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[06]. NBI-Microsoft Corporation v Judy Hwang

Copyright Infringement; Criminal Penalties/Electronic Commerce Act | June 21, 05 | Carpio, J.
Summary: Microsoft and Beltron entered into a Licensing Agreement where Microsoft authorized Beltron to
reproduce and install no more than 1 copy of Microsoft software on each customer hard disk or ROM.
Microsoft terminated the agreement for Beltron’s non-payment of royalties. Thereafter, Microsoft learned
that respondents were illegally copying and selling Microsoft software. Microsoft applied for search
warrants. Using these, NBI searched the premises of Beltron and TMTC and seized several computer-related
hardware, software, accessories. Among these were2,831 pieces of CD-ROMs containing Microsoft software.
Microsoft charged Beltron with copyright infringement and with unfair competition.
Doctrine: The gravamen of copyright infringement is not merely the unauthorized “manufacturing” of
intellectual works but rather the unauthorized performance of any of the rights exclusively granted to the
copyright owner. Hence, any person who performs any of such acts without obtaining the copyright owner’s
prior consent renders himself civilly and criminally liable for copyright infringement

Facts:
- May 93: Microsoft and Beltron entered into a Licensing Agreement, where Microsoft authorized Beltron,
for a fee:
○ to reproduce and install no more than 1 copy of Microsoft software on each Customer System
hard disk or Read Only Memory (ROM); and
○ to distribute directly/indirectly and license copies of the Product in object form to end users
○ Likewise authorized the parties to terminate the contract if the other fails to comply with any of
the Agreement’s provisions
- Microsoft terminated it effective 22 Jun 95 for Beltron’s non-payment of royalties
- Microsoft learned that respondents were illegally copying and selling Microsoft software
- Microsoft, through its Philippine agent, hired the services of Pinkerton Consulting Services ("PCS"), a
private investigative firm and NBI.
- 10 Nov 95: PCS employee Sacriz and NBI agent Samiano, posing as representatives of a computer shop,
bought computer hardware (central processing unit ("CPU") and computer monitor) and software (12
computer disks ("CDs") in read-only memory ("ROM") format) from respondents.
o The CPU contained pre-installed 10 Microsoft Windows 3.1 and MS-DOS software.
o The 12 CD- ROMs, encased in plastic containers with Microsoft packaging, also contained Microsoft
software.
o At least two of the CD-ROMs were "installers," so-called because they contain several software
(Microsoft only or both Microsoft and non-Microsoft). Sacriz and Samiano were not given the
Microsoft end-user license agreements, user's 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." The receipt for
the 12 CD-ROMs did not indicate its source although the name "Gerlie" appears below the entry
"delivered by”
- 17 Nov 95: Microsoft applied for search warrants against respondents, two were issued. Using these, the
NBI searched the premises of Beltron and TMTC and seized several computer-related hardware, software,
accessories, and paraphernalia. Among these were2,831 pieces of CD-ROMs containing Microsoft software
- Microsoft and Lotus Corporation charged respondents with copyright infringement under Section 5(A) in
relation to Section 29 of Presidential Decree No. 49, as amended, ("PD 49") and with unfair competition
under Article 189(1) 19 of the Revised Penal Code before the DOJ
- Respondents denied. Respondents Keh and Chua alleged that:
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o Microsoft's 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;
o TMTC bought the confiscated 59 boxes of MS-DOS CDs from a Microsoft dealer in Singapore (R.R.
Donnelly);
o 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;
o Microsoft's alleged proof of purchase (receipt) for the 12 CD-ROMs is inconclusive because the
receipt does not indicate its source; and
o 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
- DOJ| State Prosecutor recommended the dismissal of the complaint for lack of merit and insufficiency of
evidence. Likewise recommended the dismissal of Lotus Corp’s complaint for lack of interest to prosecute
and for insufficiency of evidence
o It was noted that in the ruling of the RTC, prior to the issuance of the search warrants, complainant
had some business transactions with the 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] . . . [are] being used as a leverage to secure collection of the money obligation
which the Court cannot allow
o DOJ ruled that 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.
o 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.
o 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.

Issue/s:
WoN DOJ acted with GAOD in not finding probable cause to charge Beltron with Copyright Infringement
and Unfair Comepetion – YES
- Generally, this Court is loath to interfere in the prosecutor's discretion in determining probable cause
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
- Section 5 of PD 49 ("Section 5") enumerates the rights vested exclusively on the copyright owner. Contrary
to the DOJ's ruling, the gravamen of copyright infringement is not merely the unauthorized
"manufacturing" of intellectual works but rather the unauthorized performance of any of the acts covered
by Section 5. Hence, any person who performs any of the acts under Section 5 without obtaining the
copyright owner's prior consent renders himself civilly and criminally liable for copyright infringement.
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- Columbia Pictures v CA: 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.
- 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) of the Revised Penal Code are:
o That the offender gives his goods the general appearance of the goods of another manufacturer or
dealer;
o 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 words therein, or in (4) any other feature of their appearance[;]
o 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
o That there is actual intent to deceive the public or defraud a competitor
- Microsoft invoked 3 clusters of evidencei to support its complaint against respondents; however, theDOJ
refused to pass upon the relevance of these pieces of evidence because (1) the "obligations between the
parties is civil and not criminal" considering that Microsoft merely sought the issuance of Search Warrant
Nos. 95-684 and 95-685 to pressure Beltron to pay its obligation under the Agreement, and (2) the validity
of Microsoft's termination of the Agreement must first be resolved by the "proper court." On the other
hand, the DOJ ruled that Microsoft failed to present evidence proving that what were obtained from
respondents were counterfeit Microsoft products.
- This is GAOD
- First. Being the copyright and trademark owner of Microsoft software, Microsoft acted well within its
rights in filing the complaint 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. and by inference, the filing of the complaint merely to pressure Beltron to pay
its overdue royalties to Microsoft. Significantly, 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 Microsoft's termination of the Agreement. Microsoft can neither be expected nor compelled
to wait until Beltron decides to sue before Microsoft can seek remedies for violation of its intellectual
property rights.
- Furthermore, 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.
- 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
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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, user's manuals, registration cards or certificates of authenticity.

Ruling: 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.
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(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