NBI, Microsoft Corporation vs Judy Hwang

written by Howard

G.R. No. 147043 – 460 SCRA 428 – Mercantile Law – Intellectual Property – Law on Copyright – Copyright Infringement 

In May 1993, Microsoft Corporation and Beltron Computer Philippines, Inc. entered into a Licensing Agreement. Under Section 2(a) of the Agreement, Microsoft authorized Beltron, for a fee, to:

1. Reproduce and install no more than one copy of Windows on each Customer System hard disk;

2. Distribute directly or indirectly and license copies of Windows (reproduced as per Section 2 of the Agreement and/or acquired from an Authorized Replicator or Authorized Distributor.

Their agreement allowed either party to terminate if one fails to comply with their respective obligations. Microsoft terminated the Agreement in June 1995 by reason of Beltron’s non-payment of royalties. Later, Microsoft learned that Beltron was illegally copying and selling copies of Windows. Microsoft then sought the assistance of the National Bureau of Investigation. NBI agents made some purchase from Beltron where they acquired a computer unit pre-installed with Windows, 12 windows installer CDs packed as Microsoft products. The agents were not given the end-user license agreements, user manuals, and certificates of authenticity for the products purchased. They were given a receipt which has a header of “. (Phils) Inc. BELTRON COMPUTER”. TMTC stands for Taiwan Machinery Display and Trade Center.

A search warrant was subsequently issued where 2,831 CDs of Windows installers, among others, were seized. Based on the items seized from Beltron, Microsoft filed a case of copyright infringement against Beltron and TMTC as well as their officers (Judy Hwang et al) before the Department of Justice (DOJ). Beltron, in its counter-affidavit, argued the following:

1. That Microsoft’s issue with Beltron was really just to have leverage in forcing Beltron to pay the unpaid royalties; and that Microsoft should have filed a collection suit.

2. That the computer unit allegedly purchased by the NBI agents from them cannot be decisively traced as coming from Beltron because the receipt issued to the agents did not list the computer unit as one of the items bought.

3. That the 12 installers purchased by the agents which are actually listed in the receipt were not manufactured by Beltron but rather they were genuine copies purchased by TMTC from an authorized Microsoft seller in Singapore.

4. That the 2,831 installers seized from them were not a property of Beltron but rather they were left to them by someone for safekeeping.

The DOJ secretary agreed with Beltron and dismissed the case. The Secretary ruled that the issue of the authority of Beltron to copy and sell Microsoft products should first be resolved in a civil suit. Microsoft appealed the decision of the DOJ secretary before the Supreme Court. Meanwhile, Beltron filed a motion to quash the search warrant before the RTC that issued the same. The RTC partially granted the quashal. The Court of Appeals reversed the RTC. Hwang et al did not appeal the CA decision.

ISSUE: Whether or not the DOJ Secretary is correct.

HELD: No. Section 5 of Presidential Decree 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 owner’s prior consent renders himself civilly and criminally liable for copyright infringement.

Infringement of a copyright is a trespass on a private domain owned and occupied by the owner of the copyright, and, therefore, protected by law, and infringement of copyright, or piracy, which is a synonymous term in this connection, consists in the doing by any person, without the consent of the owner of the copyright, of anything the sole right to do which is conferred by statute on the owner of the copyright.

Being the copyright and trademark owner of Microsoft software, Microsoft acted well within its rights in filing the complaint before DOJ on the incriminating evidence obtained from Beltron.  Hence, it was highly irregular for the DOJ to hold that Microsoft sought the issuance of the search warrants and the filing of the complaint merely to pressure Beltron to pay its overdue royalties to Microsoft.

There is no basis for the DOJ to rule that Microsoft must await a prior “resolution from the proper court of whether or not the Agreement is still binding between the parties.” Beltron has not filed any suit to question Microsoft’s termination of the Agreement. Microsoft can neither be expected nor compelled to wait until Beltron decides to sue before Microsoft can seek remedies for violation of its intellectual property rights.

Furthermore, the articles seized from Beltron are counterfeit per se because Microsoft does not (and could not have authorized anyone to) produce such CD installers The copying of the genuine Microsoft software to produce these fake CDs and their distribution are illegal even if the copier or distributor is a Microsoft licensee. As far as these installer CD-ROMs are concerned, the Agreement (and the alleged question on the validity of its termination) is immaterial to the determination of Beltron’s liability for copyright infringement and unfair competition. Beltron’s defense that the box of CD installers found in their possession was only left to them for safekeeping is not tenable.

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