NBI MICROSOFT CORPORATION & LOTUS DEVELOPMENT CORP -versus- JUDY C. HWANG, BENITO KEH & YVONNE K. CHUA/BELTRON COMPUTER PHILIPPINES INC., JONATHAN K. CHUA, EMILY K. CHUA, BENITO T. SANCHEZ, NANCY I. VELASCO, ALFONSO CHUA, ALBERTO CHUA, SOPHIA ONG, DEANNA CHUA/TAIWAN MACHINERY DISPLAY & TRADE CENTER, INC., and THE SECRETARY OF JUSTICE G.R. No. 147043. June 21, 2005 (460 SCRA 428)

FACTS:
In May 1993, Microsoft and Beltron entered into a Licensing Agreement ("Agreement"). Under
Section 2(a) of the Agreement, as amended in January 1994, Microsoft authorized Beltron, for a fee, to:
(i) xxx reproduce and install no more than one (1) copy of [Microsoft] software on each
Customer System hard disk or Read Only Memory ("ROM"); [and]
(ii) xxx distribute directly or indirectly and license copies of the Product (reproduced as per Section 2(a)(i) and/or acquired from Authorized Replicator or Authorized Distributor) in object code form to end users[.] xxxx
The Agreement also authorized Microsoft and Beltron to terminate the contract if the other fails to comply with any of the Agreement’s provisions. Microsoft terminated the Agreement effective June 22, 1995 for Beltron’s non-payment of royalties.
Afterwards, Microsoft learned that respondents were illegally copying and selling Microsoft software.
Microsoft applied for search warrants against respondents in the Regional Trial Court, Branch 23, Manila ("RTC"). The RTC granted Microsoft’s application and issued two search warrants. NBI searched the premises of Beltron and TMTC and seized several computer-related hardware, software, accessories, and paraphernalia. Among these were 2,831 pieces of CD-ROMs containing Microsoft software. Petitioners charged respondents before the Department of Justice ("DOJ") with copyright infringement under Section 5(A) in relation to Section 29 of Presidential Decree No. 49, as amended, ("PD 49") and with unfair competition under Article 189(1) of the Revised Penal Code. In its Complaint ("I.S. No. 96-193"), which the NBI indorsed, Microsoft alleged that respondents illegally copied and sold Microsoft software In its pleadings filed with the DOJ, Microsoft invoked three clusters of evidence to support its complaint against respondents, namely: (1) the 12 CD-ROMs containing Microsoft software Sacriz and Samiano bought from respondents; (2) the CPU with pre-installed Microsoft software Sacriz and Samiano also purchased from respondents; and (3) the 2,831 CD-ROMs containing Microsoft software seized from respondents.46 The DOJ, on the one hand, refused to pass upon the relevance of these pieces of evidence because: (1) the "obligations between the parties is civil and not criminal" considering that Microsoft merely sought the issuance of Search Warrant Nos. 95-684 and 95-685 to pressure Beltron to pay its obligation under the
Agreement, and (2) the validity of Microsoft’s termination of the Agreement must first be resolved by the "proper court."
On the other hand, the DOJ ruled that Microsoft failed to present evidence proving that what were obtained from
respondents were counterfeit Microsoft products.

ISSUE:

  Whether Private Respondents are liable for Copyright Infringement and Unfair Competition.


RULING:

 YES. Section 5 of PD 49 enumerates the rights vested exclusively on the copyright owner. Contrary to the DOJ’s ruling, the gravamen of copyright infringement is not merely the unauthorized manufacturing of intellectual works but rather the unauthorized performance of any of the acts covered by Section 5. Hence, any person who performs any of the acts under Section 5 without obtaining the copyright owners prior consent renders himself civilly and criminally liable for copyright infringement.

Some of the counterfeit CD-ROMs bought from respondents were installer CD-ROMs containing Microsoft software only or both Microsoft and non-Microsoft software. These articles are counterfeit per se because Microsoft does not (and could not have authorized anyone to) produce such CD-ROMs. The copying of the genuine Microsoft software to produce these fake CD-ROMs and their distribution are illegal even if the copier or distributor is a Microsoft licensee. The illegality of the non-installer CD-ROMs purchased from respondents and of the Microsoft software pre-installed in the CPU is shown by the absence of the standard features accompanying authentic Microsoft products, namely, the Microsoft end-user license agreements, user’s manuals, registration cards or certificates of authenticity.

The counterfeit non-installer CD-ROMs that the Agents bought from respondents also suffice to support a finding of probable cause to indict respondents for unfair competition under Article 189(1) of the Revised Penal Code for passing off Microsoft products. From the pictures of the CD-ROMs packaging, one cannot distinguish them from the packaging of CD-ROMs containing genuine Microsoft software. Such replication, coupled with the similarity of content of these fake CDROMs and the CD-ROMs with genuine Microsoft software, implies intent to deceive.