G.R. No. 147043 ; June 21, 2005
NBI – MICROSOFT CORPORATION & LOTUS DEVELOPMENT CORP., petitioners, vs. JUDY C. HWANG, BENITO KEH & YVONNE K. CHUA/BELTRON COMPUTER PHILIPPINES INC., et al., and THE SECRETARY OF JUSTICE, respondents.

FACTS

Petitioner Microsoft Corporation, owner of copyrights and trademarks for computer software, had a Licensing Agreement with respondent Beltron Computer Philippines, Inc., authorizing Beltron to reproduce and distribute its software. Microsoft terminated the Agreement in June 1995 due to Beltron’s non-payment of royalties. Subsequently, Microsoft, through its agent and with NBI assistance, conducted an entrapment operation. On November 10, 1995, an NBI agent and a private investigator posing as buyers purchased computer hardware with pre-installed Microsoft software and 12 CD-ROMs containing Microsoft programs from respondents. The receipt for the hardware bore the names “T.M.T.C. (PHILS.) INC. BELTRON COMPUTER.” Search warrants were subsequently issued and executed, leading to the seizure of thousands of CD-ROMs with Microsoft software. Microsoft then filed a criminal complaint for copyright infringement and unfair competition against the respondents before the Department of Justice (DOJ).
The respondents, through counter-affidavits, denied the charges. They argued the complaint was a pressure tactic for royalty collection, claimed the seized MS-DOS CDs were legitimately purchased from a dealer in Singapore, and asserted that some individual respondents were merely nominal stockholders. The DOJ, through a State Prosecutor, dismissed the complaint for “lack of merit and insufficiency of evidence.” Microsoft filed a petition for certiorari with the Supreme Court, assailing the DOJ’s dismissal.

ISSUE

Whether the DOJ committed grave abuse of discretion in dismissing the criminal complaint for copyright infringement and unfair competition against the respondents.

RULING

Yes, the Supreme Court ruled that the DOJ committed grave abuse of discretion. The Court found the DOJ’s conclusion of insufficient evidence to be arbitrary and capricious. For copyright infringement, the elements are: (1) ownership of a valid copyright, and (2) copying of constituent elements of the work that are original. Microsoft’s ownership was established. The evidence, including the entrapment purchase where respondents sold software without providing necessary license agreements and manuals, and the seized items from their premises, prima facie indicated unauthorized copying and distribution beyond the terminated license. The DOJ erred in disregarding this prima facie case.
Regarding unfair competition under Article 189 of the Revised Penal Code, the DOJ incorrectly required proof of “passing off” the goods as those of another. The law also penalizes any person who gives another the “opportunity” to commit unfair competition. By selling copied software in packaging that bore Microsoft’s trademarks, respondents created the likelihood of deception and provided the means for such deception to occur, which falls within the statute. The DOJ’s narrow interpretation constituted a refusal to perform its duty to properly evaluate the allegations. Consequently, the Court granted the petition, set aside the DOJ resolutions, and directed the filing of the corresponding Informations in court.