INTELLECTUAL PROPERTY LAW part 2
114 F. Supp. 2d 896 (2000) In opposition to this motion, defendant seeks to expand the "fair use"
A & M RECORDS, INC., a corporation; Geffen Records, Inc., a corporation;
Interscope Records, a general partnership; Sony Music Entertainment,
Inc., a corporation; MCA Records, Inc., a corporation; Atlantic Recording
Corporation, a corporation; Island Records, Inc., a corporation; Motown
Records Company L.P., a limited partnership; Capitol Records, a
corporation; La Face Records, a joint venture; BMG Music d/b/a The RCA
Records Label, a general partnership; Universal Records Inc., a
corporation; Elektra Entertainment Group Inc., a corporation; Arista
Records, Inc., a corporation; Sire Records Group, Inc., a corporation;
Polygram Records, Inc., a corporation; Virgin Records America, Inc., a
corporation; and Warner Bros. Records Inc., a corporation, Plaintiffs,
v.
NAPSTER, INC., a corporation, and Does 1-100, Defendants.
Jerry Leiber, individually and d/b/a Jerry Leiber Music; Mike Stoller,
individually and d/b/a Mike Stoller Music; and Frank Music Corp., on
behalf of themselves and all others similarly situated, Plaintiffs,
v.
Napster, Inc., Defendant.
Nos. C 99-5183 MHP, C 00-0074 MHP.
United States District Court, N.D. California.
August 10, 2000.
*897 *898 *899 *900 Russell J. Frackman, Jeffrey D. Goldman, George M.
Borkowski, Drew E. Breuder, Mitchell Silberberg & Knupp, Los Angeles, CA,
William M. Hart, Eric J. German, Frank P. Schibilia, Carla M. Miller, Hank L.
Goldsmith, Leon P. Gold, Lawrence L. Weinstein, Proskauer Rose LLP, New
York, NY, Hadrian R. Katz, Arnold & Porter, Washington, DC, Steven B.
Fabrizio, Washington, DC, for Plaintiffs.
Lisa M. Arent, Melinda M. Morton, Michael A. Brille, Samuel A. Kaplan,
William Jackson, Seth A. Goldberg, Fenwick & West LLP, Palo Alto, CA,
Laurence F. Pulgram, Kathryn J. Fritz, Fenwick & West LLP, San Francisco,
CA, David Boies, Boies Schiller & Flexner LLP, Armonk, NY, for Defendants.
Albert P. Bedecarre, Quinn Emanuel Urquhart Oliver & Hedges, LLP, Palo
Alto, CA, for amicus.
OPINION
PATEL, Chief Judge.
The matter before the court concerns the boundary between sharing and
theft, personal use and the unauthorized world-wide distribution of
copyrighted music and sound recordings.[1] On December 6, 1999, A & M
Records and seventeen other record companies ("record company
plaintiffs") filed a complaint for contributory and vicarious copyright
infringement, violations of the California Civil Code section 980(a) (2), and
unfair competition against Napster, Inc.,[2] an Internet start-up that
enables users to download MP3 music files without payment. On January
7, 2000, plaintiffs Jerry Leiber, Mike Stoller, and Frank Music Corporation
filed a complaint for vicarious and contributory copyright infringement on
behalf of a putative class of similarly-situated music publishers ("music
publisher plaintiffs") against Napster, Inc. and former CEO Eileen
Richardson. The music publisher plaintiffs filed a first amended complaint
on April 6, 2000, and on May 24, 2000, the court entered a stipulation of
dismissal of all claims against Richardson.[3] Now before this court is the
record company and music publisher plaintiffs' joint motion to
preliminarily enjoin Napster, Inc. from engaging in or assisting others in
copying, downloading, uploading, transmitting, or distributing copyrighted
music without the express permission of the rights owner.
(Fanning Dep.) at 31:10-35:1, it is far from a simple tool of distribution
doctrine *901 articulated in Sony Corp. of America v. Universal City Studios,
Inc., 464 U.S. 417, 104 S. Ct. 774, 78 L. Ed. 2d 574 (1984), to encompass the
massive downloading of MP3 files by Napster users. Alternatively,
defendant contends that, even if this third-party activity constitutes direct
copyright infringement, plaintiffs have not shown probable success on the
merits of their contributory and vicarious infringement claims. Defendant
also asks the court to find that copyright holders are not injured by a
service created and promoted to facilitate the free downloading of music
files, the vast majority of which are copyrighted.
Having considered the parties' arguments, the court grants plaintiffs'
motion for a preliminary injunction against Napster, Inc. The court makes
the following Findings of Fact and Conclusions of Law to support the
preliminary injunction under Federal Rules of Civil Procedure 65(d).
I. FINDINGS OF FACT
A. MP3 Technology
1. Digital compression technology makes it possible to store audio
recordings in a digital format that uses less memory and may be uploaded
and downloaded over the Internet. See David M. Lisi Dec. (Tygar Rep.) at
11. MP3 is a popular, standard format used to store such compressed
audio files. See Edward Kessler Dec. 3;[4] Lisi Dec. (Tygar Rep.) at 11.
Compressing data into MP3 format results in some loss of sound
quality. See List Dec. (Tygar Rep.) at 12. However, because MP3 files are
smaller, they require less time to transfer and are therefore better suited
to transmission over the Internet. See id. at 11.
2. Consumers typically acquire MP3 files in two ways. First, users may
download audio recordings that have already been converted into MP3
format by using an Internet service such as Napster. See Lisi Dec. (Tygar
Rep.) at 11. Second, "ripping" software makes it possible to copy an audio
compact disc ("CD") directly onto a computer hard-drive; ripping software
compresses the millions of bytes of information on a typical CD into a
smaller MP3 file that requires a fraction of the storage space. See
id.; Kessler Dec. 32; 1 Laurence F. Pulgram Dec., Exh. A (Conroy Dep.) at
13:19-24.
B. Defendant's Business
1. Napster, Inc. is a start-up company based in San Mateo, California. It
distributes its proprietary file-sharing software free of charge via its
Internet website. People who have downloaded this software can log-on to
the Napster system and share MP3 music files with other users who are
also logged-on to the system. See Kessler Dec. 6. It is uncontradicted that
Napster users currently upload or download MP3 files without payment to
each other, defendant, or copyright owners.
According to a Napster, Inc. executive summary, the Napster service gives
its users the unprecedented ability to "locate music by their favorite artists
in MP3 format." 1 Frackman Dec., Exh. A (Richardson Dep.), Exh. 127 at
ER000131.[5] Defendant *902 boasts that it "takes the frustration out of
locating servers with MP3 files" by providing a peer-to-peer file-sharing
system that allows Napster account holders to conduct relatively
sophisticated searches for music files on the hard drives of millions of
other anonymous users. See A & M Records, Inc. v. Napster, Inc., 2000 WL
573136, at *1 (N.D.Cal. May 12, 2000) (citing Def.'s Mot. for Summ. Adjud.)
at 4.
2. Although Napster was the brainchild of a college student who wanted to
facilitate music-swapping by his roommate, see 1 Frackman Dec., Exh. B
among friends and family. According to defendant's internal documents,
there will be 75 million Napster users by the end of 2000. See 1 Frackman
Dec., Exh. A (Richardson Dep.) at 318:19-319:1, Exh. 166 at 002725. At one
point, defendant estimated that even without marketing, its "viral service"
was growing by more than 200 percent per month. Id., Exh. 127 at
ER00130. Approximately 10,000 music files are shared per second using
Napster, and every second more than 100 users attempt to connect to the
system. See Kessler Dec. 29.
3. Napster, Inc. currently collects no revenues and charges its clientele no
fees; it is a free service. See, e.g., 1 Frackman Dec., Exh. A (Richardson
Dep.) at 179:15. However, it has never been a non-profit organization. See
id. at 116:10. It plans to delay the maximization of revenues while it
attracts a large user base. See id., Exh. 127 at ER00130; 1 Frackman Dec.,
Exh. C (Parker Dep.) at 160:1-162:14, Exh. 254 at SF00099. The value of the
system grows as the quantity and quality of available music increases. See
id. at 112:18-113:2, Exh. 127 at ER00130; David J. Teece Rep. at 4.
Defendant's internal documents reveal a strategy of attaining a "critical
mass" of music in an "ever-expanding library" as new members bring their
MP3 collections online. See 1 Frackman Dec. (Richardson Dep.), Exh. 127 at
ER00130; Exh. C (Parker Dep.) at 160:1-162:14, Exh. 254 at SF00099.
Defendant eventually plans to "monetize" its user base. See id. at 115:24-
116:13; Teece Rep. at 4, 7-11. Potential revenue sources include targeted
email; advertising; commissions from links to commercial websites; and
direct marketing of CDs, Napster products, and CD burners and
rippers. See 1 Frackman Dec., Exh. C (Parker Dep.) at 160:1-162:14, Exh.
254 at SF00099-100; Teece Rep. at 2-3. Defendant also may begin to
charge fees for a premium or commercial version of its software. See Teece
Rep. at 8; cf. 1 Frackman Dec., Exh. A (Richardson Dep.) at 179:6-25. The
existence of a large user base that increases daily and can be "monetized"
makes Napster, Inc. a potentially attractive acquisition for larger, more
established firms. See Teece Rep. at 7.
4. Napster Inc.'s value which is measured, at least in part, by the size of its
user base lies between 60 and 80 million dollars. See Teece Rep. at 11-12;
Def.'s Opp. at 35. Defendant obtained substantial capital infusions after
the onset of this litigation. For example, in May 2000, the venture firm
Hummer Winblad purchased a twenty-percent ownership interest in the
company for 13 million dollars; other investors simultaneously invested 1.5
million dollars. See Hank Barry Dec. 7.
5. The evidence shows that virtually all Napster users download or upload
copyrighted *903 files and that the vast majority of the music available on
Napster is copyrighted. Eighty-seven percent of the files sampled by
plaintiffs' expert, Dr. Ingram Olkin, "belong to or are administered by
plaintiffs or other copyright holders."[6] Olkin Rep. at 7. After analyzing
Olkin's data, Charles J. Hausman, anti-piracy counsel for the RIAA,
determined that 834 out of 1,150 files in Olkin's download database
belong to or are administered by plaintiffs; plaintiffs alone own the
copyrights to more than seventy percent of the 1,150 files. See Charles J.
Hausman Dec. 8. Napster users shared these files without
authorization. See id.
6. Napster, Inc. has never obtained licenses to distribute or download, or
to facilitate others in distributing or downloading, the music that plaintiffs
own. See Kevin Conroy Dec. 4; Richard Cottrell Dec. 5; Mark R.
Eisenberg Dec. 21; Lawrence Kenswil Dec. 15; Paul Vidich Dec. 8;
Mike Stoller Dec. 11.
7. Defendant's internal documents indicate that it seeks to take over, or at
least threaten, plaintiffs' role in the promotion and distribution of

music. See, e.g., 1 Frackman Dec., Exh. C (Parker Dep.), 160:1-162:14, Exh.
254, at SF00099 (declaring that "[u]ltimately Napster could evolve into a
full-fledged music distribution platform, usurping the record industry as we
know it today and allowing us to digitally promote and distribute emerging
artists at a fraction of the cost" but noting that "we should focus on our
realistic short-term goals while wooing the industry before we try to
undermine it").[7]
8. Defendant's internal documents also demonstrate that its executives
knew Napster users were engaging in unauthorized downloading and
uploading of copyrighted music. See, e.g. 1 Frackman Dec., Exh. C (Parker
Dep.) at 160:1-162:14, Exh. 254 at SF00100 (stating that Napster users "are
exchanging pirated music."); id. at SF00102 ("[W]e are not just
making pirated music available but also pushing demand"). Several Napster
executives admitted in their depositions that they believed many of the
millions of MP3 music files available on Napster were
copyrighted. *904 See, e.g., 1 Frackman Dec., Exh. B (Fanning Dep.) at
105:10-108:2.
9. At least on paper, the promotion of new artists constituted an aspect of
defendant's plan as early as October 1999. See Sean F. Parker Dec. 5 &
Exh. B[8]; Scott Krause Dec. 6. New or unsigned artists now may promote
their works and distribute them in MP3 format via the Napster
service. See Krause Dec. 8-15. Napster, Inc. has sought business
alliances and developed both Internet- and software-based technologies to
support its New Artist Program. See Parker Dec. 6.
However, the court finds that the New Artist Program accounts for a small
portion of Napster use and did not become central to defendant's business
strategy until this action made it convenient to give the program top
billing. An early version of the Napster website advertised the ease with
which users could find their favorite popular music without "wading
through page after page of unknown artists." 1 Frackman Dec., Exh. C
(Parker Dep.) at 104:16-105:10, Exh. 235. Defendant did not even create
the New Artist Program that runs on its Internet website until April 2000
well after plaintiffs filed this action.[9]See Krause Dec. 9, Exh. A.
Moreover, in Olkin's sample of 1,150 files (which were randomly selected
from over 550,000), only 232 files matched any of the 19,440 names that
were listed in defendant's new artist database as of July 2000. See Olkin
Reply Dec. 3-5; Hausman Reply Dec. 3-6. An RIAA representative the MP3 file names she stores in her user library automatically become
who analyzed the data also noted that the list of so-called new artists
actually contained many popular stars represented by major record labels
among them teen sensation Britney Spears and the legendary alternative
rock band Nirvana. See Hausman Reply Dec. 5. Once established artists
were eliminated from the results, only eleven new artists and fourteen of
their music files remained in Olkin's sample of 1,150 files. See id. 6.
10. Defendant employs the term "space-shifting" to refer to the process of
converting a CD the consumer already owns into MP3 format and using
Napster to transfer the music to a different computer from home to office,
for example.[10]See Def. Opp. at 12. The court finds that space-shifting
accounts for a de minimis portion of Napster use and is not a significant
aspect of defendant's business. According to the court's understanding of
the Napster technology, a user who wanted to space-shift files from her
home to her office would have to log-on to the system from her home
computer, leave that computer online, commute to work, and log-
on *905 to Napster from her office computer to access the desired file. In
the meantime, many users might download it before she reached the
office. Common sense dictates that this use does not draw users lo the
system. Defendant fails to cite a single Napster, Inc. document indicating
that the company saw space-shifting as an attraction for its user base, and
INTELLECTUAL PROPERTY LAW part 2
survey evidence shows that almost half of college-student survey
respondents previously owned less than ten percent of the songs they
have downloaded. See E. Deborah Jay Rep. at 4, 21 & Tbl. 7.
C. The Napster Technology
1. Internet users may download defendant's proprietary MusicShare
software free of charge from the Napster website. This free software
enables users to access the Napster computer network. See Kessler Dec.
6.
2. The software becomes fully functional after users register with Napster
by selecting an account name, or "user name," and a password. See Kessler
Dec. 6, 23. Persons who register may include biographical data, but
registration does not require a real name or address. See 2 Frackman Dec.,
Exh. E (Kessler Dep.) at 255:20-257:22. Napster does not associate user
names with the biographical information that individuals provide at
registration. See id. Indeed, after a user logs-on, her physical address
information is no longer available to the Napster server. See id.
3. The software features a browser interface, search engine, and chat
functions that operate in conjunction with defendant's online network of
servers. See id. 6, 13. The software also contains a "hotlist" tool that
allows users to compile and store lists of other account holders' user
names. See id. 8. In addition, the Napster software may be used to play
and categorize audio files, which users can store in specific file directories
on their hard drives. See id. 6-7. Those directories, which allow account
holders to share files on Napster, constitute the "user library." Id. Some
users store their MP3 files in such directories; others do not. See id.
4. Defendant maintains clusters of servers that compose its network or
system. See Kessler Dec. 13. Account holders who access the Napster
network may communicate, share files, and learn of designated hotlist
names only within the cluster to which they are assigned. See id. Users can
access the network of servers free of charge.
5. Once an account holder signs on to the Napster network, the Napster
browser interacts with its proprietary server-side software. See id. 7, 8;
2 Frackman Dec., Exh. E (Kessler Dep.) at 54:16-56:10. If a user sets the
"allowable uploads" function of the MusicShare software above zero, all of
she wants.
available to other online Napster users. See Kessler Dec. 7.
However, before the client software uploads MP3 file names to
defendant's master servers, it "validates" the files stored in the user library
directories. See 2 Frackman Dec., Exh. E (Kessler Dep.) at 145:2-18. The
client software reads those files to ensure they are indeed MP3 files,
checking to see whether they contain the proper syntax specification and
content. See id. If the files are not properly formatted, their file names will
not be not uploaded to the Napster servers. See id.
Once the file names are successfully uploaded to the servers, each user
library, identified by a user name, becomes a "location" on the servers.
Kessler Dec. 8. Napster locations are short-lived; they are respectively
added or purged every time a user signs on or off of the network. See
id. Thus, a user's MP3 files are only accessible to other users while she is
online.
6. A user who is logged-on to the Napster servers via the client software
may access the content of other users' uploaded "locations" in one of two
ways: (a) by utilizing defendant's proprietary search engine, *906 or (b) by
employing the hotlist tool featured in the client software. See id. 12.
7. An account holder may use the search tools included in the Napster
client software to find MP3 files. See id. 10. The server-side application
software maintains a search index that is updated in real time as users log-
on and -off of the system. See id.; 2 Frackman Dec., Exh. E (Kessler Dep.) at
56:3-10. The file-name index contains the names of MP3 files that on-line
users save in their designated user library directories. See Kessler Dec.
7, 14; 2 Frackman Dec., Exh. E (Kessler Dep.) at 55:14-56:10; Exh. 2. Users
who wish to search for a song or artist may do so by entering the name of
the song or artist in the search fields of the client software and then
clicking the "Find It" button. When the search form is transmitted to the
Napster network, the Napster servers send the requesting user a list of
files that include the same term(s) she entered on the search
form. See Kessler Dec. 5; 2 Frackman Dec., Exh. E (Kessler Dep.) at 56:3-
10.
After the application software returns a list of specific MP3 file names to
the requesting user, the user then must peruse the list to determine
whether she desires any of those files. See id. 10. She must read through
the list because the Napster application software does not search for a
particular song or recording artist per se. Napster does not organize MP3
files based on content because, currently, they are not designed for such
indexing. See id. 11. Instead, Napster performs a text search of the file
names indexed in a particular cluster. Those file names may contain
typographical errors or otherwise inaccurate descriptions of the content of
the files since they are designated by other users. See id. 13, 10, 27; 2
Pulgram Dec. Exh. B (Fanning Dep.) at 116:8-19.
In addition to listed text results from an executed search, Napster's servers
provide other information about particular MP3 files. For instance, the
client software can sort the results of "echo packets" or "ping requests"
that it sends out to host users; these requests help gauge the
"responsiveness value" of a transmission between two users by calculating
the amount of time it takes for ping responses to be returned to the client
software. See 2 Frackman Dec., Exh. E (Kessler Dep.) at 56:3-10, Exh. 5 at 3;
Shawn Fanning Dec. 8. Users can also search for files that meet certain
technical criteria, such as the host user's bandwidth. See id. Finally, the file
name or "data object description" includes the size and bytes stored and
"attributes of quality," such as bit rate. See 2 Frackman Dec., Exh. E
(Kessler Dep.) at 153:16-154:24; Fanning Dec. 8. These Napster options
contribute to the ease with which the user can locate and obtain the music
8. Alternatively, users may access MP3 files via the hotlist function. This
function enables a Napster user to archive other user names and learn
whether account holders who access the network under those names are
online. See Kessler Dec. 8-9. A requesting user can access or browse all
files listed in the user libraries of hotlisted users. See id. 9. Then she can
request a particular file in a host user's user library by selecting, or clicking
on, that file name. See id. The hotlist function is a feature that helps make
Napster users a virtual community they are not only able to download the
music they desire, but also to obtain files from particular individuals whom
they know by user name.
9. The Napster network facilitates the same mode of file-transfer, whether
a requesting user accesses a specific MP3 file with the search engine or the
hotlist. See id. 12. Once a requesting user locates and selects the file she
wishes to download, the server-side software engages in a dialogue with
her browser and that of the "host user" (that is, the user who makes the
MP3 available for downloading). See Kessler Dec. 12; 2 Frackman Dec.,
Exh. E (Kessler Dep.) at 80:19-22; 56:3-10. Napster servers obtain the
necessary IP *907 address information from the host user. See Daniel
Farmer Dec. 17; Frackman Dec., Exh. 1 (Kessler Dep.) at 103-05. The
servers then communicate the host user's address or routing information

to the requesting user; the requesting user's computer employs this
information to establish a connection with the host user's browser
software and download the MP3 file from the host user's
library. See Kessler Dec. 10-13; 2 Frackman Dec., Exh. E (Kessler Dep.) at
56:3-10. The content of the actual MP3 file is transferred over the Internet
between users, not through the Napster servers. See Kessler Dec. 12; A &
M Records, Inc. v. Napster, Inc., 2000 WL 573136, at *7 (N.D.Cal. May 12,
2000). However, users would not be able to access the uploaded file
names and corresponding routing data without signing on to the Napster
system. See Kessler Dec. 23.
10. In some instances, a requested file is not immediately ready for
download. Those files are "queued" or deferred until the host user is able
to transmit the file. See 2 Frackman Dec., Exh. E (Kessler Dep. at 80:2-22).
The request may be deferred, for example, because the host user has
limited the number of downloads she can provide simultaneously, or
because the host user has signed off the Napster network. See id.
Defendant employs technology that permits users to resume queued
downloads at a later time. See 2 Frackman Dec., Exh. E (Kessler Dep.) at
112:3-13. Every MP3 file has a mathematically-generated and unique
fingerprint or "checksum." See Kessler Dec. 32; 2 Frackman Dec., Exh. E
(Kessler Dep.) at 112:3-13. Any requesting user who is unable to download
a particular MP3 file may use the client software to send the file's
checksum and full intended size to the Napster servers and attempt to
locate a match for download. See 2 Frackman Dec., Exh. E (Kessler Dep.) at
112:3-13.
11. Defendant also provides Napster users with a chat service. Its central
servers permit users who are logged-on to communicate with other online
users, including those whose user names comprise the hotlist. See Kessler
Dec. 13. Aside from communicating with specific online users logged-on
to the same cluster of servers, the chat service allows users to
communicate in groups. Defendant organizes these groups within
"channels" or "chat rooms" named after particular musical genres. See
id.; 2 Pulgram Dec., Exh. B (2 Fanning Dep.) at 219: 4-14. Alternatively,
users can create their own channels in which to communicate. See Kessler
Dec. 13.
12. Defendant's New Artist Program technology functions in two
interrelated environments: (a) on its Internet website and (b) through its
network-client browser and search technology. See Krause Dec. 9-15.
The website version performs several functions. It allows new or unsigned
artists to create a "profile" that consists of certain biographical and
descriptive data including artist and band names, similar artists or
influences, and news about the band. See id. 9-10, Exh. C. Defendant
only accepts completed forms if the submitting artist authorizes Napster
users to share his music. See id. 10, Exh. D. Once defendant accepts the
profile, it stores all of the relevant information in a database linked to its
Internet website. See id. 11. Defendant has accepted several thousand
such profiles. See id. 9, 16.
Members of the public can then search the new artist database in several
ways: (1) by artist name, (2) by artist influence, or (3) by browsing the
different genres of music and then scrolling down lists of new artists
categorized in those genres. See id. 12. The Napster site does not store
any of the new artists' music, however. See id. 9. Instead, those who
access the website-based service acquire information about an artist, such
as his name. See id., Exh. E. Once an individual obtains this data, she is
directed to switch to Napster's software- and network-based service
to *908 search for and download the new artist's music. See id. 15.
INTELLECTUAL PROPERTY LAW part 2
Napster account holders who use MusicShare software and log-on to the
Napster system can locate and download new artists' songs in the same
manner they would find and download any other files: by utilizing the
search engine, or by browsing user libraries. See id. 9. While on the
Napster network, both new artists and other users may use the chat
function to market music directly or learn about new artists. See id. 8,
15.
D. Plaintiffs' Business
1. The music publisher plaintiffs compose music and write songs. See,
e.g., Stoller Dec. 2. They depend financially upon the sale of sound
recordings because they earn royalties from such sales. See id. at 2, 11,
13. However, they do not get a royalty when a Napster user uploads or
downloads an MP3 file of their compositions without payment or
authorization. See id. 11. The record company plaintiffs' sound
recordings also result from a substantial investment of money, time,
manpower, and creativity. See Conroy Dec. 5; Cottrell Dec. 5; Eisenberg
Dec. 5, 21; Kenswil Dec. 5.
In contrast, defendant invests nothing in the content of the music which
means that, compared with plaintiffs, it incurs virtually no costs in
providing a wide array of music to satisfy consumer demand. See Teece
Rep. at 14.
2. To make a profit, the record company plaintiffs largely rely on the
success of "hit" or popular recordings, which may constitute as little as ten
or fifteen percent of albums released. See, e.g., Eisenberg Dec. 7. Many,
or all, of their top recordings have been available for free on
Napster. See Frank Creighton Dec. 5.
3. The record company plaintiffs have invested substantial time, effort, and
funds in actual or planned entry into the digital downloading market. BMG
Music ("BMG")[11] began to explore digital down-loading in early 1996 and
has made more than twenty tracks commercially available for downloading
through the digital service providers ("DSPs") Amplified.com and the Liquid
Music Network. See Conroy Dec. 9. BMG has entered several business
partnerships, strategic marketing agreements, and clearinghouse
relationships to develop a plan for secure, commercial digital downloading;
July 2000 was the target date for BMG's launch. See id. at 10-17.
Plaintiffs Capitol Record, Inc. and Virgin Records America are affiliated with
EMI Recorded Music, North America ("EMI"). See Cottrell Dec. 1. EMI has
developed business plans to distribute its music through several DSPs
which represent more than 800 retail websites. See id. 7. All digital
downloads that EMI offers will be encrypted and watermarked. See id.
12.
Sony Music Entertainment ("Sony") has already begun to make selected
singles available through its websites and those of its artists; to obtain a
permanent copy of this music, consumers must pay for the
download. See Eisenberg Dec. 13. As of May 31, 2000, Sony also began
selling downloadable music through a distribution network of about thirty-
five retail sites. See id. at 17.
Plaintiffs A & M Records, Geffen Records, Interscope Records, Island
Records, MCA Records, Motown Records, UMG Records, and Universal
Records (collectively, "Universal") have spent millions of dollars preparing
a secure digital distribution system scheduled for launch in midsummer
2000. See Kenswil Dec. 9-16.
Warner Music Group and its associated labels plaintiffs Atlantic Recording
Corp., London-Sire Records Inc. (f/k/a Sire Records Group Inc.), Elektra
Entertainment Group Inc., and Warner Bros. Records (collectively,
"Warner") have done due diligence and dedicated a substantial budget to
digital distribution. See Vidich Dec. *909 7(a)-(e). Warner expects to
launch its commercial digital distribution of hundreds of recordings by the
fourth quarter of 2000. See id. at 7(e)
4. Promotional samples offered by plaintiffs and other retail sites differ
significantly from using Napster to decide whether to buy a CD. The record
company plaintiffs have made some free downloads available but have
limited them in amount and duration. They have not provided entire
albums, and the downloads typically have been "timed-out" so that users
can only play them for a finite period of time often less than a
month. See Conroy Dec. 9-17; Cottrell Dec. 15; Eisenberg Dec. 13;
Kenswil Dec. 12; Vidich Dec. 7(d), 8. Although plaintiffs have not been
completely successful in managing the rights to promotional downloads,
record company executives accord importance to the security of music
distributed in this manner.[12]See Conroy Dec. 9-17; Cottrell Dec. 15;
Eisenberg Dec. 13; Kenswil Dec. 12; Vidich Dec. 7(d), 8.
Retail sites, such as Amazon.com, offer thirty-to-sixty-second song samples
in streaming audio format, rather than as downloads. See David Lambert
Reply Dec. 2. Unlike downloading, streaming does not copy the music
onto the listener's computer hard drive; it merely allows her to hear it. See
id. Because companies like DiscoverMusic that provide song samples to
these Internet retailers enter licensing agreements, rights holders earn
royalties from this form of sampling. See id. 3.
In contrast, persons who obtain MP3 files for free using Napster can retain
and play them indefinitely and, even if they download a song to make a
purchasing decision, they may decide not to buy the music. While Napster
users can burn CDs comprised of unauthorized downloads they obtained
to "sample" new songs, sampling on sites affiliated with plaintiffs does not
substitute for purchasing the entire disc. See Teece Rep. at 17.
E. Effect of Napster on the Market for Plaintiffs' Copyrighted Works
1. The court finds that Napster use is likely to reduce CD purchases by
college students, whom defendant admits constitute a key
demographic. See Jay Rep. at 4, 18; Michael Fine Rep. at 1; Julia Greer
Reply Dec. (Brooks Dep.) at 145:10-12 ("We believes [sic] ourselves to have
a high college demographic, and beyond that to be primarily [ages] 12 to
24."). Plaintiffs' expert, Dr. E. Deborah Jay, opined that forty-one percent
of her college-student survey respondents "gave a reason for using
Napster or described the nature of its impact on their music purchases in a
way which either explicitly indicated or suggested that Napster displaces
CD sales." Jay Rep. at 4, 18. She also found that twenty-one percent of the
college students surveyed revealed that Napster helped them make a
better selection or decide what to buy. See id., Tbl. 4. However, Jay's
overall conclusion was that "[t]he more songs Napster users have
downloaded," the more likely they are to admit or imply that such use has
reduced their music purchases. See id. at 4, 18. The report of Soundscan
CEO Michael Fine lends support to Jay's findings. After examining data
culled from three types of retail stores near college or university
campuses,[13] Fine concluded that "on-line *910 file sharing has resulted in
a loss of album sales within college markets."[14] Fine Rep. at 1.
For the reasons discussed in the court's separate order, the report by
defendant's expert, Dr. Peter S. Fader, does not provide credible evidence
that music file-sharing on Napster stimulates more CD sales than it
displaces.[15]Nor do the recording industry documents that defendant cites
reliably show increased music sales due to Napster use. One such
memorandum deals with the effect of Warner's promotional downloads,

which are "timed-out" and thus differ from MP3 files obtained using
Napster. See 1 Pulgram Dec., Exh. N (Vidich Dep.), Exh. 279 at T3122-23;
Vidich Dec. 7(d), 8 (stating that free, promotional downloads are
"timed-out."). Another purported "smoking gun" is a Universal survey on
music-purchasing by people who download MP3 files. See 1 Pulgram Dec.,
Exh. F (Kenswil Dep.) at 110:22-111:15. However, the court has too little
information about this survey to rely on it, and the deponent, Universal
representative Lawrence Kenswil, declined to vouch for the survey's
accuracy. See id. at 111:8, 14-15.
2. Because plaintiffs entered the digital download market very recently, or
plan to enter it in the next few months, they are especially vulnerable to
direct competition from Napster, Inc. See Teece Rep. at 15-16. The court
finds that, in choosing between the free Napster service and pay-per-
download sites, consumers are likely to choose Napster. See id. at 14; Jay
Rep. at 4, 18 (reaching this conclusion with regard to a survey sample of
college students).
Defendant's economic expert, Dr. Robert E. Hall, opines that plaintiffs'
music could still command a high price after a period when the price has
been zero due to Napster use; thus, he concludes, plaintiffs will not suffer
irreparable harm between now and a trial verdict against
defendant. See Lisi Dec. (Hall Rep.) 39, 54. This argument does not
square with Hall's assertion that preliminarily enjoining defendant will put
it out of business because users will switch to services offered by "kindred
spirits." Hall Rep. 15-19, 73; see also Barry Dec. 13. If this is true,
consumers will not necessarily resume buying music if Napster is enjoined;
rather, they will go to other sites offering free MP3 files.[16] Indeed, as Dr.
David J. Teece avers, defendant has contributed to a new attitude that
digitally-downloaded songs ought to be free an attitude that creates
formidable hurdles for the establishment *911 of a commercial
downloading market. See Teece Rep. at 14-18.
Hall also maintains that Napster, Inc. will increase the volume of plaintiffs'
online sales by stimulating consumer investment in the hardware and
software needed to obtain and play MP3 files. See Hall Rep. 45-49.
However, he ignores evidence of reduced CD-buying among college
students due to Napster use, see Jay Rep. at 18, and the data upon which
he relies to argue that Napster has enhanced sales is either weak (in the
case of the Fader Report) or unavailable for the court's review. See, e.g.,
id. 17 (relying on IDC and Forrester Research studies), 27-28
(discussing reports by Student Monitor and Andersen Consulting), 34
(citing a study by the University of Southern California). The court
therefore finds that the barriers to commercial distribution posed by an
emerging sense of entitlement to free music probably outweigh the
benefits that defendant purports to confer.
3. Downloading on Napster also has the potential to disrupt plaintiffs'
promotional efforts because it does not involve any of the restrictions on
timing, amount, or selection that plaintiffs impose when they offer free
music files. See Conroy Dec. 19-17; Cottrell Dec. 15; Eisenberg Dec.
13; Kenswil Dec. 12; Vidich Dec. 7(d), 8; see also Teece Rep. at 18.
Even if Napster users sometimes download files to determine whether
they want to purchase a CD, sampling on Napster is vastly different than
that offered by plaintiffs. On Napster, the user not the copyright owner
determines how much music to sample and how long to keep it.
II. CONCLUSIONS OF LAW
A. Legal Standard
1. The Ninth Circuit authorizes preliminary injunctive relief for "a party
who demonstrates either (1) a combination of probable success on the
INTELLECTUAL PROPERTY LAW part 2
merits and the possibility of irreparable harm, or (2) that serious questions
are raised and the balance of hardships tips in its favor." Prudential Real
Estate Affiliates, Inc. v. PPR Realty, Inc., 204 F.3d 867, 874 (9th Cir. 2000).
2. The standard is a sliding scale which requires a greater degree of harm
the lesser the probability of success. See id. In a copyright infringement
case, demonstration of a reasonable likelihood of success on the merits
creates a presumption of irreparable harm.[17]See Micro Star v. Formgen,
Inc., 154 F.3d 1107, 1109 (9th Cir. 1998).
B. Proof of Direct Infringement
1. To prevail on a contributory or vicarious copyright infringement claim, a
plaintiff must show direct infringement by a third party. See Sony Corp. of
Am. v. Universal City Studios, Inc., 464 U.S. 417, 434, 104 S. Ct. 774, 78 L.
Ed. 2d 574 (1984). As a threshold matter, plaintiffs in this action must
demonstrate that Napster users are engaged in direct infringement.
2. Plaintiffs have established a prima facie case of direct copyright
infringement. As discussed above, virtually all Napster users engage in the
unauthorized downloading or uploading of copyrighted music; as much as
eighty-seven percent of the files available on Napster may be copyrighted,
and more than seventy percent may be owned or administered by
plaintiffs. See Olkin Rep. at 7; Hausman Dec. 8.
*912 C. Affirmative Defense of Fair Use and Substantial Non-Infringing
Use
1. Defendant asserts the affirmative defenses of fair use and substantial
non-infringing use. The latter defense is also known as the staple article of
commerce doctrine. See Sony, 464 U.S. at 442, 104 S. Ct. 774. Sony stands
for the rule that a manufacturer is not liable for selling a "staple article of
commerce" that is "capable of commercially significant non-infringing
uses." Id. The Supreme Court also declared in Sony, "Any individual may
reproduce a copyrighted work for a `fair use'; the copyright holder does
not possess the exclusive right to such a use." Id. at 433, 104 S. Ct. 774.
Defendant bears the burden of proving these affirmative
defenses. See Bateman v. Mnemonics, Inc., 79 F.3d 1532, 1542 n. 22 (11th
Cir.1996) ("[I]t is clear the burden of proving fair use is always on the
putative infringer.").
2. For the reasons set forth below, the court finds that any potential non-
infringing use of the Napster service is minimal or connected to the
infringing activity, or both. The substantial or commercially significant use
of the service was, and continues to be, the unauthorized downloading
and uploading of popular music, most of which is copyrighted.
3. Section 107 of the Copyright Act provides a non-exhaustive list of fair
use factors. These factors include:
(1) the purpose and character of the use, including whether such use is of a
commercial nature or is for nonprofit educational purposes;
(2) the nature of the copyrighted work;
(3) the amount and substantiality of the portion used in relation to the
copyrighted work as a whole; and
(4) the effect of the use upon the potential market for or value of the
copyrighted work.
17 U.S.C. 107.
4. In the instant action, the purpose and character of the use militates
against a finding of fair use. Ascertaining whether the new work
transforms the copyrighted material satisfies the main goal of the first
factor. See Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 579, 114 S. Ct.
1164, 127 L. Ed. 2d 500 (1994). Plaintiff persuasively argues that
downloading MP3 files does not transform the copyrighted
music. See UMG Recordings, Inc. v. MP3.Com, Inc., 92 F. Supp. 2d 349, 351
(S.D.N.Y.2000) (concluding that repackaging copyrighted recordings in MP3
format suitable for downloading "adds no `new aesthetics, new insights
and understandings' to the original").
5. Under the first factor, the court must also determine whether the use is
commercial. In Acuff-Rose, the Supreme Court clarified that a finding of
commercial use weighs against, but does not preclude, a determination of
fairness. See Acuff-Rose, 510 U.S. at 584, 114 S. Ct. 1164.
6. If a use is non-commercial, the plaintiff bears the burden of showing a
meaningful likelihood that it would adversely affect the potential market
for the copyrighted work if it became widespread. See Sony, 464 U.S. at
451, 104 S. Ct. 774.
7. Although downloading and uploading MP3 music files is not
paradigmatic commercial activity, it is also not personal use in the
traditional sense. Plaintiffs have not shown that the majority of Napster
users download music to sell that is, for profit. However, given the vast
scale of Napster use among anonymous individuals, the court finds that
downloading and uploading MP3 music files with the assistance of Napster
are not private uses. At the very least, a host user sending a file cannot be
said to engage in a personal use when distributing that file to an
anonymous requester. Moreover, the fact that Napster users get for free
something they would ordinarily have to buy suggests that they reap
economic advantages from Napster use. See Sega Enters. Ltd. v.
MAPHIA, 857 F. Supp. 679, 687 (N.D.Cal.1994) ("Sega I") (holding that
copying to save users expense of purchasing authorized *913 copies has
commercial character and thus weighs against finding of fair
use); cf. American Geophysical Union v. Texaco, Inc., 60 F.3d 913, 922 (2d
Cir.1994) (holding that for-profit enterprise which made unauthorized
copies of scholarly articles to facilitate scientific research reaped indirect
economic advantage from copying and, hence, that copying constituted
commercial use).
8. The court finds that the copyrighted musical compositions and sound
recordings are creative in nature; they constitute entertainment, which
cuts against a finding of fair use under the second factor. See Harper &
Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 563, 105 S. Ct. 2218, 85
L. Ed. 2d 588 (1985); Sega I, 857 F. Supp. at 687; Playboy Enters., Inc. v.
Frena, 839 F. Supp. 1552, 1558 (M.D.Fla.1993) (citing In re New Era
Publications Int'l v. Carol Publ'g, 904 F.2d 152, 157-58 (2d Cir.), cert.
denied, 498 U.S. 921, 111 S. Ct. 297, 112 L. Ed. 2d 251 (1990)).
9. With regard to the third factor, it is undisputed that downloading or
uploading MP3 music files involves copying the entirety of the copyrighted
work. The Ninth Circuit held prior to Sony that "wholesale copying of
copyrighted material precludes application of the fair use
doctrine." Marcus v. Rowley, 695 F.2d 1171, 1176 (9th Cir.1983). Even
after Sony, wholesale copying for private home use tips the fair use
analysis in plaintiffs' favor if such copying is likely to adversely affect the
market for the copyrighted material. See Sony, 464 U.S. at 449-50, 456, 104
S. Ct. 774.
10. The fourth factor, the effect on the potential market for the
copyrighted work, also weighs against a finding of fair use. Plaintiffs have
produced evidence that Napster use harms the market for their
copyrighted musical compositions and sound recordings in at least two
ways. First, it reduces CD sales among college students. See Jay Rep. at 4,
18; cf. Fine Rep. at 1. Second, it raises barriers to plaintiffs' entry into the
market for the digital downloading of music. See Teece Rep. at 12-18.

11. Defendant asserts several potential fair uses of the Napster service
including sampling, space-shifting, and the authorized distribution of new
artists' work. Sampling on Napster is not a personal use in the traditional
sense that courts have recognized copying which occurs within the
household and does not confer any financial benefit on the user. See,
e.g., Sony, 464 U.S. at 423, 449-50, 104 S. Ct. 774. Instead, sampling on
Napster amounts to obtaining permanent copies of songs that users would
otherwise have to purchase; it also carries the potential for viral
distribution to millions of people. Defendant ignores critical differences
between sampling songs on Napster and VCR usage in Sony. First, while
"time-shifting [TV broadcasts] merely enables a viewer to see ... a work
which he ha[s] been invited to witness in its entirety free of charge,"
plaintiffs in this action almost always charge for their music even if it is
downloaded song-by-song. Sony, 464 U.S. at 449-50, 104 S. Ct. 774; see
e.g., Conroy Dec. 9; Eisenberg Dec. 16. They only make promotional
downloads available on a highly restricted basis. See Conroy Dec. 9-17;
Cottrell Dec. 15; Eisenberg Dec. 13; Kenswil Dec. 12; Vidich Dec. 13. Any potential enhancement of plaintiffs' sales due to sampling would
7(d), 8. Copyright owners also earn royalties from streamed song samples
on retail websites like Amazon.com. See Lambert Reply Dec. 3. Second,
the majority of VCR purchasers in Sony did not distribute taped television
broadcasts, but merely enjoyed them at home. See id. at 423, 104 S. Ct.
774. In contrast, a Napster user who downloads a copy of a song to her
hard drive may make that song available to millions of other individuals,
even if she eventually chooses to purchase the CD. Socalled sampling on
Napster may quickly facilitate unauthorized distribution at an exponential
rate.
Defendant's argument that using Napster to sample music is akin to
visiting a free listening station in a record store, or listening to song
samples on a retail website, *914 fails to convince the court because
Napster users can keep the music they download. Whether or not they
decide to buy the CD, they still obtain a permanent copy of the song. In
contrast, many retail sites only offer thirty-to-sixty-second samples in
streaming audio format, see Lambert Reply Dec. 2, and promotional
downloads from the record company plaintiffs are often "timed-
out." See Cottrell Dec. 15; Eisenberg Dec. 13; Kenswil Dec. 12; Vidich
Dec. 7(d), 8.
The global scale of Napster usage and the fact that users avoid paying for
songs that otherwise would not be free militates against a determination
that sampling by Napster users constitutes personal or home use in the
traditional sense.[18]
12. Even if the type of sampling supposedly done on Napster were a non-
commercial use, plaintiffs have demonstrated a substantial likelihood that
it would adversely affect the potential market for their copyrighted works
if it became widespread. See Sony, 464 U.S. at 451, 104 S. Ct. 774. Plaintiffs
claim three general types of harm: a decrease in retail sales, especially
among college students; an obstacle to the record company plaintiffs'
future entry into the digital downloading market; and a social devaluing of
music stemming from its free distribution. With regard to sampling,
twenty-one percent of the Jay survey respondents indicated that Napster
helps them decide what music to purchase. See Jay Rep., Tbl. 4.
Nevertheless, Jay reached the overarching conclusion that the more songs
Napster users download, the more likely they are to reveal that such use
reduces their music buying. See id. at 4, 18. Jay's evidence suggests that
sampling and building a free music library through unauthorized
downloading are not mutually exclusive: it is likely that survey respondents
who sample are primarily direct infringers. Napster users not the record
companies control the music selection, the amount and the timing of the
INTELLECTUAL PROPERTY LAW part 2
sampling activity, and they may keep many songs after deciding not to
purchase the entire CD.
Defendant maintains that sampling does not decrease retail music sales
and may even stimulate them. To support this assertion, it relies heavily on
the Fader Report, which concludes that consumers do not view MP3 files
as perfect substitutes for CDs. See Lisi Dec. (Fader Rep.) 63. Fader cites a
survey that he did not conduct for the assertion that "60% of online users
who download free digital music do so to preview music before buying the
CD." Fader Rep. 74. Examining the results of a different survey that he
purportedly designed, but did not carefully supervise, he reports that
about twenty-eight percent of Napster users indicate that their music
purchases have increased since they began using the Napster software. See
id. 43. For reasons explained in the court's evidentiary order, the Fader
Report is unreliable and fails to rebut plaintiffs' showing of harm. Plaintiffs
have demonstrated a meaningful likelihood that the activity defendant
calls sampling actually decreases retail sales of their music.
quarter. See Jay Rep. at 4, 21 & Tbl. 7. The court has already held that the
not tip the fair use analysis conclusively in favor of defendant. Indeed,
courts have rejected the suggestion that a positive impact on sales negates
the copyright holder's entitlement to licensing fees or access to derivative
markets. See Ringgold v. Black Entertainment Television, 126 F.3d 70, 81 n.
16 (2d Cir.1997) (noting that, even if allegedly infringing use of plaintiff's
poster in television program increased poster sales, plaintiff retained right
to licensing *915 fee); DC Comics, Inc. v. Reel Fantasy, Inc., 696 F.2d 24, 28
(2d Cir.1982) (stating that speculated increase in plaintiff's comic book
sales due to unauthorized use of Batman and Green Arrow figures on
advertising flyers did not establish fair use defense as matter of
law); MP3.Com, 92 F. Supp. 2d at 352 (holding that allegedly positive
impact on plaintiffs' prior market "in no way frees defendant to usurp a
further market that directly derives from reproduction of [the] copyrighted
works.").
The MP3.Com opinion is especially instructive. Although MP3.com's
activities arguably stimulated CD sales, the plaintiffs "adduced substantial
evidence that they ... [had] taken steps to enter [the digital downloading
market]." MP3.Com, 92 F. Supp. 2d at 352. The fourth factor thus weighed
against a finding of fair use. Plaintiffs in the instant action similarly allege
that Napster use impedes their entry into the online market. The record
company plaintiffs have already expended considerable funds and effort to
commence Internet sales and licensing for digital downloads. See Conroy
Dec. 9-18; Cottrell Dec. 6-17; Eisenberg Dec. 9-22; Vidich Dec. because counterfeiting was chief purpose of time-loaded cassettes that
7-10. Plaintiffs' economic expert opined that the availability of free MP3
files will reduce the market for authorized, commercial
downloading. See Teece Dec. at 14-18. This point is corroborated by the
fact that all forty-nine songs available for purchase on Sony's website can
be obtained for free using Napster. See Eisenberg Dec. 16. If consumers
choose to buy, rather than burn, entire CDs they are still more likely to
obtain permanent copies of songs on Napster than buy them from Sony's
site or listen to streamed samples at other online locations.
The court concludes that, even assuming the sampling alleged in this case
is a non-commercial use, the record company plaintiffs have demonstrated
a meaningful likelihood that it would adversely affect their entry into the
online market if it became widespread. See Sony, 464 U.S. at 451, 104 S. Ct.
774. Moreover, it deprives the music publisher plaintiffs of royalties for
individual songs. The unauthorized downloading of plaintiffs' music to
sample songs would not constitute a fair use, even if it enhanced CD sales.
14. The court is also unconvinced that Sony applies to space-shifting.
Defendant erroneously relies on the Ninth Circuit's assertion, in a case
involving an inapplicable statute, that space-shifting constitutes non-
commercial personal use. See Recording Indus. Ass'n of Am. v. Diamond
Multimedia Sys., Inc., 180 F.3d 1072, 1079 (9th Cir.1999) (discussing the
applicability of the Audio Home Recording Act of 1992 to the Rio MP3
player).[19]*916 Defendant also implies that space-shifting music is
sufficiently analogous to time-shifting television broadcasts to merit the
protection of Sony. According to the gravely flawed Fader Report, space-
shifting like time-shifting leaves the value of the copyrights unscathed
because it does not displace sales. See Fader Rep. 77; Sony, 464 U.S. at
421, 104 S. Ct. 774 (concluding that plaintiffs did not prove that time-
shifting created any likelihood of harm). Defendant again cites Fader for
the statistic that seventy percent of Napster users at least sometimes
engage in space-shifting. See Lisi Dec. (Fader Rep.) 77. In contrast, Jay
opined that approximately forty-nine percent of her college-student survey
respondents previously owned less than ten percent of the songs they
downloaded, and about sixty-nine percent owned less than a
Jay Report bears greater indicia of reliability than the Fader Report.
Moreover, under either analysis, the instant matter is distinguishable
from Sony because the Supreme Court determined in Sony that time-
shifting represented the principal, rather than an occasional use of
VCRs. See Sony, 464 U.S. at 421, 104 S. Ct. 774.
15. Defendant argues that, if space-shifting is deemed a fair use, the staple
article of commerce doctrine precludes liability for contributory or
vicarious infringement. Under Sony, the copyright holder cannot extend his
monopoly to products "capable of substantial noninfringing
uses." Sony, 464 U.S. at 442, 104 S. Ct. 774. Defendant fails to show that
space-shifting constitutes a commercially significant use of Napster.
Indeed, the most credible explanation for the exponential growth of traffic
to the website is the vast array of free MP3 files offered by other
users not the ability of each individual to space-shift music she already
owns. Thus, even if space-shifting is a fair use, it is not substantial enough
to preclude liability under the staple article of commerce
doctrine. See Cable/Home Communication Corp. v. Network Prods.,
Inc., 902 F.2d 829, 846 (11th Cir.1990) (affirming finding of contributory
infringement where defendant primarily promoted pirate computer chips
and other devices capable of descrambling pay-TV broadcasts as
infringement aids); A&M Records v. General Audio Video Cassettes,
Inc., 948 F. Supp. 1449, 1456 (C.D.Cal.1996) (rejecting Sony defense
defendant sold).[20]
16. This court also declines to apply the staple article of commerce
doctrine because, as paragraphs (D) (6) and (E) (2) of the legal conclusions
explain, Napster exercises ongoing control over its service. In Sony, the
defendant's participation did not extend past manufacturing and selling
the VCRs: "[t]he only contact between Sony and the users of the
Betamax *917 ... occurred at the moment of sale." Sony, 464 U.S. at 438,
104 S. Ct. 774. Here, in contrast, Napster, Inc. maintains and supervises an
integrated system that users must access to upload or download files.
Courts have distinguished the protection Sony offers to the manufacture
and sale of a device from scenarios in which the defendant continues to
exercise control over the device's use. See General Audio Video, 948 F.
Supp. at 1456-57 (finding Sony doctrine inapplicable to seller of blank
tapes who "acted as a contact between his customers and suppliers of
other material necessary for counterfeiting"); RCA Records v. All-Fast Sys.,
Inc., 594 F. Supp. 335, 339 (S.D.N.Y.1984) (holding that defendant in
position to control cassette-copying machine could not invoke Sony); see

also Columbia Pictures Indus., Inc. v. Aveco, Inc., 800 F.2d 59, 62 & n. 3 (3d
Cir.1986) (holding that business which rented rooms where public viewed
copyrighted video cassettes engaged in contributory infringement, even
when it was not source of cassettes). Napster, Inc.'s facilitation of
unauthorized file-sharing smacks of the contributory infringement in these
cases, rather than the legitimate conduct of the VCR manufacturers. Given
defendant's control over the service, as opposed to mere manufacturing or
selling, the existence of a potentially unobjectionable use like space-
shifting does not defeat plaintiffs' claims.
17. Nor do other potential non-infringing uses of Napster preclude
contributory or vicarious liability. Defendant claims that it engages in the
authorized promotion of independent artists, ninety-eight percent of
whom are not represented by the record company plaintiffs. See Def.'s
Opp. at 10 (citing, inter alia, Krause Dec. 16), 27. However, the New
Artist Program may not represent a substantial or commercially significant
aspect of Napster. The evidence suggests that defendant initially promoted
the availability of songs by major stars, as opposed to "page after page of
unknown artists." See 1 Frackman Dec., Exh. C (Parker Dep.) at 104:16-
105:10, Exh. 235. Its purported mission of distributing music by artists
unable to obtain record-label representation appears to have been
developed later.
Other facts point to the conclusion that the New Artists Program was an
afterthought, not a major aspect of the Napster business plan. Former CEO
Eileen Richardson claimed in her deposition that she told the press Napster
is not about known artists like Madonna. But, tellingly, discovery related to
downloads by Napster executives reveals that Richardson's own computer
contained about five Madonna files obtained using Napster. See 1
Frackman Dec., Exh. A (Richardson Dep.) at 238:2-240:25. Defendant did
not launch the website aspect of its New Artist Program
until after plaintiffs filed suit, and as recently as July 2000, bona fide new
artists constituted a very small percentage of music available on
Napster. See Krause Dec. 9, Exh. A; Olkin Reply Dec. 3-5; Hausman infringing files and thus that defendant cannot know about infringement
Reply Dec. 3-6.
In any event, Napster's primary role of facilitating the unauthorized
copying and distribution established artists' songs renders Sony
inapplicable. See General Audio Video, 948 F.Supp. at 1456-57; RCA
Records, 594 F. Supp. at 339.
18. Plaintiffs do not object to all of the supposedly non-infringing uses of
Napster. They do not seek an injunction covering chat rooms or message
boards, the New Artist Program or any distribution authorized by rights
holders. See Pl.'s Reply at 19. Nor do they seek to enjoin applications
unrelated to the music recording industry.[21]See id. Because plaintiffs do
not ask the court to shut down such satellite activities, the fact that these
activities may be non-infringing does not lessen plaintiffs' likelihood of
success. The court therefore finds that plaintiffs have established a
reasonable probability of proving third-party infringement.
*918 D. Contributory Copyright Infringement
1. Once they have shown direct infringement by Napster users, plaintiffs
must demonstrate a likelihood of success on their contributory
infringement claim. A contributory infringer is "one who, with knowledge
of the infringing activity, induces, causes or materially contributes to the
infringing conduct of another." Gershwin Publ'g Corp. v. Columbia Artists
Management, Inc., 443 F.2d 1159, 1162 (2d Cir.1971); see Fonovisa, Inc. v.
Cherry Auction, Inc., 76 F.3d 259, 264 (9th Cir.1996). Courts do not require
actual knowledge; rather, a defendant incurs contributory copyright
liability if he has reason to know of the third party's direct
INTELLECTUAL PROPERTY LAW part 2
infringement. See Cable/Home Communication Corp., 902 F.2d at
846; Sega Enter. Ltd. v. MAPHIA, 948 F. Supp. 923, 933 (N.D.Cal.1996)
("Sega II").
2. Plaintiffs present convincing evidence that Napster executives actually
knew about and sought to protect use of the service to transfer illegal MP3
files. For example, a document authored by co-founder Sean Parker
mentions the need to remain ignorant of users' real names and IP
addresses "since they are exchanging pirated music." 1 Frackman Dec.,
Exh. C (Parker Dep.) at 160:1-162:14, Exh. 254 at SF00100 (emphasis
added). The same document states that, in bargaining with the RIAA,
defendant will benefit from the fact that "we are not just
making pirated music available but also pushing demand." Id. at 160:1-
162:14, Exh. 254 at SF00102 (emphasis added). These admissions suggest
that facilitating the unauthorized exchange of copyrighted music was a
central part of Napster, Inc.'s business strategy from the inception.
Plaintiff also demonstrate that defendant had actual notice of direct
infringement because the RIAA informed it of more than 12,000 infringing
files. See Creighton 12/3/99 Dec., Exh. D. Although Napster, Inc.
purportedly terminated the users offering these files, the songs are still
available using the Napster service, as are the copyrighted works which the
record company plaintiffs identified in Schedules A and B of their
complaint. See Creighton Supp. Dec. 3-4.
3. The law does not require actual knowledge of specific acts of
infringement. See Gershwin, 443 F.2d at 1163 (holding that general
knowledge that third parties performed copyrighted works satisfied
knowledge element of contributory infringement); Sega I, 857 F. Supp. at
686-87 (concluding that plaintiffs established knowledge element, even
though electronic bulletin board company did not know exactly when
infringing video games would be uploaded to or downloaded from bulletin
board). Accordingly, the court rejects defendant's argument that titles in
the Napster directory cannot be used to distinguish infringing from non-
technologically sophisticated but in many *920 ways indistinguishable
by any particular user of any particular musical recording or
composition. See Lisi Dec. (Tygar Rep.) at 29 (offering expert opinion about
difficulty of identifying copyrighted works by file name); Lars Ulrich Dep. at
36:16-37:2 (stating that in the past he did not object to individuals taping
his band's concerts and making MP3 files of such concerts available via
Napster); Sanders Dep. at 24:23-29:13 (discussing complex process for
determining chain of title for copyright owners).[22]
4. Defendant's reliance on Religious Technology Center v. Netcom On-Line
Communication Services, Inc., 907 F. Supp. 1361 (N.D.Cal.1995), does not
alter the court's conclusion that plaintiffs have a reasonable likelihood of
proving contributory liability. The cited passage from Religious Technology
Center states:
Where a BBS [bulletin board service] operator cannot reasonably verify
a *919 claim of infringement, either because of a possible fair use defense,
the lack of copyright notices on the copies, or the copyright holder's failure
to provide the necessary documentation to show that there is likely
infringement, the operator's lack of knowledge will be found reasonable
and there will be no liability for contributory infringement for allowing the
continued distribution of the works on its system.
Id. at 1374. This language is dicta because the plaintiffs in Religious
Technology Center raised a genuine issue of material fact regarding
knowledge. More importantly, Napster is not an Internet service provider
that acts as a mere conduit for the transfer of files. See A & M Records v.
Napster, Inc., 2000 WL 573136, at *6, 8 (N.D.Cal. May 12, 2000). Rather, it
offers search and directory functions specifically designed to allow users to
locate music, the majority of which is copyrighted. See id. at *6. Thus, even
if dicta from another federal district court were binding, Religious
Technology Center would not mandate a determination that Napster, Inc.
lacks the knowledge requisite to contributory infringement.
5. At the very least, defendant had constructive knowledge of its users'
illegal conduct. Some Napster executives boast recording industry
experience, see 1 Frackman Dec. (Ricardson Dep.), Exh. 129 at ER00138,
and defendant does not dispute that it possessed enough sophistication
about intellectual property laws to sue a rock band that copied its
logo. See 2 Frackman Dec., Exh. M (online news article about court
proceedings to halt The Offspring's use of Napster logo).[23] The evidence
indicates that Napster executives downloaded infringing material to their
own computers using the service and promoted the website with screen
shots listing infringing files. See 2 Frackman Dec., Exh. D (Brooks Dep.) at
51:8-24, 54:25-56:11, Exh. 64 at 2-4, Exh. 126 at 002260, 002263; 1
Frackman Dec., Exh. A (Richardson Dep.) at 20:5-22:10, 25:2-26:1; Exh. C
(Parker Dep.) at 70:14-16, Exh. 230, 3-5; Exh. B (Fanning Dep.), Exhs. 174-
76. Such conduct satisfies the objective test for constructive knowledge
defendant had reason to know about infringement by third
parties. See Cable/Home Communication Corp., 902 F.2d at 846.[24]
6. Plaintiffs have also shown that defendant materially contributed to the
infringing activity. In Fonovisa, the owners of copyrights for musical
recordings stated a contributory infringement claim against the operators
of a swap meet at which independent vendors sold counterfeit
recordings. See Fonovisa, 76 F.3d at 264. The Ninth Circuit held the
copyright owners' allegations were "sufficient to show material
contribution" because "it would have been difficult for the infringing
activity to take place in the massive quantities alleged without the support
services provided by the swap meet." Id. According to plaintiffs in the
instant action, "Napster is essentially an Internet swap meet more
from the [defendant] in Fonovisa." Pl.'s Br. at 6. The court largely agrees
with this characterization.
Unlike the swap meet vendors, Napster users offer their infringing music
for free. However, defendant's material contribution is still analogous to
that of the swap meet in Fonovisa. The swap meet provided support
services like parking, booth space, advertising, and
clientele. See Fonovisa, 76 F.3d at 264. Here, Napster, Inc. supplies the
proprietary software, search engine, servers, and means of establishing a
connection between users' computers. Without the support services
defendant provides, Napster users could not find and download the music
they want with the ease of which defendant boasts.
Several contributory infringement cases involving online services are in
accord with the court's conclusion that defendant materially contributes to
the infringing activity. For example in Sega II, an electronic bulletin board
service acted as a central depository for unauthorized copies of computer
games and materially contributed to infringement because it provided
software, hardware, and phone lines needed for uploading and
downloading copyrighted material. See Sega II, 948 F. Supp. at 933.
Similarly, in Religious Technology Center, a case defendant ignores when
convenient, a court in this district stated that an Internet access provider is
not a mere landlord; rather, it exerts control akin to a radio station
replaying infringing broadcasts. See Religious Tech. Ctr., 907 F. Supp. at
1375 (holding that plaintiffs raised genuine issue of material fact as to
service provider's substantial participation).

Defendant marshals two district court cases in an attempt to rebut
plaintiffs' argument about material contribution. See Intellectual Reserve,
Inc. v. Utah Lighthouse Ministry, 75 F. Supp. 2d 1290, 1293 (D.Utah 1999)
(holding that posting links to infringing websites did not contribute to
infringement by those websites' operators); Bernstein v. JC Penney, Inc., 50
U.S.P.Q.2d 1063, 1998 WL 906644 (C.D.Cal.1998) (paraphrasing
defendant's apparently successful argument that "multiple linking does not
constitute substantial participation in any infringement where the linking
website does not mention the fact that Internet users could, by following
the links, find infringing material on another website"). The Bernstein court
offered no reasoning for its dismissal of the complaint. Neither case is
factually apposite, for Napster provides its users with much more than
hyperlinking; Napster is an integrated service designed to enable users to
locate and download MP3 music files. In keeping with its view that
Napster, Inc. plays a more active role in facilitating file-sharing than an
Internet service provider acting as a passive conduit, this court finds it
probable that defendant materially contributed to unlawful conduct.
7. Because they have made a convincing showing with regard to both the
knowledge and material contribution elements, plaintiffs have established
a reasonable likelihood of success on their contributory infringement
claims.
E. Vicarious Copyright Infringement
1. Even in the absence of an employment relationship, a defendant incurs
liability for vicarious copyright infringement if he "has the right and ability
to supervise the infringing activity and also has a direct financial interest in
such activities." Fonovisa, 76 F.3d at 262 (quoting Gershwin, 443 F.2d at
1162).
2. In Fonovisa, the swap meet operator satisfied the first element of
vicarious liability because it had the right to terminate vendors at will; it
also controlled customers' access and promoted its services. See
id. Although Napster, Inc. argues that it is technologically difficult, and
perhaps infeasible, to distinguish legal and illegal conduct, plaintiffs have
shown that defendant supervises Napster use. Indeed, Napster, Inc. itself
takes pains to inform the court of its improved methods of blocking users
about whom rights holders complain. See Def.'s Opp. Br. at 19 *921 (citing
Kessler Dec. 22), 33 (citing Kessler Dec. 23-24). This is tantamount to
an admission that defendant can, and sometimes does, police its
service. See Religious Tech. Ctr., 907 F. Supp. at 1376 (concluding that
evidence that Internet access provider acted to suspend subscribers'
accounts and could delete specific postings raised genuine issue of
material fact about vicarious liability).
Moreover, a defendant need not exercise its supervisory powers to be
deemed capable of doing so. See Gershwin, 443 F.2d at 1161-63. The court
therefore finds that Napster, Inc. has the right and ability to supervise its
users' infringing conduct.
3. Plaintiffs have shown a reasonable likelihood that Napster, Inc. has a
direct financial interest in the infringing activity. Citing several non-
governing cases from other districts, they contend that direct financial
benefit does not require earned revenue, so long as the defendant has
economic incentives for tolerating unlawful behavior. For instance,
in Major Bob Music v. Stubbs, 851 F. Supp. 475 (S.D.Ga. 1994), a bar
derived direct financial benefit from infringing musical performances on its
premises. The court noted that "an enterprise is considered to be `profit-
making' even if it never actually yields a profit." Id. at 480; see also Walden
Music, Inc. v. C.H.W., Inc., 1996 WL 254654, at *5 (D.Kan.1996) ("The fact
that defendant' entrepreneurial enterprise is not profiting is not a defense
to the plaintiffs' copyright infringement claims."); Broadcast Music, Inc. v.
INTELLECTUAL PROPERTY LAW part 2
Hobi, Inc., 1993 WL 404152, at *3 (M.D.La.1993) (holding defendant
vicariously liable because it operated with goal of making a profit, even
though it did not actually make one), aff'd 20 F.3d 1171 (5th Cir.1994).
Although Napster, Inc. currently generates no revenue, its internal
documents state that it "will drive [sic] revenues directly from increases in
userbase." 1 Frackman Dec. (Parker Dep.), Exh. 251.[25] The Napster service
attracts more and more users by offering an increasing amount of quality
music for free. See, e.g, 1 Frackman Dec., Exh. A (Richardson Dep.) at
112:18-113:2. It hopes to "monetize" its user base through one of several
generation revenue models noted in the factual findings.
This is similar to the type of direct financial interest the Ninth Circuit found
sufficient for vicarious liability in Fonovisa, where the swap meet's
revenues flowed directly from customers drawn by the availability of music
at bargain basement prices. See Fonovisa, 76 F.3d at 263-64; see
also Famous Music Corp. v. Bay State Harness Horse Racing and Breeding
Ass'n, 554 F.2d 1213, 1214 (1st Cir.1977) (holding racing association
vicariously liable for infringing broadcast of music to entertain race-goers
"when they were not absorbed in watching the races"); Playboy Enters.,
Inc. v. Webbworld, Inc., 968 F. Supp. 1171, 1177 (N.D.Tex.1997) (holding
defendant vicariously liable because "plaintiff's photographs enhanced the
attractiveness of the Neptics' website to potential customers"); Polygram
Int'l Publ'g, Inc. v. Nevada/Tig, Inc., 855 F. Supp. 1314, 1332 (D.Mass.1994)
(finding that music used to cultivate trade show attendees' interest
provided direct financial benefit to trade show).
Napster, Inc.'s cursory discussion of the second element of vicarious
liability does little to rebut this line of reasoning. Relying on Religious
Technology Center, 907 F. Supp. at 1376-77, defendant maintains that it
does not have a policy of ignoring infringement, and that even if it did, its
non-infringing uses lure consumers to its service. The latter contention, for
which it provides no factual support, does not square with its prediction
that "the requested injunction would effectively put *922 Napster out of
business." Def.'s Opp. Br. at 31. If many of defendant's commercially
significant uses were non-infringing, an injunction limited to unlawful
activity would not have such a dire impact. Defendant's representations
about the primacy of its legitimate uses thus appear disingenuous. The
ability to download myriad popular music files without payment seems to litigation), cert. dismissed, 521 U.S. 1146, 118 S. Ct. 27, 138 L. Ed. 2d 1057
constitute the glittering object that attracts Napster's financially-valuable
user base.
4. Plaintiffs has shown a reasonable likelihood of success on their vicarious
infringement claims.
F. Defendant's First Amendment Challenge
1. According to Napster, Inc., the requested injunction would impose a
prior restraint on its free speech, as well as that of its users and the
unsigned artists that depend upon its service. This First Amendment
argument centers on the fact that defendant offers an electronic directory,
which does not itself contain copyrighted material. Directories have been
accorded First Amendment protection. See Princeton Community Phone
Book, Inc. v. Bate, 582 F.2d 706, 710-11 (3d Cir.) (holding that First
Amendment affords as much protection to listing in directory as it does to
newspaper advertisement), cert. denied, 439 U.S. 966, 99 S. Ct. 454, 58 L.
Ed. 2d 424 (1978).
2. Although an overbroad injunction might implicate the First Amendment,
free speech concerns "are protected by and coextensive with the fair use
doctrine." Nihon Keizai Shimbun, Inc. v. Comline Bus. Data, Inc., 166 F.3d
65, 74 (2d Cir. 1999); Religious Tech. Ctr., 907 F. Supp. at 1377 (stating that,
where otherwise appropriate, imposing liability for copyright infringement
does not necessarily create First Amendment concerns because the fair
use defense encompasses this issue). This court has already determined
that plaintiffs do not seek to enjoin any fair uses of the Napster service
that are not completely contrived or peripheral to its existence.
3. The parties dispute the extent to which infringing and non-infringing
aspects of the service are separable. Napster, Inc.'s interim CEO Hank Barry
and Vice President of Engineering Edward Kessler both opine that the
requested injunction would have the practical effect of compelling
defendant to exclude all songs from its system, including those which
plaintiffs do not own. See Barry Dec. 13; Kessler Dec. 39. In this view,
the injunction would destroy the Napster service, or if the service did not
shut down completely, forcibly supplant peer-to-peer file-sharing with a
model under which defendant dictated the content. See Kessler Dec. 39.
Barry avers that, as a result of the injunction, Napster would lose its
competitive edge vis-a-vis similar services. See Barry Dec. 13.
In contrast, plaintiffs contend that Napster's New Artist Program, message
boards, chat rooms, and file-sharing applications for business and scientific
research would remain viable if the court granted the requested
relief. See Pl.'s Reply at 19; Daniel Farmer Dec. 3-4. Plaintiffs expert
Daniel Farmer suggests several potentially viable methods of limiting the
Napster service to music files authorized for sharing. First, defendant could
compile a database of authorized music and then write a software
program to read the files on users' hard drives when they logon to the
Napster service. The program would compare those file names with the
authorized list, and only those files that matched could be uploaded onto
Napster. See Farmer Dec. 3. Alternatively, defendant could write a
software program that prevented users from successfully searching for file
names excluded from the authorized list. See id.
In the event that Napster, Inc. cannot separate the infringing and non-
infringing aspects of its service, its First Amendment argument still fails.
Courts will not sustain a First Amendment challenge where *923 the
defendant entraps itself in an "all-or-nothing predicament." Dr. Seuss
Enters., L.P. v. Penguin Books USA, Inc., 109 F.3d 1394, 1406 (9th Cir.)
(enjoining entire book that included parody in style of Dr. Seuss poem
because defendant proceeded with book production after onset of
(1997). Even if it is technologically impossible for Napster, Inc. to offer such
functions as its directory without facilitating infringement, the court still
must take action to protect plaintiffs' copyrights. See, e.g., Orth-O-Vision,
Inc. v. Home Box Office, 474 F. Supp. 672, 686 n. 14 (S.D.N.Y.1979).
G. Misuse of Copyright Defense
1. Defendant essentially raises an antitrust argument as an equitable
defense against the preliminary injunction motion. Under the rubric of
misuse of copyright, Napster, Inc. argues that plaintiffs seek to aggrandize
their monopoly beyond the scope of their copyrights by (1) restricting the
flow of unsigned artists' music, which competes with their own, and (2)
controlling the distribution of music over the Internet. Alleged antitrust
violations by a copyright plaintiff generally do not afford a valid defense
against an infringement action and ought not to dissuade a court from
granting injunctive relief. See 4 Nimmer on Copyright 13.09[A], at 13-286
(citing, inter alia, Orth-O-Vision, 474 F.Supp. at 680).
2. Furthermore, most of the cases defendant cites deal with improper
attempts to enlarge a copyright monopoly through restricted or exclusive
licensing. See, e.g., Practice Management Info. Corp. v. American Med.
Ass'n, 121 F.3d 516, 521 (9th Cir.) (1997), as amended 133 F.3d 1140 (9th
Cir.1998) (finding licensing agreement precluding use of competitor's

products to be misuse), and cert. denied 522 U.S. 933, 118 S. Ct. 339, 139 L.
Ed. 2d 263 (1997); see also, e.g., Alcatel USA, Inc. v. DGI Tech., Inc., 166
F.3d 772, 792-95 (overturning district court's rejection of misuse defense
based on licensing agreement allowing plaintiff to gain control over
uncopyrighted products), reh'g and reh'g en banc denied, 180 F.3d 267
(5th Cir. 1999); Lasercomb Am., Inc. v. Reynolds, 911 F.2d 970, 978-79 (4th
Cir.1990) (concluding that exclusive licensing clause inhibiting licensees
from developing own products constituted misuse). Plaintiffs have granted
no licenses to defendant, let alone impermissibly restrictive
ones. See Conroy Dec. 4; Cottrell Dec. 5; Eisenberg Dec. 21; Kenswil
Dec. 15; Vidich Dec. 8; Stoller Dec. 11.
3. Accordingly, this court rejects the misuse of copyright defense.
H. Waiver
1. Napster, Inc. also avers that plaintiffs waived their entitlement to
copyright protection because (a) they hastened the proliferation of MP3
files on the Internet, and (b) they plan to enter the market for digital
downloading themselves. These arguments are unavailing.
Defendant has submitted deposition excerpts related to the record
company plaintiffs' business dealings with Internet and software
companies that provide ripping software, custom CDs,[26] and players
capable of playing unencrypted MP3 files.[27]See, e.g., 1 Pulgram Dec.,
Exh. A (Conroy Dep.) at 51:8-52:16, Exh. B (Cottrell Dep.) at 141:10-
142:142. None of plaintiffs' online partners is a party to this action. But at
least one plaintiff Sony sells a device capable of playing downloaded MP3
files, regardless of whether the distribution of such files is
authorized. *924 See id., Exh. E (Eisenberg Dep.) at 44:5-48:10, Exh. 220.
This limited evidence fails to convince the court that the record companies
created the monster that is now devouring their intellectual property
rights.[28]Although plaintiffs have not sued their business partners for
contributory infringement, they typically have asked them to discourage
unauthorized ripping and have made security part of their
agreements. See, e.g., Exh. A (Conroy Dep.) at 17:13-23, 18:22-19:6, 38:3-
22, 51:8-14; Exh. B (Cottrell Dep.) at 135:24-136:7. Defendant fails to show
that, in hastening the proliferation of MP3 files, plaintiffs did more than
seek partners for their commercial downloading ventures and develop
music players for files they planned to sell over the Internet.[29] Nor did
plaintiffs invite wholesale infringement when they distributed a small
number of free MP3 files for promotional purposes, especially since many
of these files automatically "timed-out." See Conroy Dec. 9-17; Cottrell
Dec. 15; Eisenberg Dec. 13; Kenswil Dec. 12; Vidich Dec. 7(d), 8. Report, establish that plaintiffs have invested in the digital downloading
To support its waiver argument, defendant primarily cites inapposite cases
involving implied licenses. See, e.g., Effects Assocs., Inc. v. Cohen, 908 F.2d
555, 559 (9th Cir.1990) (finding implied license where plaintiff created
work at defendant's request and gave work to defendant with intent that
defendant copy and distribute it), cert. denied, 498 U.S. 1103, 111 S. Ct.
1003, 112 L. Ed. 2d 1086 (1991). The evidence here does not reveal the
existence of *925 an implied license; indeed, the RIAA gave defendant
express notice that it objected to the availability of its members'
copyrighted music on Napster. See Creighton 12/3/99 Dec., Exh. D.
I. Failure to Present Evidence of Copyright Registration
1. Defendant argues that, to claim infringement of multiple works,
plaintiffs must specify the works with particularity and provide proof of
copyright registration. The cited statutory subsection, 17 U.S.C. section
411(a), provides with certain exceptions: "[N]o action for infringement of
the copyright in any work shall be instituted until registration of the
INTELLECTUAL PROPERTY LAW part 2
copyright claim has been made in accordance with this title." 17 U.S.C.
411(a); see also Kodadek v. MTV Networks, Inc., 152 F.3d 1209, 1211 (9th
Cir.1998). A copyright infringement claim consists of two elements: (a)
ownership of a valid copyright, and (b) copying of original elements of the
copyrighted work. See Feist Publications, Inc. v. Rural Telephone Serv.
Co., 499 U.S. 340, 361, 111 S. Ct. 1282, 113 L. Ed. 2d 358 (1991).
2. Napster, Inc. exaggerates the import of a non-governing case, Cole v.
Allen, 3 F.R.D. 236, 237 (S.D.N.Y.1942). In Cole, the defendant allegedly
copied episodes from six books. Cole failed to plead her infringement claim
with sufficient particularity because she merely listed the books' titles
without specifying which portions were copied. Here, plaintiffs have
attached two schedules listing works allegedly infringed in
their entirety. Schedule A includes proof of registration; Schedule B (works
recorded before 1972) does not because this material is governed by state
law. Thus, despite their claim that it would be burdensome or even
impossible to identify all of the copyrighted music they own, plaintiffs have
made at least a minimal effort to describe the works in suit.
3. Furthermore, in Walt Disney Co. v. Powell, 897 F.2d 565, 568
(D.C.Cir.1990), the D.C. Circuit allowed a permanent injunction covering
works owned by the plaintiff but not in suit. The Walt Disney court found
such a broad injunction appropriate where "liability has been determined
adversely to the infringer, there has been a history of continuing
infringement and a significant threat of future infringement
remains." Id. Here, the evidence establishes that unauthorized sharing of
plaintiffs' copyrighted music occurred on a massive scale in the past;
Napster continues to be used to download and upload files illegally despite
defendant's purportedly enhanced ability to terminate infringers; and the
court anticipates a hemorrhage of plaintiffs' copyrighted material as users
rush to obtain free music before trial. The courts therefore finds it
necessary to issue an injunction covering both plaintiffs' copyrighted works
in suit and those not yet named.
J. Irreparable Harm
1. Because plaintiffs have shown a reasonable likelihood of success on the
merits of their contributory and vicarious copyright infringement claims,
they are entitled to a presumption of irreparable harm. See Micro Star, 154
F.3d at 1109.
2. The court rejects defendant's contention that it has rebutted this
presumption by demonstrating that any harm is de minimis. The
declarations of record company executives, combined with the Teece
to those listed in Schedules A and B of the complaint.
market and that their business plans are threatened by a service that
offers the same product for free. See Conroy Dec. 9-18; Cottrell Dec.
6-17; Eisenberg Dec. 9-22; Teece Rep. at 14-18; Vidich Dec. 7-10.
Moreover, while the court recognizes the limitations of a survey that only
targets college students, the Jay Report suggests the tendency of Napster
use to suppress CD purchases, especially among heavy users. See Jay Rep.
at 4, 18.
K. Balance of the Hardships
1. The court cannot give much weight to defendant's lament that *926 the
requested relief will put it out of business. See Sun Microsystems, Inc. v.
Microsoft Corp., 188 F.3d 1115, 1119 (9th Cir.1999). Although even a
narrow injunction may so fully eviscerate Napster, Inc. as to destroy its
user base[30]or make its service technologically infeasible, the business
interests of an infringer do not trump a rights holder's entitlement to
copyright protection. Nor does defendant's supposed inability to separate
infringing and non-infringing elements of its service constitute a valid
reason for denying plaintiffs relief or for issuing a stay. See Dr. Seuss, 109
F.3d at 1406.
Any destruction of Napster, Inc. by a preliminary injunction is speculative
compared to the statistical evidence of massive, unauthorized
downloading and uploading of plaintiffs' copyrighted works as many as
10,000 files per second, by defendant's own admission. See Kessler Dec.
29. The court has every reason to believe that, without a preliminary
injunction, these numbers will mushroom as Napster users, and
newcomers attracted by the publicity, scramble to obtain as much free
music as possible before trial.
2. Napster, Inc. contends that its service poses no harm to plaintiffs
because future SDMI specifications will protect their music releases in both
CD and downloadable formats.[31] Defendant purportedly intends to
support SDMI-compliant formats when they become available. See Kessler
Dec. 37. However, this argument *927 suffers from two fatal flaws. First,
assuming SDMI protections work, they will only affect
plaintiffs' new releases; neither the copyrighted material in Schedules A
and B of the complaint nor any other existing music that plaintiffs own will
be covered. See 1 Pulgram Dec. (Vidich Dep.) at 54:6-55:4, 59:8-62:10.
Second, because the SDMI specifications have not yet taken effect, they
cannot shield plaintiffs from irreparable harm at this moment the moment
in which the preliminary injunction is sought. See id. at 59:8-62:10. A
rights-friendly regime scheduled for implementation, at the earliest, by the
end of 2000 does nothing to staunch the illegal flow of plaintiffs'
copyrighted material over the Internet in the summer and autumn of this
year.
3. Thus, even if the court were required to balance the hardships, which it
is not because plaintiffs have raised serious questions and shown a strong
likelihood of success on the merits, plaintiffs would prevail in their motion
for a preliminary injunction.
III. CONCLUSION
For the foregoing reasons, the court GRANTS plaintiffs' motion for a
preliminary injunction against Napster, Inc. Defendant is hereby
preliminarily ENJOINED from engaging in, or facilitating others in copying,
downloading, uploading, transmitting, or distributing plaintiffs'
copyrighted musical compositions and sound recordings, protected by
either federal or state law, without express permission of the rights owner.
This injunction applies to all such works that plaintiffs own; it is not limited
Plaintiffs have shown persuasively that they own the copyrights to more
than seventy percent of the music available on the Napster
system. See Hausman Dec. 8. Because defendant has contributed to
illegal copying on a scale that is without precedent, it bears the burden of
developing a means to comply with the injunction. Defendant must insure
that no work owned by plaintiffs which neither defendant nor Napster
users have permission to use or distribute is uploaded or downloaded on
Napster. The court ORDERS plaintiffs to cooperate with defendant in
identifying the works to which they own copyrights. To this end, plaintiffs
must file a written plan no later than September, 5, 2000, describing the
most expedient method by which their rights can be ascertained. The court
also ORDERS plaintiffs to post a bond for the sum of $ 5,000,000.00 to
compensate defendant for its losses in the event that this injunction is
reversed or vacated.[32]
IT IS SO ORDERED.

FIRST DIVISION
[G.R. No. 131522. July 19, 1999]
PACITA I. HABANA, ALICIA L. CINCO and JOVITA N.
FERNANDO, petitioners, vs. FELICIDAD C. ROBLES and
GOODWILL TRADING CO., INC., respondents.
DECISION
PARDO, J.:
The case before us is a petition for review on certiorari[1] to set
aside the (a) decision of the Court of Appeals[2], and (b) the resolution
denying petitioners motion for reconsideration,[3] in which the appellate
court affirmed the trial courts dismissal of the complaint for infringement
and/or unfair competition and damages but deleted the award for
attorneys fees.
The facts are as follows:
Petitioners are authors and copyright owners of duly issued
certificates of copyright registration covering their published works,
produced through their combined resources and efforts, entitled COLLEGE
ENGLISH FOR TODAY (CET for brevity), Books 1 and 2, and WORKBOOK FOR
COLLEGE FRESHMAN ENGLISH, Series 1.
Respondent Felicidad Robles and Goodwill Trading Co., Inc. are the
author/publisher and distributor/seller of another published work entitled
DEVELOPING ENGLISH PROFICIENCY (DEP for brevity), Books 1 and 2 (1985
edition) which book was covered by copyrights issued to them.
In the course of revising their published works, petitioners scouted
and looked around various bookstores to check on other textbooks dealing
with the same subject matter. By chance they came upon the book of
respondent Robles and upon perusal of said book they were surprised to
see that the book was strikingly similar to the contents, scheme of
presentation, illustrations and illustrative examples in their own book, CET.
After an itemized examination and comparison of the two books
(CET and DEP), petitioners found that several pages of the respondents
book are similar, if not all together a copy of petitioners book, which is a
case of plagiarism and copyright infringement.
Petitioners then made demands for damages against respondents
and also demanded that they cease and desist from further selling and
distributing to the general public the infringed copies of respondent Robles
works.
However, respondents ignored the demands, hence, on July 7,
1988, petitioners filed with the Regional Trial Court, Makati, a complaint
for Infringement and/or unfair competition with damages[4] against private
respondents.[5]
In the complaint, petitioners alleged that in 1985, respondent
Felicidad C. Robles being substantially familiar with the contents of
petitioners works, and without securing their permission, lifted, copied,
plagiarized and/or transposed certain portions of their book CET. The
textual contents and illustrations of CET were literally reproduced in the
book DEP. The plagiarism, incorporation and reproduction of particular
portions of the book CET in the book DEP, without the authority or consent
of petitioners, and the misrepresentations of respondent Robles that the
same was her original work and concept adversely affected and
substantially diminished the sale of the petitioners book and caused them
actual damages by way of unrealized income.
Despite the demands of the petitioners for respondents to desist
from committing further acts of infringement and for respondent to recall
DEP from the market, respondents refused. Petitioners asked the court to
order the submission of all copies of the book DEP, together with the
molds, plates and films and other materials used in its printing destroyed,
INTELLECTUAL PROPERTY LAW part 2
and for respondents to render an accounting of the proceeds of all sales
and profits since the time of its publication and sale.
Respondent Robles was impleaded in the suit because she authored
and directly committed the acts of infringement complained of, while
respondent Goodwill Trading Co., Inc. was impleaded as the publisher and
joint co-owner of the copyright certificates of registration covering the two
books authored and caused to be published by respondent Robles with
obvious connivance with one another.
On July 27, 1988, respondent Robles filed a motion for a bill of
particulars[6] which the trial court approved on August 17, 1988.
Petitioners complied with the desired particularization, and furnished
respondent Robles the specific portions, inclusive of pages and lines, of the
published and copyrighted books of the petitioners which were
transposed, lifted, copied and plagiarized and/or otherwise found their
way into respondents book.
On August 1, 1988, respondent Goodwill Trading Co., Inc. filed its
answer to the complaint[7] and alleged that petitioners had no cause of
action against Goodwill Trading Co., Inc. since it was not privy to the
misrepresentation, plagiarism, incorporation and reproduction of
the portions of the book of petitioners; that there was an agreement
between Goodwill and the respondent Robles that Robles guaranteed
Goodwill that the materials utilized in the manuscript were her own or that
she had secured the necessary permission from contributors and sources;
that the author assumed sole responsibility and held the publisher without
any liability.
On November 28, 1988, respondent Robles filed her answer[8], and
denied the allegations of plagiarism and copying that petitioners
claimed.Respondent stressed that (1) the book DEP is the product of her
independent researches, studies and experiences, and was not a copy of
any existing valid copyrighted book; (2) DEP followed the scope and
sequence or syllabus which are common to all English grammar writers as
recommended by the Association of Philippine Colleges of Arts and
Sciences (APCAS), so any similarity between the respondents book and
that of the petitioners was due to the orientation of the authors to both
works and standards and syllabus; and (3) the similarities may be due to
the authors exercise of the right to fair use of copyrigthed materials, as
guides.
Respondent interposed a counterclaim for damages on the ground
that bad faith and malice attended the filing of the complaint, because
petitioner Habana was professionally jealous and the book DEP replaced
CET as the official textbook of the graduate studies department of the Far
Eastern University.[9]
During the pre-trial conference, the parties agreed to a stipulation
of facts[10] and for the trial court to first resolve the issue of infringement
before disposing of the claim for damages.
After the trial on the merits, on April 23, 1993, the trial court
rendered its judgment finding thus:
WHEREFORE, premises considered, the court hereby orders that the
complaint filed against defendants Felicidad Robles and Goodwill Trading
Co., Inc. shall be DISMISSED; that said plaintiffs solidarily reimburse
defendant Robles for P20,000.00 attorneys fees and defendant Goodwill
for P5,000.00 attorneys fees. Plaintiffs are liable for cost of suit.
IT IS SO ORDERED.
Done in the City of Manila this 23rd day of April, 1993.
(s/t) MARVIE R. ABRAHAM SINGSON
Assisting Judge
S. C. Adm. Order No. 124-92[11]
On May 14, 1993, petitioners filed their notice of appeal with the
trial court[12], and on July 19, 1993, the court directed its branch clerk of
court to forward all the records of the case to the Court of Appeals.[13]
In the appeal, petitioners argued that the trial court completely
disregarded their evidence and fully subscribed to the arguments of
respondent Robles that the books in issue were purely the product of her
researches and studies and that the copied portions were inspired by
foreign authors and as such not subject to copyright. Petitioners also
assailed the findings of the trial court that they were animated by bad faith
in instituting the complaint.[14]
On June 27, 1997, the Court of Appeals rendered judgment in favor
of respondents Robles and Goodwill Trading Co., Inc. The relevant portions
of the decision state:
It must be noted, however, that similarity of the allegedly infringed work
to the authors or proprietors copyrighted work does not of itself establish
copyright infringement, especially if the similarity results from the fact that
both works deal with the same subject or have the same common source,
as in this case.
Appellee Robles has fully explained that the portion or material of the
book claimed by appellants to have been copied or lifted from foreign
books. She has duly proven that most of the topics or materials contained
in her book, with particular reference to those matters claimed by
appellants to have been plagiarized were topics or matters appearing not
only in appellants and her books but also in earlier books on College
English, including foreign books, e.i. Edmund Burkes Speech on
Conciliation, Boerigs Competence in English and Broughtons, Edmund
Burkes Collection.
Appellants reliance on the last paragraph on Section 11 is misplaced. It
must be emphasized that they failed to prove that their books were made
sources by appellee.[15]
The Court of Appeals was of the view that the award of attorneys
fees was not proper, since there was no bad faith on the part of petitioners
Habana et al. in instituting the action against respondents.
On July 12, 1997, petitioners filed a motion for
reconsideration,[16] however, the Court of Appeals denied the same in a
Resolution[17] dated November 25, 1997.
Hence, this petition.
In this appeal, petitioners submit that the appellate court erred in
affirming the trial courts decision.
Petitioners raised the following issues: (1) whether or not, despite
the apparent textual, thematic and sequential similarity between DEP and
CET, respondents committed no copyright infringement; (2) whether or
not there was animus furandi on the part of respondent when they refused
to withdraw the copies of CET from the market despite notice to withdraw
the same; and (3) whether or not respondent Robles abused a writers right
to fair use, in violation of Section 11 of Presidential Decree No. 49.[18]
We find the petition impressed with merit.
The complaint for copyright infringement was filed at the time that
Presidential Decree No. 49 was in force. At present, all laws dealing with
the protection of intellectual property rights have been consolidated and
as the law now stands, the protection of copyrights is governed by
Republic Act No. 8293. Notwithstanding the change in the law, the same
principles are reiterated in the new law under Section 177. It provides for
the copy or economic rights of an owner of a copyright as follows:
Sec.177. Copy or Economic rights.Subject to the provisions of chapter VIII,
copyright or economic rights shall consist of the exclusive right to carry
out, authorize or prevent the following acts:

177.1 Reproduction of the work or substantial portion of the work;
177.2 Dramatization, translation, adaptation, abridgement, arrangement
or other transformation of the work;
177.3 The first public distribution of the original and each copy of the work
by sale or other forms of transfer of ownership;
177.4 Rental of the original or a copy of an audiovisual or cinematographic
work, a work embodied in a sound recording, a computer program, a
compilation of data and other materials or a musical work in graphic form,
irrespective of the ownership of the original or the copy which is the
subject of the rental; (n)
177.5 Public display of the original or copy of the work;
177.6 Public performance of the work; and
177.7 Other communication to the public of the work[19]
The law also provided for the limitations on copyright, thus:
Sec. 184.1 Limitations on copyright.-- Notwithstanding the provisions of
Chapter V, the following acts shall not constitute infringement of
copyright:
(a) the recitation or performance of a work, once it has been
lawfully made accessible to the public, if done privately
and free of charge or if made strictly for a charitable or
religious institution or society; [Sec. 10(1), P.D. No. 49]
(b) The making of quotations from a published work if they
are compatible with fair use and only to the extent
justified for the purpose, including quotations from
newspaper articles and periodicals in the form of press
summaries; Provided, that the source and the name of
the author, if appearing on the work are mentioned;
(Sec. 11 third par. P.D.49)
xxxxxxxxxxxx
(e) The inclusion of a work in a publication, broadcast, or
other communication to the public, sound recording of
film, if such inclusion is made by way of illustration for
teaching purposes and is compatible with fair
use: Provided, That the source and the name of the
author, if appearing in the work is mentioned;[20]
In the above quoted provisions, work has reference to literary and
artistic creations and this includes books and other literary, scholarly and
scientific works.[21]
A perusal of the records yields several pages of the book DEP that
are similar if not identical with the text of CET.
On page 404 of petitioners Book 1 of College English for Today, the
authors wrote:
Items in dates and addresses:
He died on Monday, April 15, 1975.
Miss Reyes lives in 214 Taft Avenue,
Manila[22]
On page 73 of respondents Book 1 Developing English Today, they
wrote:
He died on Monday, April 25, 1975.
Miss Reyes address is 214 Taft Avenue Manila[23]
On Page 250 of CET, there is this example on parallelism or
repetition of sentence structures, thus:
The proposition is peace. Not peace through the medium of war;
not peace to be hunted through the labyrinth of intricate and
endless negotiations; not peace to arise out of universal discord,
fomented from principle, in all parts of the empire; not peace to
depend on the juridical determination of perplexing questions, or
INTELLECTUAL PROPERTY LAW part 2
the precise marking of the boundary of a complex government. It is
simple peace; sought in its natural course, and in its ordinary
haunts. It is peace sought in the spirit of peace, and laid in
principles purely pacific.
--- Edmund Burke, Speech on Criticism.[24]
On page 100 of the book DEP[25], also in the topic of parallel
structure and repetition, the same example is found in toto. The only
difference is that petitioners acknowledged the author Edmund Burke, and
respondents did not.
In several other pages[26] the treatment and manner of presentation
of the topics of DEP are similar if not a rehash of that contained in CET.
We believe that respondent Robles act of lifting from the book of
petitioners substantial portions of discussions and examples, and her
failure to acknowledge the same in her book is an infringement of
petitioners copyrights.
When is there a substantial reproduction of a book? It does not
necessarily require that the entire copyrighted work, or even a large
portion of it, be copied. If so much is taken that the value of the original
work is substantially diminished, there is an infringement of copyright and
to an injurious extent, the work is appropriated.[27]
In determining the question of infringement, the amount of matter
copied from the copyrighted work is an important consideration. To
constitute infringement, it is not necessary that the whole or even a large
portion of the work shall have been copied. If so much is taken that the
value of the original is sensibly diminished, or the labors of the original
author are substantially and to an injurious extent appropriated by
another, that is sufficient in point of law to constitute piracy.[28]
The essence of intellectual piracy should be essayed in conceptual
terms in order to underscore its gravity by an appropriate understanding
thereof.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.[29]
The respondents claim that the copied portions of the book CET are
also found in foreign books and other grammar books, and that the
similarity between her style and that of petitioners can not be avoided
since they come from the same background and orientation may be
true. However, in this jurisdiction under Sec 184 of Republic Act 8293 it is
provided that:
Limitations on Copyright. Notwithstanding the provisions of Chapter
V, the following shall not constitute infringement of copyright:
xxxxxxxxxxxx
(c) The making of quotations from a published work if they
are compatible with fair use and only to the extent
justified for the purpose, including quotations from
newspaper articles and periodicals in the form of press
summaries: Provided, That the source and the name of
the author, if appearing on the work, are mentioned.
A copy of a piracy is an infringement of the original, and it is no
defense that the pirate, in such cases, did not know whether or not he was
infringing any copyright; he at least knew that what he was copying was
not his, and he copied at his peril.[30]
The next question to resolve is to what extent can copying be
injurious to the author of the book being copied. Is it enough that there
are similarities in some sections of the books or large segments of the
books are the same?
In the case at bar, there is no question that petitioners presented
several pages of the books CET and DEP that more or less had the same
contents. It may be correct that the books being grammar books may
contain materials similar as to some technical contents with other
grammar books, such as the segment about the Author Card. However, the
numerous pages that the petitioners presented showing similarity in the
style and the manner the books were presented and the identical
examples can not pass as similarities merely because of technical
consideration.
The respondents claim that their similarity in style can be attributed
to the fact that both of them were exposed to the APCAS syllabus and their
respective academic experience, teaching approach and methodology are
almost identical because they were of the same background.
However, we believe that even if petitioners and respondent Robles
were of the same background in terms of teaching experience and
orientation, it is not an excuse for them to be identical even in examples
contained in their books. The similarities in examples and material
contents are so obviously present in this case. How can similar/identical
examples not be considered as a mark of copying?
We consider as an indicia of guilt or wrongdoing the act of
respondent Robles of pulling out from Goodwill bookstores the book DEP
upon learning of petitioners complaint while pharisaically denying
petitioners demand. It was further noted that when the book DEP was re-
issued as a revised version, all the pages cited by petitioners to contain
portion of their book College English for Today were eliminated.
In cases of infringement, copying alone is not what is
prohibited. The copying must produce an injurious effect. Here, the injury
consists in that respondent Robles lifted from petitioners book materials
that were the result of the latters research work and compilation and
misrepresented them as her own. She circulated the book DEP for
commercial use and did not acknowledge petitioners as her source.
Hence, there is a clear case of appropriation of copyrighted work
for her benefit that respondent Robles committed. Petitioners work as
authors is the product of their long and assiduous research and for another
to represent it as her own is injury enough. In copyrighting books the
purpose is to give protection to the intellectual product of an author. This
is precisely what the law on copyright protected, under Section 184.1
(b). Quotations from a published work if they are compatible with fair use
and only to the extent justified by the purpose, including quotations from
newspaper articles and periodicals in the form of press summaries are
allowed provided that the source and the name of the author, if appearing
on the work, are mentioned.
In the case at bar, the least that respondent Robles could have done
was to acknowledge petitioners Habana et. al. as the source of the
portions of DEP.The final product of an authors toil is her book. To allow
another to copy the book without appropriate acknowledgment is injury
enough.
WHEREFORE, the petition is hereby GRANTED. The decision and
resolution of the Court of Appeals in CA-G. R. CV No. 44053 are SET
ASIDE.The case is ordered remanded to the trial court for further
proceedings to receive evidence of the parties to ascertain the damages
caused and sustained by petitioners and to render decision in accordance
with the evidence submitted to it.
SO ORDERED.

Republic of the Philippines
SUPREME COURT
First Division
EN BANC
G.R. No. 175769-70 January 19, 2009
ABS-CBN BROADCASTING CORPORATION, Petitioners,
vs.
PHILIPPINE MULTI-MEDIA SYSTEM, INC., CESAR G. REYES, FRANCIS CHUA
(ANG BIAO), MANUEL F. ABELLADA, RAUL B. DE MESA, AND ALOYSIUS M.
COLAYCO, Respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari1 assails the July 12, 2006 Decision2 of
the Court of Appeals in CA-G.R. SP Nos. 88092 and 90762, which affirmed
the December 20, 2004 Decision of the Director-General of the Intellectual
Property Office (IPO) in Appeal No. 10-2004-0002. Also assailed is the
December 11, 2006 Resolution3 denying the motion for reconsideration.
Petitioner ABS-CBN Broadcasting Corporation (ABS-CBN) is licensed under
the laws of the Republic of the Philippines to engage in television and radio
broadcasting.4 It broadcasts television programs by wireless means to
Metro Manila and nearby provinces, and by satellite to provincial stations
through Channel 2 on Very High Frequency (VHF) and Channel 23 on Ultra
High Frequency (UHF). The programs aired over Channels 2 and 23 are
either produced by ABS-CBN or purchased from or licensed by other
producers.
ABS-CBN also owns regional television stations which pattern their
programming in accordance with perceived demands of the region. Thus,
television programs shown in Metro Manila and nearby provinces are not
necessarily shown in other provinces.
Respondent Philippine Multi-Media System, Inc. (PMSI) is the operator of
Dream Broadcasting System. It delivers digital direct-to-home (DTH)
television via satellite to its subscribers all over the Philippines. Herein
individual respondents, Cesar G. Reyes, Francis Chua, Manuel F. Abellada,
Raul B. De Mesa, and Aloysius M. Colayco, are members of PMSIs Board of
Directors.
PMSI was granted a legislative franchise under Republic Act No. 8630 5 on
May 7, 1998 and was given a Provisional Authority by the National
Telecommunications Commission (NTC) on February 1, 2000 to install,
operate and maintain a nationwide DTH satellite service. When it
commenced operations, it offered as part of its program line-up ABS-CBN
Channels 2 and 23, NBN, Channel 4, ABC Channel 5, GMA Channel 7, RPN
Channel 9, and IBC Channel 13, together with other paid premium program
channels.
However, on April 25, 2001,6 ABS-CBN demanded for PMSI to cease and
desist from rebroadcasting Channels 2 and 23. On April 27, 2001,7 PMSI
replied that the rebroadcasting was in accordance with the authority
granted it by NTC and its obligation under NTC Memorandum Circular No.
4-08-88,8 Section 6.2 of which requires all cable television system
operators operating in a community within Grade A or B contours to We were told that, until now, this has been going on.
carry the television signals of the authorized television broadcast stations.9
Thereafter, negotiations ensued between the parties in an effort to reach a
settlement; however, the negotiations were terminated on April 4, 2002 by
ABS-CBN allegedly due to PMSIs inability to ensure the prevention of
illegal retransmission and further rebroadcast of its signals, as well as the
adverse effect of the rebroadcasts on the business operations of its
regional television stations.10
INTELLECTUAL PROPERTY LAW part 2
On May 13, 2002, ABS-CBN filed with the IPO a complaint for Violation of
Laws Involving Property Rights, with Prayer for the Issuance of a
Temporary Restraining Order and/or Writ of Preliminary Injunction, which
was docketed as IPV No. 10-2002-0004. It alleged that PMSIs unauthorized
rebroadcasting of Channels 2 and 23 infringed on its broadcasting rights
and copyright.
On July 2, 2002, the Bureau of Legal Affairs (BLA) of the IPO granted ABS-
CBNs application for a temporary restraining order. On July 12, 2002, PMSI
suspended its retransmission of Channels 2 and 23 and likewise filed a
petition for certiorari with the Court of Appeals, which was docketed as
CA-G.R. SP No. 71597.
Subsequently, PMSI filed with the BLA a Manifestation reiterating that it is
subject to the must-carry rule under Memorandum Circular No. 04-08-88.
It also submitted a letter dated December 20, 2002 of then NTC
Commissioner Armi Jane R. Borje to PMSI stating as follows:
This refers to your letter dated December 16, 2002 requesting for
regulatory guidance from this Commission in connection with the
application and coverage of NTC Memorandum Circular No. 4-08-88,
particularly Section 6 thereof, on mandatory carriage of television
broadcast signals, to the direct-to-home (DTH) pay television services of
Philippine Multi-Media System, Inc. (PMSI).
Preliminarily, both DTH pay television and cable television services are
broadcast services, the only difference being the medium of delivering
such services (i.e. the former by satellite and the latter by cable). Both can
carry broadcast signals to the remote areas, thus enriching the lives of the
residents thereof through the dissemination of social, economic,
educational information and cultural programs.
The DTH pay television services of PMSI is equipped to provide nationwide
DTH satellite services. Concededly, PMSIs DTH pay television services
covers very much wider areas in terms of carriage of broadcast signals,
including areas not reachable by cable television services thereby providing
a better medium of dissemination of information to the public.
In view of the foregoing and the spirit and intent of NTC memorandum
Circular No. 4-08-88, particularly section 6 thereof, on mandatory
carriage of television broadcast signals, DTH pay television services
should be deemed covered by such NTC Memorandum Circular.
For your guidance. (Emphasis added)11
On August 26, 2003, PMSI filed another Manifestation with the BLA that it
received a letter dated July 24, 2003 from the NTC enjoining strict and
immediate compliance with the must-carry rule under Memorandum
Circular No. 04-08-88, to wit:
Dear Mr. Abellada:
Last July 22, 2003, the National Telecommunications Commission (NTC)
received a letter dated July 17, 2003 from President/COO Rene Q. Bello of
the International Broadcasting Corporation (IBC-Channel 13) complaining
that your company, Dream Broadcasting System, Inc., has cut-off, without
any notice or explanation whatsoever, to air the programs of IBC-13, a
free-to-air television, to the detriment of the public.
decision15 in favor of PMSI, the dispositive portion of which states:
Please be advised that as a direct broadcast satellite operator, operating
a direct-to-home (DTH) broadcasting system, with a provisional authority
(PA) from the NTC, your company, along with cable television operators,
are mandated to strictly comply with the existing policy of NTC on
mandatory carriage of television broadcast signals as provided under
Memorandum Circular No. 04-08-88, also known as the Revised Rules
and Regulations Governing Cable Television System in the Philippines.
This mandatory coverage provision under Section 6.2 of said
Memorandum Circular, requires all cable television system operators,
operating in a community within the Grade A or B contours to must-
carry the television signals of the authorized television broadcast
stations, one of which is IBC-13. Said directive equally applies to your
company as the circular was issued to give consumers and the public a
wider access to more sources of news, information, entertainment and
other programs/contents.
This Commission, as the governing agency vested by laws with the
jurisdiction, supervision and control over all public services, which includes
direct broadcast satellite operators, and taking into consideration the
paramount interest of the public in general, hereby directs you to
immediately restore the signal of IBC-13 in your network programs,
pursuant to existing circulars and regulations of the Commission.
For strict compliance. (Emphasis added)12
Meanwhile, on October 10, 2003, the NTC issued Memorandum Circular
No. 10-10-2003, entitled Implementing Rules and Regulations Governing
Community Antenna/Cable Television (CATV) and Direct Broadcast Satellite
(DBS) Services to Promote Competition in the Sector. Article 6, Section 8
thereof states:
As a general rule, the reception, distribution and/or transmission by any
CATV/DBS operator of any television signals without any agreement with
or authorization from program/content providers are prohibited.
On whether Memorandum Circular No. 10-10-2003 amended
Memorandum Circular No. 04-08-88, the NTC explained to PMSI in a letter
dated November 3, 2003 that:
To address your query on whether or not the provisions of MC 10-10-2003
would have the effect of amending the provisions of MC 4-08-88 on
mandatory carriage of television signals, the answer is in the negative.
xxxx
The Commission maintains that, MC 4-08-88 remains valid, subsisting and
enforceable.
Please be advised, therefore, that as duly licensed direct-to-home satellite
television service provider authorized by this Commission, your company
continues to be bound by the guidelines provided for under MC 04-08-88,
specifically your obligation under its mandatory carriage provisions, in
addition to your obligations under MC 10-10-2003. (Emphasis added)
Please be guided accordingly.13
On December 22, 2003, the BLA rendered a decision14 finding that PMSI
infringed the broadcasting rights and copyright of ABS-CBN and ordering it
to permanently cease and desist from rebroadcasting Channels 2 and 23.
On February 6, 2004, PMSI filed an appeal with the Office of the Director-
General of the IPO which was docketed as Appeal No. 10-2004-0002. On
December 23, 2004, it also filed with the Court of Appeals a Motion to
Withdraw Petition; Alternatively, Memorandum of the Petition for
Certiorari in CA-G.R. SP No. 71597, which was granted in a resolution
dated February 17, 2005.
On December 20, 2004, the Director-General of the IPO rendered a
WHEREFORE, premises considered, the instant appeal is hereby GRANTED.
Accordingly, Decision No. 2003-01 dated 22 December 2003 of the Director
of Bureau of Legal Affairs is hereby REVERSED and SET ASIDE.
Let a copy of this Decision be furnished the Director of the Bureau of Legal
Affairs for appropriate action, and the records be returned to her for
proper disposition. The Documentation, Information and Technology
Transfer Bureau is also given a copy for library and reference purposes.
SO ORDERED.16

Thus, ABS-CBN filed a petition for review with prayer for issuance of a
temporary restraining order and writ of preliminary injunction with the
Court of Appeals, which was docketed as CA-G.R. SP No. 88092.
On July 18, 2005, the Court of Appeals issued a temporary restraining
order. Thereafter, ABS-CBN filed a petition for contempt against PMSI for
continuing to rebroadcast Channels 2 and 23 despite the restraining order.
The case was docketed as CA- G.R. SP No. 90762.
On November 14, 2005, the Court of Appeals ordered the consolidation of
CA-G.R. SP Nos. 88092 and 90762.
In the assailed Decision dated July 12, 2006, the Court of Appeals sustained
the findings of the Director-General of the IPO and dismissed both
petitions filed by ABS-CBN.17
ABS-CBNs motion for reconsideration was denied, hence, this petition.
ABS-CBN contends that PMSIs unauthorized rebroadcasting of Channels 2
and 23 is an infringement of its broadcasting rights and copyright under
the Intellectual Property Code (IP Code);18that Memorandum Circular No.
04-08-88 excludes DTH satellite television operators; that the Court of
Appeals interpretation of the must-carry rule violates Section 9 of Article
III19 of the Constitution because it allows the taking of property for public
use without payment of just compensation; that the Court of Appeals
erred in dismissing the petition for contempt docketed as CA-G.R. SP No.
90762 without requiring respondents to file comment.
Respondents, on the other hand, argue that PMSIs rebroadcasting of
Channels 2 and 23 is sanctioned by Memorandum Circular No. 04-08-88;
that the must-carry rule under the Memorandum Circular is a valid
exercise of police power; and that the Court of Appeals correctly dismissed
CA-G.R. SP No. 90762 since it found no need to exercise its power of
contempt.
After a careful review of the facts and records of this case, we affirm the
findings of the Director-General of the IPO and the Court of Appeals.
There is no merit in ABS-CBNs contention that PMSI violated its
broadcasters rights under Section 211 of the IP Code which provides in
part:
Chapter XIV
BROADCASTING ORGANIZATIONS
Sec. 211. Scope of Right. - Subject to the provisions of Section 212,
broadcasting organizations shall enjoy the exclusive right to carry out,
authorize or prevent any of the following acts:
211.1. The rebroadcasting of their broadcasts;
Neither is PMSI guilty of infringement of ABS-CBNs copyright under
Section 177 of the IP Code which states that copyright or economic rights
shall consist of the exclusive right to carry out, authorize or prevent the
public performance of the work (Section 177.6), and other communication
to the public of the work (Section 177.7).20
Section 202.7 of the IP Code defines broadcasting as the transmission by
wireless means for the public reception of sounds or of images or of
representations thereof; such transmission by satellite is also
broadcasting where the means for decrypting are provided to the public
by the broadcasting organization or with its consent.
On the other hand, rebroadcasting as defined in Article 3(g) of the
International Convention for the Protection of Performers, Producers of
Phonograms and Broadcasting Organizations, otherwise known as the
1961 Rome Convention, of which the Republic of the Philippines is a
signatory, 21 is the simultaneous broadcasting by one broadcasting
organization of the broadcast of another broadcasting organization.
INTELLECTUAL PROPERTY LAW part 2
The Director-General of the IPO correctly found that PMSI is not engaged
in rebroadcasting and thus cannot be considered to have infringed ABS-
CBNs broadcasting rights and copyright, thus:
That the Appellants [herein respondent PMSI] subscribers are able to view
Appellees [herein petitioner ABS-CBN] programs (Channels 2 and 23) at
the same time that the latter is broadcasting the same is undisputed. The
question however is, would the Appellant in doing so be considered
engaged in broadcasting. Section 202.7 of the IP Code states that
broadcasting means
the transmission by wireless means for the public reception of sounds or
of images or of representations thereof; such transmission by satellite is
also broadcasting where the means for decrypting are provided to the
public by the broadcasting organization or with its consent.
Section 202.7 of the IP Code, thus, provides two instances wherein there is
broadcasting, to wit:
1. The transmission by wireless means for the public reception of
sounds or of images or of representations thereof; and
2. The transmission by satellite for the public reception of sounds or of
images or of representations thereof where the means for
decrypting are provided to the public by the broadcasting
organization or with its consent.
It is under the second category that Appellants DTH satellite television
service must be examined since it is satellite-based. The elements of such
category are as follows:
1. There is transmission of sounds or images or of representations
thereof;
2. The transmission is through satellite;
3. The transmission is for public reception; and
4. The means for decrypting are provided to the public by the
broadcasting organization or with its consent.
It is only the presence of all the above elements can a determination that
the DTH is broadcasting and consequently, rebroadcasting Appellees
signals in violation of Sections 211 and 177 of the IP Code, may be arrived
at.
Accordingly, this Office is of the view that the transmission contemplated
under Section 202.7 of the IP Code presupposes that the origin of the
signals is the broadcaster. Hence, a program that is broadcasted is
attributed to the broadcaster. In the same manner, the rebroadcasted
program is attributed to the rebroadcaster.
In the case at hand, Appellant is not the origin nor does it claim to be the
origin of the programs broadcasted by the Appellee. Appellant did not
make and transmit on its own but merely carried the existing signals of the
Appellee. When Appellants subscribers view Appellees programs in
Channels 2 and 23, they know that the origin thereof was the Appellee.
Aptly, it is imperative to discern the nature of broadcasting. When a
broadcaster transmits, the signals are scattered or dispersed in the air.
Anybody may pick-up these signals. There is no restriction as to its
number, type or class of recipients. To receive the signals, one is not
required to subscribe or to pay any fee. One only has to have a receiver,
and in case of television signals, a television set, and to tune-in to the right
channel/frequency. The definition of broadcasting, wherein it is required
that the transmission is wireless, all the more supports this discussion.
Apparently, the undiscriminating dispersal of signals in the air is possible
only through wireless means. The use of wire in transmitting signals, such
as cable television, limits the recipients to those who are connected. Unlike
wireless transmissions, in wire-based transmissions, it is not enough that
one wants to be connected and possesses the equipment. The service
provider, such as cable television companies may choose its subscribers.
The only limitation to such dispersal of signals in the air is the technical
capacity of the transmitters and other equipment employed by the
broadcaster. While the broadcaster may use a less powerful transmitter to
limit its coverage, this is merely a business strategy or decision and not an
inherent limitation when transmission is through cable.
Accordingly, the nature of broadcasting is to scatter the signals in its
widest area of coverage as possible. On this score, it may be said that
making public means that accessibility is undiscriminating as long as it [is]
within the range of the transmitter and equipment of the broadcaster.
That the medium through which the Appellant carries the Appellees
signal, that is via satellite, does not diminish the fact that it operates and
functions as a cable television. It remains that the Appellants transmission
of signals via its DTH satellite television service cannot be considered
within the purview of broadcasting. x x x
xxxx
This Office also finds no evidence on record showing that the Appellant has
provided decrypting means to the public indiscriminately. Considering the
nature of this case, which is punitive in fact, the burden of proving the
existence of the elements constituting the acts punishable rests on the
shoulder of the complainant.
Accordingly, this Office finds that there is no rebroadcasting on the part of
the Appellant of the Appellees programs on Channels 2 and 23, as defined
under the Rome Convention.22
Under the Rome Convention, rebroadcasting is the simultaneous
broadcasting by one broadcasting organization of the broadcast of another
broadcasting organization. The Working Paper23 prepared by the
Secretariat of the Standing Committee on Copyright and Related Rights
defines broadcasting organizations as entities that take the financial and
editorial responsibility for the selection and arrangement of, and
investment in, the transmitted content.24 Evidently, PMSI would not
qualify as a broadcasting organization because it does not have the
aforementioned responsibilities imposed upon broadcasting organizations,
such as ABS-CBN.
ABS-CBN creates and transmits its own signals; PMSI merely carries such
signals which the viewers receive in its unaltered form. PMSI does not
produce, select, or determine the programs to be shown in Channels 2 and
23. Likewise, it does not pass itself off as the origin or author of such
programs. Insofar as Channels 2 and 23 are concerned, PMSI merely
retransmits the same in accordance with Memorandum Circular 04-08-88.
With regard to its premium channels, it buys the channels from content
providers and transmits on an as-is basis to its viewers. Clearly, PMSI does
not perform the functions of a broadcasting organization; thus, it cannot
be said that it is engaged in rebroadcasting Channels 2 and 23.
The Director-General of the IPO and the Court of Appeals also correctly
found that PMSIs services are similar to a cable television system because
the services it renders fall under cable retransmission, as described in
the Working Paper, to wit:
(G) Cable Retransmission
47. When a radio or television program is being broadcast, it can be
retransmitted to new audiences by means of cable or wire. In the early
days of cable television, it was mainly used to improve signal reception,
particularly in so-called shadow zones, or to distribute the signals in large
buildings or building complexes. With improvements in technology, cable
operators now often receive signals from satellites before retransmitting
them in an unaltered form to their subscribers through cable.

48. In principle, cable retransmission can be either simultaneous with the
broadcast over-the-air or delayed (deferred transmission) on the basis of a
fixation or a reproduction of a fixation. Furthermore, they might be
unaltered or altered, for example through replacement of commercials,
etc. In general, however, the term retransmission seems to be reserved
for such transmissions which are both simultaneous and unaltered.
49. The Rome Convention does not grant rights against unauthorized cable
retransmission. Without such a right, cable operators can retransmit both
domestic and foreign over the air broadcasts simultaneously to their
subscribers without permission from the broadcasting organizations or
other rightholders and without obligation to pay
remuneration.25 (Emphasis added)
Thus, while the Rome Convention gives broadcasting organizations the
right to authorize or prohibit the rebroadcasting of its broadcast, however,
this protection does not extend to cable retransmission. The
retransmission of ABS-CBNs signals by PMSI which functions essentially
as a cable television does not therefore constitute rebroadcasting in
violation of the formers intellectual property rights under the IP Code.
It must be emphasized that the law on copyright is not absolute. The IP
Code provides that:
Sec. 184. Limitations on Copyright. -
184.1. Notwithstanding the provisions of Chapter V, the following acts shall
not constitute infringement of copyright:
xxxx
(h) The use made of a work by or under the direction or control of the
Government, by the National Library or by educational, scientific or
professional institutions where such use is in the public interest and is
compatible with fair use;
The carriage of ABS-CBNs signals by virtue of the must-carry rule in
Memorandum Circular No. 04-08-88 is under the direction and control of
the government though the NTC which is vested with exclusive jurisdiction
to supervise, regulate and control telecommunications and broadcast
services/facilities in the Philippines.26 The imposition of the must-carry rule
is within the NTCs power to promulgate rules and regulations, as public
safety and interest may require, to encourage a larger and more effective
use of communications, radio and television broadcasting facilities, and to
maintain effective competition among private entities in these activities
whenever the Commission finds it reasonably feasible.27 As correctly
observed by the Director-General of the IPO:
Accordingly, the Must-Carry Rule under NTC Circular No. 4-08-88 falls
under the foregoing category of limitations on copyright. This Office agrees
with the Appellant [herein respondent PMSI] that the Must-Carry Rule is
in consonance with the principles and objectives underlying Executive
Order No. 436,28 to wit:
The Filipino people must be given wider access to more sources of news,
information, education, sports event and entertainment programs other
than those provided for by mass media and afforded television programs
to attain a well informed, well-versed and culturally refined citizenry and
enhance their socio-economic growth:
WHEREAS, cable television (CATV) systems could support or supplement
the services provided by television broadcast facilities, local and overseas,
as the national information highway to the countryside.29
The Court of Appeals likewise correctly observed that:
[T]he very intent and spirit of the NTC Circular will prevent a situation
whereby station owners and a few networks would have unfettered power
to make time available only to the highest bidders, to communicate only
their own views on public issues, people, and to permit on the air only
INTELLECTUAL PROPERTY LAW part 2
those with whom they agreed contrary to the state policy that the
(franchise) grantee like the petitioner, private respondent and other TV
station owners, shall provide at all times sound and balanced programming
and assist in the functions of public information and education.
This is for the first time that we have a structure that works to accomplish
explicit state policy goals.30
Indeed, intellectual property protection is merely a means towards the end
of making society benefit from the creation of its men and women of
talent and genius. This is the essence of intellectual property laws, and it
explains why certain products of ingenuity that are concealed from the
public are outside the pale of protection afforded by the law. It also
explains why the author or the creator enjoys no more rights than are
consistent with public welfare.31
Further, as correctly observed by the Court of Appeals, the must-carry rule
as well as the legislative franchises granted to both ABS-CBN and PMSI are
in consonance with state policies enshrined in the Constitution, specifically
Sections 9,32 17,33 and 2434 of Article II on the Declaration of Principles and
State Policies.35
ABS-CBN was granted a legislative franchise under Republic Act No. 7966,
Section 1 of which authorizes it to construct, operate and maintain, for
commercial purposes and in the public interest, television and radio
broadcasting in and throughout the Philippines x x x. Section 4 thereof
mandates that it shall provide adequate public service time to enable the
government, through the said broadcasting stations, to reach the
population on important public issues; provide at all times sound and
balanced programming; promote public participation such as in community
programming; assist in the functions of public information and education.
PMSI was likewise granted a legislative franchise under Republic Act No.
8630, Section 4 of which similarly states that it shall provide adequate
public service time to enable the government, through the said
broadcasting stations, to reach the population on important public issues;
provide at all times sound and balanced programming; promote public
participation such as in community programming; assist in the functions of
public information and education x x x. Section 5, paragraph 2 of the same
law provides that the radio spectrum is a finite resource that is a part of
the national patrimony and the use thereof is a privilege conferred upon
the grantee by the State and may be withdrawn anytime, after due
process.
In Telecom. & Broadcast Attys. of the Phils., Inc. v. COMELEC,36 the Court
held that a franchise is a mere privilege which may be reasonably
burdened with some form of public service. Thus:
All broadcasting, whether by radio or by television stations, is licensed by
the government. Airwave frequencies have to be allocated as there are
more individuals who want to broadcast than there are frequencies to
assign. A franchise is thus a privilege subject, among other things, to
amendment by Congress in accordance with the constitutional provision
that any such franchise or right granted . . . shall be subject to
amendment, alteration or repeal by the Congress when the common good
so requires.
xxxx
Indeed, provisions for COMELEC Time have been made by amendment of
the franchises of radio and television broadcast stations and, until the
present case was brought, such provisions had not been thought of as
taking property without just compensation. Art. XII, 11 of the Constitution
authorizes the amendment of franchises for the common good. What
better measure can be conceived for the common good than one for free
air time for the benefit not only of candidates but even more of the public,
particularly the voters, so that they will be fully informed of the issues in
an election? [I]t is the right of the viewers and listeners, not the right of
the broadcasters, which is paramount.
Nor indeed can there be any constitutional objection to the requirement
that broadcast stations give free air time. Even in the United States, there
are responsible scholars who believe that government controls on
broadcast media can constitutionally be instituted to ensure diversity of
views and attention to public affairs to further the system of free
expression. For this purpose, broadcast stations may be required to give
free air time to candidates in an election. Thus, Professor Cass R. Sunstein
of the University of Chicago Law School, in urging reforms in regulations
affecting the broadcast industry, writes:
In truth, radio and television broadcasting companies, which are given
franchises, do not own the airwaves and frequencies through which they
transmit broadcast signals and images. They are merely given the
temporary privilege of using them. Since a franchise is a mere privilege, the
exercise of the privilege may reasonably be burdened with the
performance by the grantee of some form of public service. x x x37
There is likewise no merit to ABS-CBNs claim that PMSIs carriage of its
signals is for a commercial purpose; that its being the countrys top
broadcasting company, the availability of its signals allegedly enhances
PMSIs attractiveness to potential customers;38 or that the unauthorized
carriage of its signals by PMSI has created competition between its Metro
Manila and regional stations.
ABS-CBN presented no substantial evidence to prove that PMSI carried its
signals for profit; or that such carriage adversely affected the business
operations of its regional stations. Except for the testimonies of its
witnesses,[39] no studies, statistical data or information have been
submitted in evidence.
Administrative charges cannot be based on mere speculation or
conjecture. The complainant has the burden of proving by substantial
evidence the allegations in the complaint.40 Mere allegation is not
evidence, and is not equivalent to proof.41
Anyone in the country who owns a television set and antenna can receive
ABS-CBNs signals for free. Other broadcasting organizations with free-to-
air signals such as GMA-7, RPN-9, ABC-5, and IBC-13 can likewise be
accessed for free. No payment is required to view the said
channels42 because these broadcasting networks do not generate revenue
from subscription from their viewers but from airtime revenue from
contracts with commercial advertisers and producers, as well as from
direct sales.
In contrast, cable and DTH television earn revenues from viewer
subscription. In the case of PMSI, it offers its customers premium paid
channels from content providers like Star Movies, Star World, Jack TV, and
AXN, among others, thus allowing its customers to go beyond the limits of
Free TV and Cable TV.43 It does not advertise itself as a local channel
carrier because these local channels can be viewed with or without DTH
television.
Relevantly, PMSIs carriage of Channels 2 and 23 is material in arriving at
the ratings and audience share of ABS-CBN and its programs. These ratings
help commercial advertisers and producers decide whether to buy airtime
from the network. Thus, the must-carry rule is actually advantageous to
the broadcasting networks because it provides them with increased
viewership which attracts commercial advertisers and producers.
On the other hand, the carriage of free-to-air signals imposes a burden to
cable and DTH television providers such as PMSI. PMSI uses none of ABS-
CBNs resources or equipment and carries the signals and shoulders the

costs without any recourse of charging.44 Moreover, such carriage of
signals takes up channel space which can otherwise be utilized for other
premium paid channels.
There is no merit to ABS-CBNs argument that PMSIs carriage of Channels
2 and 23 resulted in competition between its Metro Manila and regional
stations. ABS-CBN is free to decide to pattern its regional programming in
accordance with perceived demands of the region; however, it cannot
impose this kind of programming on the regional viewers who are also
entitled to the free-to-air channels. It must be emphasized that, as a
national broadcasting organization, one of ABS-CBNs responsibilities is to
scatter its signals to the widest area of coverage as possible. That it should
limit its signal reach for the sole purpose of gaining profit for its regional
stations undermines public interest and deprives the viewers of their right
to access to information.
Indeed, television is a business; however, the welfare of the people must
not be sacrificed in the pursuit of profit. The right of the viewers and
listeners to the most diverse choice of programs available is
paramount.45 The Director-General correctly observed, thus:
The Must-Carry Rule favors both broadcasting organizations and the
public. It prevents cable television companies from excluding broadcasting
organization especially in those places not reached by signal. Also, the rule
prevents cable television companies from depriving viewers in far-flung
areas the enjoyment of programs available to city viewers. In fact, this
Office finds the rule more burdensome on the part of the cable television
companies. The latter carries the television signals and shoulders the costs
without any recourse of charging. On the other hand, the signals that are
carried by cable television companies are dispersed and scattered by the
television stations and anybody with a television set is free to pick them
up.
With its enormous resources and vaunted technological capabilities,
Appellees [herein petitioner ABS-CBN] broadcast signals can reach almost
every corner of the archipelago. That in spite of such capacity, it chooses to
maintain regional stations, is a business decision. That the Must-Carry
Rule adversely affects the profitability of maintaining such regional
stations since there will be competition between them and its Metro
Manila station is speculative and an attempt to extrapolate the effects of
the rule. As discussed above, Appellants DTH satellite television services is
of limited subscription. There was not even a showing on part of the
Appellee the number of Appellants subscribers in one region as compared
to non-subscribing television owners. In any event, if this Office is to
engage in conjecture, such competition between the regional stations and
the Metro Manila station will benefit the public as such competition will
most likely result in the production of better television programs.46
All told, we find that the Court of Appeals correctly upheld the decision of
the IPO Director-General that PMSI did not infringe on ABS-CBNs
intellectual property rights under the IP Code. The findings of facts of
administrative bodies charged with their specific field of expertise, are
afforded great weight by the courts, and in the absence of substantial
showing that such findings are made from an erroneous estimation of the
evidence presented, they are conclusive, and in the interest of stability of
the governmental structure, should not be disturbed.47
Moreover, the factual findings of the Court of Appeals are conclusive on
the parties and are not reviewable by the Supreme Court. They carry even
more weight when the Court of Appeals affirms the factual findings of a
lower fact-finding body,48 as in the instant case.
There is likewise no merit to ABS-CBNs contention that the Memorandum
Circular excludes from its coverage DTH television services such as those
INTELLECTUAL PROPERTY LAW part 2
provided by PMSI. Section 6.2 of the Memorandum Circular requires all
cable television system operators operating in a community within Grade
A or B contours to carry the television signals of the authorized on the doctrine of separation of powers. This means that the measure had
television broadcast stations.49 The rationale behind its issuance can be
found in the whereas clauses which state:
Whereas, Cable Television Systems or Community Antenna Television
(CATV) have shown their ability to offer additional programming and to
carry much improved broadcast signals in the remote areas, thereby
enriching the lives of the rest of the population through the dissemination
of social, economic, educational information and cultural programs;
Whereas, the national government supports the promotes the orderly
growth of the Cable Television industry within the framework of a
regulated fee enterprise, which is a hallmark of a democratic society;
Whereas, public interest so requires that monopolies in commercial mass
media shall be regulated or prohibited, hence, to achieve the same, the
cable TV industry is made part of the broadcast media;
Whereas, pursuant to Act 3846 as amended and Executive Order 205
granting the National Telecommunications Commission the authority to
set down rules and regulations in order to protect the public and promote
the general welfare, the National Telecommunications Commission hereby
promulgates the following rules and regulations on Cable Television
Systems;
The policy of the Memorandum Circular is to carry improved signals in
remote areas for the good of the general public and to promote
dissemination of information. In line with this policy, it is clear that DTH
television should be deemed covered by the Memorandum Circular.
Notwithstanding the different technologies employed, both DTH and cable
television have the ability to carry improved signals and promote
dissemination of information because they operate and function in the
same way.
In its December 20, 2002 letter,50 the NTC explained that both DTH and
cable television services are of a similar nature, the only difference being
the medium of delivering such services. They can carry broadcast signals to
the remote areas and possess the capability to enrich the lives of the
residents thereof through the dissemination of social, economic,
educational information and cultural programs. Consequently, while the
Memorandum Circular refers to cable television, it should be understood
as to include DTH television which provides essentially the same services.
In Eastern Telecommunications Philippines, Inc. v. International
Communication Corporation,51 we held:
The NTC, being the government agency entrusted with the regulation of
activities coming under its special and technical forte, and possessing the
necessary rule-making power to implement its objectives, is in the best
position to interpret its own rules, regulations and guidelines. The Court
has consistently yielded and accorded great respect to the interpretation
by administrative agencies of their own rules unless there is an error of
law, abuse of power, lack of jurisdiction or grave abuse of discretion clearly
conflicting with the letter and spirit of the law.52
With regard to the issue of the constitutionality of the must-carry rule, the
Court finds that its resolution is not necessary in the disposition of the
instant case. One of the essential requisites for a successful judicial inquiry
into constitutional questions is that the resolution of the constitutional
question must be necessary in deciding the case.53 In Spouses Mirasol v.
Court of Appeals,54 we held:
As a rule, the courts will not resolve the constitutionality of a law, if the
controversy can be settled on other grounds. The policy of the courts is to
avoid ruling on constitutional questions and to presume that the acts of
the political departments are valid, absent a clear and unmistakable
showing to the contrary. To doubt is to sustain. This presumption is based
first been carefully studied by the legislative and executive departments
and found to be in accord with the Constitution before it was finally
enacted and approved.55
The instant case was instituted for violation of the IP Code and
infringement of ABS-CBNs broadcasting rights and copyright, which can be
resolved without going into the constitutionality of Memorandum Circular
No. 04-08-88. As held by the Court of Appeals, the only relevance of the
circular in this case is whether or not compliance therewith should be
considered manifestation of lack of intent to commit infringement, and if it
is, whether such lack of intent is a valid defense against the complaint of
petitioner.56
The records show that petitioner assailed the constitutionality of
Memorandum Circular No. 04-08-88 by way of a collateral attack before
the Court of Appeals. In Philippine National Bank v. Palma,57 we ruled that
for reasons of public policy, the constitutionality of a law cannot be
collaterally attacked. A law is deemed valid unless declared null and void
by a competent court; more so when the issue has not been duly pleaded
in the trial court.58
As a general rule, the question of constitutionality must be raised at the
earliest opportunity so that if not raised in the pleadings, ordinarily it may
not be raised in the trial, and if not raised in the trial court, it will not be
considered on appeal.59 In Philippine Veterans Bank v. Court of
Appeals,60 we held:
We decline to rule on the issue of constitutionality as all the requisites for
the exercise of judicial review are not present herein. Specifically, the
question of constitutionality will not be passed upon by the Court unless,
at the first opportunity, it is properly raised and presented in an
appropriate case, adequately argued, and is necessary to a determination
of the case, particularly where the issue of constitutionality is the very lis
mota presented.x x x61
Finally, we find that the dismissal of the petition for contempt filed by ABS-
CBN is in order.
Indirect contempt may either be initiated (1) motu proprio by the court by
issuing an order or any other formal charge requiring the respondent to
show cause why he should not be punished for contempt or (2) by the
filing of a verified petition, complying with the requirements for filing
initiatory pleadings.62
ABS-CBN filed a verified petition before the Court of Appeals, which was
docketed CA G.R. SP No. 90762, for PMSIs alleged disobedience to the
Resolution and Temporary Restraining Order, both dated July 18, 2005,
issued in CA-G.R. SP No. 88092. However, after the cases were
consolidated, the Court of Appeals did not require PMSI to comment on
the petition for contempt. It ruled on the merits of CA-G.R. SP No. 88092
and ordered the dismissal of both petitions.
ABS-CBN argues that the Court of Appeals erred in dismissing the petition
for contempt without having ordered respondents to comment on the
same. Consequently, it would have us reinstate CA-G.R. No. 90762 and
order respondents to show cause why they should not be held in
contempt.
It bears stressing that the proceedings for punishment of indirect
contempt are criminal in nature. The modes of procedure and rules of
evidence adopted in contempt proceedings are similar in nature to those
used in criminal prosecutions. 63 While it may be argued that the Court of
Appeals should have ordered respondents to comment, the issue has been

rendered moot in light of our ruling on the merits. To order respondents to
comment and have the Court of Appeals conduct a hearing on the
contempt charge when the main case has already been disposed of in
favor of PMSI would be circuitous. Where the issues have become moot,
there is no justiciable controversy, thereby rendering the resolution of the
same of no practical use or value.64
WHEREFORE, the petition is DENIED. The July 12, 2006 Decision of the
Court of Appeals in CA-G.R. SP Nos. 88092 and 90762, sustaining the
findings of the Director-General of the Intellectual Property Office and
dismissing the petitions filed by ABS-CBN Broadcasting Corporation, and
the December 11, 2006 Resolution denying the motion for reconsideration,
are AFFIRMED.
SO ORDERED.
INTELLECTUAL PROPERTY LAW part 2
FIRST DIVISION
[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.,
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, respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for certiorari[1] of the Resolutions[2] of the
Department of Justice dismissing for lack of merit and insufficiency of
evidence petitioner Microsoft Corporations complaint against respondents
for copyright infringement and unfair competition.
The Facts
Petitioner Microsoft Corporation (Microsoft), a Delaware, United
States corporation, owns the copyright and trademark to several computer
software.[3] Respondents Benito Keh and Yvonne Keh are the
President/Managing Director and General Manager, respectively, of
respondent Beltron Computer Philippines, Inc. (Beltron), a domestic
corporation. Respondents Jonathan K. Chua, Emily K. Chua, Benito T.
Sanchez, and Nancy I. Velasco are Beltrons Directors. On the other hand,
respondents Alfonso Chua, Alberto Chua, Judy K. Chua Hwang, Sophia Ong,
and Deanna Chua are the Directors of respondent Taiwan Machinery
Display & Trade Center, Inc. (TMTC), also a domestic corporation.[4]
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[5]
The Agreement also authorized Microsoft and Beltron to terminate
the contract if the other fails to comply with any of the Agreements
provisions. Microsoft terminated the Agreement effective 22 June 1995 for
Beltrons non-payment of royalties.[6]
Afterwards, Microsoft learned that respondents were illegally
copying and selling Microsoft software. Consequently, Microsoft, through
its Philippine agent,[7] hired the services of Pinkerton Consulting Services
(PCS), a private investigative firm. Microsoft also sought the assistance of
the National Bureau of Investigation (NBI). On 10 November 1995, PCS
employee John Benedic[8] Sacriz (Sacriz) and NBI agent Dominador
Samiano, Jr. (Samiano), posing as representatives of a computer
shop,[9] bought computer hardware (central processing unit (CPU) and
computer monitor) and software (12 computer disks (CDs) in read-only
memory (ROM) format) from respondents. The CPU contained pre-
installed[10] Microsoft Windows 3.1 and MS-DOS software. The 12 CD-
ROMs, encased in plastic containers with Microsoft packaging, also
contained Microsoft software.[11] At least two of the CD-ROMs were
installers, so-called because they contain several software (Microsoft only
or both Microsoft and non-Microsoft).[12] Sacriz and Samiano were not
given the Microsoft end-user license agreements, users manuals,
registration cards or certificates of authenticity for the articles they
purchased. The receipt issued to Sacriz and Samiano for the CPU and
monitor bore the heading T.M.T.C. (PHILS.) INC. BELTRON
COMPUTER.[13] The receipt for the 12 CD-ROMs did not indicate its source
although the name Gerlie appears below the entry delivered by.[14]
On 17 November 1995, Microsoft applied for search warrants
against respondents in the Regional Trial Court, Branch 23, Manila
(RTC).[15] The RTC granted Microsofts application and issued two search
warrants (Search Warrant Nos. 95-684 and 95-685).[16] Using Search
Warrant Nos. 95-684 and 95-685, the 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.[17]
Based on the articles obtained from respondents, Microsoft and a
certain Lotus Development Corporation (Lotus Corporation) 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)[18] and with unfair competition under
Article 189(1)[19] 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.[20]
In their joint counter-affidavit, respondents Yvonne Keh
(respondent Keh) and Emily K. Chua (respondent Chua) denied the charges
against respondents. Respondents Keh and Chua alleged that: (1)
Microsofts real intention in filing the complaint under I.S. No. 96-193 was
to pressure Beltron to pay its alleged unpaid royalties, thus Microsoft
should have filed a collection suit instead of a criminal complaint; (2) TMTC
bought the confiscated 59 boxes of MS-DOS CDs from a Microsoft dealer in
Singapore (R.R. Donnelly); (3) respondents are not the source of the
Microsoft Windows 3.1 software pre-installed in the CPU bought by Sacriz
and Samiano, but only of the MS-DOS software; (4) Microsofts alleged
proof of purchase (receipt) for the 12 CD-ROMs is inconclusive because the
receipt does not indicate its source; and (5) respondents Benito Keh,
Jonathan K. Chua, Alfonso Chua, Alberto Chua, Judy K. Chua Hwang, Sophia
Ong, and Deanna Chua are stockholders of Beltron and TMTC in name only
and thus cannot be held criminally liable.[21]
The other respondents did not file counter-affidavits.
Meanwhile, respondents moved to quash Search Warrant Nos. 95-
684 and 95-685. The RTC partially granted their motion in its Order of 16
April 1996. Microsoft sought reconsideration but the RTC denied
Microsofts motion in its Order of 19 July 1996. Microsoft appealed to the
Court of Appeals in CA-G.R. CV No. 54600. In its Decision of 29 November
2001, the Court of Appeals granted Microsofts appeal and set aside the
RTC Orders of 16 April 1996 and 19 July 1996. The Court of Appeals
Decision became final on 27 December 2001.
The DOJ Resolutions
In the Resolution of 26 October 1999, DOJ State Prosecutor Jocelyn
A. Ong (State Prosecutor Ong) recommended the dismissal of Microsofts
complaint for lack of merit and insufficiency of evidence. State Prosecutor
Ong also recommended the dismissal of Lotus Corporations complaint for
lack of interest to prosecute and for insufficiency of evidence. Assistant
Chief State Prosecutor Lualhati R. Buenafe (Assistant Chief State
Prosecutor Buenafe) approved State Prosecutor Ongs
recommendations.[22] The 26 October 1999 Resolution reads in part:
[T]wo (2) issues have to be resolved in this case, namely:
a) Whether or not Beltron Computer and/or its stockholders
should be held liable for the offenses charged.

b) Whether or not prima facie case exist[s] against Taiwan
Machinery Display and Trade Center, Inc. (TMTC)
for violation of the offense charged.
Complainant had alleged that from the time the license agreement was
terminated, respondent/s is/are no longer authorized to
copy/distribute/sell Microsoft products. However, respondent/s averred
that the case is civil in nature, not criminal, considering that the case
stemmed only out of the desire of complainant to collect from them the
amount of US$135,121.32 and that the contract entered into by the
parties cannot be unilaterally terminated.
In the order of Honorable William Bayhon dated July 19, 1996 [denying
reconsideration to the Order partially quashing the search warrants], he
observed the following:
It is further argued by counsel for respondent that the act taken by private
complainant is to spite revenge against the respondent Beltron for the
latter failed to pay the alleged monetary obligation in the amount of
US$135,121.32. That respondent has some monetary obligation to
complainant which is not denied by the complainant.
[]It appears therefore that prior to the issuance of the subject search
warrants, complainant had some business transactions with the
respondent [Beltron] along the same line of products. Complainant failed
to reveal the true circumstances existing between the two of them as it
now appears, indeed the search warrant[s] xxx [are] being used as a
leverage to secure collection of the money obligation which the Court
cannot allow.
From said order, it can be gleaned that the [RTC] xxx, had admitted that
the search warrants applied for by complainant were merely used as a
leverage for the collection of the alleged monetary obligation of the
respondent/s.
From said order, it can be surmise (sic) that the obligations between the
parties is civil in nature not criminal.
Moreover, complainant had time and again harped that respondent/s
is/are not authorized to sell/copy/distribute Microsoft products at the time
of the execution of the search warrants. Still, this office has no power to
pass upon said issue for one has then to interpret the provisions of the
contract entered into by the parties, which question, should be raised in a
proper civil proceeding.
Accordingly, absen[t] a resolution from the proper court of (sic) whether or
not the contract is still binding between the parties at the time of the
execution of the search warrants, this office cannot pass upon the issue of
whether respondent/s is or are liable for the offense charged.
As to the second issue, we find for the respondent/s. TMTC had provided
sufficient evidence such as pro-forma invoice from R.R. Donnelley; Debt
Advice of the Bank of Commerce; Official Receipts from the Bureau of
Customs; and Import Entry Declaration of the Bureau of Customs to prove
that indeed the Microsoft software in their possession were bought from
Singapore.
Thus, respondent/s in this case has/have no intent to defraud the public,
as provided under Article 189 of the Revised Penal Code, for they bought
said Microsoft MS-DOS 6.0 from an alleged licensee of Microsoft in
Singapore, with all the necessary papers. In their opinion, what they have
are genuine Microsoft software, therefore no unfair competition exist.
Moreover, violation of P.D. 49 does not exist, for respondent/s was/were
not the manufacturers of the Microsoft software seized and were selling
their products as genuine Microsoft software, considering that they bought
it from a Microsoft licensee.
INTELLECTUAL PROPERTY LAW part 2
Complainant, on the other hand, considering that it has the burden of
proving that the respondent/s is/are liable for the offense charged, has not
presented any evidence that the items seized namely the 59 boxes of MS-
DOS 6.0 software are counterfeit.
The certification issued on December 12, 1995 by Christopher Austin,
Corporate Attorney of the complainant, does not disclose this fact. For the
term used by Mr. Austin was that the items seized were unauthorized.
The question now, is whether the products were unauthorized because
TMTC has no license to sell Microsoft products, or is it unauthorized
because R.R. Donnelley has no authority to sell said products here in the
Philippines.
Still, to determine the culpability of the respondents, complainant should
present evidence that what is in the possession of the respondent/s is/are
counterfeit Microsoft products.
This it failed to do.[23]
Microsoft sought reconsideration and prayed for an ocular
inspection of the articles seized from respondents. However, in the
Resolution of 3 December 1999, Assistant Chief State Prosecutor Buenafe,
upon State Prosecutor Ongs recommendation, denied Microsofts
motion.[24]
Microsoft appealed to the Office of the DOJ Secretary. In the
Resolution of 3 August 2000, DOJ Undersecretary Regis V. Puno dismissed
Microsofts appeal.[25] Microsoft sought reconsideration but its motion was
denied in the Resolution of 22 December 2000.[26]
Hence, this petition. Microsoft contends that:
I. THE DOJ ERRED IN RULING THAT THE LIABILITY OF
RESPONDENTS WAS ONLY CIVIL IN NATURE BY
VIRTUE OF THE LICENSE AGREEMENT.
II. THE DOJ MISAPPRECIATED THE FACT THAT RESPONDENTS
WERE ENGAGED IN THE ILLEGAL IMPORTATION, SALE
AND DISTRIBUTION OF COUNTERFEIT SOFTWARE AS
EVIDENCED BY THE ITEMS PURCHASED DURING THE
TEST-BUY AND THE ITEMS SEIZED FROM
RESPONDENTS PREMISES.
III. THE DOJ MISAPPRECIATED THE LAW ON COPYRIGHT
INFRINGEMENT AND UNFAIR COMPETITION.
IV. ONLY TWO OUT OF THE NINE RESPONDENTS BOTHERED
TO FILE COUNTER-AFFIDAVITS; HENCE, THE CHARGES
AGAINST SEVEN [RESPONDENTS] REMAIN
UNCONTROVERTED.[27]
In its Comment, filed by the Solicitor General, the DOJ maintains
that it did not commit grave abuse of discretion in dismissing Microsofts
complaint.[28]
For their part, respondents allege in their Comment that Microsoft
is guilty of forum-shopping because its petition in CA-G.R. CV No. 54600
was filed ahead of, and has a common interest with, this petition. On the
merits, respondents reiterate their claims in their motion to quash Search
Warrant Nos. 95-684 and 95-685 that the articles seized from them were
either owned by others, purchased from legitimate sources, or not
produced by Microsoft. Respondents also insist that the Agreement
entitled Beltron to copy and replicate or reproduce Microsoft products. On
the confiscated 2,831 CD-ROMs, respondents allege that a certain
corporation[29] left the CD-ROMs with them for safekeeping. Lastly,
respondents claim that there is no proof that the CPU Sacriz and Samiano
bought from them contained pre-installed Microsoft software because the
receipt for the CPU does not indicate [s]oftware hard disk. [30]
In its Reply, Microsoft counters that it is not liable for forum-
shopping because its petition in CA-G.R. CV No. 54600 involved the Orders
of the RTC partially quashing Search Warrant Nos. 95-684 and 95-685 while
this petition concerns the DOJ Resolutions dismissing its complaint against
respondents for copyright infringement and unfair competition. On the
merits, Microsoft maintains that respondents should be indicted for
copyright infringement and unfair competition.[31]
The Issues
The petition raises the following issues:
(1) Whether Microsoft engaged in forum-shopping; and
(2) Whether the DOJ acted with grave abuse of discretion in not
finding probable cause to charge respondents with
copyright infringement and unfair competition.
The Ruling of the Court
The petition has merit.
Microsoft did not Engage in Forum-Shopping
Forum-shopping takes place when a litigant files multiple suits
involving the same parties, either simultaneously or successively, to secure
a favorable judgment.[32] Thus, it exists where the elements of litis
pendentia are present, namely: (a) identity of parties, or at least such
parties who represent the same interests in both actions; (b) identity of
rights asserted and relief prayed for, the relief being founded on the same
facts; and (c) the identity with respect to the two preceding particulars in
the two cases is such that any judgment that may be rendered in the
pending case, regardless of which party is successful, would amount to res
judicata in the other case.[33] Forum-shopping is an act of malpractice
because it abuses court processes.[34] To check this pernicious practice,
Section 5, Rule 7 of the 1997 Rules of Civil Procedure requires the principal
party in an initiatory pleading to submit a certification against forum-
shopping.[35] Failure to comply with this requirement is a cause for the
dismissal of the case and, in case of willful forum-shopping, for the
imposition of administrative sanctions.
Here, Microsoft correctly contends that it is not liable for forum-
shopping. What Microsoft appealed in CA-G.R. CV No. 54600 were the RTC
Orders partially quashing Search Warrant Nos. 95-684 and 95-685. In the
present case, Microsoft is appealing from the DOJ Resolutions dismissing
its complaint against respondents for copyright infringement and unfair
competition. Thus, although the parties in CA-G.R. CV No. 54600 and this
petition are identical, the rights asserted and the reliefs prayed for are not
such that the judgment in CA-G.R. CV No. 54600 does not amount to res
judicata in the present case. This renders forum-shopping impossible here.
The DOJ Acted with Grave Abuse of Discretion
in not Finding Probable Cause to Charge Respondents with
Copyright Infringement and Unfair Competition
Generally, this Court is loath to interfere in the prosecutors
discretion in determining probable cause[36] unless such discretion is
shown to have been abused.[37] This case falls under the exception.
Unlike the higher quantum of proof beyond reasonable doubt
required to secure a conviction, it is the lower standard of probable cause
which is applied during the preliminary investigation to determine whether
the accused should be held for trial. This standard is met if the facts and
circumstances incite a reasonable belief that the act or omission
complained of constitutes the offense charged. As we explained in Pilapil
v. Sandiganbayan:[38]
The term [probable cause] does not mean actual and positive cause nor
does it import absolute certainty. It is merely based on opinion and
reasonable belief. Thus, a finding of probable cause does not require an

inquiry into whether there is sufficient evidence to procure a conviction. It
is enough that it is believed that the act or omission complained of
constitutes the offense charged. Precisely, there is a trial for the reception
of evidence of the prosecution in support of the charge.
PD 49 and Article 189(1)
Section 5[39] of PD 49 (Section 5) enumerates the rights vested
exclusively on the copyright owner. Contrary to the DOJs 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[40] and
criminally[41] liable for copyright infringement. We held in Columbia
Pictures, Inc. v. Court of Appeals:[42]
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. (Emphasis supplied)
Significantly, under Section 5(A), a copyright owner is vested with
the exclusive right to copy, distribute, multiply, [and] sell his intellectual
works.
On the other hand, the elements of unfair competition under
Article 189(1)[43] of the Revised Penal Code are:
(a) That the offender gives his goods the general
appearance of the goods of another manufacturer or
dealer;
(b) That the general appearance is shown in the (1) goods
themselves, or in the (2) wrapping of their packages,
or in the (3) device or wordstherein, or in (4) any
other feature of their appearance[;]
(c) That the offender offers to sell or sells those goods or
gives other persons a chance or opportunity to do
the same with a like purpose[; and]
(d) That there is actual intent to deceive the public or
defraud a competitor.[44]
The element of intent to deceive may be inferred from the
similarity of the goods or their appearance.[45]
On the Sufficiency of Evidence to
Support a Finding of Probable Cause
Against Respondents
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 Microsofts 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.
This is grave abuse of discretion.[47]
INTELLECTUAL PROPERTY LAW part 2
First. Being the copyright and trademark owner of Microsoft
software, Microsoft acted well within its rights in filing the complaint
under I.S. No. 96-193 based on the incriminating evidence obtained from
respondents. Hence, it was highly irregular for the DOJ to hold, based on
the RTC Order of 19 July 1996, that Microsoft sought the issuance of
Search Warrant Nos. 95-684 and 95-685, and by inference, the filing of the
complaint under I.S. No. 96-193, merely to pressure Beltron to pay its
overdue royalties to Microsoft. Significantly, in its Decision in CA-G.R. CV
No. 54600 dated 29 November 2001, the Court of Appeals set aside the
RTC Order of 19 July 1996. Respondents no longer contested that ruling
which became final on 27 December 2001.
Second. There is no basis for the DOJ to rule that Microsoft must
await a prior resolution from the proper court of (sic) whether or not the
[Agreement] is still binding between the parties. Beltron has not filed any
suit to question Microsofts 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, 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. 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 respondents liability for copyright infringement and
unfair competition.
Lastly, Section 10(b)[48] of the Agreement provides that Microsofts
rights and remedies under the contract are not xxx exclusive and are in
addition to any other rights and remedies provided by law or [the]
Agreement. Thus, even if the Agreement still subsists, Microsoft is not
precluded from seeking remedies under PD 49 and Article 189(1) of the
Revised Penal Code to vindicate its rights.
Third. The Court finds that the 12 CD-ROMs (installer and non-
installer) and the CPU with pre-installed Microsoft software Sacriz and
Samiano bought from respondents and the 2,831 Microsoft CD-ROMs
seized from respondents suffice to support a finding of probable cause to
indict respondents for copyright infringement under Section 5(A) in
relation to Section 29 of PD 49 for unauthorized copying and selling of
protected intellectual works. The installer CD-ROMs with Microsoft
software, to repeat, are counterfeit per se. On the other hand, 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, users manuals, registration
cards or certificates of authenticity.
On the 2,831 Microsoft CD-ROMs[49] seized from respondents,
respondent Beltron, the only respondent who was party to the Agreement,
could not have reproduced them under the Agreement as the Solicitor
General[50] and respondents contend. Beltrons rights[51]under the
Agreement were limited to:
(1) the reproduc[tion] and install[ation of] no more than one
copy of [Microsoft] software on each Customer System hard disk or Read
Only Memory (ROM); and
(2) the distribut[ion] xxx and licens[ing of] copies of the [Microsoft]
Product [as reproduced above] and/or acquired from Authorized
Replicator or Authorized Distributor) in object code form to end users.
The Agreement defines an authorized replicator as a third party
approved by [Microsoft] which may reproduce and manufacture
[Microsoft] Product[s] for [Beltron] xxx.[52] An authorized distributor, on
the other hand, is a third party approved by [Microsoft] from which
[Beltron] may purchase MED[53] Product.[54] Being a mere
reproducer/installer of one Microsoft software copy on each customers
hard disk or ROM, Beltron could only have acquired the hundreds of
Microsoft CD-ROMs found in respondents possession from Microsoft
distributors or replicators.
However, respondents makes no such claim. What respondents
contend is that these CD-ROMs were left to them for safekeeping. But
neither is this claim tenable for lack of substantiation. Indeed, respondents
Keh and Chua, the only respondents who filed counter-affidavits, did not
make this claim in the DOJ. These circumstances give rise to the reasonable
inference that respondents mass-produced the CD-ROMs in question
without securing Microsofts prior authorization.
The counterfeit non-installer CD-ROMs Sacriz and Samiano 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,[55] 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 CD-ROMs
and the CD-ROMs with genuine Microsoft software, implies intent to
deceive.
Respondents contention that the 12 CD-ROMs Sacriz and Samiano
purchased cannot be traced to them because the receipt for these articles
does not indicate its source is unavailing. The receipt in question should be
taken together with Microsofts claim that Sacriz and Samiano bought the
CD-ROMs from respondents.[56] Together, these considerations point to
respondents as the vendor of the counterfeit CD-ROMs. Respondents do
not give any reason why the Court should not give credence to Microsofts
claim. For the same reason, the fact that the receipt for the CPU does not
indicate [s]oftware hard disk does not mean that the CPU had no pre-
installed Microsoft software. Respondents Keh and Chua admit in their
counter-affidavit that respondents are the source of the pre-installed MS-
DOS software.
WHEREFORE, we GRANT the petition. We SET ASIDE the
Resolutions dated 26 October 1999, 3 December 1999, 3 August 2000, and
22 December 2000 of the Department of Justice.
SO ORDERED.

FIRST DIVISION
[G.R. No. 140946. September 13, 2004]
MICROSOFT CORPORATION and LOTUS DEVELOPMENT
CORPORATION, petitioners, vs. MAXICORP, INC., respondent.
DECISION
CARPIO, J.:
The Case
This petition for review on certiorari[1] seeks to reverse the Court of
Appeals Decision[2] dated 23 December 1998 and its Resolution dated 29
November 1999 in CA-G.R. SP No. 44777. The Court of Appeals reversed
the Order[3] of the Regional Trial Court, Branch 23, Manila (RTC), denying
respondent Maxicorp, Inc.s (Maxicorp) motion to quash the search warrant
that the RTC issued against Maxicorp. Petitioners are the private
complainants against Maxicorp for copyright infringement under Section
29 of Presidential Decree No. 49 (Section 29 of PD 49)[4] and for unfair
competition under Article 189 of the Revised Penal Code (RPC).[5]
Antecedent Facts
On 25 July 1996, National Bureau of Investigation (NBI) Agent
Dominador Samiano, Jr. (NBI Agent Samiano) filed several applications for
search warrants in the RTC against Maxicorp for alleged violation of
Section 29 of PD 49 and Article 189 of the RPC. After conducting a
preliminary examination of the applicant and his witnesses, Judge William
M. Bayhon issued Search Warrants Nos. 96-451, 96-452, 96-453 and 96-
454, all dated 25 July 1996, against Maxicorp.
Armed with the search warrants, NBI agents conducted on 25 July
1996 a search of Maxicorps premises and seized property fitting the
description stated in the search warrants.
On 2 September 1996, Maxicorp filed a motion to quash the search
warrants alleging that there was no probable cause for their issuance and
that the warrants are in the form of general warrants. The RTC denied
Maxicorps motion on 22 January 1997. The RTC also denied Maxicorps
motion for reconsideration.
The RTC found probable cause to issue the search warrants after
examining NBI Agent Samiano, John Benedict Sacriz (Sacriz), and computer
technician Felixberto Pante (Pante). The three testified on what they
discovered during their respective visits to Maxicorp. NBI Agent Samiano
also presented certifications from petitioners that they have not
authorized Maxicorp to perform the witnessed activities using petitioners
products.
On 24 July 1997, Maxicorp filed a petition for certiorari with the
Court of Appeals seeking to set aside the RTCs order. On 23 December
1998, the Court of Appeals reversed the RTCs order denying Maxicorps
motion to quash the search warrants. Petitioners moved for
reconsideration. The Court of Appeals denied petitioners motion on 29
November 1999.
The Court of Appeals held that NBI Agent Samiano failed to present
during the preliminary examination conclusive evidence that Maxicorp
produced or sold the counterfeit products. The Court of Appeals pointed
out that the sales receipt NBI Agent Samiano presented as evidence that
he bought the products from Maxicorp was in the name of a certain Joel
Diaz.
Hence, this petition.
The Issues
Petitioners seek a reversal and raise the following issues for
resolution:
1. WHETHER THE PETITION RAISES QUESTIONS OF LAW;
INTELLECTUAL PROPERTY LAW part 2
2. WHETHER PETITIONERS HAVE LEGAL PERSONALITY TO
FILE THE PETITION;
3. WHETHER THERE WAS PROBABLE CAUSE TO ISSUE THE
SEARCH WARRANTS;
4. WHETHER THE SEARCH WARRANTS ARE GENERAL
WARRANTS.
The Ruling of the Court
The petition has merit.
On Whether the Petition Raises Questions of Law
Maxicorp assails this petition as defective since it failed to raise
questions of law. Maxicorp insists that the arguments petitioners
presented are questions of fact, which this Court should not consider in a
Rule 45 petition for review. Petitioners counter that all the issues they
presented in this petition involve questions of law. Petitioners point out
that the facts are not in dispute.
A petition for review under Rule 45 of the Rules of Court should
cover questions of law.[6] Questions of fact are not reviewable. As a rule,
the findings of fact of the Court of Appeals are final and conclusive and this
Court will not review them on appeal,[7] subject to exceptions as when the
findings of the appellate court conflict with the findings of the trial court.[8]
The distinction between questions of law and questions of fact is
settled. A question of law exists when the doubt or difference centers on
what the law is on a certain state of facts. A question of fact exists if the
doubt centers on the truth or falsity of the alleged facts. Though this
delineation seems simple, determining the true nature and extent of the
distinction is sometimes problematic. For example, it is incorrect to
presume that all cases where the facts are not in dispute automatically
involve purely questions of law.
There is a question of law if the issue raised is capable of being
resolved without need of reviewing the probative value of the
evidence.[9] The resolution of the issue must rest solely on what the law
provides on the given set of circumstances. Once it is clear that the issue
invites a review of the evidence presented, the question posed is one of
fact.[10] If the query requires a re-evaluation of the credibility of witnesses,
or the existence or relevance of surrounding circumstances and their
relation to each other, the issue in that query is factual.[11]Our ruling
in Paterno v. Paterno[12] is illustrative on this point:
Such questions as whether certain items of evidence should be accorded
probative value or weight, or rejected as feeble or spurious, or whether or
not the proofs on one side or the other are clear and convincing and
adequate to establish a proposition in issue, are without doubt questions
of fact. Whether or not the body of proofs presented by a party, weighed
and analyzed in relation to contrary evidence submitted by adverse party,
may be said to be strong, clear and convincing; whether or not certain
documents presented by one side should be accorded full faith and credit
in the face of protests as to their spurious character by the other side;
whether or not inconsistencies in the body of proofs of a party are of such
gravity as to justify refusing to give said proofs weight all these are issues
of fact.
It is true that Maxicorp did not contest the facts alleged by
petitioners. But this situation does not automatically transform all issues
raised in the petition into questions of law. The issues must meet the tests
outlined in Paterno.
Of the three main issues raised in this petition the legal personality
of the petitioners, the nature of the warrants issued and the presence of
probable cause only the first two qualify as questions of law. The pivotal
issue of whether there was probable cause to issue the search warrants is
a question of fact. At first glance, this issue appears to involve a question
of law since it does not concern itself with the truth or falsity of certain
facts. Still, the resolution of this issue would require this Court to inquire
into the probative value of the evidence presented before the RTC. For a
question to be one of law, it must not involve an examination of the
probative value of the evidence presented by the litigants or any of
them.[13]
Yet, this is precisely what the petitioners ask us to do by raising
arguments requiring an examination of the TSNs and the documentary
evidence presented during the search warrant proceedings. In short,
petitioners would have us substitute our own judgment to that of the RTC
and the Court of Appeals by conducting our own evaluation of the
evidence. This is exactly the situation which Section 1, Rule 45 of the Rules
of Court prohibits by requiring the petition to raise only questions of law.
This Court is not a trier of facts. It is not the function of this court to
analyze or weigh evidence.[14] When we give due course to such situations,
it is solely by way of exception. Such exceptions apply only in the presence
of extremely meritorious circumstances.[15]
Indeed, this case falls under one of the exceptions because the
findings of the Court of Appeals conflict with the findings of the
RTC.[16]Since petitioners properly raised the conflicting findings of the
lower courts, it is proper for this Court to resolve such contradiction.
On Whether Petitioners have the Legal Personality to File this Petition
Maxicorp argues that petitioners have no legal personality to file
this petition since the proper party to do so in a criminal case is the Office
of the Solicitor General as representative of the People of the Philippines.
Maxicorp states the general rule but the exception governs this
case.[17] We ruled in Columbia Pictures Entertainment, Inc. v. Court of
Appeals[18] that the petitioner-complainant in a petition for review under
Rule 45 could argue its case before this Court in lieu of the Solicitor
General if there is grave error committed by the lower court or lack of due
process. This avoids a situation where a complainant who actively
participated in the prosecution of a case would suddenly find itself
powerless to pursue a remedy due to circumstances beyond its control.
The circumstances in Columbia Pictures Entertainment are sufficiently
similar to the present case to warrant the application of this doctrine.
On Whether there was Probable Cause to Issue the Search Warrants
Petitioners argue that the Court of Appeals erred in reversing the
RTC based on the fact that the sales receipt was not in the name of NBI
Agent Samiano. Petitioners point out that the Court of Appeals disregarded
the overwhelming evidence that the RTC considered in determining the
existence of probable cause. Maxicorp counters that the Court of Appeals
did not err in reversing the RTC. Maxicorp maintains that the entire
preliminary examination that the RTC conducted was defective.
The Court of Appeals based its reversal on two factual findings of
the RTC. First, the fact that the sales receipt presented by NBI Agent
Samiano as proof that he bought counterfeit goods from Maxicorp was in
the name of a certain Joel Diaz. Second, the fact that petitioners other
witness, John Benedict Sacriz, admitted that he did not buy counterfeit
goods from Maxicorp.
We rule that the Court of Appeals erred in reversing the RTCs
findings.
Probable cause means such reasons, supported by facts and
circumstances as will warrant a cautious man in the belief that his action
and the means taken in prosecuting it are legally just and proper.[19] Thus,
probable cause for a search warrant requires such facts and circumstances
that would lead a reasonably prudent man to believe that an offense has

been committed and the objects sought in connection with that offense
are in the place to be searched.[20]
The judge determining probable cause must do so only after
personally examining under oath the complainant and his witnesses. The
oath required must refer to the truth of the facts within the personal
knowledge of the petitioner or his witnesses, because the purpose thereof
is to convince the committing magistrate, not the individual making the
affidavit and seeking the issuance of the warrant, of the existence of
probable cause.[21] The applicant must have personal knowledge of the
circumstances. Reliable information is insufficient.[22]Mere affidavits are
not enough, and the judge must depose in writing the complainant and his
witnesses.[23]
The Court of Appeals reversal of the findings of the RTC centers on
the fact that the two witnesses for petitioners during the preliminary
examination failed to prove conclusively that they bought counterfeit
software from Maxicorp. The Court of Appeals ruled that this amounted to
a failure to prove the existence of a connection between the offense
charged and the place searched.
The offense charged against Maxicorp is copyright infringement
under Section 29 of PD 49 and unfair competition under Article 189 of the
RPC. To support these charges, petitioners presented the testimonies of
NBI Agent Samiano, computer technician Pante, and Sacriz, a civilian. The
offenses that petitioners charged Maxicorp contemplate several overt acts.
The sale of counterfeit products is but one of these acts. Both NBI Agent
Samiano and Sacriz related to the RTC how they personally saw Maxicorp
commit acts of infringement and unfair competition.
During the preliminary examination, the RTC subjected the
testimonies of the witnesses to the requisite examination. NBI Agent
Samiano testified that he saw Maxicorp display and offer for sale
counterfeit software in its premises. He also saw how the counterfeit
software were produced and packaged within Maxicorps premises. NBI
Agent Samiano categorically stated that he was certain the products were
counterfeit because Maxicorp sold them to its customers without giving
the accompanying ownership manuals, license agreements and certificates
of authenticity.
Sacriz testified that during his visits to Maxicorp, he witnessed
several instances when Maxicorp installed petitioners software into
computers it had assembled. Sacriz also testified that he saw the sale of
petitioners software within Maxicorps premises. Petitioners never
authorized Maxicorp to install or sell their software.
The testimonies of these two witnesses, coupled with the object
and documentary evidence they presented, are sufficient to establish the
existence of probable cause. From what they have witnessed, there is
reason to believe that Maxicorp engaged in copyright infringement and
unfair competition to the prejudice of petitioners. Both NBI Agent Samiano
and Sacriz were clear and insistent that the counterfeit software were not
only displayed and sold within Maxicorps premises, they were also
produced, packaged and in some cases, installed there.
The determination of probable cause does not call for the
application of rules and standards of proof that a judgment of conviction
requires after trial on the merits. As implied by the words themselves,
probable cause is concerned with probability, not absolute or even moral
certainty. The prosecution need not present at this stage proof beyond
reasonable doubt. The standards of judgment are those of a reasonably
prudent man,[24] not the exacting calibrations of a judge after a full-blown
trial.
INTELLECTUAL PROPERTY LAW part 2
No law or rule states that probable cause requires a specific kind of
evidence. No formula or fixed rule for its determination exists.[25]Probable
cause is determined in the light of conditions obtaining in a given
situation.[26] Thus, it was improper for the Court of Appeals to reverse the
RTCs findings simply because the sales receipt evidencing NBI Agent
Samianos purchase of counterfeit goods is not in his name.
For purposes of determining probable cause, the sales receipt is not
the only proof that the sale of petitioners software occurred. During the
search warrant application proceedings, NBI Agent Samiano presented to
the judge the computer unit that he purchased from Maxicorp, in which
computer unit Maxicorp had pre-installed petitioners software.[27] Sacriz,
who was present when NBI Agent Samiano purchased the computer unit,
affirmed that NBI Agent Samiano purchased the computer unit.[28] Pante,
the computer technician, demonstrated to the judge the presence of
petitioners software on the same computer unit.[29] There was a
comparison between petitioners genuine software and Maxicorps
software pre-installed in the computer unit that NBI Agent Sambiano
purchased.[30] Even if we disregard the sales receipt issued in the name of
Joel Diaz, which petitioners explained was the alias NBI Agent Samiano
used in the operation, there still remains more than sufficient evidence to
establish probable cause for the issuance of the search warrants.
This also applies to the Court of Appeals ruling on Sacrizs testimony.
The fact that Sacriz did not actually purchase counterfeit software from
Maxicorp does not eliminate the existence of probable cause. Copyright
infringement and unfair competition are not limited to the act of selling
counterfeit goods. They cover a whole range of acts, from copying,
assembling, packaging to marketing, including the mere offering for sale of
the counterfeit goods. The clear and firm testimonies of petitioners
witnesses on such other acts stand untarnished. The Constitution and the
Rules of Court only require that the judge examine personally and
thoroughly the applicant for the warrant and his witnesses to determine
probable cause. The RTC complied adequately with the requirement of the
Constitution and the Rules of Court.
Probable cause is dependent largely on the opinion and findings of
the judge who conducted the examination and who had the opportunity to
question the applicant and his witnesses.[31] For this reason, the findings of
the judge deserve great weight. The reviewing court should overturn such
findings only upon proof that the judge disregarded the facts before him or
ignored the clear dictates of reason.[32]Nothing in the records of the
preliminary examination proceedings reveal any impropriety on the part of
the judge in this case. As one can readily see, here the judge examined
thoroughly the applicant and his witnesses. To demand a higher degree of
proof is unnecessary and untimely. The prosecution would be placed in a
compromising situation if it were required to present all its evidence at
such preliminary stage. Proof beyond reasonable doubt is best left for trial.
On Whether the Search Warrants are in the Nature of General Warrants
A search warrant must state particularly the place to be searched
and the objects to be seized. The evident purpose for this requirement is
to limit the articles to be seized only to those particularly described in the
search warrant. This is a protection against potential abuse. It is necessary
to leave the officers of the law with no discretion regarding what articles
they shall seize, to the end that no unreasonable searches and seizures be
committed.[33]
In addition, under Section 4, Rule 126 of the Rules of Criminal
Procedure, a search warrant shall issue in connection with one specific
offense. The articles described must bear a direct relation to the offense
for which the warrant is issued.[34] Thus, this rule requires that the warrant
must state that the articles subject of the search and seizure are used or
intended for use in the commission of a specific offense.
Maxicorp argues that the warrants issued against it are too broad in
scope and lack the specificity required with respect to the objects to be
seized. After examining the wording of the warrants issued, the Court of
Appeals ruled in favor of Maxicorp and reversed the RTCs Order thus:
Under the foregoing language, almost any item in the petitioners store can
be seized on the ground that it is used or intended to be used in the illegal
or unauthorized copying or reproduction of the private respondents
software and their manuals.[35]
The Court of Appeals based its reversal on its perceived infirmity of
paragraph (e) of the search warrants the RTC issued. The appellate court
found that similarly worded warrants, all of which noticeably employ the
phrase used or intended to be used, were previously held void by this
Court.[36] The disputed text of the search warrants in this case states:
a) Complete or partially complete reproductions or copies of Microsoft
software bearing the Microsoft copyrights and/or trademarks owned
by MICROSOFT CORPORATION contained in CD-ROMs, diskettes and
hard disks;
b) Complete or partially complete reproductions or copies of Microsoft
instruction manuals and/or literature bearing the Microsoft copyrights
and/or trademarks owned by MICROSOFT CORPORATION;
c) Sundry items such as labels, boxes, prints, packages, wrappers,
receptacles, advertisements and other paraphernalia bearing the
copyrights and/or trademarks owned by MICROSOFT CORPORATION;
d) Sales invoices, delivery receipts, official receipts, ledgers, journals,
purchase orders and all other books of accounts and documents used
in the recording of the reproduction and/or assembly, distribution and
sales, and other transactions in connection with fake or counterfeit
products bearing the Microsoft copyrights and/or trademarks owned
by MICROSOFT CORPORATION;
e) Computer hardware, including central processing units including hard
disks, CD-ROM drives, keyboards, monitor screens and diskettes,
photocopying machines and other equipment or paraphernalia used
or intended to be used in the illegal and unauthorized copying or
reproduction of Microsoft software and their manuals, or which
contain, display or otherwise exhibit, without the authority of
MICROSOFT CORPORATION, any and all Microsoft trademarks and
copyrights; and
f) Documents relating to any passwords or protocols in order to access all
computer hard drives, data bases and other information storage
devices containing unauthorized Microsoft software.[37] (Emphasis
supplied)
It is only required that a search warrant be specific as far as the
circumstances will ordinarily allow.[38] The description of the property to be
seized need not be technically accurate or precise. The nature of the
description should vary according to whether the identity of the property
or its character is a matter of concern.[39] Measured against this standard
we find that paragraph (e) is not a general warrant. The articles to be
seized were not only sufficiently identified physically, they were also
specifically identified by stating their relation to the offense charged.
Paragraph (e) specifically refers to those articles used or intended for use
in the illegal and unauthorized copying of petitioners software. This
language meets the test of specificity.[40]
The cases cited by the Court of Appeals are inapplicable. In those
cases, the Court found the warrants too broad because of particular
circumstances, not because of the mere use of the phrase used or

intended to be used. In Columbia Pictures, Inc. v. Flores, the warrants
ordering the seizure of television sets, video cassette recorders, rewinders
and tape cleaners x x x were found too broad since the defendant there
was a licensed distributor of video tapes.[41] The mere presence of
counterfeit video tapes in the defendants store does not mean that the
machines were used to produce the counterfeit tapes. The situation in this
case is different. Maxicorp is not a licensed distributor of petitioners.
In Bache & Co. (Phil.), Inc., et al. v. Judge Ruiz, et al., the Court voided the
warrants because they authorized the seizure of records pertaining to all
business transactions of the defendant.[42] And in 20th Century Fox Film
Corp. v. Court of Appeals, the Court quashed the warrant because it
merely gave a list of articles to be seized, aggravated by the fact that such
appliances are generally connected with the legitimate business of renting
out betamax tapes.[43]
However, we find paragraph (c) of the search warrants lacking in
particularity. Paragraph (c) states:
c) Sundry items such as labels, boxes, prints, packages, wrappers,
receptacles, advertisements and other paraphernalia
bearing the copyrights and/or trademarks owned by
MICROSOFT CORPORATION;
The scope of this description is all-embracing since it covers property used
for personal or other purposes not related to copyright infringement or
unfair competition. Moreover, the description covers property that
Maxicorp may have bought legitimately from Microsoft or its licensed
distributors. Paragraph (c) simply calls for the seizure of all items bearing
the Microsoft logo, whether legitimately possessed or not. Neither does it
limit the seizure to products used in copyright infringement or unfair
competition.
Still, no provision of law exists which requires that a warrant,
partially defective in specifying some items sought to be seized yet
particular with respect to the other items, should be nullified as a whole. A
partially defective warrant remains valid as to the items specifically
described in the warrant.[44] A search warrant is severable, the items not
sufficiently described may be cut off without destroying the whole
warrant.[45] The exclusionary rule found in Section 3(2) of Article III of the
Constitution renders inadmissible in any proceeding all evidence obtained
through unreasonable searches and seizure. Thus, all items seized under
paragraph (c) of the search warrants, not falling under paragraphs a, b, d, e
or f, should be returned to Maxicorp.
WHEREFORE, we PARTIALLY GRANT the instant petition. The
Decision of the Court of Appeals dated 23 December 1998 and its
Resolution dated 29 November 1999 in CA-G.R. SP No. 44777 are
REVERSED and SET ASIDE except with respect to articles seized under
paragraph (c) of Search Warrants Nos. 96-451, 96-452, 96-453 and 96-454.
All articles seized under paragraph (c) of the search warrants, not falling
under paragraphs a, b, d, e or f, are ordered returned to Maxicorp, Inc.
immediately.
SO ORDERED.
INTELLECTUAL PROPERTY LAW part 2
FIRST DIVISION
[G.R. No. 131522. July 19, 1999]
PACITA I. HABANA, ALICIA L. CINCO and JOVITA N.
FERNANDO, petitioners, vs. FELICIDAD C. ROBLES and
GOODWILL TRADING CO., INC., respondents.
DECISION
PARDO, J.:
The case before us is a petition for review on certiorari[1] to set
aside the (a) decision of the Court of Appeals[2], and (b) the resolution
denying petitioners motion for reconsideration,[3] in which the appellate
court affirmed the trial courts dismissal of the complaint for infringement
and/or unfair competition and damages but deleted the award for
attorneys fees.
The facts are as follows:
Petitioners are authors and copyright owners of duly issued
certificates of copyright registration covering their published works,
produced through their combined resources and efforts, entitled COLLEGE
ENGLISH FOR TODAY (CET for brevity), Books 1 and 2, and WORKBOOK FOR
COLLEGE FRESHMAN ENGLISH, Series 1.
Respondent Felicidad Robles and Goodwill Trading Co., Inc. are the
author/publisher and distributor/seller of another published work entitled
DEVELOPING ENGLISH PROFICIENCY (DEP for brevity), Books 1 and 2 (1985
edition) which book was covered by copyrights issued to them.
In the course of revising their published works, petitioners scouted
and looked around various bookstores to check on other textbooks dealing
with the same subject matter. By chance they came upon the book of
respondent Robles and upon perusal of said book they were surprised to
see that the book was strikingly similar to the contents, scheme of
presentation, illustrations and illustrative examples in their own book, CET.
After an itemized examination and comparison of the two books
(CET and DEP), petitioners found that several pages of the respondents
book are similar, if not all together a copy of petitioners book, which is a
case of plagiarism and copyright infringement.
Petitioners then made demands for damages against respondents
and also demanded that they cease and desist from further selling and
distributing to the general public the infringed copies of respondent Robles
works.
However, respondents ignored the demands, hence, on July 7,
1988, petitioners filed with the Regional Trial Court, Makati, a complaint
for Infringement and/or unfair competition with damages[4] against private
respondents.[5]
In the complaint, petitioners alleged that in 1985, respondent
Felicidad C. Robles being substantially familiar with the contents of
petitioners works, and without securing their permission, lifted, copied,
plagiarized and/or transposed certain portions of their book CET. The
textual contents and illustrations of CET were literally reproduced in the
book DEP. The plagiarism, incorporation and reproduction of particular
portions of the book CET in the book DEP, without the authority or consent
of petitioners, and the misrepresentations of respondent Robles that the
same was her original work and concept adversely affected and
substantially diminished the sale of the petitioners book and caused them
actual damages by way of unrealized income.
Despite the demands of the petitioners for respondents to desist
from committing further acts of infringement and for respondent to recall
DEP from the market, respondents refused. Petitioners asked the court to
order the submission of all copies of the book DEP, together with the
molds, plates and films and other materials used in its printing destroyed,
and for respondents to render an accounting of the proceeds of all sales
and profits since the time of its publication and sale.
Respondent Robles was impleaded in the suit because she authored
and directly committed the acts of infringement complained of, while
respondent Goodwill Trading Co., Inc. was impleaded as the publisher and
joint co-owner of the copyright certificates of registration covering the two
books authored and caused to be published by respondent Robles with
obvious connivance with one another.
On July 27, 1988, respondent Robles filed a motion for a bill of
particulars[6] which the trial court approved on August 17, 1988.
Petitioners complied with the desired particularization, and furnished
respondent Robles the specific portions, inclusive of pages and lines, of the
published and copyrighted books of the petitioners which were
transposed, lifted, copied and plagiarized and/or otherwise found their
way into respondents book.
On August 1, 1988, respondent Goodwill Trading Co., Inc. filed its
answer to the complaint[7] and alleged that petitioners had no cause of
action against Goodwill Trading Co., Inc. since it was not privy to the
misrepresentation, plagiarism, incorporation and reproduction of
the portions of the book of petitioners; that there was an agreement
between Goodwill and the respondent Robles that Robles guaranteed
Goodwill that the materials utilized in the manuscript were her own or that
she had secured the necessary permission from contributors and sources;
that the author assumed sole responsibility and held the publisher without
any liability.
On November 28, 1988, respondent Robles filed her answer[8], and
denied the allegations of plagiarism and copying that petitioners
claimed.Respondent stressed that (1) the book DEP is the product of her
independent researches, studies and experiences, and was not a copy of
any existing valid copyrighted book; (2) DEP followed the scope and
sequence or syllabus which are common to all English grammar writers as
recommended by the Association of Philippine Colleges of Arts and
Sciences (APCAS), so any similarity between the respondents book and
that of the petitioners was due to the orientation of the authors to both
works and standards and syllabus; and (3) the similarities may be due to
the authors exercise of the right to fair use of copyrigthed materials, as
guides.
Respondent interposed a counterclaim for damages on the ground
that bad faith and malice attended the filing of the complaint, because
petitioner Habana was professionally jealous and the book DEP replaced
CET as the official textbook of the graduate studies department of the Far
Eastern University.[9]
During the pre-trial conference, the parties agreed to a stipulation
of facts[10] and for the trial court to first resolve the issue of infringement
before disposing of the claim for damages.
After the trial on the merits, on April 23, 1993, the trial court
rendered its judgment finding thus:
WHEREFORE, premises considered, the court hereby orders that the
complaint filed against defendants Felicidad Robles and Goodwill Trading
Co., Inc. shall be DISMISSED; that said plaintiffs solidarily reimburse
defendant Robles for P20,000.00 attorneys fees and defendant Goodwill
for P5,000.00 attorneys fees. Plaintiffs are liable for cost of suit.
IT IS SO ORDERED.
Done in the City of Manila this 23rd day of April, 1993.
(s/t) MARVIE R. ABRAHAM SINGSON
Assisting Judge
S. C. Adm. Order No. 124-92[11]

On May 14, 1993, petitioners filed their notice of appeal with the
trial court[12], and on July 19, 1993, the court directed its branch clerk of
court to forward all the records of the case to the Court of Appeals.[13]
In the appeal, petitioners argued that the trial court completely
disregarded their evidence and fully subscribed to the arguments of
respondent Robles that the books in issue were purely the product of her
researches and studies and that the copied portions were inspired by
foreign authors and as such not subject to copyright. Petitioners also
assailed the findings of the trial court that they were animated by bad faith
in instituting the complaint.[14]
On June 27, 1997, the Court of Appeals rendered judgment in favor
of respondents Robles and Goodwill Trading Co., Inc. The relevant portions
of the decision state:
It must be noted, however, that similarity of the allegedly infringed work
to the authors or proprietors copyrighted work does not of itself establish
copyright infringement, especially if the similarity results from the fact that
both works deal with the same subject or have the same common source,
as in this case.
Appellee Robles has fully explained that the portion or material of the
book claimed by appellants to have been copied or lifted from foreign
books. She has duly proven that most of the topics or materials contained
in her book, with particular reference to those matters claimed by
appellants to have been plagiarized were topics or matters appearing not
only in appellants and her books but also in earlier books on College
English, including foreign books, e.i. Edmund Burkes Speech on
Conciliation, Boerigs Competence in English and Broughtons, Edmund
Burkes Collection.
xxx
Appellants reliance on the last paragraph on Section 11 is misplaced. It
must be emphasized that they failed to prove that their books were made
sources by appellee.[15]
The Court of Appeals was of the view that the award of attorneys
fees was not proper, since there was no bad faith on the part of petitioners
Habana et al. in instituting the action against respondents.
On July 12, 1997, petitioners filed a motion for
reconsideration,[16] however, the Court of Appeals denied the same in a
Resolution[17] dated November 25, 1997.
Hence, this petition.
In this appeal, petitioners submit that the appellate court erred in
affirming the trial courts decision.
Petitioners raised the following issues: (1) whether or not, despite
the apparent textual, thematic and sequential similarity between DEP and
CET, respondents committed no copyright infringement; (2) whether or
not there was animus furandi on the part of respondent when they refused
to withdraw the copies of CET from the market despite notice to withdraw
the same; and (3) whether or not respondent Robles abused a writers right
to fair use, in violation of Section 11 of Presidential Decree No. 49.[18]
We find the petition impressed with merit.
The complaint for copyright infringement was filed at the time that
Presidential Decree No. 49 was in force. At present, all laws dealing with
the protection of intellectual property rights have been consolidated and
as the law now stands, the protection of copyrights is governed by
Republic Act No. 8293. Notwithstanding the change in the law, the same
principles are reiterated in the new law under Section 177. It provides for
the copy or economic rights of an owner of a copyright as follows:
INTELLECTUAL PROPERTY LAW part 2
Sec.177. Copy or Economic rights.Subject to the provisions of chapter VIII,
copyright or economic rights shall consist of the exclusive right to carry
out, authorize or prevent the following acts:
177.1 Reproduction of the work or substantial portion of the work;
177.2 Dramatization, translation, adaptation, abridgement, arrangement
or other transformation of the work;
177.3 The first public distribution of the original and each copy of the work
by sale or other forms of transfer of ownership;
177.4 Rental of the original or a copy of an audiovisual or cinematographic
work, a work embodied in a sound recording, a computer program, a
compilation of data and other materials or a musical work in graphic form,
irrespective of the ownership of the original or the copy which is the
subject of the rental; (n)
177.5 Public display of the original or copy of the work;
177.6 Public performance of the work; and
177.7 Other communication to the public of the work[19]
The law also provided for the limitations on copyright, thus:
Sec. 184.1 Limitations on copyright.-- Notwithstanding the provisions of
Chapter V, the following acts shall not constitute infringement of
copyright:
(a) the recitation or performance of a work, once it has been
lawfully made accessible to the public, if done privately
and free of charge or if made strictly for a charitable or
religious institution or society; [Sec. 10(1), P.D. No. 49]
(b) The making of quotations from a published work if they
are compatible with fair use and only to the extent
justified for the purpose, including quotations from
newspaper articles and periodicals in the form of press
summaries; Provided, that the source and the name of
the author, if appearing on the work are mentioned;
(Sec. 11 third par. P.D.49)
(e) The inclusion of a work in a publication, broadcast, or
other communication to the public, sound recording of
film, if such inclusion is made by way of illustration for
teaching purposes and is compatible with fair
use: Provided, That the source and the name of the
author, if appearing in the work is mentioned;[20]
In the above quoted provisions, work has reference to literary and
artistic creations and this includes books and other literary, scholarly and
scientific works.[21]
A perusal of the records yields several pages of the book DEP that
are similar if not identical with the text of CET.
On page 404 of petitioners Book 1 of College English for Today, the
authors wrote:
Items in dates and addresses:
He died on Monday, April 15, 1975.
Miss Reyes lives in 214 Taft Avenue,
Manila[22]
On page 73 of respondents Book 1 Developing English Today, they
wrote:
He died on Monday, April 25, 1975.
Miss Reyes address is 214 Taft Avenue Manila[23]
On Page 250 of CET, there is this example on parallelism or
repetition of sentence structures, thus:
The proposition is peace. Not peace through the medium of war;
not peace to be hunted through the labyrinth of intricate and
endless negotiations; not peace to arise out of universal discord,
fomented from principle, in all parts of the empire; not peace to
depend on the juridical determination of perplexing questions, or
the precise marking of the boundary of a complex government. It is
simple peace; sought in its natural course, and in its ordinary
haunts. It is peace sought in the spirit of peace, and laid in
principles purely pacific.
--- Edmund Burke, Speech on Criticism.[24]
On page 100 of the book DEP[25], also in the topic of parallel
structure and repetition, the same example is found in toto. The only
difference is that petitioners acknowledged the author Edmund Burke, and
respondents did not.
In several other pages[26] the treatment and manner of presentation
of the topics of DEP are similar if not a rehash of that contained in CET.
We believe that respondent Robles act of lifting from the book of
petitioners substantial portions of discussions and examples, and her
failure to acknowledge the same in her book is an infringement of
petitioners copyrights.
When is there a substantial reproduction of a book? It does not
necessarily require that the entire copyrighted work, or even a large
portion of it, be copied. If so much is taken that the value of the original
work is substantially diminished, there is an infringement of copyright and
to an injurious extent, the work is appropriated.[27]
In determining the question of infringement, the amount of matter
copied from the copyrighted work is an important consideration. To
constitute infringement, it is not necessary that the whole or even a large
portion of the work shall have been copied. If so much is taken that the
value of the original is sensibly diminished, or the labors of the original
author are substantially and to an injurious extent appropriated by
another, that is sufficient in point of law to constitute piracy.[28]
The essence of intellectual piracy should be essayed in conceptual
terms in order to underscore its gravity by an appropriate understanding
thereof.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.[29]
The respondents claim that the copied portions of the book CET are
also found in foreign books and other grammar books, and that the
similarity between her style and that of petitioners can not be avoided
since they come from the same background and orientation may be
true. However, in this jurisdiction under Sec 184 of Republic Act 8293 it is
provided that:
Limitations on Copyright. Notwithstanding the provisions of Chapter
V, the following shall not constitute infringement of copyright:
(c) The making of quotations from a published work if they
are compatible with fair use and only to the extent
justified for the purpose, including quotations from
newspaper articles and periodicals in the form of press
summaries: Provided, That the source and the name of
the author, if appearing on the work, are mentioned.
A copy of a piracy is an infringement of the original, and it is no
defense that the pirate, in such cases, did not know whether or not he was
infringing any copyright; he at least knew that what he was copying was
not his, and he copied at his peril.[30]
The next question to resolve is to what extent can copying be
injurious to the author of the book being copied. Is it enough that there

are similarities in some sections of the books or large segments of the
books are the same?
In the case at bar, there is no question that petitioners presented
several pages of the books CET and DEP that more or less had the same
contents. It may be correct that the books being grammar books may
contain materials similar as to some technical contents with other
grammar books, such as the segment about the Author Card. However, the
numerous pages that the petitioners presented showing similarity in the
style and the manner the books were presented and the identical
examples can not pass as similarities merely because of technical
consideration.
The respondents claim that their similarity in style can be attributed
to the fact that both of them were exposed to the APCAS syllabus and their
respective academic experience, teaching approach and methodology are
almost identical because they were of the same background.
However, we believe that even if petitioners and respondent Robles
were of the same background in terms of teaching experience and
orientation, it is not an excuse for them to be identical even in examples
contained in their books. The similarities in examples and material
contents are so obviously present in this case. How can similar/identical
examples not be considered as a mark of copying?
We consider as an indicia of guilt or wrongdoing the act of
respondent Robles of pulling out from Goodwill bookstores the book DEP
upon learning of petitioners complaint while pharisaically denying
petitioners demand. It was further noted that when the book DEP was re-
issued as a revised version, all the pages cited by petitioners to contain
portion of their book College English for Today were eliminated.
In cases of infringement, copying alone is not what is
prohibited. The copying must produce an injurious effect. Here, the injury
consists in that respondent Robles lifted from petitioners book materials
that were the result of the latters research work and compilation and
misrepresented them as her own. She circulated the book DEP for
commercial use and did not acknowledge petitioners as her source.
Hence, there is a clear case of appropriation of copyrighted work
for her benefit that respondent Robles committed. Petitioners work as
authors is the product of their long and assiduous research and for another
to represent it as her own is injury enough. In copyrighting books the
purpose is to give protection to the intellectual product of an author. This
is precisely what the law on copyright protected, under Section 184.1
(b). Quotations from a published work if they are compatible with fair use
and only to the extent justified by the purpose, including quotations from
newspaper articles and periodicals in the form of press summaries are
allowed provided that the source and the name of the author, if appearing
on the work, are mentioned.
In the case at bar, the least that respondent Robles could have done
was to acknowledge petitioners Habana et. al. as the source of the
portions of DEP.The final product of an authors toil is her book. To allow
another to copy the book without appropriate acknowledgment is injury
enough.
WHEREFORE, the petition is hereby GRANTED. The decision and
resolution of the Court of Appeals in CA-G. R. CV No. 44053 are SET
ASIDE.The case is ordered remanded to the trial court for further
proceedings to receive evidence of the parties to ascertain the damages
caused and sustained by petitioners and to render decision in accordance
with the evidence submitted to it.
SO ORDERED.
INTELLECTUAL PROPERTY LAW part 2
[G.R. No. 166337. March 7, 2005]
BAYANIHAN MUSIC vs. BM
THIRD DIVISION
Gentlemen:
Quoted hereunder, for your information, is a resolution of this Court
dated MAR 7 2005.
G.R. No. 166337 (Bayanihan Music Philippines, Inc. vs. BMG Records
(Pilipinas) and Jose Mari Chan, et al.)
Subject of this petition for review on certiorari is the Decision dated
December 14, 2004[1] of the Court of Appeals in CA-G.R. SP No. 69626,
upholding the Order dated August 24, 2001 of the Regional Trial Court at
Quezon City, Branch 90, which found no merit in petitioner's application
for the issuance of a writ of preliminary injunction, along with the Order
dated January 10, 2002, which denied petitioner's motion for
reconsideration.
On July 16, 1973, private respondent Jose Mari Chan (Chan) entered into a
contract with petitioner Bayanihan Music Philippines, Inc. (Bayanihan),
whereunder the former assigned to the latter all his rights, interests and
participation over his musical composition "Can We Just Stop and Talk A
While". On March 11, 1976, the parties entered into a similar contract over
Chan's other musical composition entitled "Afraid For Love To Fade".
On the strength of the abovementioned contracts, Bayanihan applied for
and was granted by the National Library a Certificate of Copyright
Registration for each of the two musical compositions, thus: November 19,
1973, for the song "Can We Just Stop and Talk A While" and on May 21,
1980, for the song "Afraid for Love To Fade."
Apparently, without the knowledge and consent of petitioner Bayanihan,
Chan authorized his co-respondent BMG Records (Pilipinas) [BMG] to
record and distribute the aforementioned musical compositions in a then
recently released album of singer Lea Salonga.
In separate letters both dated December 7, 1999, petitioner Bayanihan
informed respondents Chan and BMG of its existing copyrights over the
subject musical compositions and the alleged violation of such right by the
two. Demands were made on both to settle the matter with Bayanihan.
However no settlement was reached by the parties.
Hence, on August 8, 2000, Bayanihan filed with the Regional Trial Court at
Quezon City a complaint against Chan and BMG for violation of Section 216
of Republic Act No. 8293, otherwise known as the Intellectual Property
Code of the Philippines, with a prayer for the issuance of Temporary
Restraining Order (TRO) and/or writ of preliminary injunction, enjoining
respondent BMG from further recording and distributing the subject
musical compositions in whatever form of musical products, and Chan
from further granting any authority to record and distribute the same
musical compositions.
In its answer, BMG contended, among others, that: (1) the acts of
recording and publication sought to be enjoined had already been
consummated, thereby rendering moot Bayanihan's prayer for TRO and/or
preliminary injunction; and (2) there is no clear showing that petitioner
Bayanihan would be greatly damaged by the refusal of the prayed for TRO
and/or preliminary injunction. BMG also pleaded a cross-claim against its
co-respondent Chan for violation of his warranty that his musical
compositions are free from claims of third persons, and a counterclaim for
damages against petitioner Bayanihan.
Chan, for his part, filed his own answer to the complaint, thereunder
alleging that: (1) it was never his intention to divest himself of all his rights
and interest over the musical compositions in question; (2) the contracts
he entered into with Bayanihan are mere music publication agreements
giving Bayanihan, as assignee, the power to administer his copyright over
his two songs and to act as the exclusive publisher thereof; (3) he was not
cognizant of the application made by and the subsequent grant of
copyrights to Bayanihan; and (4) Bayanihan was remissed in its obligations
under the contracts because it failed to effectively advertise his musical
compositions for almost twenty (20) years, hence, he caused
the rescission of said contracts in 1997. Chan also included in his answer a
counterclaim for damages against Bayanihan.
After hearing the parties, the lower court came out with an order denying
Bayanihan's prayer for TRO, saying, thus:
After carefully considering the arguments and evaluating the evidence
presented by counsels, this Court finds that the plaintiff has not been able
to show its entitlement to the relief of TRO as prayed for in its verified
complaint (see Section 4, Rule 58 of the 1997 Rules of Civil Procedure, as
amended), hence, this Court is of the considered and humble view that the
ends of justice shall be served better if the aforecited application is denied.
IN VIEW OF THE FOREGOING, the aforecited application or prayer for the
issuance of a TRO is denied.
SO ORDERED.
Thereafter, the same court, in its subsequent Order dated August
24, 2001,[2]cralaw likewise denied Bayanihan's prayer for a writ of
preliminary injunction, to wit:
After carefully going over the pleadings and the pertinent portions of the
records insofar as they are pertinent to the issue under consideration, this
Court finds that the plaintiff has not been able to show its entitlement to
the relief of preliminary injunction as prayed for in its verified complaint
(seeSection 4, Rule 58 of the 1997 Rules of Civil Procedure, as amended),
hence, this Court is of the considered and humble view that the ends of
justice shall be served better if the aforecited application is denied, (see
also Order dated July 16, 2001).
IN VIEW OF THE FOREGOING, the application or prayer for the issuance of
a writ of preliminary injunction is denied.
SO ORDERED.
Its motion for a reconsideration of the same order having been likewise
denied by the trial court in its next Order of January 10,
2002,[3]cralaw petitioner Bayanihan then went to the Court of Appeals on a
petition for certiorari, thereat docketed as CA-G.R. SP No. 69626, imputing
grave abuse of discretion on the part of the trial court in issuing the Orders
of August 24, 2001 and January 10, 2001, denying its prayers for a writ of
preliminary injunction and motion for reconsideration, respectively.
In the herein assailed Decision dated December 14, 2004, the Court of
Appeals upheld the challenged orders of the trial court and accordingly
dismissed Bayanihan petition, thus:
WHEREFORE, finding neither flaw of jurisdiction nor taint of grave abuse of
discretion in the issuance of the assailed Orders of the respondent court
dated August 24, 2001 and January 10, 2002, the instant petition is
DISMISSED. No costs.
SO ORDERED.[4]cralaw
Hence, Bayanihan's present recourse.
It is petitioner's submission that the appellate court committed reversible
error when it dismissed its petition for certiorari and upheld the trial
court's denial of its application for a writ of preliminary injunction.
Petitioner insists that as assignee of the copyrights over the musical
compositions in question, it has a clear legal right to a writ of preliminary
injunction; that respondents BMG and Chan violated its copyrights over
the same musical compositions; that despite knowledge by respondent
BMG of petitioner's copyrights over the said musical compositions, BMG
 INTELLECTUAL PROPERTY LAW part 2

continues to record and distribute the same, to petitioner's great and Anent the copyrights obtained by petitioner on the basis of the selfsame
irreparable injury. two (2) contracts, suffice it to say 'that such purported copyrights are not
We DENY. presumed to subsist in accordance with Section 218[a] and [b], of
We have constantly reminded courts that there is no power, the exercise the Intellectual Property Code,[10]cralaw because respondent Chan had
of which is more delicate and requires greater caution, deliberation and put in issue the existence thereof.
sound discretion, or which is more dangerous in a doubtful case, than the It is noted that Chan revoked and terminated said contracts, along with
issuance of an injunction. A court should, as much as possible, avoid others, on July 30, 1997, or almost two years before petitioner Bayanihan
issuing the writ which would effectively dispose of the main case without wrote its sort of complaint/demand letter dated December 7, 1999
trial. regarding the recent "use/recording of the songs 'Can We Just Stop and
Here, nothing is more evident than the trial court's abiding awareness of Talk A While' and 'Afraid for Love to Fade,'" or almost three (3) years
the extremely difficult balancing act it had to perform in dealing with before petitioner filed its complaint on August 8, 2000, therein
petitioner's prayer for injunctive reliefs. Conscious, as evidently it is, of the praying, inter alia, for injunctive relief. By then, it would appear that
fact that there is manifest abuse of discretion in the issuance of an petitioner had no more right that is protectable by injunction.
injunctive writ if the following requisites provided for by law are not Lastly, petitioner's insinuation that the trial court indulged in
present: (1) there must be a right in esseor the existence of a right to be generalizations and was rather skimpy in dishing out its reasons for
protected; and (2) the act against which the injunction is to be directed is a denying its prayer for provisional injunctive relief, the same deserves scant
violation of such right,[5]cralaw the trial court threaded the correct path in consideration. For sure, the manner by which the trial court crafted its
denying petitioner's prayer therefor. For, such a writ should only be challenged orders is quite understandable, lest it be subjected to a
granted if a party is clearly entitled thereto.[6]cralaw plausible suspicion of having prejudged the merits of the main case.
Of course, while a clear showing of the right to an injunctive writ is WHEREFORE, petition is hereby DENIED.
necessary albeit its existence need not be conclusively SO ORDERED.
established,[7]cralaw as the evidence required therefor need not be
conclusive or complete, still, for an applicant, like petitioner Bayanihan, to
be entitled to the writ, he is required to show that he has the ostensible
right to the final relief prayed for in its complaint.[8]cralaw Here, the trial
court did not find ample justifications for the issuance of the writ prayed
for by petitioner.
Unquestionably, respondent Chan, being undeniably the composer and
author of the lyrics of the two (2) songs, is protected by the mere fact
alone that he is the creator thereof, conformably with Republic Act No.
8293, otherwise known as the Intellectual Property Code, Section 172.2 of
which reads:
172.2. Works are protected by the sole fact of their creation, irrespective
of their mode or form of expression, as well as of their content, quality and
purpose.
An examination of petitioner's verified complaint in light of the two (2)
contracts sued upon and the evidence it adduced during the hearing on
the application for preliminary injunction, yields not the existence of the
requisite right protectable by the provisional relief but rather a lingering
doubt on whether there is or there is no such right. The two contracts
between petitioner and Chan relative to the musical compositions subject
of the suit contain the following identical stipulations:
7. It is also hereby agreed to by the parties herein that in the event the
PUBLISHER [petitioner herein] fails to use in any manner whatsoever
within two (2) years any of the compositions covered by this contract, then
such composition may be released in favor of the WRITER and excluded
from this contract and the PUBLISHER shall execute the necessary release
in writing in favor of the WRITER upon request of the WRITER;
xxx xxx xxx
9. This contract may be renewed for a period of two-and-one-half (2
1/2) years at the option of the PUBLISHER. Renewal may be made by the
PUBLISHER by advising the WRITER of such renewal in writing at least five
(5) days before the expiration of this contract.[9]cralaw
It would thus appear that the two (2) contracts expired on October 1,
1975 and March 11, 1978, respectively, there being neither an allegation,
much less proof, that petitioner Bayanihan ever made use of the
compositions within the two-year period agreed upon by the parties.