

1. Whether the Court of Appeals erred in ruling that the offense had prescribed.
2. Whether the Court of Appeals erred in finding that the Department of Justice did not commit grave abuse of discretion in dismissing the complaint for copyright infringement against respondent.

RULING

1. On Prescription: The Supreme Court held that the CA erred in ruling the offense had prescribed. Citing B.P. 22 v. Hon. Niño, the Court ruled that the filing of the complaint-affidavit for preliminary investigation with the DOJ on April 4, 2002, which was within the two-year prescriptive period (from May 30, 2000), tolled the running of the prescriptive period under Act No. 3326 . The institution of proceedings for preliminary investigation interrupts the prescriptive period.
2. On the Merits (Copyright Infringement): The Supreme Court denied the petition, affirming the dismissal of the complaint but on grounds different from the CA. The Court agreed with the DOJ and CA that petitioner failed to establish probable cause for a violation of Section 217.3 of the Intellectual Property Code. For criminal liability under this provision, the following must be present: (a) possession of an infringing copy, and (b) knowledge, or reason to know, that the copy is infringing. The Court found that respondent, as a retailer, presented evidence (official receipts) that he purchased the items from petitioner’s authorized manufacturers. Petitioner did not sufficiently prove that respondent knew or ought to have known that the specific items he sold were unauthorized or counterfeit. The claim that some seized items were not within the scope of the manufacturers’ authorization did not automatically impart knowledge of infringement to respondent, who relied on the legitimacy of his sources. Thus, the DOJ did not commit grave abuse of discretion in finding insufficient evidence for probable cause.