San Beda Law Journal Volume 57 by San Beda Law Journal

Foreword Nichole Vane B. Santos To Kill a Mocking Work: Introducing an Exception to Caricature, Parody, and Pastiche under the Philippine Copyright and Trademark Laws Atty. Risel G. Castillo-Taleon Reimagining the Core of the Case Against Judicial Review: A Philippine Perspective Atty. Antonio Caesar R. Manila Challenges in Pursuing Tort Cases as Class Actions in the Philippines Atty. Reynold L. Orsua The Sufficiency of our Data Privacy Laws to Protect Children's Personal Data in the Midst of Online Learning Atty. Felson M. Dalaguete, CPA Flattening the Curve through Law and Equity: Rising COVID-19 Cases and the Worsening Conditions of Incarceration Facilities in the Philippines Roger B. Montero, Jr. Harnessing the Future: The Prospect of Court Modernization in the Philippines David Jerome G. Dominguez

VOLUME LVII | AUGUST 2021

When The Gavel Hits: A Jurisprudential Examination of Taxation Law for the Years 2019-2020 Jose Lorenzo C. Dave

FOR THE NEXT GENERATION

Artwork by Jimmy Maban II

In response to the various changes and reforms made in the Philippine Legal Landscape during the COVID-19 pandemic, accompanied by the desire to present articles and contributions to the pool of legal knowledge to which distinguished legal luminaries, experts in their own fields, have already contributed, the San Beda Law Journal ( Journal) hereby releases its issue for the academic year 2020-2021. It contains articles and contributions from students and law practitioners that may pick the interest of those involved in the study of law.

The views expressed by the contributors do not necessarily reflect the views of either the San Beda University-College of Law or the Journal's Editorial Board and Staff. The Editorial Board reserves the right to edit the articles submitted for publication.

This issue is the intellectual property right of the Journal. Any copying, reproduction, or distribution, in any written or electronic platform, without the express permission of the Journal is prohibited.

In referring to the articles contained in this issue, the Journal may be cited as “SAN BEDA L.J.”

SAN BEDA LAW JOURNAL THE OFFICIAL PUBLICATION OF SAN BEDA UNIVERSITY-COLLEGE OF LAW

EDITORIAL BOARD A. Y. 2020-2021

VOLUME LVII

EDITOR-IN-CHIEF

Nichole Vane B. Santos ASSOCIATE EDITOR

Jose Lorenzo C. Dave MANAGING EDITOR

Allan V. Badillo LAYOUT EDITOR

John Mark D. Cariño STAFF

Cedrick C. Cabaluna David Jerome G. Dominguez Vida Camille R. Flores Cedrick John C. Malabanan Bea Klariz L. Mandac Roger B. Montero, Jr. Venica Nadine D. Natino GRAPHIC ARTIST

Jimmy Maban II ADVISERS

Atty. Francesca Lourdes M. Señga Atty. Lyan David M. Juanico

San Beda University-College of Law ADMINISTRATION Marciano G. Delson, B.S.C., Ll.B., Ll.M. DEAN

Francesca Lourdes M. Señga, B.S., Ll.B., Ll.M. VICE DEAN

Adonis V. Gabriel, A.B., Ll.B. PREFECT OF STUDENT AFFAIRS

Lyan David M. Juanico, B.S.. Ll.B. ADMINISTRATIVE OFFICER

Peter-Joey B. Usita, A.B., Ll.B. LEGAL AID BUREAU DIRECTOR

Liezel D. Rodriguez INSTITUTIONAL COORDINATOR OF GUIDANCE SERVICES

Gladina C. Bañares LAW GUIDANCE COUNSELOR

FACULTY MEMBERS Prof. Eduardo J.F. Abella, B.S., Ll.B. Prof. Selma P. Alaras, A.B., Ll.B. Prof. Joesph Phillip T. Andres, A.B., Ll.B. Prof. Timoteo B. Aquino, A.B., Ll.B. Prof. Floresto P. Arizala, Jr. M.D., Ll.B. Prof. Jennifer A. Balboa-Cahig, B.S., Ll.B., Ll.M. Prof. Edna H. Batacan, A.B., Ll.B. Prof. Gina M. Bibat-Palamos, B.S.C., Ll.B. Prof. Plaridel J. Bohol II, A.B., Ll.B. Prof. Luis Manuel U. Bugayong, A.B., Ll.B.

Prof. Carlo D. Busmente, B.S.C., Ll.B. Prof. Darniel R. Bustamante, B.S., Ll.B. Prof. Nicasio C. Cabañeiro, B.S.C., Ll.B. Prof. Jonas Florentino L. Cabochan, B.S., Ll.B. Prof. Amparo Cabotaje-Tang, A.B., Ll.B. Prof. Manuel P. Casiño, B.S., Ll.B. Prof. Joseph Ferdinand M. Dechavez, A.B., Ll.B., Ll.M. Prof. Dante O. Dela Cruz, B.S., Ll.B. Prof. Marissa B. Dela Cruz-Galandinez, B.S., Ll.B. Prof. Jun Marr M. Denila, A.B., Ll.B. Prof. Japar B. Dimaampao, A.B., Ll.B. Prof. Efren Vincent M. Dizon, B.S., Ll.B. Prof. Anthony A. Dy, A.B., Ll.B. Prof. Maria C. Erum, A.B., Ll.B. Prof. Ramon S. Esguerra, A.B., Ll.B. Prof. Bernelito R. Fernandez, A.B., Ll.B. Prof. Lara Carmela G. Fernando, B.S., Ll.B. Prof. Victoria C. Garcia, A.B., Ll.B. Prof. Joyrich M. Golangco, B.S., Ll.B. Prof. Oscar C. Herrera, Jr., A.B., Ll.B. Prof. Saul Q. Hofileña, Jr., B.S.C., Ll.B. Prof. Rowell D. Ilagan, A.B., Ll.B. Prof. Wilhelmina B. Jorge-Wagan, A.B., Ll.B. Prof. Joel U. Macalino, M.D., Ll.B. Prof. Algie Kwillon B. Mariacos, A.B., Ll.B. Prof. Ma. Theresa Mendoza-Arcega, B.S., A.B., Ll.B. Prof. Ryan S. Mercader, A.B., Ll.B. Prof. Remegio D. Mora, Jr., A.B., Ll.B. Prof. Antonio Eduardo S. Nachura, Jr., B.S., Ll.B. Prof. Theresa Genevieve C. Nueve-Co, A.B., Ll.B. Prof. Randolph A. Pascasio, B.S., Ll.B. Prof. Renee Maritonie Resurreccion, A.B., Ll.B. Prof. Rene V. Sarmiento, A.B., Ll.B. Prof. Ulpiano P. Sarmiento III, A.B., Ll.B. Prof. Andres B. Soriano, A.B., Ll.B. Prof. Gallant D. Soriano, A.B., Ll.B., MNSA, Lt. Col., PN (M) Prof. Wilhelm Soriano, A.B., Ll.B. Prof. Jesus Erick F. Sta. Barbara, Ll.B, A.B., Ll.B. Prof. Maritess C. Sy, A.B., Ll.B. Prof. Maria Zarah R. Villanueva-Castro, A.B., Ll.B. Prof. Monica Anne T. Yap, B.S., Ll.B.

Foreword “To succeed, it is necessary to accept the world as it is and rise above it.” - Michael Korda

The COVID-19 pandemic greatly affected the Filipino people. It changed the way we do work and the way we interact with society. Businesses and institutions went online in order to adapt and survive. This rapid digital transformation exempted no one - the Government, the professionals, the labor force, even law students alike. Almost everything now necessitates digital access – the conduct of lectures, recitations, examinations, among others. Taking into consideration the seemingly incessant transmission of the virus and the concerning pace of vaccine administration, saying that the study of law becoming more challenging is an understatement. Nevertheless, we move forward, and we rise above. We need not look far to see how one should move forward amid this crisis. The Supreme Court, for its part, issued Administrative Circulars adopting online filing of complaint or information, or posting of bail, and authorizing the lower courts to conduct remote videoconferencing hearings, among others, so as not to thwart the administration of justice. Some national agencies with quasi-judicial functions likewise issued guidelines to conduct electronic hearings to further reduce the risks of possible infection posed by face-to-face interactions, and warrant the continuity of proceedings and transactions, as needed by the public. Indeed, the rule of law is not put to a halt by a global pandemic. It should be emphasized that beyond this pandemic, a great number of people continue to struggle for their lives, liberty, and property – that the legal profession vows to protect. Thus we, in the San Beda Law Journal, eagerly commit to create meaningful discourse through the articles written by distinguished legal practitioners and students of the San Beda University College of Law. For this purpose, our synergy will adhere to the principles of supremacy of the law, equality before the law, and accountability to the law, at all times. The San Beda Law Journal dedicates its 57th Volume, to our beloved Vice Dean, Atty. Risel G. Castillo-Taleon. Her thesis written during her stay in the San Beda UniversityGraduate School of Law, is included in this issue, in her honor. We would also like to extend our heartfelt gratitude to our Dean, Atty. Marciano Delson, for his unwavering support to the school publication, and to our advisers, Atty. Francesca Lourdes Senga and Atty. Lyan Juanico, for their continuous guidance in making this work. Lastly, all glory and honor belongs to the Almighty Father, for giving us grace as we give you the 57th Volume of the San Beda Law Journal.

Soli Deo Gloria Nichole Vane B. Santos Editor-in-Chief San Beda Law Journal Volume LVII, A.Y. 2020-2021

Contents To Kill a Mocking Work: Introducing an Exception to Caricature, Parody, and Pastiche under the Philippine Copyright and Trademark Laws Atty. Risel G. Castillo-Taleon

Reimagining the Core of the Case Against Judicial Review: A Philippine Perspective Atty. Antonio Caesar R. Manila

Challenges in Pursuing Tort Cases as Class Actions in the Philippines Atty. Reynold L. Orsua

The Sufficiency of our Data Privacy Laws to Protect Children's Personal Data in the midst of Online Learning Atty. Felson M. Dalaguete, CPA

120

Flattening the Curve through Law and Equity: Rising COVID-19 Cases and the Worsening Conditions of Incarceration Facilities in the Philippines Roger B. Montero, Jr.

129

Harnessing the Future: The Prospect of Court Modernization in the Philippines David Jerome G. Dominguez

143

When The Gavel Hits: A Jurisprudential Examination of Taxation Law for the Years 2019-2020 Jose Lorenzo C. Dave

156

To Kill a Mocking Work: Introducing an Exception to Caricature, Parody, and Pastiche Under Philippines Copyright and Trademark Laws Clarisa Risel G. Castillo-Taleon†1

Introduction A. Background of the study “This is parody’s mission: it must never be afraid of going too far. If its aim is true, it simply heralds what others will later produce, unblushing, with impassive and assertive gravity.” — Umberto Eco, literary critic, philosopher “When people are free to do as they please, they usually imitate each other.” — Eric Hoffer, philosopher and author In today’s digital era, creative works are consumed via traditional

1 Atty. Clarissa Risel G. Castillo-Taleon was a Senior Partner in Saludo, Fernandez, Taleon and Associates Law Office. She obtained her Master of Laws Degree from San Beda University Graduate School of Law last December 2020. She obtained her Bachelor of Laws Degree from the same University where she graduated as Valedictorian of Batch 1991 and was a recipient of the Judge Agustin P. Montessa Memorial Award. During the 1991 Philippine Bar Examinations, she placed 6th in a field of 3,194 candidates. For her excellent performance during the Bar Examinations, she was decorated with the Order of Kalantiao Award. She was also the Vice Dean of the San Beda University College of Law. Prior to being appointed as the Vice Dean, she was the Prefect of Student Affairs of the same University. She was also a Law Professor at San Beda University College of Law and San Beda College Alabang School of Law teaching various civil law subjects such as Persons and Family Relations, Obligations and Contracts, and Wills and Succession. Finally, she is, as fondly called by the Bedan Community, "the Mother of Lions."

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mediums and improving technology at a bewildering speed. The evolution of the Internet, for one, has enabled content to be easily reproduced and communicated, only to be consumed again, ad infinitum. In the process of communication, depending on authorial intent, the work takes on an altered form, and sometimes, even an altered purpose. The result is a surge of new creative works, at least partly derivative or imitative. Yet, so is much of art, whether in praise, mockery, criticism, or for the pure entertainment value. Originality, though much prized in any field itself, is said to be nothing but judicious imitation, as even the most original creators borrow one from another. Any creative work, be it visual art, music, or prose with any perceived significance, is absorbed, to be appreciated, derided, and even rejected, only to invariably be imitated. Its progeny, adding itself to the goulash of everything that ever moved man, from art, culture, religion, politics, and economics. While imitation of creative works is generally viewed in a pejorative sense, it does not necessarily equate to apathetic replication. There is copying that transforms its source material, thereby creating something new, with a unique tone, purpose, or message, but without rendering the original unrecognizable. Here, precariously perched, are caricature, parody, and pastiche. The Oxford English Dictionary explains caricature as ‘a grotesque usually comically exaggerated representation, especially of a person; ridiculously poor imitation or version.’ In literature, a caricature is a person’s description using exaggeration of some characteristics and oversimplification of others.2 Caricatures first became a popular genre of fine art in the 16th and 17th Century and were created by satirists to ridicule public figures and politicians. They continue to remain popular today and are used in magazines and newspapers to poke fun at film stars, politicians, and celebrities.”3 One of the most recognized of such publications is MAD Magazine, which, since its founding in 1955, rendered its content almost exclusively in caricature to lampoon its target du jour. The object of caricature, however, is not limited to real people but may include any other creative work, for criticism, commentary, or mockery. A close cousin of caricature, parody, on the other hand, is an enigmatic force of comedy. Variations in their medium, target, and purpose make it notoriously difficult to define, particularly as a legal concept. They have traditionally been something we ‘know when we see.’ A piece of art, film, political speech and everything in between

2 Chandra Raj, KB. (2012). Your Sense of Humor: Don’t Leave Home Without It. 1st ed. [ebook] US; Trafford. Available at <https://books.google.com.ph/>. Page 173. (Accessed on May 10, 2020). 3 Art Encyclopedia (2020). Caricature Art. [online]. Available at <http://www.visual-arts-cork.com> (Accessed on May 11, 2020).

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is twisted into a mockery, sometimes to demonstrate a point, often for amusement. Parodies are important as a tool for social criticism and free speech, exploring nuance and allowing layers of political commentary in thinly veiled jokes.4 The rise of social media has meant that parody is no longer confined to professional comedians: anyone can record themselves mocking the words or actions of a celebrity, post it online, and have it disseminated to millions of people across 5 the globe. Parody is a kind of artistic description that humorously criticizes the forehanded works. Since parody hangs on imitation, it is separated from the original work through “being a parody.” This critical circumstance can be directed towards the original work or 6 can be speculated on anything else. The Austin Powers movies, for instance, are a parody of James Bond movies. Similarly, the brand “Chewy Vuitton” used on dog toys was a parody of Louis Vuitton’s luxury goods.7 Pastiche, on the other hand, is an artistic work rendered in a style that imitates that of another work, artist, genre, or period. It’s a way of paying respect, or honor, to great works of the past. Pastiche differs from parody in that pastiche isn’t making fun of the works it imitates 8 – however, the tone of pastiche is often humorous. The primary purpose of using pastiche is to celebrate works of the past or genres that it do not belong to, as the vast majority accepts the original as landmarks of their age. Where caricature and parody seek to satirize, to criticize or mock, pastiche aims to revere. Pastiche can likewise create variety. The Kill Bill trilogy, by director Quentin Tarantino, is a simultaneous pastiche of two genres: westerns and kung fu movies. Rosencrantz and Gildenstern are Dead, a play by Tom Stoppard is a pastiche of Hamlet. Rosencrantz and Gildenstern are two minor characters in Shakespeare’s play, who take center stage in Stoppard’s imitation. Infamously, E.L. James’ Fifty Shades of Gray is a pastiche, colloquially known as fanfiction, that imagines two characters from the famous Twilight series, Bella and Edward, in new roles. Other terms used for related cultural practices, and recognized under some copyright regimes, are Satire (‘the use of humor, irony, exaggeration, or ridicule to expose and criticize people’s stupidity or 4 Reynolds, Liam. (2016). HAVING A LAUGH? THE PARODY EXCEPTION TO COPYRIGHT INFRINGEMENT. [online] Available at <http://www.keepcalmtalklaw.co.uk/having-a-laughtheparody-exception-to-copyright-infringement/>. (Accessed on May 11, 2020). 5 Id. 6 Atalay, MC and Kanat, S. (2019). Interpretation, Parody, Pastiche And Plagiarism In Visual Arts. [online]. Available at <https://www.academia.edu/41894843/interpretation_parody_pastiche_and_ plagiarism_in_visual_arts>. (Accessed April 15, 2020). 7 Louis Vuitton Malletier S.A. v. Haute Diggity Dog, LLC 507 F.3d 252 (4th Cir. 2007). 8 Pastiche. (n.d.), Literary Terms. Available at <https://literaryterms.net/pastiche>. (Accessed on April 15, 2020).

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vices, particularly in the context of contemporary politics and other topical issues’) and Burlesque (‘an absurd or comically exaggerated 9 imitation of something, especially in a literary or dramatic work’). Classic films like Dr. Strangelove and modern works like Birdman and Get Out all address contemporary issues - nuclear war in the 1950s and celebrity culture and racism in the 2010s.10 Meanwhile, a classic example is Alexander Pope’s The Rape of the Lock (1714), which is elegant and elaborate in style, but which, on its surface, has only a 11 lady’s curl as its subject. It is not always easy to pin down a particular work as any one of the above. Weird Al Yankovic’s catalog of ‘parodied’ famous pop songs, re-recorded with his humorous lyrics (such as the charttopping “White and Nerdy”, an ostensive parody of “Ridin’” by Chamillionaire feat. Krayzie Bone) while comedic in purpose, forego the bile of mockery such that they seem to be better suited as pastiche, even earning the approbation of the original artist. 12 In a 2008 Consultation Paper on copyright exceptions, the UK government recognized that whilst the terms may have different connotations and meanings, they “all include an element of imitation, and may incorporate, to a greater or lesser extent, elements of the original work.” Hence, there is considerable debate within literary theory if Parody should be understood as a unified genre. The whole point of these types of works is that they should ‘conjure up’ the original work upon which they are based. Thus parodic treatment, almost by definition, involves a taking of substance, since, if the object 13 of parody cannot be recognized, the parody fails. As creative works, caricature, parody, and pastiche fall within the ambit of copyright. Copyright is the legal protection extended to the owner of the rights in an original work. “Original work” refers to every production in the literary, scientific, and artistic domain. Copyright confers the exclusive right upon a copyright owner to authorize or prohibit the copying of the relevant copyright work, or other acts in relation to the work such as performance, broadcasting, and issuing

9 Hutcheon, L. (1985). Parody: The Teachings of Twentieth-Century Art Forms (New York: Methuen; 1985). Available at <https://books.google.com. ph/books?id=FoHXjEauvKIC&printsec=frontcover&source=gbs_ge_ summary_r&cad=0#v=onepage&q&f=false>. (Accessed on April 17, 2020). 10 Satire. (n.d.). In: Your Dictionary. [online]. Available at <https://examples.yourdictionary.com/satireexamples.html>. (Accessed on April 14, 2020). 11 Burgess, A. (2019). What Is Burlesque Literature? [online]. ThoughtCo.com. Available at <https://www. thoughtco.com/what-is-burlesque-literature-740474>. (Accessed May 10, 2020). 12 Jacques, S. (2019). The Parody Exception in Copyright Law. 1st ed. New York; Oxford. Available at <https://books.google.com.ph/ks?id=KsKKDwAAQBAJ&printsec=frontcover&dq=parody+excep tion+to+copyright+law&hl=en&sa=X&ved=0ahUKEwjE877Th-HpAhWlHqYKHYurBqYQ6AEIK DAA#v=onepage&q=parody%20exception%20to%20copyright%20law&f=false>. (Accessed on May 10, 2020). 13 Mendis, D. & Kretschmer, M. (2013). The Treatment of Parodies under Copyright Law in Seven Jurisdictions: A Comparative Review of the Underlying Principles. Available at <https://assets.publishing. service.gov.uk/government/uploads/system/uploads/attachment_data/file/309902/ipresearchparody-report2-150313.pdf>. (Accessed on May 1, 2020).

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to the public. Any party who commits these acts without permission is infringing, entitling the author to take legal action. Copyright works may include (among other things) literary works, musical works, artistic works, and films. Caricature, parody, or a pastiche, as creative works which, by their very nature, anchors their function and form on the recognizability of the imitated work of another, are a collective paradox as a subject of copyright. They are copies which lead to the creation of something original; a new independent copyright item. This is why fully understanding the boundaries between the comic nature of parody or caricature, and the unlawful use of another person’s work (for example, in the form of alteration, plagiarism, etc.) has remained a 14 challenge. Copyright law is fairly well-harmonized internationally, principally under the Berne Convention and the WIPO Copyright Treaty. An overarching principle of the Convention is that signatory countries may make allowance in their national laws for unauthorized reproduction and introduce exceptions to infringement where such reproduction “does not conflict with a normal exploitation of the work and does not unreasonably prejudice the legitimate interests of the author.”15 This allows countries to self-determine for reasons of policy when unauthorized reproduction should be permitted. Yet, there is no uniform definition of caricature, parody, or a pastiche or unified approach in dealing with them within the international community. “Parody” is not even defined in the copyright legislation of many jurisdictions such as Australia, the US, the UK, etc. A variety of terms such as “parody,” “satire,” “caricature,” and “pastiche” are used in the legislations, policy discussions, or case law in different jurisdictions to describe various works which include an element of imitation or incorporate certain elements of an underlying copyright work for the purposes of creating comic or critical effects, etc. The same is true of the Philippines. Republic Act No. 8293, as amended, otherwise known as the Intellectiual Property Code of the Philippines,16 which codifies the scope of Copyright protection, has no mention of neither caricature, parody, nor a pastiche. Reliance, therefore had been made upon what can be eked from judicial rulings and the persuasive foreign case law. Such an omission in law juxtaposed with the prevalence of parodic works in media and communications and their propensity to influence and reflect the

14 Koval, M. (2016). Parodies, Caricatures, Pastiches: What Is to Be Expected by Authors of Originals Works? [online] Available at <http://attorneys.ua/en/publications>. (Accessed on April 5, 2020). 15 Article 9(2) Berne Convention. 16 “An Act Prescribing The Intellectual Property Code And Establishing The Intellectual Property Office, Providing For Its Powers And Functions, And For Other Purposes.”

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current zeitgeist creates ambiguity that stifles the ability of parody to enrich the variety of human discourse, to say nothing of the threat it poses upon our freedom of expression. The creation and distribution of parodies promote the fundamental values underlying the constitutionally protected right to freedom of expression. Through parodies, individuals can progress in their “search for political, artistic, and scientific truth”, protect their autonomy and self-development, and promote “public participation 17 in the democratic process.” It is important, then, to establish a clear policy and legal outcome that strikes a fair balance between the interests and rights of copyright holders of the original works, and the freedom of expression of the parodists of copyrighted works. Likewise, caricature, parody, and pastiche find relevance in trademark laws as any trademark, may be reduced and parodied into a new trademark for commercial or non-commercial activities. A trademark has been defined by the IP Code as any visible sign capable of distinguishing the goods (trademark) or services (service mark) of an enterprise and shall include a stamped or marked container of goods.18 Trademark laws aim to protect consumers from confusion about the source of a particular good or service, and to protect companies that have spent time, effort, and resources to create a positive association between their trademarks and their goods and services. Established trademarks forming the basis for caricature, parody, or pastiche to create a new mark, is not a new phenomenon. Examples of this are, the previously mentioned “Chewy Vuitton,” a parody of Louis Vuitton; “Buttwiper,” a brand of dog toys which parodies the 19 well-known beer, “Budweiser,” and “WALOCAUST,” a parody mark created to protest the negative practices of hypermarket chain, 20 “Walmart.” The question that needs to be asked therefore is, can an exemption from trademark infringement be carved for parodic marks, which by its nature, trades upon, at least partly, the familiarity of an original mark create a new brand? The curious quirk about parody is that whilst the strength of the original mark typically supports its owner in trademark infringement cases, it has the opposite effect in cases involving a parody: the strength

17 RJR MacDonald Inc. v. Canada (Attorney General), [1995] 3 S.C.R. 199 at para. 72. 18 Section 121.1, R.A. 8293. 19 Anheuser-Busch, Inc., v. VIP Products, Llc 666 F. Supp. 2d 974 (2008). 20 Charles Smith v. WAL-MART Stores, Inc.,.537 F. Supp. 2d 1302 (2008).

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of the original mark in effect makes the parody more successful.

Thus, it is the aim of this paper to elucidate, by an exhaustive examination of cases and legal principles prevailing in the Philippines as well as several other territories, the necessity of providing for an exception for works of caricature, parody, and pastiche from copyright and trademark infringement. The thrust of such proposal is that the application of proper metrics to identify acceptable caricature, parody, and pastiche can strike a balance between respect and protection of the copyrighted work or registered trademark on one hand and encouraging free-thinking, creativity, freedom of expression, and even economy through the recognition of caricature, parody, and pastiche under copyright and trademark laws.

B. Statement of the problem There exists a need to provide an exclusionary rule for works of caricature, parody, and pastiche from copyright and trademark infringement, in accord with the Constitutional right of freedom of expression, while establishing appropriate standards of applicability that does not unduly prejudice the rights of copyright and trademark of the source work. To expound on the ratio behind such the proposal, this paper therefore poses the following questions:

• • • • •

•

What is the nature of caricature, parody, and pastiche? What is the prevailing treatment of caricature, parody, and pastiche under Philippine copyright and trademark laws and jurisprudence? Is this treatment adequate to protect the rights of copyright and trademark without curtailing creativity and freedom of expression? How does the Philippines’ treatment of caricature, parody, and pastiche differ from that of key territories and what are the principles that guided their treatment? Can an exclusionary rule for works of caricature, parody, and pastiche from copyright and trademark infringement be distilled or adopted from the system of laws set in place by key territories? What would be the scope or limits of this exclusion? What advantages can be gained in codifying an exclusionary rule to caricature, parody, and pastiche from copyright and trademark infringement?

21 Ellis, V. (2014). Dumb and Dumber? A brief review of parody defences in the UK - D Young & Co LLP. [online] Available at <https://www.lexology.com/library/detail.aspx?g=5a846ea5-daee-423f-b14ab25474f53e58>. (Accessed on April 15, 2020).

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C. Objectives of the Thesis The objective of this paper is to assess the legal standing of the parodist under copyright and trademark law, with specific focus on the international trends towards through an analysis of different key territories on works that re-use the existing and original works of others. The paper also examines and explains the significance of caricature, parody, and pastiche in trademark that will justify legal accommodation under the trademark regime as an ideal solution. Ultimately, the aim of this paper is to justify and encourage the creation and distribution of caricature, parody, and pastiche by protecting the parodist from potential copyright and trademark persecution. This will help provide an environment conducive for creativity, expression, and commercialization of such works in a balanced and fair manner that will be ultimately beneficial to society as a whole, without carving out too much of the copyright and trademark owner’s exclusive rights. The objectives of this thesis are: 1.

To examine caricature, parody, and pastiche as a force of culture with economic and social footholds in daily life and the Philippine law and principles concerning works of caricature, parody, and pastiche, both as subjects of copyright and of trademark; 2. To review the legal treatment of parodies in several key countries, with a view to identifying possible regulatory options for a parody exception to copyright and trademark infringement, and distilling the underlying principles and standards developed by legislators and courts; and 3. To establish and justify the need to adopt an exclusionary rule as an adequate, and fair means of harmonizing the interests of the creator of the original work that is being parodied and the creator of the parody not only towards self-expression but, within limits, to monetize their work.

D. Methodology, Scope and Delimitations This paper will deal primarily, though not exclusively, with caricature, parody, and pastiche forming as its basis a creative work which results to a new creative work, i.e, visual art, film, music, prose, as well as those that result to a new trademark. In either case, it will be presumed that such use is without permission of the artist of the original creative work. It will go through case law involving caricature, parody, and pastiche facing copyright or trademark challenge. In reviewing the legal treatment of caricature, parody, or pastiche

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in key countries, this paper will cover selected jurisdictions such as countries with an explicit caricature, parody, or pastiche exception (Australia, France), countries that accommodate caricature, parody, or pastiche within a wider “fair use” or ‘fair dealing’ provision (UK) as well as a country with no legal structure recognizing or protecting a work or mark as a caricature, parody, or pastiche ( Japan). This paper shall deal only with caricature, parody, and pastiche vis-à-vis trademark and copyright infringement and shall not delve into other possible culpabilities and liabilities such works may be the subject of, such as libel or defamation laws.

E. Definition of Terms Caricature – a picture, description, or imitation of a person in which certain striking characteristics are exaggerated in order to create a comic or grotesque effect. Pastiche – A creative work that imitates another author or genre or consisting of a medley of pieces taken from various sources, the purpose of which is to pay respect, or honor, works of the past. Pastiche differs from parody in that pastiche isn’t making fun of the works it imitates – however, the tone of pastiche is often humorous. Parody – A parody is a work that is created by imitating an existing original work in order to make fun of or comment on an aspect of the original. Parodies can target celebrities, politicians, authors, a style or trend, or any other interesting subject. For the purposes of this study, caricature, parody, and pastiche may be collectively referred to as “parody”, unless the context of the discussion suggests a sole allusion to parody. Parodic Trademark – For the purpose of this paper, a parodic trademark shall be shall be understood to be a trademark created by employing caricature, parody or pastiche upon another trademark. Parodist – A parodist, for the purpose of this paper, shall pertain to the artist or creator of the work of caricature, parody or pastiche.

II. Philippine Treatment of Caricature, Parody, and Pastiche Caricature, parody, and pastiche are distinct art languages that achieve their ends by imitating the expression and ideas of another, mostly serious works in a satiric or, in the case of pastiche, laudatory manner. To be effective then, the caricature, parody, and pastiche must observably copy or appropriate various elements of the original

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work. Are all works that derive some aspect of its form or substance from an earlier work, then, a caricature, parody, or a pastiche? Is the seminal musical Cats, for instance, a parody or pastiche of the 1939 poetry collection Old Possum’s Book of Practical Cats by T. S. Eliot? The answer is decidedly in the negative. Whereas other works strive to conceal as much as possible, the original work’s influence, caricature, parody, and pastiche are unique in that they actively seek and require that the consumer of the art be familiar with the original work, otherwise the reference is lost and the commentary or mockery is impotent, like an inside joke heard by someone who does not possess the required prior knowledge for the punchline to land. Because of the overtly imitative and referential nature of caricature, parody, and pastiche, they often tread that line between inspiration and plagiarism, and if not pulled away from the brink of the latter, run afoul of intellectual property laws. The word “plagiarism” has Arabic roots and it is defined as “picking and stealing” by Turkish Linguistic Society. Plagiarism is usage of some idea, element, or some genuine formation such as tune, completely or partly, that was already used in some scientific or artistic work, without attribution from the source, as if it is the 22 plagiarist’s own work. Briefly, plagiarism is some method of picking. Says the Supreme Court of the nature of plagiarism; “Plagiarism, a term not defined by statute, has a popular or common definition. To plagiarize, says Webster, is “to steal and pass off as one’s own” the ideas or words of another. Stealing implies malicious taking. Black’s Law Dictionary, the world’s leading English law dictionary quoted by the Court in its decision, defines plagiarism as the “deliberate and knowing presentation of another person’s original ideas or creative expressions as one’s own.” The presentation of another person’s ideas as one’s own must be deliberate or premeditated—a taking with ill 23 intent.” Since caricature, parody, and pastiche necessarily depend on the existence of a progenitor work usually of another artist or creator, the rights of the latter over his or her intellectual property come into play, as well as the laws that protect and govern such rights. To what extent and under what terms can the owner of a creative work be protected from plagiarism or unconsented copying of this work when 22 Atalay, supra note 6. 23 In the Matter of The Charges Of Plagiarism, Etc., Against Associate Justice Mariano C. Del Castillo (Per Curiam), A.M. No. 10-7-17-SC, February 8, 2011.

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that work is made the subject of a caricature, parody, and pastiche? As the Court found in the leading copyright and parody case decided by the Supreme Court of the United States, Campbell v. Accuff-Rose Music: “Because parody may quite legitimately aim at garroting the original, destroying it commercially as well as artistically, the role of the courts is to distinguish between biting criticism that merely suppresses demand and copyright infringement, 24 which usurps it.”

A. COPYRIGHT ON PARODIC WORKS 1. Intellectual Property Code The U.S. Supreme Court has noted that copyright law serves two primary objectives: “to assure contributors to the store of knowledge a fair return for their labors,” and “motivate the creative activity of authors and inventors . . . in order to benefit the public.”25 This mirrors the State Policy of our IP Code that recognizes that an effective intellectual and industrial property system is vital to the development of domestic and creative activity, attracts foreign investments, and ensures market access for our products. Intellectual property rights are included in the right of private property ownership and are key to promoting and encouraging innovation, invention, and brand identities through a legal system that allows creation of intellectual property and protection of the rights holders. These systems of protection can encourage new business development, reduce 26 inefficiencies, and induce technology acquisition and creation. The IP Code sets itself to protect and secure the exclusive rights of scientists, inventors, artists and other gifted citizens, to their intellectual property and creations, particularly when beneficial to 27 the people. It identified “intellectual property rights” to consists of a) Copyright and Related Rights; b) Trademarks and Service Marks; c) Geographic Indications; d) Industrial Designs; e) Patents; f) LayoutDesigns (Topographies) of Integrated Circuits; and g) Protection of 28 Undisclosed Information. Copyright is a collection of legal protection or rights extended to the owner of an artistic or literary work. Copyright confers the

24 Campbell v. Acuff-Rose Music, 510 Us 569, 591–592 (1994). 25 Harper & Row, Publishers, Inc. v. Nation Enter., 471 U.S. 539, 546 (1985). 26 Kemp, D., Forsythe, Land Jones, I. (2015). Parody in Trademark Law: Dumb Starbucks Makes Trademark Law Look Dumb. 14 J. MARSHALLREV. INTELL. PROP. L. 143. 27 R.A. No. 8293, as amended by R.A. Nos. 9150, 9502, and 10372, Sec. 2. 28 Id. at Section 4.1.

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exclusive right upon a copyright owner to authorize the copying of the relevant copyright work, or other acts in relation to the work such as performance, broadcasting and issuing to the public. The objects of Copyright can be divided into two; original works and derivative works. Original works are enumerated in Section 172 of the IP Code and 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.29 as follows; Sec. 172. Literary and Artistic Works. 172.1. Literary and artistic works, hereinafter referred to as “works”, are original intellectual creations in the literary and artistic domain protected from the moment of their creation and shall include in particular: (a) Books, pamphlets, articles and other writings; (b) Periodicals and newspapers; (c) Lectures, sermons, addresses, dissertations prepared for oral delivery, whether or not reduced in writing or other material form; (d) Letters; (e) Dramatic or dramatico-musical compositions; choreographic works or entertainment in dumb shows; (f) Musical compositions, with or without words; (g) Works of drawing, painting, architecture, sculpture, engraving, lithography or other works of art; models or designs for works of art; (h) Original ornamental designs or models for articles of manufacture, whether or not registrable as an industrial design, and other works of applied art; (i) Illustrations, maps, plans, sketches, charts and three-dimensional works relative to geography, topography, architecture or science; ( j) Drawings or plastic works of a scientific or technical character; (k) Photographic works including works produced by a process analogous to photography; lantern slides; (l) Audiovisual works and cinematographic works and works produced by a process analogous to cinematography or any process for making audio- visual recordings;

Id. at Section 172.2.

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(m) Pictorial illustrations and advertisements; (n) Computer programs; and (o) Other literary, scholarly, scientific and artistic works. Derivative works, on the other hand, are works based upon one or more preexisting work such as dramatizations, translations, adaptations, abridgments, arrangements, and other alterations of literary or artistic works; collections of literary, scholarly or artistic works, and compilations of data and other materials which are original by reason of the selection or coordination or arrangement of their contents.30 They are as protected as new works. Nevertheless, the law is also quick to add that such copyright protection “shall not affect the force of any subsisting copyright upon the original works employed or any part thereof, or be construed to imply any right to such use of the original works, or to secure or extend copyright in such original works.”31 This means that if an individual uses the copyrighted work of another in order to create a proper derivative work, he would nonetheless be bound to respect the copyright subsisting in the original underlying work. Consent from such original author would still be necessary. Pursuant to Section 193 of the Intellectual Property Code, as amended, upon creation of the works covered by copyright protection, the owner or author of the said works are instantly afforded two (2) types of rights, to wit: (a) economic rights, which include the owner’s right to the reproduction of the work or substantial portion of the work; dramatization, translation, adaptation, abridgment, arrangement or other transformation of the work; the first public distribution of the original and each copy of the work by sale or other forms of transfer of ownership; rental of the original or a copy of an audio-visual 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; public display of the original or a copy of the work; public performance of the work; and other communication to the public of the work; and (b) moral rights, which include the right of attribution, alteration, integrity of work, withholding of publication and the right to restrain the use of his name for a work not his. In addition to this, the law also recognizes the “related rights” or “neighboring rights” of performers, producers of sound recording, and broadcasting organizations as regards the communication of their performances, sound recordings, and broadcasts to the public.

30 31

Id. at Section 173.1. Id. at Section 173.2.

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Note that the list of exclusive rights would seem to allow an author of the original work to control caricature, parodies, and pastiches, as well as non-parodies, of such work given that they would amount the “adaptation, abridgment, arrangement or other transformation” of the original work. Copyright protection, however, when it does apply, is not absolute. The IP Code recognizes the limitations of copyright in Section 184, i.e., acts that shall constitute as allowable use of the copyrighted works provided that: (a) such manner of use shall not conflict with the normal utilization or exploitation of the work; and (b) shall not unreasonably prejudice the right holder’s legitimate interests. Among these, the most common limitation on copyright is the concept of “fair use” as provided under Section 185.1 of the Intellectual Property Code. As mentioned, caricature, parody, and pastiches, do not appear anywhere in the texts of the IP Code, its implementing rules and regulations or its subsequent amendments. The most common defense of the authors of caricature, parody, and pastiche, however, both in the Philippines and, as will be observed later on, several jurisdictions, against violations of copyright is the concept of “Fair Use”.

2. Fair Use The need to frame specific exceptions to the use of copyrighted work arose from the realization, prevalent especially in the British and American jurisdictions, that the grant of copyright protection carried with it a virtual monopoly over the use of information. There was no question that such a monopoly would have been warranted: creators of works must be rewarded for the fruits of their intellectual efforts. Reward incentivizes further exertion. Nevertheless, it was also clear that private motivation must ultimately serve the cause of promoting broad public availability of literature, music, and other arts. The imposition of time limits after which works lapsed into the public domain was geared towards that cause, but it was not sufficient. What was necessary was immediate use of timely material. Thus, authorities were hard-pressed to create a balance within which the public could legitimately use copyrighted works, notwithstanding the grant of exclusive rights.32 In assessing the particular difficulties posed by parody to copyright law, the Supreme 33 Court in Campbell v. Acuff-Rose Music held that parody presented ‘a difficult case’ since its ‘humour’ or ‘comment’ arises from the: “recognizable allusion to its object through 32 Bernardo, P. (2008). Transformative Adaptation, Performance, and Fair Use of Literary and Dramatic Works: Delineating the Rights of Playwrights and Adapters. 53 ATENEO L.J. 582. 33 Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569 (1994).

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distorted imitation. Its art lies in the tension between a known original and its parodic twin … Once enough has been taken to assure identification, how much more is reasonable will depend … on the extent to which the … overriding purpose and characters to parody the original or, in contrast, the likelihood that the parody may serve as a market substitute for the original. It is from this tension that the Doctrine of Fair Use 34 developed. Fair Use was first applied in the United States in Folsom v. Marsh,35 where the alleged infringer had copied 353 pages from the original author’s 12-volume biography of George Washington to make a twovolume work. The court rejected the infringer’s Fair Use defense with the following explication of the doctrine: “…a reviewer may fairly cite largely from the original work, if his design be really and truly to use the passages for the purposes of fair and reasonable criticism. On the other hand, it is as clear, that if he thus cites the most important parts of the work, with a view, not to criticize, but to supersede the use of the original work, and substitute the review for it, 36 such a use will be deemed in law a piracy. From the Folsom case, the doctrine developed into a privilege granted to persons other than the original author to use copyrighted material in a reasonable manner without prior consent, notwithstanding the monopoly granted to the owner by copyright. “It is a rule of reason fashioned by judges to balance the author’s right to compensation for his work on the one hand against the public’s interest in the widest 37 possible dissemination of ideas and information on the other.” Fair Use is therefore pleaded as an affirmative defense to imputations of copyright infringement. The thrust thereof is an admission that the act is one of infringement but owing to the attendant circumstances, such infringement is justified and will result to no culpability. The alleged infringing user would then have the burden of proving that his use, while technically an infringement, is justified under Fair Use. Under Philippine law, the determination of what constitutes fair 34 Bernardo, supra at note 32. 35 Folsom v. Marsh, 9 F.Cas 342 (Circ. Mass. 1841). 36 Id. 37 Kotzeva, D., (2002). Public and Private Interests in Copyright Law: Creativity, Science and Democracy vs. Property and Market. LLM Theses and Essays. University of Georgia School of Law. Available at: <https://digitalcommons.law.uga.edu/stu_llm/26>. (Accessed on April 10, 2020).

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use depends on several factors. Section 185 of the Intellectual Property Code states: SECTION 185. Fair Use of a Copyrighted Work. — 185.1. the fair use of a copyrighted work for criticism, comment, news reporting, teaching including limited number of copies for classroom use, scholarship, research, and similar purposes is not an infringement of copyright. Decompilation, which is understood here to be the reproduction of the code and translation of the forms of a computer program to achieve the interoperability of an independently created computer program with other programs may also constitute fair use under the criteria established by this section, to the extent that such decompilation is done for the purpose of obtaining the information necessary to achieve such interoperability. In determining whether the use made of a work in any particular case is fair use, the factors to be considered shall include: a. The purpose and character of the use, including whether such use is of a commercial nature or is for non-profit educational purposes; b. The nature of the copyrighted work; c. The amount and substantiality of the portion used in relation to the copyrighted work as a whole; and d. The effect of the use upon the potential market for or value of the copyrighted work. The Supreme Court defined fair use as “a privilege to use the copyrighted material in a reasonable manner without the consent of the copyright owner or as copying the theme or ideas rather than their expression.”38 Fair use is an exception to the copyright owner’s monopoly of the use of the work to avoid stifling “the very creativity 39 which that law is designed to foster.” Determining fair use requires application of the non-exclusive four-factor test. Noticeably, Sec. 185 does not provide any guidance for the actual application of such factors, except for distinguishing commercial and non-profit educational use in factor one. This has been left largely for the courts to interpret on a case-to-case basis. The factors are guidelines for courts to consider when determining whether a use of copyrighted material is fair. No one factor is

38 39

Habana v. Robles, 369 Phil. 764 (1999). ABS-CBN Corporation v. Felipe Gozon, et al., G.R. No. 195956 March 11, 2015.

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determinative. The purpose of the factors is to protect the marketing monopoly of the copyright owner against unfair intrusion, and both the type of work and the kind of use involved must be related to that 40 purpose.

a. The purpose and character of the use, including whether such use is of a commercial nature or is for non-profit educational purposes; First, the purpose and character of the use of the copyrighted material must fall under those listed in Section 185. Thus, the copying must be for the purposes of: “criticism, comment, news reporting, teaching including multiple copies for classroom use, scholarship, research, and similar purposes.”41 The purpose and character requirement is important in view of copyright’s goal to promote creativity and encourage creation of works. Hence, commercial use of the copyrighted work can be weighed against fair use. This criterion analyzes the degree of transformation accomplished by the new work by determining whether the new work has a different 42 purpose or character than that of the original copyrighted work. In this case, a parody must accomplish a transformative purpose by adding something entirely new to the copyrighted work or does the new work only supplant the original copyrighted work. The crucial issue in ascertaining the transformative nature of the new work is whether the parody has altered the copyrighted work by adding new expression and meaning to the original copyrighted work.43 The court must look into whether the copy of the work adds new expression, meaning, or message to transform it into something else. In a parody, for example, a work does not become a parody simply because the author models, characters, or elements the parody after the work of another. That replication by itself, would not absolve the parodist of copyright infringement. Instead, the parodist transforms the original by holding it up to ridicule. While it is this factor that most closely ties in caricature, parody, and pastiche with Fair Use as a defense against imputations of copyright infringement because of the transformative element, this factor also presents a considerable challenge. In the case of ABS-CBN Corporation v. Felipe Gozon et al.,44 ABS-

40 Amador, V. (2007) Copyright Under The Intellectual Property Code (2007) Quezon City; C&E. page 483. 41 Sec. 185, supra at note 27. 42 Bunker, M.D. (2005). Transforming The News: Copyright And Fair Use In News-Related Contexts. Journal of the Copyright Society of the U.S.A. 52. 309-327. 43 Id. 44 Supra at note 39.

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CBN filed a criminal case against Gozon et al. of GMA-7 for copyright infringement for having aired video footage shot by the former of the arrival and homecoming of OFW Angelo dela Cruz at NAIA from Iraq. GMA-7 had received a feed of the footage thru Reuters, who had a special embargo agreement, a condition of which was that it would be for the “use of Renter’s international subscribers only.” GMA-7’s defense, among others, was that the footage is a short excerpt of an event’s “news” footage and is covered by fair use. On this, Supreme Court observed that the purpose and character of the use of the copyrighted material must fall under those listed in Section 185, thus: “criticism, comment, news reporting, teaching, scholarship, research, 45 and similar purposes.” This imposes a restriction on the purpose of the work of caricature, parody or pastiche. As various definitions of the terms have come to show, said techniques are sometimes playful and appreciative, aimed no further than at entertainment and humor, rather than criticism or commentary. This objection ties in with the another defense of parody in copyright infringement; the constitutional freedom of expression.

b. The Nature of the Copyrighted Work; Second, the nature of the copyrighted work is significant in deciding whether its use was fair. This factor implies a hierarchy in that certain types of works are simply more deserving of copyright protection than other types. This consequently establishes the scope of copyright protection that should be afforded the original copyrighted work. For instance, the scope of fair use is greater for an “informational work” that is designed to inform or educate, such as a work of facts, information, scholarship, or news reporting, than it is for a more “creative work”, such as a work of fiction, art or music, that is designed to provide 46 entertainment. Foreign courts have also been known to consider whether the work that is copied is published or unpublished. In Salinger v. Random 47 House, author J.D. Salinger sued a biographer for having paraphrased portions of letters he authored. The problem is that Salinger had never authorized their reproduction or publication, even though it appears copies of said letters were available in some libraries. Despite the scholarly purpose of the proposed biography, the Court would not permit the unauthorized paraphrasing of Mr. Salinger’s unpublished 45 The Supreme Court, however, did not make a determination on the applicability of fair use. Their opinion was that such was a matter of defense, and thus, not the subject of the petition centered on the issue of probable cause. It nevertheless upheld that there was probable cause as while news is the subject of fair use, the case was about the footage used, which was an expression of news. 46 FindLaw. (2017). Parody: Fair Use Or Copyright Infringement. [online] Available at: <https://corporate. findlaw.com/intellectual-property.html>. (Accessed on April 28, 2020). 47 Salinger v. Random House, 811 F.2d 90 (2d Cir. 1987).

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letters as a fair use. The case illustrated that scope of fair use is narrower with respect to unpublished works because of the author’s right to control the first public appearance of his or her expression. How then is the nature of original work to be assessed in relation to caricature, parody, and pastiche by the metrics of this second factor? If the original work is a creative one, meant only for entertainment, for instance, how would Fair Use as set by the IP Code determine the primacy it should have for a work of parody or pastiche that shares the same broad purpose? This would appear to invariably force the court to make the subjective determination as to which, between contending expressions of art with a common purpose or nature, is more important.

The Amount and Substantiality of the Portion Used in Relation to the Copyrighted Work as a Whole;

The crucial determination is whether the quality and value of the material copied from the original copyrighted work is “reasonable” in relation to the purpose of copying. There is no black and white rule that sets forth an absolute ratio or quantity of words that may be used of the original work that would ensure a finding of fair use. Instead, there have been circumstances where a court has found that the use of an entire work was fair use; while under different circumstances the use of a small fraction of a work failed to qualify as a fair use. This factor not only evaluates the quantity that has been copied but also the quality and importance of the copied material. The courts, when analyzing this factor evaluate whether the user of the original copyrighted material has taken any more of the original work than was necessary to achieve the purpose of the user. Hence, an exact reproduction of a copyrighted work, compared to a small portion of it, can result in the conclusion that its use is not fair. There may also be cases where, though the entirety of the copyrighted work is used without consent, its purpose determines 49 that the usage is still fair. For example, a non-commercially parody using a substantial amount of copyrighted work may be permissible as fair use as opposed to a copy of a work produced purely for economic gain. Foreign jurisprudence demonstrated that a parodist is permitted to borrow even the heart of the original work. This is because the defining feature of caricature, parody, and pastiche, is that they need to conjure up the original work. As the US Supreme Court has acknowledged, “the heart is also what most readily conjures up the

48 Stim, R. (n.d.) Fair Use; Four Factors Courts Consider in a Copyright Infringement Case. [online] Available at <https://www.nolo.com/legal-encyclopedia.html>. (Accessed on May 1, 2020). 49 Bunker, supra at note 42.

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[original] for parody, and it is the heart at which parody takes aim.” This principle, however, has yet to mark Philippine jurisprudence.

d. The Effect of the Use Upon the Potential Market for or Value of the Copyrighted Work Lastly, the effect of the use on the copyrighted work’s market is also weighed for or against the user. This factor evaluates the extent of harm that is caused by the new work to the market or potential market for the original copyrighted work. The “potential” as well as “actual” financial harm that is or may be done to the original copyrighted work, as well any harm that may be caused to any existing or possible future derivative works are taken into account. When the new work becomes a substitute for, or makes the purchase unnecessary of the original copyrighted work then it is highly unlikely that the courts would sanction such use as being a fair use of the original work. The courts have expressed this standard by finding that an unauthorized use is not a fair use when the unauthorized use diminishes or negatively impacts the potential sale of the original copyrighted work, interferes with the marketability of the work, or fulfills the demand 51 for the original copyrighted work. Loss to the original artist may occur even if the new work is not competing directly with the original work. To illustrate, Rogers v. Koons52 an artist used a copyrighted photograph without permission as the basis for wood sculptures, copying all elements of the photo and earning profit in their subsequent sale. When the photographer sued, the artist claimed his sculptures were a fair use because the photographer would never have considered making sculptures. The Court disagreed, stating that it did not matter whether the photographer had considered making sculptures; what mattered was that a potential market for sculptures of the photograph existed. The application of this factor, at least by foreign jurisprudence, however, appears to be different in the case of caricature, parody, and pastiche. Under the US application of Fair Use, it is possible that a parody may diminish or even destroy the market value of the original work. That is, the parody may be so good that it overtakes the original work in the eyes of the public. Although this may cause a loss of income, it’s not the same type of loss as when an infringer 53 merely appropriates the work. As explained in Fisher v. Dees, “The economic effect of a parody with which we are concerned is not its potential to destroy or diminish the market for the original—any bad review can have that effect—but whether it fulfills the demand for the 50 51 52 53

Campbell v. Acuff-Rose Music, 510 U.S. 569 (1994). Supra at note 39. Rogers v. Koons, 960 F.2d 301 (2d Cir. 1992). Fisher v. Dees, 794 F.2d 432 (9th Cir. 1986).

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original.”

3. Copyright Infringement The imitative character of caricature, parody, and pastiche means that they are always walking along the precipice of infringement of the copyright of its progenitor work. This is the implication when the Court held that “the test of copyright infringement is whether an ordinary observer comparing the works can readily see that one has been copied from the other.”54 A caricature, parody, or pastiche, as mentioned, is of the nature that the observer must readily see that it copied the work of another, otherwise, it ceases to be a caricature, parody, or pastiche. Here, we find the nature of a thing to be the very definition of a legal transgression. Under Philippine law, copyright infringement occurs when there is a violation of any of the exclusive economic or moral rights granted 55 to the copyright owner. It may also consist in aiding or abetting such infringement. The IP Code also provides for the liability of a person who at the time when copyright subsists in a work has in his possession an article which he knows, or ought to know, to be an infringing copy of the work for the following purposes: (a) selling or letting for hire, or by way of trade offering or exposing for sale or hire, the article; (b) distributing the article for the purpose of trade, or for any other purpose to an extent that will prejudice the rights of the copyright owner in the work; or (c) trade exhibit of the article in public. Under the IP Code, the copyright owner can file a criminal, civil or administrative action for copyright infringement. Recourse against copyright infringement is an inextricable element of copyright protection. As early as 1914, the Supreme Court, in Laktaw v. Paglinawan, justified copyright protection under a legal doctrine that generally favours the creator of the original work; “Nobody may reproduce another person’s work without the owner’s consent, even merely to annotate 56 or add anything to it, or improve any edition thereof.” Copyright protection extended to the creator should ensure his attainment of some form of personal satisfaction and economic reward from the work he produced. Said the Court further, quoting Manresa and explained: “He who writes a book, or carves a statute, or makes an invention, has the absolute right to reproduce or 54 55 56

Supra at note 38. Section 216, supra at note 27. Laktaw v. Paglinawan, G.R. No. L-11937 April 1, 1918.

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sell it, just as the owner of the land has the absolute right to sell it or its fruits. But while the owner of the land, by selling it and its fruits, perhaps fully realizes all its economic value, by receiving its benefits and utilities, which are represented for example, by the price, on the other hand the author of a book, statue or invention does not reap all the benefits and advantages of his own property by disposing of it, for the most important form of realizing the economic advantages of a book, statue or invention, consists in the right to reproduce it in similar or like copies, everyone of which serves to give to the person reproducing them all the conditions which the original requires in order to give the author the full enjoyment thereof. If the author of a book, after its publication, cannot prevent its reproduction by any person who may want to reproduce it, then the property right granted him is reduced to a very insignificant thing and the effort made in the production of the book is in no way rewarded.”57 The execution, therefore, of any one or more of the exclusive rights conferred by law on a copyright owner, without his consent, and not under the limitations of copyright, constitutes copyright infringement. In essence, copyright infringement, known in general as “piracy,” is a trespass on a domain owned and occupied by a copyright owner; it is violation of a private right protected by 58 law. With the invasion of his property rights, a copyright owner is naturally entitled to seek redress, enforce, and hold accountable 59 the defrauder or usurper of said economic rights. Of course, the century that has passed since the rigid doctrine of the Laktaw case has seen our laws in copyright law and jurisprudence flourish, though not quite adapting to the speed with which caricature, parody, and pastiche now proliferate the Philippine society’s everyday interactions. The latest amendment to the IP Code was as recent in 2013, in the form of Republic Act No. 10372. The Act made significant changes to the provisions concerning Copyright, including expanding who shall be liable for copyright infringement. Under the amended Section 216 of the IP Code, a person infringes copyright when one: (a) Directly commits an infringement; (b) Benefits from the infringing activity of another person who commits an infringement if the person benefiting has been given notice of the infringing activity and has

57 Supra at note 56. 58 Columbia Pictures, Inc. v. Court of Appeals, G.R. No. 110318 August 28, 1996, 183-184 [1996] citing 18 C.J.S. §90; 18 AM JUR 2D, Copyright and Literary Property, §106 (hereinafter 18 AM JUR 2D). 59 Id.

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the right and ability to control the activities of the other person; or (c) With knowledge of infringing activity, induces, causes or materially contributes to the infringing conduct of another. Yet, Republic Act No. 10372 forewent the opportunity to provide an explicit exemption for caricature, parody, and pastiche, ignoring international trend and leaving the uncertainties and ambiguities of the Fair Use doctrine as it applies to caricature, parody, and pastiche right where it has languished for decades.

B. Trademark Law on Parodic Marks Trademark and tradename have a drastically different profile than copyright. The Supreme Court has been empathic in distinguishing the two intellectual properties. In Pearl & Dean (Phil.), Inc. v. Shoemart, et al., the Court stressed that along with patents, trademark, and copyright “are different intellectual property rights that cannot be interchanged with one another. A trademark is any visible sign capable of distinguishing the goods (trademark) or services (service mark) of an enterprise and shall include a stamped or marked container of goods. In relation thereto, a trade name means the name or designation identifying or distinguishing an enterprise. Meanwhile, the scope of a copyright is confined to literary and artistic works which are original intellectual creations in the literary and artistic domain protected from the moment of their creation.”60 Years later, the principle is echoed in cases such as Fernando U. Juan, v. 61 Roberto U. Juan and Laundromatic Corporation; “By their very definitions, copyright and trade or service name are different. Copyright is the right of literary property as recognized and sanctioned by positive law. An intangible, incorporeal right granted by statute to the author or originator of certain literary or artistic productions, whereby he is invested, for a limited period, with the sole and exclusive privilege of multiplying copies of the same and publishing and selling them. Trade name, on the other hand, is any designation which (a) is adopted and used by person to denominate goods which he markets, or services which he renders, or business which he conducts, or has come to be so used by other, and (b) through its association with such goods, services or business, has acquired a special significance as the name thereof, and (c) the use of which for the purpose stated in (a) is prohibited neither by legislative enactment nor by

60 61

earl & Dean (Phil.), Incorporated v. Shoemart, Incorporated, And North Edsa Marketing, Incorporated, P G.R. No. 148222, August 15, 2003. Fernando U. Juan v. Roberto U. Juan and Laundromatic Corporation, G.R. No. 221732, August 23, 2017.

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otherwise defined public policy.”

The Juan v. Juan63 case suggests that trademarks differ from copyright not solely on the basis of the object of each, i.e., business brands and logo and artistic literary creations, respectively, but in terms of purpose. Trademarks serve to identify the source of a good or the provider of a service, thereby improving the quality of information in the marketplace. Copyright, on the other hand, secures the authors’ monopoly in their original works of authorship for a limited time and under certain reasonable conditions, with the ultimate goal of promoting the progress of science and the arts. Nevertheless, similar to copyright, there is no legislative instrument expressly positing an exemption for caricature, parody, and pastiche. As to the scope of trademark protection, the right holder has an exclusive right and the exceptions to this right are limited and allegedly exhaustive. Trademarks have been used in parodies to ridicule or comically exaggerate a product, service, or company. Without the use of the exact trademark, or a close distortion of it, it is assumed that one would not recognize the target of the criticism. Thus, the intent of the parody would not be realized. Conversely, the Philippines has borne witness to the phenomenon of creative entrepreneurs employing caricature, parody, or pastiche of creative works or other brands to come up with their trademarks. A few examples are the Harry Potter parody, “Hurry Cutter; The Barbershop;” a restaurant in Pampanga named “Mekeni Rogers,” a twist on the chain of chicken restaurants named after famous singer Kenny Rogers, and a wholesaler of balut in Batangas with its mark,“Starducks.” Spoofs Clothing is a clothing line with branches in malls which sells t-shirts with “spoofs” or parodies of various trademarks for “Intel Inside” (Inutel Inside), “KrispyKreme” (KrispyPata), “Heineken” (Heinakuh!). As amusing and seemingly harmless as it may be to the general public, the view from where the owner of the parodied trademark sits may be quite different. In general, the understandable sentiment of trademark owners is that in establishing and registering a trademark, the trademark owner would be secure of the knowledge of this exclusivity of use not only against those who may seek to profit from it, but from any detrimental effect such a third party use may inflict upon the trademark owner’s brand such as being the subject of ridicule.

62 63

Supra. Id.

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1. Intellectual Property Code The IP Code is not Philippine legislature’s first foray into defining property rights over trademarks. The first trademark law in place in the Philippines was the Order promulgated by Queen Maria Cristina of Spain n October 26, 1888, during the country’s Spanish 64 colonization. The Order accorded trademark rights to the person who registered first. Upon accession of the Philippines to the United States, Act No. 65 666 was enacted by the Philippine Commission on March 6, 1903. The Act abandoned the first-to-file registration system under the 1888 Order, and instead required prior actual use of the mark as the basis of acquiring ownership and exclusive rights. Act 666 was thereafter repealed when, on June 20, 1947, the Philippine Congress issued Republic Act No. 166 (R.A. No. 166), which was patterned after the U.S. Trademark Act of 1946, despite the fact that the Philippines had, by then, already gained independence a year prior. R.A. No. 166 retained its immediate predecessor’s first-to-use system of trademark 66 ownership. Act No. 166 was then amended on June 11, 1951 and on 67 June 16, 1953. Finally, on January 1, 1998, the Philippine Congress passed Republic Act No. 8293, otherwise known as the “Intellectual Property Code” of the Philippines. The IP Code defines a “mark” means any visible sign capable of distinguishing the goods (trademark) or services (service mark) of an enterprise and shall include a stamped or marked container of goods. As viewed by modern authorities, trademarks perform three distinct functions: (1) they indicate origin or ownership of the articles to which they are attached; (2) they guarantee that those articles come up to a certain standard of quality; and (3) they advertise the articles 68 they symbolize. Under the current iteration of Philippine trademark laws, the rights to a mark is “acquired through registration made validly 69 in accordance with the provisions of this law.” The provision inaccurately suggests that trademark rights are acquired by mere registration in accordance with the provisions of the IP Code. In truth, registration must be supplemented with actual use to lead to 64 Negre, F. (2007). Trademark Law in a Knotshell: From Caves to Cyberspace. BNUIP View. [online] Available at <http://www.iplaw.ph/ip-views/Trademark-Law-From-Caves-to-Cyberspace.html>. (Accessed on May 1, 2020). 65 ACT NO. 666 entitled, “An Act Defining Property In Trade-Marks And In Trade-Names And Providing For The Protection Of The Same, Defining Unfair Competition And Providing Remedies Against The Same, Providing Registration For Trade-Marks And Trade-Names, And Defining The Effect To Be Given To Registration Under The Spanish Royal Decree Of Eighteen Hundred And Eighty-Eight Relating To The Registration Of Trade-Marks And The Effect To Be Given To Registration Under This Act.” 66 R.A. No. 638. 67 R.A. No. 853. 68 Mirpuri v. Court of Appeals, G.R. No. 114508, November 19, 1999. 69 Section 122, supra at note 27.

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acquisition of trademark rights. Hence, the applicant or registrant’s failure to use the mark in commerce within specific periods of time from the filing date of the application leads to the rejection of the application or to the cancellation of the registration if the certificate 70 has been issued. A certificate of registration of a mark, per the IP Code, is a mere prima facie evidence of the validity of the registration, the registrant’s ownership of the mark, and of the registrant’s exclusive right to use the same in connection with the goods or services and those 71 that are related thereto specified in the certificate. It is subject to cancellation should the ownership of the registrant over the mark or the registrability of the mark itself later on be successfully disproven or nullified. When may a mark, then, be registered? The IP Code addresses this question by providing what cannot be the subject of trademark registration. Section 123 thereof states that a mark cannot be registered if it falls under particular circumstances, but the fundamental requirement for a sign to be registered as a trademark is that it be distinctive in respect to the goods or service for which it will be used in trade. This means that the mark must be capable of distinguishing 72 the goods and services in the course of trade. The distinctiveness of a mark for purposes of registration must be established on a case-tocase basis with regard to the particular goods and services for which the registration and use of the mark is sought. Jurisprudence has classified marks into a spectrum of distinctiveness. The nature of the classification depends on the relationship of the word or mark to the product or service. On the end of the spectrum sit the most protected marks designated as arbitrary or fanciful. A fanciful mark is that which comprise of an entirely invented or “fanciful” sign. It does not give the name, quality, or description of the product for which it is used, nor does it describe the place of origin, such that the degree of exclusiveness given to the mark is closely restricted.73 For example, “Kodak” had no meaning before it was adopted and used as a trademark in relation to goods, whether photographic goods or otherwise. An “arbitrary” trademark is usually a common word which is used in a meaningless context (e.g. “Apple” for computers). “Big Mac” falls under the class of fanciful or arbitrary marks as it bears no logical relation to the actual 74 characteristics of the product it represents. Suggestive marks get second level protection, which tends to

70 Amador, supra at note 40. 71 Section 138, supra at note 27. 72 Sec 121.1, supra at note 27. 73 Philippine Refining Co. Inc. v. Ng Sam, 115 SCRA 472, 476 (1982). 74 Keebler Co. v. Rovira Biscuit Corp., 624 F.2d 366 (1980).

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indicate the nature, quality, or a characteristic of the products or services in relation to which it is used, but does not describe this characteristic, and requires imagination on the part of the consumer to identify the characteristic. Suggestive marks invoke the consumer’s perceptive imagination. An example of a suggestive mark is Blu-ray, a new technology of high-capacity data storage. At the other end of the spectrum are the Generic and Descriptive marks. Generic marks are commonly used as the name or description of a kind of goods, such as “Lite” for beer or “Chocolate Fudge” for chocolate soda drink. Descriptive marks, on the other hand, convey the characteristics, functions, qualities or ingredients of a product to one who has never seen it or does not know it exists, such as 75 “Arthriticare” for arthritis medication. Generic marks cannot be registered under the IP Code. The same is true of descriptive mark, except when it has achieved a secondary meaning. Secondary meaning indicates that although the mark is on its face descriptive of the goods or services, consumers recognize the mark as having a source indicating function. Once it can be shown that a descriptive term or phrase has achieved this “second meaning” (the first meaning being the generally understood meaning of the term or phrase), a protectable trademark is developed. Secondary meaning can be achieved through long term use, or large amounts of advertising and publicity. Examples of which are “Selecta” for ice 76 77 cream treats and “Planters” for peanuts.

2. Confusing Similarity From the perspective of a trademark vying for registration, assuming the mark is sufficiently distinct to be protected according to the spectrum, or one contending against another mark alleging infringement, it will have to show that it is not a colorable imitation of a registered mark, thereby creating a likelihood of confusion by consumers. There are two kinds of confusion two types of confusion arising from the use of similar or colorable imitation marks, namely, confusion of goods (product confusion) and confusion of business (source or origin confusion). In Sterling Products International, 78 Incorporated v. Farbenfabriken Bayer Aktiengesellschaft, et al., the Court distinguished these two types of confusion, thus: [Rudolf ] Callman notes two types of confusion. The first is the confusion of goods “in which event 75 76 77 78

cdonald’s Corporation and McGeorge Food Industries, Inc., v. L.C. Big Mak Burger, Inc., et.al., G.R. No. M 143993, August 18, 2004. Arce Sons & Co. v. Selecta Biscuit Co., Inc., L-17981, L-14761, January 28, 1961. Philippine Nut Industry, Inc. v. Standard Brands Inc. et. al., G.R. No. L-23035 July 31, 1975. Sterling Products International, Incorporated v. Farbenfabriken Bayer Aktiengesellschaft, et. al., G.R. No. L-19906, April 30, 1969.

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the ordinarily prudent purchaser would be induced to purchase one product in the belief that he was purchasing the other.” x x x The other is the confusion of business: “Here though the goods of the parties are different, the defendant’s product is such as might reasonably be assumed to originate with the plaintiff, and the public would then be deceived either into that belief or into the belief that there is some connection between the plaintiff and defendant which, in fact, does not exist.” Thus, while there is confusion of goods when the products are competing, confusion of business exists when the products are non-competing but related enough to produce an assumption of 79 affiliation. The Supreme Court determines the issue of ‘likelihood of confusion’ by applying one of two tests. namely, the Dominancy Test and the Holistic or Totality Test— In determining similarity and likelihood of confusion, jurisprudence has developed two tests: the Dominancy Test and the Holistic or Totality Test. The Dominancy Test focuses on the similarity of the prevalent features of the competing trademarks that might cause confusion and deception, thus constituting infringement. If the competing trademark contains the main, essential and dominant features of another, and confusion or deception is likely to result, infringement takes place. Duplication or imitation is not necessary; nor is it necessary that the infringing label should suggest an effort to imitate. The question is whether the use of the marks involved is likely to cause confusion or mistake in the mind of the public or to deceive purchasers. Courts will consider more the aural and visual impressions created by the marks in the public mind, giving little weight to factors like prices, quality, sales outlets, and market segments. In contrast, the Holistic Test entails a consideration of the entirety of the marks as applied to the products, including the labels and packaging, in determining confusing similarity. The discerning eye of the observer must focus not only on the predominant words but also on the other features appearing on both labels in order that the observer may draw his

Agpalo, R. (2000). The Law on Trademark, Infringement and Unfair Competition. 1st ed. 45- 46.

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conclusion whether one is confusingly similar to the other. Yet, even with the established tests, the Court recognizes that determining ‘likelihood of confusion’ must be made on a case-to-case basis. In Esso Standard, Inc. v. Court of Appeals,80 the Supreme Court ruled that: “the likelihood of confusion is a relative concept; to be determined only according to the particular, and sometimes peculiar, circumstances of each case. In trademark cases, even more than in other litigation, precedent must be studied in the light of the facts of the particular case. The wisdom of the likelihood of confusion test lies in its recognition that each trademark infringement case presents its own unique set of facts. Indeed, the complexities attendant to an accurate assessment of likelihood of confusion require that the entire panoply of elements constituting the relevant factual landscape be comprehensively examined.” The dilemma here of a parodic mark on a journey to registration or in defending against infringement is clear. On one hand, again, by its very nature, it needs to identify by reference another work or trademark which is the object of its caricature, parody, or pastiche. Confusing similarity, in this case, is a foregone conclusion, as not only must the similarity be enough to be apparent to the audience, but such similarity is by design. On the other hand, there is something to the argument that if a mark is a caricature, parody, or pastiche of another, then there is no realistic expectation of confusion by the public. There can be no confusion as to identity or source of the goods or services, when the consumers could not possibly have been fooled into believing that, for instance, the balut supplier, Starducks is by the same as coffee juggernaut Starbucks, even if the former started selling coffee, assumed a gradient of the latter’s green color palette and some semblance of its device. Take for instance the story of ‘DUMB Starbucks’. In February, 2014, in Los Angeles County, comedian Nathan Fielder opened a coffee shop which looked just like Starbucks, but in front of STARBUCKS and the names of all the products was the word “dumb.” Fielder announced and posted an online statement that DUMB STARBUCKS was a parody of STARBUCKS. While Starbucks did not file any suit against Fielder, many speculated on whether it would win if it did. One of the points that seems to garner general patronage is that people do not

sso Standard, Inc. v. Court of Appeals, G.R. No. L-29971 August 31, 1982, citing Thompson Medical Co. E v. Pfizer, Inc., 753 F. 2d 208, 225 USPQ 124 (2d Cir. 1985).

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flock to parody for the genuine article; they come for the novelty, to in on the joke, so to speak. Said a case study on the subject; “In DUMB STARBUCKS case consumers were not confused. The consumers did not believe they were buying Starbucks coffee. They stood in line for hours to get a cup that looked just like a Starbucks cup but had DUMB above the STARBUCKS name. They did that because Nathan Fielder was making a joke and they thought it was novel or that they might be on Fielder’s Comedy Central television show.”81 The scenario presents the interesting question of whether or not a parodic mark, despite fashioning for itself some feature similar with the mark it means to parody, by its recognizability as parody, be said to have secured for itself its own distinctiveness. For if not, not only is it barred from registration, but its use may leave its creator liable for trademark infringement.

3. Trademark Infringement Infringement starts with use of a trademark by a person not entitled thereto. Within the context of the IP Code, trademark infringement is committed by any person who, without the consent of the owner of the registered mark, shall: Sec 155.1 Use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark or the same container or a dominant feature thereof in connection with the sale, offering for sale, distribution, advertising of any goods or services including other preparatory steps necessary to carry out the sale of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive; or Sec 155.2 Reproduce, counterfeit, copy or colorably imitate a registered mark or a dominant feature thereof and apply such reproduction, counterfeit, copy or colorable imitation to labels, signs, prints, packages, wrappers, receptacles or advertisements intended to be used in commerce upon or in connection with the sale, offering for sale, distribution, or advertising of goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive,

81 Kemp, supra at note 26.

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shall be liable in a civil action for infringement by the registrant for the remedies hereinafter set forth: Provided, That the infringement takes place at the moment any of the acts stated in Subsection 155.1 or this subsection are committed regardless of whether there is actual sale of goods or services using the 82 infringing material. Case law provides the elements of infringement under R.A. No. 8293 as follows: (1) The trademark being infringed is registered in the Intellectual Property Office; however, in infringement of trade name, the same need not be registered; (2) The trademark or trade name is reproduced, counterfeited, copied, or colorably imitated by the infringer; (3) The infringing mark or trade name is used in connection with the sale, offering for sale, or advertising of any goods, business or services; or the infringing mark or trade name is applied to labels, signs, prints, packages, wrappers, receptacles or advertisements intended to be used upon or in connection with such goods, business or services; (4) The use or application of the infringing mark or trade name is likely to cause confusion or mistake or to deceive purchasers or others as to the goods or services themselves or as to the source or origin of such goods or services or the identity of such business; and (5) It is without the consent of the trademark or trade name owner or the assignee thereof. In the foregoing enumeration, it is the element of 'likelihood of confusion' that is the gravamen of trademark infringement. Proof of actual confusion therefore, is not required. Nevertheless, 'likelihood of confusion' is a relative concept. The particular, circumstances of each case are determinative of its existence. Thus, in trademark infringement cases, precedents must be evaluated in the light of each particular case. In the 'DUMB STARBUCKS' story, for instance, it would appear, at first glance, to have the trappings of trademark infringement for its adoption of the Starbucks’ mark. However, trademark infringement requires likelihood of confusion, and consumers were not confused or would not likely have been confused about the source of the coffee they obtained.

Section 155, supra at note 27.

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One may argue, perhaps, that DUMB Starbucks could dilute the value of the Starbucks mark by its mockery. Dilution can occur by blurring and/or tarnishment. However, such dilution can only occur if the parodic mark had the capacity to cause the public to be confused or mistaken or to deceived, in which case, we circle back to the ‘likelihood of confusion’ element of trademark infringement. Even with the tests developed to determine confusing similarity, our trademark laws seem ill-equipped to deal with parody and its nuanced construction. Application of the either Dominancy Test or Holistic Test–tests that attempt to quantify the otherwise abstract and fluid concept of colorable imitation does little to help in the proper judicial analysis when the very premise of a parodic mark is intentional imitation of an original mark. It is essential that a parody should be able to conjure up the original; otherwise it would not be a parody at all. In that regard, applying the statutory elements with rigidity to every person’s parodic use of a trademark, even in commerce, may 83 very well result in unduly burdening free speech.

C. Freedom of Expression Standing counterpoint to the right of the trademark and copyright owner to the exclusivity and monetization of their works is the parodist’s freedom of expression. Freedom of expression is a key human right, in particular because of its fundamental role in underpinning democracy. In The 1987 Constitution of The Republic of The Philippines, Article III Section 4 states, “No law shall be passed abridging the freedom of speech, of expression, or of the press, or the right of the people peaceably to assemble and petition the government for redress of grievances.” Article XVI, Section 10, on the other hand, provides that “The State shall provide the policy environment for the full development of Filipino capability and the emergence of communication structures suitable to the needs and aspirations of the nation and the balanced flow of information into, out of, and across the country, in accordance with a policy that respects the freedom of speech and of the press.” Jurisprudence expounds on this right, saying that the constitutional guarantee of freedom of expression means that “the government has no power to restrict expression because of its message, its ideas, its 84 subject matter, or its content.” 83 84

Supra. Social Weather Stations, Inc. and Kamahalan Publishing Corp. v. Commission on Elections, G.R. No. 147571 May 5, 2001.

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While the freedom of expression is sacrosanct, it is not without limits. This is reflected in laws such as the Revised Penal Code and Cybercrime Prevention Act of 2012, which criminalize libel committed both on the printed page and online space. The inhibition of speech should be upheld only if the expression falls within one of the few unprotected categories dealt with in Chaplinsky v. New 85 Hampshire , thus: “There are certain well-defined and narrowly limited classes of speech, the prevention and punishment of which have never been thought to raise any Constitutional problem. These include the lewd and obscene, the profane, the libelous, and the insulting or ‘fighting’ words - those which by their very utterance inflict injury or tend to incite an immediate breach of the peace. [S]uch utterances are no essential part of any exposition of ideas, and are of such slight social value as a step to truth that any benefit that may be derived from them is clearly outweighed by the social interest in order and morality.” Restraints on freedom of speech and expression are evaluated by either or a combination of three tests, i.e., (a) the dangerous tendency doctrine which permits limitations on speech once a rational connection has been established between the speech restrained and the danger 86 contemplated; (b) the balancing of interests test, used as a standard when courts need to balance conflicting social values and individual interests, and requires a conscious and detailed consideration of the interplay of interests observable in a given situation of type of situation; and the widely accepted test, (c) the clear and present danger rule which rests on the premise that speech may be restrained because there is substantial danger that the speech will likely lead to an evil the government has a right to prevent. This rule requires that the evil consequences sought to be prevented must be substantive, “extremely serious and the degree of imminence extremely high.” More recently, the Supreme Court has concluded that the generally adhered test is to 87 the clear and present danger test. It is the position of this paper that caricature, parody, and pastiche, when of the character that does not rise to the occasion that would justify the restraint on the constitutional freedom of expression under the three tests, should not therefore be hampered by a statutory protection of copyright or trademark. There are two aspects to freedom of expression: (1) freedom from 85 86 87

Chaplinsky v. New Hampshire, 315 U.S. 568, 571-572, 86 L. Ed. 1031, 1035 (1942). Cabansag v. Fernandez, 102 Phil. 151 (1957); Gonzales v. COMELEC, 137 Phil. 471 (1969). Francisco Chavez, v. Raul M. Gonzales, G.R. No. 168338, February 15, 2008.

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previous restraint or censorship; and (2) freedom from subsequent punishment. The first aspect is embodied in Section 4 of Article III of the Philippine Constitution. The second aspect is contained in Section 18 of the same Article, which reads as follows: “No person shall be detained solely by reason of his political beliefs and aspirations.” Freedom of expression, as traditionally understood, encompasses several other rights like the freedom of speech and of the press, of assembly, of petition, of religion, of association and of access to public information. In the same sense, copyright and trademark laws may be considered as restriction on the freedom of expression, albeit a valid one. Granting an exclusive right over a work to its creator may be viewed as a restraint to the freedom of speech and the sharing of knowledge because a copyright holder or trademark owner generally controls the dissemination of the work and can limit access and use of said content by a third person as component of the latter’s own expression. The restraint on freedom of expression is further apparent in the fact that violations of copyright and trademark, such as infringement, carries penalties of imprisonment, fine and may subject the offender to liabilities for civil damages awarded to 88 the copyright owner. Yet, this is considered a valid restraint as it is cinched with reasonable conditions such as the Fair Use provision and term limits. As discussed above, however, Fair Use as codified, provides, at best, fickle protection for parody works. Parody is a vital form of expression considered to be as valuable as political speech. It serves as a “humorous form of social commentary 89 and literary criticism that dates back as far as Greek antiquity.” This method of humor can be seen in periodicals, magazines, and other forms of publication. Moreover, caricature, parody, and pastiche are increasingly dominating the thematic output of the film, video, and television industries. Parodists have varying motivations for their artistic work: as entertainment, social commentary, or for commercial purposes.90 This speech is highly protected by the Constitution. Denying parodists the opportunity to poke fun at symbols and names that have become woven into the fabric of our daily life, would 91 constitute a serious curtailment of a protected form of expression. Says the Court in the case of Diocese of Bacolod v. Majarucon: “This court’s construction of the guarantee of freedom of expression has always been wary of censorship or subsequent punishment that entails evaluation of the speaker’s viewpoint or the content

88 Sec 170, supra at note 27. 89 Anheuser-Busch, Inc. v. Balducci Publications, 28 F.3d 769, 776 (8th Cir. 1994) citing L.L. Bean, Inc. v. Drake Publishers, Inc., 811 F. 2d 26, 28 (1st Cir. 1987). 90 Id. 91 Id.

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of one’s speech. This is especially true when the expression involved has political consequences. Xxx xxx The scope of the guarantee of free expression takes into consideration the constitutional respect for human potentiality and the effect of speech. It valorizes the ability of human beings to express and 92 their necessity to relate.” Freedom of expression arguments in trademark litigation have yet to gain a foothold in Philippine jurisprudence, and perhaps predictably so. Trademark infringement cases overwhelmingly involve commercial use of ‘junior marks’ copying a ‘senior’ mark within the setting of a commercial environment. In such a case, where the purpose is for profit and not expression, any claim of freedom of expression, at least from the perspective of the parodist, moves almost beyond the sphere of relevance. What could have been a landmark case of freedom of speech going up against trademark infringement was the case filed by Philippine Long Distance Telephone Co. (PLDT) against Gerry Kaimo, the registered owner of the “pldt.com” domain name in 2000. PLDT accused Kaimo of allegedly infringing on the telephone company’s trade name. PLDT sought a temporary restraining order from the court to prevent Kaimo from further using the domain name. Kaimo had registered that name with the US-based Network Solutions Inc. (NSI) and built a satirical website on it that attacked what he viewed as PLDT’s poor service and monopolistic behavior. The website also took swipes at then President Joseph Estrada and other political and business figures. In its complaint, PLDT claimed that Kaimo and his advocacy group Philippine League for Democratic Telecommunications, Inc. (PLDTi) have violated the company’s intellectual property right for using the trade name, which it has been using for more than 70 years. Kaimo’s defense was one of free speech. Ruling in favor of Kaimo, in an Order dated January 29, 2004, the Quezon City Regional Trial Court, Branch 90 denied the preliminary 93 injunction sough by PLDT while the case was being decided. The case never reached a resolution as the parties settled in 2006, with Kaimo turning over the pldt.com and pldt.org domain names to PLDT presumably for an undisclosed amount. A non-disclosure agreement 94 between the two parties was among the conditions of the settlement. 92 Diocese of Bacolod v. COMLEC Officer of Bacolod City, Atty. Mavil V. Majarucon, G.R. No. 205728, January 21, 2015. 93 Oliva E. (2004). PLDT loses dispute over ‘pldt.com’ domain name. NQ7.net [online] Available at <http:// archives.free.net.ph/message/20040204.025758.bc780bec.en.html>. (Accessed on April 15, 2020). 94 Oliva. E. (2006). Not a money settlement, PLDT says on domain name case. INQ7.net. [online] Available at <http://domaintrade.blogspot.com/2006/04/not-money-settlement-pldt-says-on.html>. (Accessed on May 26, 2020).

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Ultimately, freedom of speech mandates that “censorship” is allowable only under the clearest proof of a clear and present danger of a substantive evil to public safety, public morals, public health, or any other legitimate public interest. Within the context of trademark infringement, where, as covered above, the very existence of likelihood of confusion between the original mark and its parodic twin is cast under serious challenge, this paper would argue that the requirement of ‘clearest proof of clear and present danger of a substantive evil to public safety, public morals, public health or any other legitimate public interest’ has not been met as to constitute a valid restraint on the parodic mark.

III. The International Experience In the absence of a robust legal framework under Philippine copyright and trademark law on the treatment of caricature, parody, and pastiche, it becomes imperative to look into territories which have come to grips with the reality of such complex artistic constructs and have attempted to address their implication. It is expected that thus this exercise, possible regulatory options allowing for a parody exception to copyright and trademark infringement may be ascertained, while distilling the economic and non-economic rationales underlying tests developed by legislators and courts. The selection of territories examined is intended to represent a spectrum of recognition and protection, from countries with an explicit caricature, parody, or pastiche exception (Australia, France), countries that accommodate caricature, parody, or pastiche within a wider “fair use” or ‘fair dealing’ provision (UK, US) to a country with no legal structure recognizing or protecting a work or mark as a caricature, parody, or pastiche ( Japan).

A. AUSTRALIA 1. COPYRIGHT Australia is a country which has made room for the recognition of parody in its copyright legislation. Its parody exemption originally stemmed from Section 103AA of the Australian Copyright Act of 1968 (as amended) which states: “A fair dealing with an audio -visual item does not constitute an infringement of the copyright in the item or in any work or other audio-visual item included in the item if it is for the purpose of parody or satire” (emphasis added).

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This was expanded upon by the Australian Copyright Amendment Act which came into force in 2006, introducing a new parody exception under section 41A of the Australian Copyright Act 1968 (as amended). The section reads as follows: “A fair dealing with a literary, dramatic, musical or artistic work, or with an adaptation of a literary, dramatic or musical work, does not constitute an infringement of the copyright in the work if it is for the purpose of parody or satire.” The 2006 Act does not, however, define ‘parody’ or ‘satire.’ Before its 2006 amendment, the Australian copyright law provided for a restrictive Fair Dealing exception for purposes of: 95 96 97 research or study, criticism and review, and reporting news. Relative to research or study, a five factor doctrine is set out to 98 determine whether the dealing is ‘fair,’ which are reminiscent of the four factors of Fair Use. These include: (1) The purpose and character of the dealing; (2) The nature of the work or adaptation; (3) The possibility of obtaining the work or adaptation within a reasonable time at an ordinary commercial price; (4) The effect of the dealing upon the potential market for, or value of, the work or adaptation; and (5) In a case where part only of the work or adaptation is reproduced – the amount and substantiality of the part copied taken in relation to the whole work or adaptation. Strangely, said factors were exclusively directed by the statute to apply to the research and study exemption, but not for criticism and review, where parody might have fit in, and reporting news. For this reason, applying the fair dealing exception in the parody context has proved to be difficult for Australian courts. Then came the case of TCN Channel Nine v Network Ten,99 said to be what drove the Australia to the expansion of the Fair Dealing exception to encompass parody and satire under copyright law. In the said case, where Channel Nine brought a copyright infringement suit against Network Ten for broadcasting copyrighted material on a weekly television show. Network Ten’s show The Panel is described as

95 96 97 98 99

Section 40. Section 41. Section 42. Section 40.2. TCN Channel Nine Pty Ltd v Network Ten Pty Ltd [2001] F.C.A. 108.

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providing light entertainment centered on “discussions of topics such as current affairs, sports, and the arts” and frequently uses excerpts from other programming to make its point. This includes excerpts from Channel Nine programs. The Court applied the Fair Dealing exception provided for purposes of news reporting, since Fair Dealing then in place did not apply to parody or satire. However, the outcome raised criticism from the legal, media, and entertainment sectors for appearing ad hoc and unprincipled as the court’s approach relied heavily on the judges’ impression of fairness and resulted in varying opinions on which broadcasts, under the news reporting exception, were fair and 100 which were not. The Panel case showed Australian the abstruseness of copyright law in the matter of parody. The law was so uncertain that “it was impossible to determine whether a parody would constitute an infringement, except in cases where only the most trivial or de minimis 101 portions of copyright material was used.” The Australian legislature, in response, reworded section 41A of the Australian Copyright Act 1968 to add parody and satire to the list of exceptions considered Fair 102 Dealing. 103

In order to determine whether the Fair Dealing exemption applies to a work purporting to be a parody or satire, it must first determine whether the copyright user is genuinely using material for 104 parody or satire. The problem is that the statute did not provide a definition for parody and satire, leaving the task to the courts, which it appears to not have had the opportunity to do. It should be noted, however, that in an information sheet published in February 2012, the Australian Copyright Council stated that “it is likely that a court would look at dictionary definitions of the words to work out what 105 they mean” and gave definitions from the Macquarie Dictionary, which defined parody as follows: 1) A humorous or satirical imitation of a serious piece of literature or writing; 2) The kind of literary composition represented by such imitations; 3) A burlesque imitation of a musical composition; 4) A poor imitation; a travesty. Second, the fairness of the use is objectively assessed within the 106 work’s particular context. This may be done by considering whether the material is published or unpublished, the nature of the material, the nature of the use, the possibility of obtaining permission from the

100 Foster, M. (2013). Parody’s Precarious Place: The Need To Legally Recognize Parody as Japan’s Cultural Property. Seton Hall Journal of Sports and Entertainment Law, 23(2). 101 Mendis, supra at note 12. 102 Section 41A. 103 Section 40.2. 104 Foster, supra at note 99. 105 Id. 106 Id.

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rights holder, and whether there was any impropriety in obtaining the material.107 Assessment includes a determination whether there is interference with the copyright owner’s financial interest which can affect the value of the work and provide an unfair advantage to the parodist. As well as if a ‘substantial part’ of the original work was used is also considered when determining the scope for parody. By explicitly embracing parody and satire within its Fair Dealing exemption, Australia has taken a significant step in addressing parodybased copyright issues. It will be up to the courts to provide further judicial guidance in determining the proper boundaries within which Fair Dealing may operate.

2. TRADEMARK There is no general prohibition against parodic marks under Australian trademark law. Neither has it adopted the Fair Dealing Doctrine or even the Fair Use Doctrine of other jurisdictions. Nevertheless, the factors that it considers in determining whether a parodic mark infringes upon the trademark right of another share certain aspects of Fair Dealing. Specifically, the need to establish that the parodic mark is likely to mislead or deceive consumers. Section 57 of Trade Marks Act 1995 also gives a third party the right to oppose the registration of a trademark on a number of grounds. One of those grounds is that the trademark is substantially identical with, or deceptively similar to your trademark. Before the question of trademark infringement may even be addressed, the mark must first be shown to have been used as a mark. There is limited Australian authority dealing with parodic marks but, it is likely that Australian courts would recognize that use of satirical 108 versions of well-known marks does not constitute use as a trademark. A sign will be considered to have been used as a trademark if it is used, in the course of trade, as a ‘badge of origin’ to indicate a connection between goods and the person who applies the mark to 109 the goods. Establishing that a parody involves ‘use as a trademark’ is not always simple. The nature of a successful parodic mark is that it will call to mind the original mark being parodied, while, at the same time, distancing itself from it. This could mean that it is unlikely that the consumer of the original mark will be confused that the parody is the same or related to the original mark and the latter’s business or goods. Furthermore, parodies will often appear in a ‘decorative’ 107 Id. 108 Smith. D. (2019). Parody and Satire in Trademarks - Is it infringement? [online] Available at <https:// legalvision.com.au/parody-and-satire-in-trade-marks-is-it-infringement/>. (Accessed on May 23, 2020). 109 Coca-Cola Co v All-Fect Distributors Ltd [1999] FCA 1721; E. & J. Gallo Winery v. Lion Nathan Australia Pty. Limited [2010] HCA 15 at 43.

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context (e.g., on the front of a T-shirt or in a book). Australian courts have accepted that decorative use of signs on clothing does not 110 necessarily indicate the origin of the goods. Hence, these are not considered to have been used as a trademark. Even if it is admitted that the parodic mark was used as a trademark, in a question of trademark infringement, the court must then determine whether the parody mark is deceptively similar to the 111 original. Section 10 of the Trade Mark Act of 1995 provides that a “ trade mark is taken to be deceptively similar to another trade mark if it so nearly resembles the other trade mark that it is likely to deceive or cause confusion.” On this point, the Australian courts will go beyond the superficial similarities and consider consumer circumstances, such as the characteristics of the target demography of the goods, as well as of the goods themselves. For instance, courts have recognized that consumers of luxury clothing goods tend to be more discerning and are therefore less likely to mistake the parody for the original mark, even if the two share some artificial similarity. Finally, the courts must consider whether the goods or services on which the parody or satire is used are sufficiently similar to those for which the original mark has been registered, or whether the original mark is well known and therefore protectable for goods and services unrelated to those for which it has been registered. The extent to which a parody will be actionable is likely to diminish significantly the further the allegedly infringing use lies from the core goods or 112 services for which the original brand has been used. In Turner Entertainment Company v. Yo-Merri Todd,113 for instance, the opposition to various applications for marks including THE WIZARD OF OZ failed in relation to certain goods and services, including veterinary preparations, leather goods, alcoholic beverages and coach tours, for want of a logical connection with Turner’s WIZARD OF OZ property. However, oppositions succeeded in relation to more closely related goods. A parodist may escape trademark infringement if the manner in which the parodist actually used the mark is unlikely to give rise to confusion under a rider to Section 120(2) of the Trademarks 114 Act.

110 Top Heavy Pty Ltd v. Paul Joseph Killin (1996) FCA 295 - 34 IPR 282. 111 Section 10, Trademark Act of 1995. 112 Eade, L. (2009). Getting Away with (Brand) Murder; The Limits of Trademark Parody. [online] Available at <https://www.internationallawoffice.com/Newsletters/Intellectual-Property/Australia/GilbertTobin/Getting-Away-with-Brand-Murder-The-Limits-of-Trademark-Parody>. (Accessed on May 1, 2020). 113 Turner Entertainment Company v Yo-Merri Todd [2007] ATMO 33. 114 Id.

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B. FRANCE 1. COPYRIGHT As far as copyright is concerned, the French Intellectual Property Code (IPC; French: Code de la Propriété Intellectuelle) has overtly exempted parody, pastiche, and caricature from the exclusive rights bestowed upon the author.115 According to Article L 122-5 of the French Intellectual Property Code, once a work has been communicated to the public in any form, the author cannot forbid a number of actions to be performed on the copyright work, such as analysis, citation, review, news reporting, use in catalogues, parody, pastiche or caricature, and access to a database on a contractual basis. Notably, however, the French IP Code did not provide a definition for caricature, parody, and pastiche, leaving their interpretation to the courts. Over time, the French has generally described them to be humoristic and a substantial transformation of a copyright work devoid of the intention to harm the legitimate author, and are subject to the same regime. Parody refers to works of art such as film, music, and videos (e.g., video games) whereas caricature and pastiche impact 116 on visual or literary works, respectively. To qualify for the exception for caricature, parody, and pastiche, certain requirements must be met: 117

First, there must be manifest humorous intent. The subjective element – the intention of the parodist – is a distinguishing feature, i.e., that the propelling intention must amount to a humorous one. There is little, if any, to indicate that criticism or commentary is necessary to qualify for the caricature, parody or pastiche exemption, under French jurisprudence. Criticism, after all, has its own exemption within the same provision. Second, the parodic work should not harm the author of the original work. That is, it should not affect their moral or commercial rights. This means that parody must be distinctive, in the sense that the public must be able to identify the previous work and the new one 118 as two separate creations. In addition to possible moral damages, commercial damages also need to be considered. The parodic work, therefore, should not be permitted to be commercialized in competition with the original work. This is not to say that the parodic work cannot serve a commercial purpose. For example, in a case involving the commercial exploitation 115 Article 122-5(4). 116 Mendis, supra at note 12. 117 Id. 118 Mendis, supra at note 12, citing F. Delfour, L’ImitationCréatice (Lille 2000), pp. 77ff.

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of a T-shirt featuring the image of “Monsieur PROPRE” (Mister CLEAN), illustrated along with humoristic text (“Mister QUEEN” and “AXEL is a real bitch”), the French Court of Appeal upheld the defense of parody, holding that the modifications constituted an essential transformation that would certainly distinguish the original character from the parodied one. Moreover, no possible confusion with the original work was detected, and the intention of harming the author was not demonstrated. The Court held that the use of parody, in this case, is not limited to making fun of something, or to prompting a smile, but it was also performed with the intention, essentially commercial, to profit from the notoriety of ‘Mr. Clean’, in 119 order to sell T-shirts and to attract customers. 120

established two Based on this legal condition, the doctrine requirements which must be met in order for a parody to be permissible: (a) intention to be humorous; and (b) absence of risk of confusion with the previous work. The lack or insufficiency of one of the requirements will deny for the applicant the exemption of parody. In which case, the consent of the author of the original work will need to be secured. In Pagnol v. Société VOG, a French magazine had published pictures taken from a film by Marcel Pagnol. The pictures were modified by replacing the original actors with mannequins wearing fashion clothes and accessories, in the same posture. The Court in this case rejected the magazine’s claim that the pictures parodied Pagnol’s work. Not only did the magazine not imitate Pagnol’s style but there was no 121 discernable attempt at humor, only an advertisement for clothing. A commercialization of a work that is modified without humour cannot be accepted as parody.

2. TRADEMARKS Unlike with French copyright, there is no explicit parody exception to the right bestowed upon the trademark owner. Nevertheless, French jurisprudence appears to support the exemption. Its requirements bear similarity to those in copyright: that there should be no risk of confusion between the original trademark and the parody and the reproduction should not harm the rights holder. This means that the imitated trademark must not be commercially utilized in direct competition with the original. To illustrate, an imitation of the trademark Danone was used on 119 Société Seri Brode v Procter & Gamble France. CA PARIS, 4ème Ch., Section A, 9-9-1998. 120 Ramalho, A. (2009). Parody in Trademarks And Copyright: Has Humour Gone Too Far? Cambridge Law Student Review [online] Available at <https://www.academia.edu/1480088/Parody_in_ Trademarks_and_Copyright_Has_Humour_Gone_Too_Far>. (Accessed on April 15, 2020). 121 Pagnol v. Société VOG (Unpublished), (Tribunal de Grande Instance de Paris, 1ère Chambre, Section 1, 30/4/1997).

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a website built by a dismissed employee protesting his termination. The defendant had registered a website under the domain name “jeboycottedanone.com”, where he wrote “les êtreshumains ne sont pas des yaourts” (“human beings are not yoghurts”) and pleaded for the boycott of the company’s products. This was ruled as legitimate, 122 based on the copyright exception of parody. The Court found that there was no risk of confusion or tarnishing. Moreover, the intention of the defendant, the Court held, was to criticize the practices of the Danone, therefore his acts amount to the exercise of his right to freedom of expression. In another case, however, where an anti-smoking campaign parodied the popular cigarette trademark “Camel”, but with the camel depicted to be in the throes of death, the French Supreme Court denied the parody defense. It held that the advertising campaign, despite its honorable purpose, was detrimental to the trademark’s reputation. Lastly, it ruled that the right to freedom of expression could not prejudice the legitimate rights of third parties (i.e., the 123 trademark right for “Camel”). There is one interesting case where the French Court had occasion to rule on a parody affecting both trademark rights and copyright. Paul B. was charged with both trademark and copyright infringement for use of the characters of the comic Tintin on postcards, depicted in a different background (daily situations instead of fictitious adventures), which he offered for auction on the Internet. The claim of copyright infringement was due to the fact that the original stories (“Tintin on the Road” and “Tintin on the Beach”) were concerned, which were copyright protected. The trademark infringement, on the other hand, was because Mouslinart, the plaintiff, had registered the figurative trademarks of the characters Tintin and Milou. 124

The decision of the Paris Court of Appeal took the view that the use of the characters of the comic Tintin constituted copyright infringement due to the elements borrowed from the original stories. As for trademark infringement, because Paul B. was using the trademark to present the posters, there was a likelihood of confusion on the part of the public. Moreover, there was an absence of humorous intention. By dealing with copyright and trademarks in parallel, the French Court has enabled a convergence of standards of permissible parody 125 that can set the basis for a common test of lawfulness in the future. 122 Ramalho, supra at note 119, citing Olivier Malnuit v. Société Groupe Danone [2003] CA Paris. 123 Association Comite National contre les Maladies Respiratoires v. Société JT International GmbH, 2006, CC Paris. Available at <http://www.courdecassation.fr/jurisprudence_2/deuxieme_chambre_ civile_570/arret_no_9432.html>. (Accessed on May 1, 2020). 124 Paul B. v. Moulinsartetautres [2005] CA Paris. Available at <http://www.legalis.net/jurisprudencedecision.php3?id_article=1781>. (Accessed on May 1, 2020). 125 Ramalho, supra at note 119.

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C. UNITED KINGDOM 1. COPYRIGHT Parody is a recognized exception to copyright infringement in Article 5(3)(k) of the Copyright Directive (2001/29/EC) of the European Parliament and of the Council of 22 May 2001 on the harmonization of certain aspects of copyright and related rights in the information society. In response to this, the UK amended its Copyright, Designs and Patents Act 1988 (CDPA) in October 2014, particularly to subsume copyright work for the purpose of caricature, parody or pastiche 126 under its Fair Dealing exemption. Section 30A of the CDPA allows fair dealing with a copyright work for the purposes of caricature, parody, or pastiche. The Intellectual Property Office (IPO) guidance provides that the words “caricature, parody, or pastiche” have their usual meaning in everyday language, but also take account of the context and purpose of the copyright 127 exceptions. Perhaps due to their absence in the statute, UK IPO provided definitions for caricature, parody, and pastiche, using their usual meaning in everyday language. Caricature is something that portrays its subject in a simplified or exaggerated way, whether insulting or complimentary, and whether for a political purpose or solely for entertainment. Parody is something that imitates a work for humorous or satirical effect. Pastiche is a composition that is made up of selections from various sources or one that imitates the style of 128 another artist or period. The parody defense, however, had been raised and addressed in copyright infringement cases prior to the implementation of the parody exemption in 2014. In said cases, the test for copyright infringement was whether there had been substantial copying of the works, and whether there had been sufficient independent labour by the parodist to make the piece an original work. Because there was no specific exception for parodies, it was irrelevant to the courts whether the copied work was humorous when the issue of fair dealing was 129 pleaded. 126 Section 30A Caricature, parody or pastiche (1) Fair dealing with a work for the purposes of caricature, parody or pastiche does not infringe copyright in the work. 127 Intellectual Property Office Online of UK (2014). Exemptions to Copyright; Guidance for Creators and Owners. [online] Available at <https://assets.publishing.service.gov.uk/government/uploads/ system/uploads/attachment_data/file/448274/Exceptions_to_copyright_-_Guidance_for_ creators_and_copyright_owners.pdf>. (Accessed on May 10, 2020). 128 Id. 129 Lagarde, L. and Ang, C. (2016). Parody in the UK and France: defined by humour? Thompson Reuters Practical Law. Available at <https://uk.practicallaw.thomsonreuters.com/9-625 2313?transitionType=Default&contextData=(sc.Default)>. (Accessed on May 1, 2020).

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Thus, in Joy Music v. Sunday Pictorial, in which a song titled ‘Rock-a-Billy’ was parodied in another song which used the words ‘Rock-a Philip’ in the chorus but, otherwise, had different lyrics, it was held that there was no infringement of copyright of the song lyrics where the defendants’ newspaper article proposed a new set of words commenting satirically on a speech by Prince Philip. It was observed that the new words could be sung to the music of the original song but that the music itself was not reproduced; it was left to the reader’s imagination to add the new words to the music. In Ashdown v. Telegraph Group Ltd., on the other hand, the Court of Appeals, dealing with the balance between the rights of copyright owners and the right to freedom of expression set out in Article 10 of the European Convention on Human Rights, held that where these rights conflict, it must apply the CDPA, as far as it is able, in a manner 131 that accommodates the right to freedom of expression. The implementation of the parody exception in 2014 introduced the application of the Fair Dealing Doctrine to caricature, parody, or pastiche. Under Fair Dealing, in addition to considering whether or not the copying of the original work was substantial, relative to its purpose, the court also will have to consider the principles of parody 132 set out by European Court of Justice (ECJ) in Deckmyn v. Vandersteen. In the said case, the ECJ held that parody should be (a) an expression of humour; and (b) must evoke the copyrighted work while being different from it. This means that parodies that are not recognizably funny or appreciated by the wider public, or at least by the court, may fall outside of the exception. Ultimately, the court’s sense of humor might be the determining factor between copyright infringement and an acceptable parody. It remains to be seen how the UK courts will interpret and apply the fair dealing doctrine to copyright infringement cases, what challenges they will face and how these challenges will be addressed. With the UK having left the EU effective 31 January 2020, there are anticipated, if not already implemented, shifts in its legal structure. Although the CDPA has been heavily influenced by EU Directives, those obligations have largely been incorporated into primary legislation and will therefore remain in place post-Brexit. Such is the case of the Copyright Directive (2001/29/EC) which was adopted by the UK by amending its domestic law, the CDPA. Hence, CDPA provisions on parody and Fair Dealing are expected to stay intact, unless supplanted by legislation, the UK may pass as an autonomous country at some future date. 130 Joy Music v. Sunday Pictorial [1920] 2 QB 60. 131 Ashdown v. Telegraph Group Ltd. EWCA [2001] Civ 1142. 132 Deckmyn v. Vandersteen C-201/13.

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The case is slightly different when it comes to European Convention on Human Rights (ECHR), of which Article 10 is of importance in this paper insofar as it relates to Freedom of Expression. The ECHR is an international treaty the UK signed in 1950. By this treaty, member states commit to uphold certain fundamental rights, such as the right to life, the right to a fair trial, and the right to freedom of expression. Brexit will have no direct impact on the UK’s obligations under the ECHR. Nevertheless, should the UK decide to leave the ECHR as well, it is noted that the fundamental right to freedom of expression is also protected under Section 10 of the Human Rights Act of 1988, which incorporates the rights set out in the ECHR into domestic British law.

2. TRADEMARK The introduction of a parody defense into copyright law in 2014 led to calls for a similar exception to be implemented into the trademark laws of the UK and the EU. Whilst EU law does not specifically grant this exception for trademarks, Recital 27 of the implemented Directive (EU) 2015/2436 of the European Parliament and of the Council of 16 December 2015 provides that: “Use of a trade mark by third parties for the purpose of artistic expression should be considered as being fair as long as it is at the same time in accordance with honest practices in industrial and commercial matters.” There are those who are of the opinion this could be interpreted by the Court and the Member States of the EU to establish a parody defense in trademark law, particularly as the Recital goes on to state that it should be applied in a way that ensures full respect for fundamental 133 rights and freedoms, particularly freedom of expression. However, 134 the Court held in Gillette v. LA- Laboratories that use of a trademark will not be in accordance with ‘honest practices’ if the use discredits or denigrates the mark, so it should not be assumed that this Recital 135 opens the door for damaging or unfavourable parodies. In the absence of a recognition of parody trademark defense under UK statutes, resort has been made to adhering strictly to the

133 Shaw, M. and Kenny, J. (2016) Do we need a parody exemption in UK and EU trade mark law? [online] Marks&Clerk.com. Available at <https://www.marks-clerk.com/Home/Knowledge-News/Articles/ Parody-exemption-UK-EU-trade-mark-law.aspx#.XsulsUQzbIU>. (Accessed on April 29, 2020). 134 Gillette v LA-Laboratories (2005) Case C-228/03. 135 Id.

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requirement of infringement, under Sections 10(1), (2) and (3) of the Trademark Act of 1994. First, the Sections require that the use is “in the course of trade”. The burden is on the claimant to show that the parody use is commercial. Moreover, the infringing mark must be identical to a registered mark, which is rarely true of a parodic mark as most parodists would not want their mark to be indistinguishable from the original, otherwise the parody will be lost. Those seeing it are supposed to recognize it as an unauthorized play on the brand. If the mark is obviously different and there is clearly no risk of confusion, there is no infringement under Section 10(1) or (2) TMA. Under Section 10(3), on the other hand, refers to dilution or tarnishment. There can only be infringement if the mark has a reputation to protect. Hence, the infringement requires consumers to make a “mental link” between the original mark and its parody. Thereafter, whether there is infringement is a question of (a) whether the parody is detrimental to the mark’s reputation; and (b)whether 137 the parody was without due cause. In the trademark infringement case Ate My Heart Inc v. Mind 138 Candy Ltd, Lady Gaga brought a successful claim for trademark infringement against the creators of the Moshi Monsters game. The game featured a character called Lady Goo Goo performing “The Moshi Dance Song”, which mimicked Lady Gaga’s song “Bad Romance”. The court observed that there was no parody defense available. It also held that it was strongly arguable that young people playing the game may make a clear connection between Lady Goo Goo and Lady Gaga. This conclusion was reached partly on the basis of considering various posts on Internet forums presented by the claimant. These did not show confusion, but did reflect an association in posters’ minds between Lady Goo Goo and Lady Gaga, which would give

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“Infringement of registered trade mark. (1) A person infringes a registered trade mark if he uses in the course of trade a sign which is identical with the trade mark in relation to goods or services which are identical with those for which it is registered. (2) A person infringes a registered trade mark if he uses in the course of trade a sign where because— (a) the sign is identical with the trade mark and is used in relation to goods or services similar to those for which the trade mark is registered, or (b) the sign is similar to the trade mark and is used in relation to goods or services identical with or similar to those for which the trade mark is registered, there exists a likelihood of confusion on the part of the public, which includes the likelihood of association with the trade mark. (3) A person infringes a registered trade mark if he uses in the course of trade, in relation to goods or services,] a sign which— (a) is identical with or similar to the trade mark, where the trade mark has a reputation in the United Kingdom and the use of the sign, being without due cause, takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the trade mark. 137 Mallinson, R. and Wessing, T. (2015). When Trademark Use is Not infringement. Available at <https:// www.bardehle.com/fileadmin/Webdata/contentdocuments/broschures/MIP_07-08-2015_ trademark_use_not_infringement_Boehner_01.pdf page 46>. (Accessed on May 15, 2020). 138 Ate My Heart Inc v Mind Candy Ltd ([2011] EWHC 2741 (Ch); see News brief “Goo Goo Gaga: trademark confusion for the little monsters”).

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rise to a risk that consumers would think that Lady Gaga and Lady Goo Goo were economically connected. There was, therefore, a real risk that Lady Gaga’s reputation could be diluted and/or tarnished. The likelihood of confusion includes the likelihood of association between the parodic mark and the original trademark.

D. USA 1. COPYRIGHT The United States does not refer to ‘parody’ in the Copyright Act 139 1976. Parody, by judicial construction, instead, falls implicitly within the 1976 Act’s ‘Fair Use’ doctrine, the predecessor of the Philippines’ own, which gives statutory recognition to four factors created by judicial treatment when determining whether a use of a copyrighted 140 work is ‘fair’. 141

In its current form, after some amendments, provision of the 1976 Act states as follows;

the Fair Use

107. Limitations on exclusive rights: Fair use Notwithstanding the provisions of sections 142 143 106 and 106A, the fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall 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. 139 17 U.S.C. § 107 (2006). 140 Section 107, Copyright Act of 1976. 141 The Visual Artists Rights Act of 1990 amended section 107 by adding the reference to section 106A. Pub. L. No. 101-650, 104 Stat. 5089, 5132. In 1992, section 107 was also amended to add the last sentence. Pub. L. No. 102-492, 106 Stat. 3145. 142 Id. at Section 106. Exclusive rights in copyrighted works. 143 Id. at Section 106.A Rights of certain authors to attribution and integrity.

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The fact that a work is unpublished shall not itself bar a finding of fair use if such finding is made upon consideration of all the above factors. The United States adopted the Fair Use Doctrine to permit and require “courts to avoid rigid application of the copyright statute when, on occasion, it would stifle the very creativity which that law 144 is designed to foster.” The underlying principle behind Fair Use finds purchase in the First Amendment as both share the goal of encouraging free expression, and, through that, the cultivation of new ideas. The First Amendment (Amendment I) to the United States Constitution prevents the government from making laws which, among others, abridge the freedom of speech. Fair Use, and the First Amendment interact with copyright in cases where at issue is the determination of when the rights of copyright owner must be upheld or denied relative in relation to another work. Under the first factor, parody is considered a transformative work. The first factor asks the court to focus on the purpose and character of a use. In Campbell v. Acuff-Rose Music, Inc.,145 the rap music group ‘2 Live Crew’, which included Campbell, composed a song called “Pretty Woman,” a parody based on Roy Orbison’s rock ballad, “Oh, Pretty Woman.” Despite Acuff-Rose Music, which owns the copyright to the original tune, refusing to grant the group license to use the tune, 2 Live Crew nonetheless produced and released the parody. Acuff-Rose sued for copyright infringement. The US Court, in finding that fair use may apply in a commercial parody, held that “The important inquiry is not whether the use is a commercial or non-profit one, but whether it is ‘transformative’ – i.e., does it add ‘something new, with a further purpose or different character, altering the first with new expression, meaning or message 146 .” Because the ‘goal of copyright, to promote science and the arts, is generally furthered by the creation of transformative works’ the Court held that ‘the more transformative the new work, the less will be the significance of other factors, like commercialism, that may 147 weigh against a finding of fair use. This allows for a finding of fair use even when a work of parody is used commercially as long as there is clear transformative use. The Campbell case also drew a distinction between two kinds of parodies: (1) target parody which aims its comment, critique or 144 145 146 147

Stewart v. Abend, 495 U.S. 207, 236 (1990). 510 U.S. 569 (1994). On remand, the parties settled the case out of court. Id.

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mockery at a specific work; and (2) weapon parody (also referred to as satire), or a work that parodies another to attack an external target. While the former was considered fair use, the Court posited that the latter was not, supposing that to condone such kind of parody would move the creator to draw upon established works “get attention or to 148 avoid the drudgery in working up something fresh.” Under the second factor, because copyright exists to increase the flow of knowledge, courts under the fair use doctrine may treat the appropriation of factual works more leniently than the appropriation of creative works. This factor tends to weigh against parodies because they are usually directed at creative works. Because most parodies are themselves creative works, however, courts often treat this factor neutrally; the nature of the parody and of the original cancel each 149 other out. Under the third factor, which considers the amount and substantiality of copyrighted material used, parody is considered a comment on the original work. The courts have recognized that parodies must use more than 150 a “fleeting evocation of an original” work to make its point and generally follow the “conjure up” test. A parody is entitled at least to “conjure up” the original. Even more extensive use would still be fair use, provided the parody builds upon the original, using the original as a known element of modern culture and contributing something 151 new for humorous effect or commentary. Regarding the fourth factor, the Supreme Court has stated that a parody serves a different market function than a parodied work and 152 is unlikely to act as a market substitute for that work. The role of the courts is to distinguish “[b]iting criticism [that merely] suppresses 153 demand [and] copyright in-fringement [which] usurps it.” While the Fair Use Doctrine appears permissive and reasonable in its assessment of the fairness of parody, it is not without its challenges. Most obvious of this is its failure to provide a definition of parody, which might have gone a long way towards establishing its boundaries. The task has been left with the court. This is a failure that the US shares with some territories, even with those that provide a statutory copyright infringement exemption for parody. This absence of statutory definition constrained courts to intuit when something is a parody and when it is not. In Campbell, for instance, the Court 148 Supra. 149 Van Hecke, B, (1992). But Seriously, Folks: Toward a Coherent Standard of Parody as Fair Use. Minnesota Law Review. Available at <https://scholarship.law.umn.edu/mlr/897 Retrieved on 2020-15-10>. 150 Columbia Pictures Corp. v. National Broadcasting Co., 137 F.Supp. 348, 354 (S.D.Cal.1955). 151 Id. 152 Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569 (1994). 153 Blanch v. Koons, 467 F.3d 244 (2d Cir. 2006).

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concluded that a parody to be permissible in the USA must utilize and target a specific copyright work to be eligible for the fair use doctrine; it may not utilize a specific work as a weapon to attack a general target. Another issue is that the determination of the fourth factor, i.e., that a parody serves a different market function than a parodied work and is unlikely to act as a market substitute for that work is not based on empirical studies of the effects of parodies on the markets for their targets.

2. TRADEMARK The Trademark Act of 1946 (the Lanham Act) does not have any provision which categorically exempts parody from liability for trademark infringement. The most that the Act does provide is the test for trademark infringement, i.e., whether the junior mark “is likely to cause confusion, or to cause mistake, or to deceive” the pubic with the original trademark. From there, case law has shaped the treatment of parodic marks, producing three factors that affect the parody defense. First, that the parodic mark must mimic another for comic effect or ridicule. There must be the employment of humor or commentary. Second, the parodic mark must be capable of dispelling the likelihood of confusion among consumers. Third, the parody must not dilute the original trademark. As to the first factor, the parodic mark will be infringing use if it does not contain parody at all. One frequently cited case of this 154 type is the “Debbie Does Dallas” case , in which a pornographic film scandalously featured the world-famous uniform worn by the Dallas Cowboy Cheerleaders and referred to a Dallas football club. As an apparent afterthought, the defendants tried in vain to argue that their film was making a statement on the inherently ironic use of sex to promote professional athletics. However, the court, which defined parody as a work imitating or mimicking another work closely for comic effect or ridicule, stated that the film at issue could not conceivably be considered a parody, as the movie’s purpose had nothing to do with humor or commentary, and that the movie existed mainly to depict sex acts. Additionally, the film used the uniform of the Dallas Cowboys Cheerleaders, not to parody the squad, but to exploit its popularity and attract more customers. In the second line of cases, the parody is defeated as it was held to be not strong enough to dispel the likelihood of confusion among consumers. Illustrative of this is the case of Wendy’s International,

154

Dallas Cowboys Cheerleaders v. Pussycat Cinema, 467 F. Supp. 366 (S.D.N.Y. 1979).

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Inc. v. Big Bite Inc. where the Court conceded that the advertising campaign of Big Bite, a fast-food restaurant chain, which utilized, among other famous fast food trademarks, the freckle-faced redheaded girl and a slogan which satirized Wendy’s, was a “light-hearted spoof” and “mildly entertaining.” Yet, the Court found that Big Bite had failed to “rebut the inference of consumer confusion.” The third line of cases found that even when the Court held that the parody was not likely to cause confusion, nonetheless, the parody cannot stand against anti-dilution statutes. The Trademark AntiDilution Act of 1996 allows owners of trademarks to receive injunctive relief to prevent their marks from dilution, defined by the Act as “the lessening of the capacity of a famous mark to identify and distinguish goods or services, regardless of the presence or absence of—(1) competition … or (2) likelihood of confusion.” This Act speaks to the reputation of a mark. 156

One such case is that of Coca-Cola Co. v. Gemini Rising. The Court enjoined defendant’s commercials sale of a poster which consists of an exact blown-up reproduction of plaintiff’s familiar “Coca-Cola” trademark with the phrase “Enjoy Cocaine”. It was held, although there was no confusion of goods or passing off, Coca-Cola’s trademark would be impaired as a result of defendant’s use. US courts have on occasion upheld parodic marks, so long as it is strong enough to stave off likelihood of confusion, on First Amendment grounds of Freedom of Expression. The courts recognized the importance which parody play in our society and are willing to safeguard it, even when attended by commercial purposes. In Girl Scouts of the US of A. v. Personality Posters Mfg. Co.,157 the subject is yet another poster published by the defendant showing a very young pregnant woman wearing a Girl Scout uniform with the slogan “Be Prepared” written underneath. The court, upholding the right of the defendant to the distribution of the poster, stated that no evidence had been shown supporting an allegation of confusion. The Girl Scouts are not engaged in trade and their uniform, insignia and slogan are in no sense trademarks. There was likewise no evidence that anyone believed that the Girl Scouts published or sponsored the poster. Notably, the Court held that posters are a form of expression, which may be constitutionally protected. The Trademark Dilution Revision Act of 2006 distinguishes between “tarnishment” and “blurring”, both of which are ways in which use of another’s well-established mark may dilute such mark, even for non-competing products or services. Section 3 of the Act provides that “Any fair use, including… identifying and parodying, criticizing, or commenting upon the famous mark owner or the goods 155 156 157

Wendy’s International, Inc. v. Big Bite Inc., 576 F. Supp. 816 (S.D. Ohio 1983). Coca-Cola Co. v. Gemini Rising, 346 F. Supp. 1183 E.D.N.Y. 1972. Girl Scouts of the US of A. v. Personality Posters Mfg. Co, 304 F. Supp. 1228 (S.D.N.Y. 1969).

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or services of the famous mark owner,” shall not be actionable as dilution by blurring or dilution by tarnishment. Section 3(C) thereof adds any “noncommercial use of a mark” as excluded from actionable dilution. The Act is a relaxing of requirements for parody protection. A bald assertion of parody rights, nevertheless, would not suffice. The courts must still evaluate the quality of the parody to assess whether 158 the use would be protected.

E. JAPAN 1. COPYRIGHT No special provisions are made for caricature, parody, and pastiche works as they are under the laws of various other countries such as the United States. As such, a strict reading of Japanese copyright law would deem caricature, parody, and pastiche as violations of copyright owners’ “right to maintain integrity,” making parody potentially illegal without the prior consent of copyright owners. As there is no statutory provision, neither is there a statutory definition for what a parody is. Japanese dictionaries offer several definitions. Meikyo Dictionary defines parody as “a literary work, which is a transformation of a well-known work for the purpose of satire or humor, artfully takes the structure or style of the said wellknown work.” In Kojien Dictionary, a parody is “a form of literary work imitates the style or metre of the well-known literature work by transforming the content of the well-known literature work to make it funny and satiric”. Noticeably absent is the critical or commentary purpose commonly associate with parody. Japan enacted its first comprehensive copyright legislation on March 4, 1889, and signed on to the Berne Convention on April 18, 1899. It would go on to adopt the Author’s Rights Act (Chosakuken), based on Continental European concepts. Its current law, the Japan Copyright Act of 1970 ( JCA), superseded the Author’s Right Act as the latter slipped into irrelevance with the burgeoning of new 159 technologies. The JCA, however, aside from missing a parody provision, likewise does not have a Fair Use counterpart. The Act enumerates limitations and exceptions on copyright including: reproduction for private use; reproduction in libraries, quotation privileges; use for educational purposes; performances for non-profit purposes; use for news reports; use in political speeches; reproduction in judicial proceedings; exhibition of artistic works by the owner; and use of

158 159

Supra. Foster., supra at note 99.

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artistic works located in public spaces.

With an amendment in 2012, additional exceptions to copyright protection were introduced. According to the amendments, the following uses do not constitute a copyright infringement: (1) Article 30-2(1): the duplication or adoption of copyrighted material if such material is involved as an incidental object or sound which is difficult to split off from other subjects; provided that the duplication or adaptation is made in the form of photographing, sound recording or video recording; (2) Article 30-2(2): the use of the duplicated or adapted material made in the cases above; (3) Article 30-3: the use of copyrighted material to the extent necessary for the process of considering obtaining a license from the copyright owners; (4) Article 30-4: the use of copyrighted material that has been published, to the extent necessary for tests conducted to develop or put into practical use of sound/video recording technologies; and (5) Article 47-9: the recording or adaptation of copyrighted material to the extent necessary to prepare for streamlining of computer processing of the copyrighted material when such data will be provided through networks. The limitations and exemptions under the current Japanese Copyright Act does not recognize a fair use-like concept that permits certain transformative works, such as parody. There are some key concepts of fair use, however, mentioned in Article 30, which sets permissible reproduction of copyrightable material for private use, and Article 32, which gives quotation privileges in certain cases. Historically, reproduction of copyrightable material for private 161 use (“personal use, family use, or other equivalent use”), if the person who reproduces the copyrightable material uses it, was altogether considered to be within the scope of limitation on copyright protection under the Article 30 (enacted in 1970). However, Article 30 provides exception strictly for a private use that occurs in a private sphere.

160 Japanese Copyright Act, Subsection 5 Limitations on Copyright, Art. 30-50. 161 Japanese Copyright Act, Art. 30(1)4.

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The other provision that could have been interpreted to fit parody Article 32, which states: It shall be permissible to quote from and thereby exploit a work already made public, provided that such quotation is compatible with fair practice and to the extent justified by the purpose of the quotation, such as news reporting, critique or research. Japan Supreme Court, however, ruled this out in a Parody162 Montage case . The Parody- Montage case is particularly interesting in how it demonstrates the insufficiency of the current copyright law in dealing with a work of parody. The basic facts of the case are as follows: In 1966, a famous Alpine photographer took a photo of six downhill skiers leaving parallel zigzag tracks as they came down a snowy alpine slope in St. Christoph, Austria. The photo was featured in the calendar “Ski 67” in Japan. Using this photo, the artist Mad Amano created a black and white photo montage with a larger than life tire rolling over the ridge of the alpine slope; the tire’s tread matched the skiers’ zigzag tracks. Mad Amano created the parody to warn of the dangers in overdeveloping alpine ski resorts. He published the montage as part of the series “Mad Amano’s Strange World” in, a magazine, and in a collection of his parody works. The photographer sued Mad Amano 163 for copyright infringement. The case first came before Tokyo District Court, which found copyright infringement by Mad Amano. It explained that to quote another work means to quote it by brief description. Mad Amano’s work constituted an infringement because he did not properly quote, but rather modified the thought and sentiment of the original work. 164 In essence, he transformed the work into a parody. On appeal, the Tokyo High Court found instead that Mad Amano’s work was parody and that he modified the plaintiff’s photograph to criticize its glamorization of alpine skiing. The Court indicated that one must measure a use for parody by the work’s character and purpose because a parody uses another work to fulfill its purpose 165 and to create its own unique artistic creation. The Court also specified that it dismissed the claim under Article 21(1) of the Japanese 166 Constitution, which protects free expression. Finally, the case was elevated to the Supreme Court which overturned the High Court. The Supreme Court held that it cannot enlarge the scope of the “quotation” provision to allow for the existence of parody, since parody is something different from “quotation” set 162 SaikoSaibansho [Sup. Ct.] Mar. 28, 1980, Sho 54 (o) no. 923, 415 HanreiTaimuzu [Hanta] 100 C.f. Summary in English. Available at <http://erepository.law.shu.edu/cgi/viewcontent. cgi?article=1045&contex t=sports_entertainment>. 163 Id. 164 Id. 165 Id. 166 Id.

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forth in Article 32. It stressed that although the original work changed as a result of this particular quotation, “The essential characteristics of the original work can still be perceived.” Therefore, the Court found that Mad Amano’s work was not a quotation, but a modification which 167 infringes the author’s moral right of integrity. The problem is evident upon the Supreme Court ruling that an infringement of the moral right to integrity occurs whenever there is any unauthorized change to a work or failure to clearly separate the original from the parodied work. This would then make every parody an infringement of an author’s moral rights, by the Supreme Court’s perspective. This quandary has yet to be resolved through succeeding case law. The challenges faced by parody under rigid Japan statutes are cautionary tales which highlight the advantage of codifying a reasonable parody exemption in a country’s copyright laws.

2. TRADEMARK Under the Japanese trademark practice, there is no such legal creature as a “parody” or a parodic mark. Hence, a parody defense against trademark infringement has not been able to take root in Japan jurisprudence on trademarks. Under the Japan Trademark Act ( JTA), however, a mark considered to be a parody of a famous mark could be rejected or cancelled generally for similarity to a famous mark, or similarity to a registered mark, which is likely to cause confusion in connection with the goods or services pertaining to the business of another person or free-riding on the goodwill of a famous mark, and intentions to dilute

167

Supra.

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the distinctiveness or to impair the reputation of a famous mark.

Whether a parodic mark is protected or allowed, thus, has nothing to do with it being a parody. The fundamental element common in the grounds to reject a parodic mark, under the JTA is the likelihood of confusion that is said to exist between the parodic mark and the original mark. In a case decided by the Intellectual Property High Court, ‘FRANK 169 MIURA,’ a parody of the luxury watch brand “FRANK MULLER,” the High Court upheld the parody mark over the challenge of the original mark not on the basis of a parody defense, but upon the observation that contending marks were dissimilar to each other and, therefore, the parodic mark would not likely cause confusion. Under the Japanese trademark practice, the similarity of trademarks is examined based on the three elements, i.e., appearance, sound, and image. Especially, among the three elements, sound is usually considered having a strong impact on similarity of trademarks. Despite the similarity in the sounds produced by both marks, the High Court held that the marks were not similar because images of both marks were very different to each other and, therefore, both marks were easily distinguished. Moreover, the original mark is a well-known luxury watch brand, with the difference in price signaling the difference in quality of the goods of between the contending marks. Therefore, customers would be easily able to distinguish between the two. The IP High Court held that whether a mark is a parody or not has no direct bearing in determining a likelihood of confusion. Moreover, a bare assertion of dilution and free-riding, 170 without evidence, is insufficient to cause a likelihood of confusion.

168

Article 4 (1) Notwithstanding the preceding Article, no trademark may be registered if the trade mark: Xxx xxxx xxx (x) is identical with, or similar to, another person’s trademark which is well known among consumers as that indicating goods or services in connection with the person’s business, if the trademark is used in connection with the goods or services or goods or services similar thereto; (xi) is identical with, or similar to, another person’s registered trademark which has been filed prior to the filing date of an application for registration of that trademark, if such a trademark is used in connection with the designated goods or designated services relating to that registered trademark (referring to goods or services designated in accordance with Article 6, paragraph (1) (including cases where it is applied mutatis mutandis pursuant to Article 68, paragraph (1)); the same applies hereinafter), or goods or services similar thereto; Xxx xxxx xxx (xv) is likely to cause confusion in connection with the goods or services pertaining to a business of another person (except those listed in items (x) through (xiv) inclusive); Xxx xxxx xxx (xix) is identical with, or similar to, a trademark which is well known among consumers in Japan or abroad as that indicating goods or services pertaining to a business of another person, if the trademark is used for unfair purposes (referring to gaining unfair profits, causing damage to the other persons, or any other unfair purpose, the same applies hereinafter) (except those provided for in each of the preceding items). 169 Kabushiki Kaisha Dinks v FTM Distribution Ltd., 2015 (Gyo-Ke), 10219. 170 Ryobu, N. (2016). Trademark Parody. Available at <http://www.rc-iplaw.com/newsletter/ trademark8/>. (Accessed on April 22, 2020).

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This case suggests that, under the Japanese legal structure on trademarks, there is yet no place for a nuanced appreciation of caricature, parody, and pastiche. Their protection would appear to rise and fall not with any particular recognition of their nature, but, as with other territories subject of this review, as an incident to the application of the traditional test of likelihood of confusion.

IV. Analysis and Conclusion The emerging importance of a statutory protection and exemption for caricature, parody, and pastiche serve several purposes. For one, they provide certainty and reduce uneven jurisprudence and unnecessary disputes where there is a need to address and legitimize specific activities, especially where they are identified as having important cultural and economic benefits that outweigh copyright protection.171 For another, they avoid the need to resort to the sluggish evolution of the law through jurisprudence. As has become clear in the previous section of this paper, courts have been slow to cultivate the parameters of parody protection through case law. This could be attributed to the distinct circumstances of the cases that come before it, or the fact that the aspects they are called to adjudicate upon are subjective such as, in the case of the UK, whether something 172 is recognizably funny. Statutory protections and exemptions also have the advantage of predictability and automatic applicability. This offers an almost instantaneous solution to the problems and conflicts that arise in the age of technological developments that have made works of caricature, parody, and pastiche easier and faster to create, consume, and spread. Take for instance, Japan, which does not recognize parody in its copyright and trademark legislation nor in its judicial pronouncements, and is therefore poorly-equipped in dealing with it, which is particularly unfortunate given the prominence of caricature, parody, and pastiche in their culture in the form of, among others, manga and anime culture which have sparked sustained international interest. The need for an overt parody exemption is more strongly felt in the field of trademark law rather than in copyright. In place of own edict with a thought-out metric or criteria to satisfy, determination of trademark issues involving caricature, parody, and pastiche resorts to either borrowing the standards of their copyright counterpart or ham-fistedly applying its traditional requirements of registrability.

171 Chik, W. (2011). Paying it Forward: The Case for a Specific Statutory Limitation on Exclusive Rights for User-Generated Content Under Copyright Law. Singapore Management University Institutional Knowledge at Singapore Management University 11 J. MARSHALL REV. INTELL. PROP. L. 240 (2011). 172 Id.

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The result as we have seen, is the concept of likelihood of confusion pulled from both ends; a parodic mark is either likely to confuse because it conjures another mark, yet simultaneously not likely to confuse because it’s supposed to be distinguishable from the same. To the end of codifying a concrete parody exemption, we can take the lessons culled from our review of the parody regimes of the six different jurisdictions (including the Philippines), both from what their laws and judicial guidance provide, as well as from what their systems lack. For one, there appears to be an almost universal lack of a working definition for caricature, parody, and pastiche. This is true even for the territories with statutory parody exemptions. Defining caricature and pastiche is, undeniably, difficult, more so in the case of parody with the fluidity of nature clashing horribly with static law, and may raise issues in the future. Nevertheless, it seems to only make sense that if something is to be protected or, for that matter, restrained, it should, at the very least be defined. This will outline the exception’s borders and protect what is caricature, parody, and pastiche, while ignoring what is not. The absence of a statutory, or even a working definition for caricature, parody, and pastiche leads to uneven interpretation by courts of when the subject work is a parody, and if such can be exempted under their respective tests and standards. In terms of purpose, for instance, there seems to be a uniform acceptance of the element of criticism or commentary; this has not translated to judicial confirmation. In fact, in the five countries that have been the subject of this paper, it was the humorous intent, not the critical one that has garnered any recognition. A statutory definition would eliminate all such ambiguity. For caricature and pastiche, Philippine legislature may take as its basis the dictionary definitions as it seems UK IPO did and Australia will do for their respective Fair Dealing exemptions. For caricature and parody, in particular, it is suggested that at the most basic level, a definition be adopted that accommodate the purpose of humor, with or without criticism or comment, referencing the work of another, to target either the original work itself, or its subject and surrounding. In all three, their fundamental nature as transformative works must be highlighted. Transformative works are clearly not reproductions of original works as the goal of the parodist is the creation of new, distinguishably separate work from the original which are beyond an original work’s normal exploitation. Contrasting the parody regimes of the different territories, we can extrapolate the standards developed by their respective statutes and body of case law in assessing permissible and non-permissible

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parodic uses of copyright works and, to a lesser extent, use of parodic marks. In some regimes, such as in France, the standards form part of a cumulative test where each requirement must be met for the exception to apply, while in other regimes, the factors may be weighed separately and even against each other to arrive at an overall assessment of infringement or non-infringement, such as in the case of the US and Australia. The Philippines may draw upon the standards distilled from the range of legal interpretations of parody when considering the contours of protection to be introduced to the existing copyright and trademark framework to bring caricature, parody, and pastiche beyond the pale of infringement. These standards are as follows:

• • • • • •

Parody must be non-commercial; or when it is used commercially, then it must not have an adverse effect on the market for the original; Parody must not use more of the original than necessary; Parody must have the element of transformation to achieve its purpose, i.e., add some significant new creation; Parody must have the markings of humorous intent, whether or not accompanied by criticism or commentary; Parody must be directed at the work used (‘target’) or a third party or element (‘weapon’); Parody must be distant enough from the parodied work or trademark, with distance measured by the likelihood of confusion on the part of its targeted public.

V. Recommendation The following guidelines are proposed in the operationalization of the proposal proffered by this paper: 1.

That the Intellectual Property Code be amended to provide for statutory definitions of caricature, parody, and pastiche which highlight their nature as transformative works, and accommodate the purpose of humor, with or without criticism or comment, referencing the work of another, to target either the original work itself, or its subject and surrounding. 2. That the Intellectual Property Code be amended consisting of an additional limitation to copyright and trademark protection for of caricature, parody, and pastiche adopting the following standards: a. Parody must be non-commercial; or when it is used

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b. c. d. e. f.

commercially, then it must not have an adverse effect on the market for the original; Parody must not use more of the original work or mark than necessary to its purpose; Parody must have the element of transformation to achieve its purpose, i.e., add some significant new creation; Parody must have the markings of humorous intent, whether or not accompanied by criticism or commentary; Parody must be directed at the work used (‘target’) or a third party or object (‘weapon’); Parody must be distant enough from the parodied work or trademark, with distance measured by the likelihood of confusion on the part of its targeted public. Likelihood of confusion must be appreciated in its practical ability of the parodic mark of work to distinguish itself from the original work despite the borrowing of elements thereof.

VI. Bibliography CONSTITUTIONAL PROVISIONS 1987 Constitution of The Republic of The Philippines, Article III Section 4 Article XVI, Section 10

PHILIPPINE LAWS CT NO. 666 entitled, “An Act Defining Property In TradeA Marks And In Trade-Names And Providing For The Protection Of The Same, Defining Unfair Competition And Providing Remedies Against The Same, Providing Registration For TradeMarks And Trade-Names, And Defining The Effect To Be Given To Registration Under The Spanish Royal Decree Of Eighteen Hundred And Eighty-Eight Relating To The Registration Of Trade-Marks And The Effect To Be Given To Registration Under This Act.” R.A. No. 8293, as amended by R.A. Nos. 9150, 9502, and 10372.

PHILIPPINE JURISPRUDENCE ABS-CBN Corporation v. Felipe Gozon et al., G.R. No. 195956 March 11, 2015. Arce Sons & Co. v. Selecta Biscuit Co., Inc., L-17981, L-14761, January

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28, 1961. Cabansag v. Fernandez, 102 Phil. 151 (1957); Gonzales v. COMELEC, 137 Phil. 471 (1969). Columbia Pictures, Inc. v. Court of Appeals, G.R. No. 110318 August 28, 1996. Diocese of Bacolod v. Majarucon, G.R. No. 205728. January 21, 2015. Francisco Chavez v. Raul M. Gonzales, G.R.No. 168338 February 15, 2008. Fernando U. Juan v. Roberto U. Juan and Laundromatic Corp., G.R. No. 221732, August 23, 2017. Habana v. Robles, 369 Phil. 764 (1999). In the Matter of the Charges Of Plagiarism, Etc., Against Associate Justice Mariano C. Del Castillo, A.M. No. 10-7-17-SC, February 8, 2011. Laktaw v. Paglinawan, G.R. No. L-11937 April 1, 1918. Mcdonald’s Corp. and McGeorge Food Industries, Inc., v. L.C. Big Mak Burger, Inc., et. al., G.R. No. 143993, August 18, 2004. Pearl & Dean (Phil.), Inc. v. Shoemart, Inc., G.R. No. 148222 August 15, 2003. Philippine Nut Industry, Inc. v. Standard Brands Inc. et al., G.R. No. L-23035, July 31, 1975. Philippine Refining Co. Inc. v. Ng Sam, 115 SCRA 472, 476 (1982). Pribhdas J. Mirpuri v. Court Of Appeals, G.R. No. 114508 November 19, 1999. Social Weather Stations, Inc. and Kamahalan Publishing Corp. v. Commission on Elections, G.R. No. 147571, May 5, 2001. Sterling Products International, Incorporated v. Farbenfabriken Bayer Aktiengesellschaft, et al., G.R. No. L-19906, April 30, 1969.

INTERNATIONAL TREATIES Berne Convention for the Protection of Literary and Artistic Works European Convention on Human Rights.

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FOREIGN LAWS Australia Copyright Act of 1968 Copyright Amendment Act of 2006 Trade Marks Act 1995 France French Intellectual Property Code (IPC; French: Code de la propriété intellectuelle). UK Copyright Directive (2001/29/EC) of the European Parliament Copyright, Designs and Patents Act 1988. Intellectual Property Office Online of UK (2014) “Exemptions to Copyright; Guidance for Creators and Owners. Human Rights Act 1998. Directive (EU) 2015/2436 of the European Parliament and of the Council of 16 December 2015. Trademark Act of 1994. US Copyright Act 1976. First Amendment (Amendment I) to the United States Constitution. Trademark Act of 1946. Trademark Dilution Revision Act of 2006 Japan Japanese Copyright Act Japan Trademark Act.

FOREIGN JURISPRUDENCE

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Australia TCN Channel Nine Pty Ltd v Network Ten Pty Ltd [2001] F.C.A. 108. Coca-Cola Co v All-Fect Distributors Ltd [1999] FCA 1721. Turner Entertainment Company v Yo-Merri Todd [2007] ATMO 33. France Association Comite National contre les Maladies Respiratoires v. Société JT International GmbH [2006] CC Paris. Olivier Malnuit v. Société Groupe Danone [2003] CA Paris. Pagnol v. Société VOG (Unpublished), (Tribunal de Grande Instance de Paris, 1ère Chambre, Section 1,30/4/1997) Paul B. v. Moulinsartetautres [2005] CA Paris. UK Joy Music v. Sunday Pictorial [1920] 2 QB 60. Ashdown v. Telegraph Group Ltd. EWCA [2001] Deckmyn v. Vandersteen C-201/13. Gillette v. LA-Laboratories (2005) Case C-228/03. Ate My Heart Inc v. Mind Candy Ltd. ([2011] EWHC 2741 (Ch) US Anheuser-Busch, Inc. v. Balducci Publications, 28 F.3d 769, 776 (8th Cir. 1994) Anheuser-Busch, Inc., v. VIP Products, Llc. 666 F. Supp. 2d 974 (2008). Blanch v. Koons, 467 F.3d 244 (2d Cir. 2006). Campbell v. Acuff-Rose Music, 510 Us 569, 591–592 (1994). Chaplinsky v. New Hampshire, 315 U.S. 568, 571-572, 86 L. Ed. 1031, 1035 (1942).

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Charles Smith, v. WAL-MART Stores, Inc., 537 F. Supp. 2d 1302 (2008) Coca-Cola Co. v. Gemini Rising, 346 F. Supp. 1183 E.D.N.Y. 1972 Columbia Pictures Corp. v. National Broadcasting Co., 137 F.Supp. 348, 354 (S.D.Cal.1955). Dallas Cowboys Cheerleaders v. Pussycat Cinema, 467 F. Supp. 366 (S.D.N.Y. 1979) Fisher v. Dees, 794 F.2d 432 (9th Cir. 1986). Folsom v. Marsh, 9 F.Cas 342 (Circ. Mass. 1841). Girl Scouts of the US of A. v. Personality Posters Mfg. Co., 304 F. Supp. 1228 (S.D.N.Y. 1969). Harper & Row, Publishers, Inc. v. Nation Enter., 471 U.S. 539, 546 (1985) Keebler Co. v. Rovira Biscuit Corp., 624 F.2d 366 (1980). Louis Vuitton Malletier S.A. v. Haute Diggity Dog, LLC 507 F.3d 252 (4th Cir. 2007). Rogers v. Koons, 960 F.2d 301 (2d Cir. 1992). Salinger v. Random House, 811 F.2d 90 (2d Cir. 1987). Stewart v. Abend, 495 U.S. 207, 236 (1990). Wendy’s International, Inc. v. Big Bite Inc., 576 F. Supp. 816 (S.D. Ohio 1983) Japan SaikoSaibansho [Sup. Ct.] Mar. 28, 1980, Sho 54 (o) no. 923, 415 HanreiTaimuzu [Hanta] 100 C.f. Kabushiki Kaisha Dinks v. FTM Distribution Ltd. 2015 (Gyo-Ke) 10219 Others: Canada: RJR MacDonald Inc. v. Canada (1995) 3 S.C.R. 199

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TREATISES Atalay, MC and Kanat, S. (2019). Interpretation, Parody, Pastiche And Plagiarism In Visual Arts. [online]. Available at <https://www. academia.edu/41894843/interpretation_parody_pastiche_and_ plagiarism_in_visual_arts>. Mendis, D. & Kretschmer, M. (2013). The Treatment of Parodies under Copyright Law in Seven Jurisdictions: A Comparative Review of the Underlying Principles. Available at <https://assets.publishing.service. gov.uk/government/uploads/system/uploads/attachment_data/ file/309902/ipresearch-parody-report2-150313.pdf>. Kemp, D., Forsythe, Land Jones, I. (2015). Parody in Trademark Law: Dumb Starbucks Makes Trademark Law Look Dumb. 14 J. MARSHALLREV. INTELL. PROP. L. 143. Chik, W. (2011). Paying it Forward: The Case for a Specific Statutory Limitation on Exclusive Rights for User-Generated Content Under Copyright Law. Singapore Management University Institutional Knowledge at Singapore Management University 11 J. MARSHALL REV. INTELL. PROP. L. 240 (2011).

JOURNALS Bunker, M.D. (2005). Transforming The News: Copyright And Fair Use In News-Related Contexts. Journal of the Copyright Society of the U.S.A. 52. 309-327. Foster, M. (2013). Parody’s Precarious Place: The Need To Legally Recognize Parody as Japan’s Cultural Property. Seton Hall Journal of Sports and Entertainment Law, 23(2). Ramalho, A. (2009). Parody in Trademarks And Copyright: Has Humour Gone Too Far? Cambridge Law Student R e v i e w [online] Available at <https://www.academia.edu/1480088/ Parody_in_Trademarks_and_Copyright_Has_Humour_Gone_ Too_Far>. Van Hecke, B, (1992). But Seriously, Folks: Toward a Coherent Standard of Parody as Fair Use. Minnesota Law Review. Available at <https:// scholarship.law.umn.edu/mlr/897 Retrieved on 2020-15-10>.

THESES Bernardo, P. (2008). Transformative Adaptation, Performance, and Fair Use of Literary and Dramatic Works: Delineating the Rights of

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Playwrights and Adapters. 53 ATENEO L.J. 582. Kotzeva, D., (2002). Public and Private Interests in Copyright Law: Creativity, Science and Democracy vs. Property and Market. LLM Theses and Essays. University of Georgia School of Law. Available at: <https://digitalcommons.law.uga.edu/stu_llm/26>.

BOOKS Chandra Raj, KB. (2012). Your Sense of Humor: Don’t Leave Home Without It. 1st ed. [ebook] US; Trafford. Available at <https://books. google.com.ph/>. Hutcheon, L. (1985). Parody: The Teachings of Twentieth-Century Art Forms (New York: Methuen; 1985). Available at <https://books.google.com.ph/ books?id=FoHXjEauvKIC&printsec=frontcover&source=gbs_ge_ summary_r&cad=0#v=onepage&q&f=false>. Jacques, S. (2019). The Parody Exception in Copyright Law. 1st ed. New York; Oxford. Available at <https://books.google.com.ph/s? id=KsKKDwAAQBAJ&printsec=frontcover&dq=parody+excep tion+to+copyright+law&hl=en&sa=X&ved=0ahUKEwjE877ThHpAhWlHqYKHYurBqYQ6AEIK DAA#v=onepage&q=parody%20 exception%20to%20copyright%20law&f=false>. Amador, V. (2007). Copyright Under The Intellectual Property Code. Quezon City; C&E. page 483. Agpalo, Ruben. (2000) The Law on Trademark, Infringement and Unfair Competition.

ELECTRONIC ARTICLES Art Encyclopedia (2020). Caricature Art. [online]. Available at <http://www.visual-arts-cork.com>. Reynolds, Liam. (2016). HAVING A LAUGH? THE PARODY EXCEPTION TO COPYRIGHT INFRINGEMENT. [online] Available at <http://www.keepcalmtalklaw.co.uk/having-a-laughtheparody-exception-to-copyright-infringement/>. Pastiche. (n.d.), Literary Terms. Available at <https://literaryterms. net/pastiche>. Satire. (n.d.). In: Your Dictionary. [online]. Available at <https:// examples.yourdictionary.com/satire-examples.html>.

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Burgess, A. (2019). What Is Burlesque Literature? [online]. ThoughtCo.com. Available at <https://www.thoughtco.com/whatis-burlesque-literature-740474>. Negre, F. (2007). Trademark Law in a Knotshell: From Caves to Cyberspace. BNUIP View. [online] Available at <http://www.iplaw. ph/ip-views/Trademark-Law-From-Caves-to-Cyberspace.html>. Ellis, V. (2014). Dumb and Dumber? A brief review of parody defences in the UK - D Young & Co LLP. [online] Available at <https://www. lexology.com/library/detail.aspx?g=5a846ea5-daee-423f-b14ab25474f53e58>. Koval, M. (2016). Parodies, Caricatures, Pastiches: What Is to Be Expected by Authors of Originals Works? [online] Available at <http:// attorneys.ua/en/publications>. FindLaw. (2017). Parody: Fair Use Or Copyright Infringement. [online] Available at: <https://corporate.findlaw.com/intellectualproperty.html>. Stim, R. (n.d.) Fair Use; Four Factors Courts Consider in a Copyright Infringement Case. [online] Available at <https://www.nolo.com/ legal-encyclopedia.html>. Smith. D. (2019). Parody and Satire in Trademarks - Is it infringement? [online] Available at <https://legalvision.com.au/parody-andsatire-in-trade-marks-is-it- infringement/>. Eade, L. (2009). Getting Away with (Brand) Murder; The Limits of Trademark Parody. [online] Available at <https://www.internationallawoffice.com/ Newsletters/Intellectual-Property/Australia/Gilbert-Tobin/GettingAway-with-Brand-Murder-The-Limits-of-Trademark-Parody>. Lagarde, L. and Ang, C. (2016). Parody in the UK and France: defined by humour? Thompson Reuters Practical Law. Available at <https://uk.practicallaw.thomsonreuters.com/9-625 2313?transitionType=Default&contextData=(sc.Default)>. Shaw, M. and Kenny, J. (2016). Do we need a parody exemption in UK and EU trade mark law? [online] Marks&Clerk.com. Available at <https://www.marks-clerk.com/Home/Knowledge-News/ Articles/Parody-exemption-UK-EU-trade-mark-law.aspx#. XsulsUQzbIU>. Mallinson, R. and Wessing, T. (2015). When Trademark Use is Not infringement. Available at <https://www.bardehle.com/fileadmin/ Webdata/contentdocuments/broschures/MIP_07-08-2015_

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trademark_use_not_infringement_Boehner_01.pdf page 46>. Ryobu, N. (2016). Trademark Parody. Available at <http://www.rciplaw.com/newsletter/trademark8/>.

NEWS Oliva E. (2004). PLDT loses dispute over ‘pldt.com’ domain name. NQ7.net [online] Available at <http://archives.free.net.ph/ message/20040204.025758.bc780bec.en.html>. Oliva. E. (2006). Not a money settlement, PLDT says on domain name case. INQ7.net. [online] Available at <http://domaintrade.blogspot. com/2006/04/not-money-settlement-pldt-says-on.html>.

Reimagining the Core of the Case Against Judicial Review: A Philippine Perspective

Antonio Ceasar R. Manila1

Introduction

In April 2006, Professor Jeremy Waldron2 published an essay in the Yale Law Journal entitled, “The Core of the Case Against Judicial Review.” It is essentially argued therein that the legislative review of rights is superior against judicial review because of the latter’s flaws and inadequacies. This is the argument in favor of the “weak-form of judicial review.” The philosophical analysis against judicial review is not a new dimension. This subject has been tackled by several philosophers. Lasett stated that democratic ideals are best served by popular self-government, through the legislature, and not by unelected

1 Antonio Ceasar Manila recently finished his Master of Laws at Columbia Law School, Columbia University, New York, USA, where he received the Harlan Stone Award for Academic Excellence, under the U.S. Fulbright Graduate Student Program. He is also the Secretariat of the Supreme Court Sub-Committee for the Revision of the 1997 Rules of Civil Procedure; Court Attorney VI at the Office of the Chief Justice, Supreme Court of the Philippines; Law Professor at the Far Eastern University – Institute of Law, Centro Escolar University – School of Law and Jurisprudence, and De La Salle Lipa – College of Law, teaching the subjects of Criminal Law Review, Clinical Legal Education, Civil Procedure, Criminal Procedure, among others. 2 Professor Jeremy Waldron was born in New Zealand. He earned his B.A. (Philosophy) and LL.B. at the University of Otago, New Zealand and his DPhil in Law at Lincoln College, Oxford University. He is currently a University Professor at New York University School of Law and teaches legal and political philosophy. He previously taught at Oxford, Edinburgh, UC Berkeley, Princeton, and Columbia Law School. He is a prolific scholar on jurisprudence and political theory: Judicial review, theories of rights, constitutionalism, the rule of law, democracy, torture, hate speech, and the philosophy of international law. Some of his books are: Law and Disagreement (1999), Torture, Terror, and Trade-offs: Philosophy for the White House (2010), Dignity, Rank, and Rights (2012), The Harm of Hate Speech (2012), Political Political Theory (2016), and One Another’s Equals: The Basis of Human Equality (2017).

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judges.3 Bickel stated “the counter-majoritarian difficulty,” showing that while existing legislative procedures do not perfectly represent the popular or the majority will, judicial review is a deviant institution in the American democracy.4 Tushnet also introduced the concept of weak-form review as a way of describing systems of constitutional review in which courts do not enjoy formal legal finality.5 This is in contrast to strong-form of judicial review, as adopted in the United States and the Philippines, where the court has the power to invalidate primary legislation, and legislative responses to such invalidations are made quite difficult.6 Gardbaum also supports the weak-form of judicial review, citing it as the new model of constitutionalism, that decouples judicial review from judicial supremacy by empowering the legislature to have the final word regarding rights dispute.7 But perhaps Waldron is one of the contemporary philosophers that theoretically argue against judicial review in a systematic manner, with complete assumptions and contrasts, to prove that legislative review should be upheld with respect to decision-making regarding human rights, and the judicial branch should simply concede to the legislative branch when the dispute involves rights. This paper shall discuss the assumptions laid down by Waldron in his weak-form of judicial review and his arguments upholding legislative review against judicial review with respect to rights. It shall also discuss the philosophical basis of Waldron’s theory and then study the different authors that support the benefits granted by the argument in favor of weak-form of judicial review. This paper shall then discuss whether the legal philosophy of the core case against judicial review is applicable in the Philippine setting. It shall then reimagine how the benefits of the weak-form of judicial review may be applicable in the Philippines, with strong-form of judicial review, and where it is difficult to amend the constitution. Finally, the paper shall defend how those benefits can be sustained through judicial legitimacy. It must be emphasized that this paper shall deal primarily with broad legal philosophy, thus, the strict tenets of positivism may not be applicable.

II. The Core of the Case Against Judicial Review

3 The locus classicus for this concept is John Locke, The Second Treatise of Government, in TWO TREATISES OF GOVERNMENT 265, 366-67 (Peter Laslett ed., Cambridge Univ. Press 1988); See Waldron, Jeremy. (2006). The Core of the Case Against Judicial Review. The Yale Law Journal. 115. 1346. 10.2307/20455656, p. 1349. 4 Waldron, Jeremy The Core of the Case Against Judicial Review. The Yale Law Journal. 115. 1346. 10.2307/20455656, p. 1349, (2006). 5 Rosalind Dixon, The forms, functions, and varieties of weak(ened) judicial review, International Journal of Constitutional Law, Volume 17, Issue 3, July 2019, Pages 904–930. 6 Id. 7 Stephen Gardbaum, Reassessing the new Commonwealth model of constitutionalism, International Journal of Constitutional Law, Volume 8, Issue 2, April 2010, Pages 167–206.

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To begin, the core of the case against judicial review does not absolutely seek for the abolition of the courts and the judicial review process. It recognizes that some aspects of judicial review may be worthy, such as in reviewing the acts of the executive branch or the administrative agency, to determine whether they comply with the law enacted by the legislative department, which represents the democratic voice of the people.8 It also acknowledges that judicial review may be helpful in resolving constitutional disputes that do not entail rights, such as those disputes involving separation of powers, federalism, and checks and balances among the different branches of the government.9 In those cases, Waldron concedes that judicial review may be beneficial to effectively resolve those issues. However, Waldron strongly argues that when the dispute involves rights, particularly those fundamental rights enshrined under the constitution, there must be a weak-form of judicial review, wherein the courts shall ultimately concede the resolution of these disputes involving rights to the legislative.10 He emphasized that the legislative branch, which is composed of the representatives of the people – the embodiment of the voice of the people, where sovereignty resides – should have the final word of how disputes regarding rights should be resolved.11 As highlighted, it is the people that ultimately define and interpret their rights, through their representatives; not the unelected and elitists judges or justices appointed to the courts.12 While his hypothesis may be difficult to grasp, he simplifies that it should be people, through their right to participate, that should determine, define, and interpret the rights granted to them.13 Notably, Waldron provides four (4) assumptions before the weakform of judicial review comes into play: 1. Democratic institutions in reasonably good working order; 2. Judicial institutions in reasonably good working order; 3. A commitment of the people to the idea of individual and minority rights; and 4. Good faith disagreement about rights.14 In the first assumption, there is a State with a democratic political system, with universal adult suffrage, and it has a representative legislature, which holds fair and free elections. The legislature should

8 Waldron, Jeremy, The Core of the Case Against Judicial Review. The Yale Law Journal. 115. 1346. 10.2307/20455656, p. 1353, (2006). 9 Id. at 1354 and 1358. 10 Id. at 1354. 11 Id. at 1355. 12 Id. at 1355. 13 Waldron, Jeremy. Law and Disagreement. Chapter 10. Oxford: Oxford University Press, 1999. 14 Waldron, Jeremy. (2006). The Core of the Case Against Judicial Review. The Yale Law Journal. 115.1346. 10.2307/20455656, p. 1360.

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Manila | Reimagining the Core of the Case Against Judicial Review

be a large legislative body, accustomed to dealing with difficult issues, including justice and social policies. The members of the legislative body are voted by the people based on the values that they represent, not based on personality or mere political affiliation. The members of the legislature also act based on the benefits of their constituents, not under their own self-interests. The legislature further has a selfreview mechanism within their body, wherein disputes regarding rights are constantly debated and scrutinized, to determine the ultimate decision of the people with respect to rights disputes.15 In the second assumption, the judicial institution is under a good working condition, even if the judges are not elected or representatives of the people. 16 The courts do not act on their own motion or by abstract reference; they deal with issues in the context of adversarial presentation; and they refer and elaborate on their own past decisions on relevant matters. Under this assumption, judges are understood to be highly independent beings, free from political influence. At the same time, they are from the typical high-status and well-educated demographics of society, belonging to the elite class. However, they are self-conscious about the legitimacy of their own activity whenever they exercise judicial review of legislation.17 In the third assumption, the people, who are divided into the majority and minority classes, have a strong commitment to rights.18 The majority believes that the minorities are entitled to some degree of support, recognition and insulation, regardless of their numbers or political weight. The majority does not disregard the views of the minority simply because the latter is against the majority’s position. To solidify the strong commitment to rights, the third assumption also supposes that there is an official adoption of a bill of rights or a declaration of rights, from which the rights of the people emanate.19 In the fourth assumption, even if there is a commitment to rights, there is a healthy and robust disagreements about rights.20 The people, through their duly elected representatives, engage in discussions and debates on the determination of the scope and definition of their rights based on the bill of rights. The people are aware of their rights and they are willing to engross themselves in conversations and dialogues to establish the best possible understanding of their own rights. At the same time, the duly elected representatives convey the genuine disagreements of their constituents in the legislative department and, in turn, the consensus is translated to the laws that are enacted. This fourth assumption is very important in order for

15 16 17 18 19 20

Ibid. at 1361. Id. at 1363. Id. at 1364. Id. Id. at 1365. Id. at 1366.

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the weak-judicial review to work.21 It goes to show that good faith disagreement regarding rights is possible and applicable. According to Waldron, when these assumptions exist, it is perfectly justifiable to adopt the weak-form of judicial review.22 In this manner, the legislative review over rights disputes is preferred because the people will be able to decide for themselves the rights that will be exercised and granted to them; rather, than the unelected and elitists judges of the courts. If these assumptions are not present, then the weak-form of judicial review is not the ideal method to adopt in a particular State.23 However, Waldron still argues that to achieve these four assumptions, the State must gradually change its review system to the weak-form of judicial review, wherein it will be the legislature that decides rights dispute. In that way, the people will be more self-aware and responsible to determining their rights and, eventually, will have a strong commitment to rights despite the good faith disagreements.24

III. Benefits of Weak-form of Judicial Review There are several benefits of adopting the weak-form of judicial review under the constitution. The primary benefit of the weak-form of judicial review is that democratic legitimacy, in its purest form, is upheld in the resolution of disagreements regarding rights. Since it is the people, with whom sovereignty resides, enjoys these rights, they should be the ones to determine how these rights should be understood, enforced, and interpreted. Bellamy argues that the European Court of Human Rights (ECtHR), although not technically a weak-form of judicial review, may be the nearest example for such judicial review.25 The ECtHR does not absolutely accept all rights disputes filed before it. Rather, it gives a wide margin of appreciation to allow the domestic states to resolve a disagreement regarding rights.26 Thus, the domestic states, which exercise absolute sovereignty through the people, shall still ultimately decide on their fate and they can chart their own destiny with respect to the rights that should be provided. The margin of appreciation doctrine, as one aspect of weak-form of judicial review, applied by an international tribunal respects the sovereignty of the domestic states.27

21 Id. at 1367. 22 Id. at 1369. 23 Ibid. at 1371. 24 Id. 25 Richard Bellamy, The Democratic Legitimacy of International Human Rights Conventions: Political Constitutionalism and the European Convention on Human Rights, European Journal of International Law, Volume 25, Issue 4, November 2014, Pages 1019–1042. 26 Id. 27 Id. at 1036.

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At the same time, Bellamy argues that one of the benefits of the weak-form of judicial review, as seen in the lens of an international body, is that domestic states, through their legislature, have free reign to decide whether to accept the decision regarding rights disputes through judicial review.28 If the sovereign believes that the judgment of the international court does not reflect the core value or fundamental rights of the people reflected in the constitution or bill of rights, then it should have an option not to enforce it. In this manner, it actually encourages the other domestic states to join ECtHR with its own weak-form of judicial review because they will believe that the international tribunal respects the decision-making of the people themselves. Kavanagh also argues that even if there is a weak-form of judicial review, it does not completely disregard the judicial branch in rights protection or settlement of rights dispute.29 She cites as an example the United Kingdom, which adopted the weak-form of judicial review wherein the courts cannot set aside legislation regarding rights dispute. However, if the courts find that there is an incompatibility between the statute and the written declaration of rights, or the Human Rights Act, then a Declaration of Incompatibility (DOI) shall be issued. While DOI does not invalidate the law or is not legally binding against the legislature, such declaration still entails a powerful influence over the legislature. Non-compliance with the DOI, which is an evidence of failure to comply with rights-protection, may cause political embarrassment to the legislature, not only in the domestic sphere, but also in the international community.30 This political pressure is strong so much so that the legislature may lose the public trust of the people if the DOI is not complied with. While there might be delays in the compliance with the DOI, it is still adopted later by the legislature.31 Accordingly, even though there may be a weak-form of judicial review, high reverence to the courts is still maintained because their DOI has extreme persuasive value – augmenting the State’s position for rights protection and the rule of law within the constitutional culture. Finally, Dixon provides that the weak-form of judicial review promotes the cooperation between the legislative and judicial branches, ultimately benefitting the rights protection in favor of the people.32 While courts, with weak-form of judicial review, may not 28 Id. 29 Aileen Kavanagh, What’s so weak about “weak-form review”? The case of the UK Human Rights Act 1998, International Journal of Constitutional Law, Volume 13, Issue 4, October 2015, Pages 1008–1039. 30 Id. 31 Id.; Since the enactment of the HRA, there have been 21 final declarations of incompatibility and in almost every single case, the Government/Parliament has responded in some way to remedy the rights-violation. 32 Rosalind Dixon, The forms, functions, and varieties of weak(ened) judicial review, International Journal of Constitutional Law, Volume 17, Issue 3, July 2019, Pages 904–930.

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have the authority to invalidate the assailed statute from which rights disagreements arise, they may give interpretations on how the rights should be read in light of the constitutional texts, bill of rights, or declaration of rights. The constitutional interpretation of the courts is a very powerful tool, which can be a source to strengthen democratic legitimacy. In turn, these interpretations can assist or help the legislative branch on the statutory amendments or future drafting of a statute that provide rights protection.33 In this manner, while the legislature, which consists of the direct representatives of the people, still has the final decree with respect to how rights disagreements are resolved, the judicial branch indirectly participates as well on how these policies are formed in a well-organized and systematic manner. In due course, with regard to rights protection, the legislative and judicial branches undertake cooperative roles, in the spirit of respecting the will of the sovereign people; and not merely a onesided aspect where the legislature is completely submissive to the whims and decisions of the judiciary on rights disagreements.

IV. Inapplicability in the Philippines The assumptions in the core of the case against judicial review essentially lay down the foundation for a utopian society: both legislative and judicial branches are in good working order; judges and legislative representatives are not motivated by political interests; the will of the people is genuinely reflected by the representatives; and the people, while divided in the majority and minority groups, have utmost respect for the minority views despite good faith disagreements. I will argue that the core of the case against judicial review is not applicable in the Philippine setting. As to the first assumption, there must be a good working order in the legislative and judicial branches. In other words, they must work independently from the other branches of government. However, it cannot be said that the legislature in the Philippines is entirely independent from the other branches of government. While the Philippine Constitution has adopted the system of separation of powers, there are some aspects of the functions of the legislature that requires interbranch cooperation. For instance, when a bill is passed by the Philippine legislature, it is not immediately enacted as a statute; rather, it must be signed by the President and it is subject to

Ibid.

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his or her veto power.34 While the legislature may overturn the veto of the President by a two-thirds vote, it almost never happens. In 2016, when President Aquino vetoed the SSS Pension Hike bill, it was returned to the legislature and, at that Congress, the latter was never able to overturn the Presidential veto.35 Similarly, with the judiciary, it cannot be gainsaid that it is entirely independent from the other branches of government, particularly, the appointment of the members in the highest court of the land. According to the Philippine Constitution, the members of the Supreme Court shall be appointed by the President from the list of nominees provided by the Judicial and Bar Council ( JBC).36 Notably, the members of the JBC are appointed by the President and some of its members are partisan in nature, such as the Secretary of Justice, who represents the President, and the representative of Congress.37 Thus, it cannot be asserted that the entire judiciary is spotlessly independent from the other branches. The second assumption of Waldron’s theory is also inapplicable in the Philippines. By the very nature of the legislative structure in the Philippines, the acts of the members of the legislature are politically motivated. In other words, a majority of the legislative members perform their duties for some underlying self-interest, particularly, to perpetuate the political power within their own families. Political dynasties exemplify a particular form of elite persistence in which a single or few family groups monopolize political power.38 The

34 1987 Philippine Constitution, Article VI, Section 27. (1) Every bill passed by the Congress shall, before it becomes a law, be presented to the President. If he approves the same he shall sign it; otherwise, he shall veto it and return the same with his objections to the House where it originated, which shall enter the objections at large in its Journal and proceed to reconsider it. If, after such reconsideration, two-thirds of all the Members of such House shall agree to pass the bill, it shall be sent, together with the objections, to the other House by which it shall likewise be reconsidered, and if approved by two-thirds of all the Members of that House, it shall become a law. In all such cases, the votes of each House shall be determined by yeas or nays, and the names of the Members voting for or against shall be entered in its Journal. The President shall communicate his veto of any bill to the House where it originated within thirty days after the date of receipt thereof, otherwise, it shall become a law as if he had signed it. (2) The President shall have the power to veto any particular item or items in an appropriation, revenue, or tariff bill, but the veto shall not affect the item or items to which he does not object. 35 Aquino rejects SSS pension hike bill, Rappler, January 14, 2016. https://www.rappler.com/business/ economy/aquino-vetoes-sss-pension-bill. 36 1987 Philippine Constitution, Article VIII, Section 9. The Members of the Supreme Court and judges of the lower courts shall be appointed by the President from a list of at least three nominees prepared by the Judicial and Bar Council for every vacancy. Such appointments need no confirmation. 37 1987 Philippine Constitution, Article VIII, Section 8. (1) A Judicial and Bar Council is hereby created under the supervision of the Supreme Court composed of the Chief Justice as ex officio Chairman, the Secretary of Justice, and a representative of the Congress as ex officio Members, a representative of the Integrated Bar, a professor of law, a retired Member of the Supreme Court, and a representative of the private sector. (2) The regular members of the Council shall be appointed by the President for a term of four years with the consent of the Commission on Appointments. Of the Members first appointed, the representative of the Integrated Bar shall serve for four years, the professor of law for three years, the retired Justice for two years, and the representative of the private sector for one year. 38 Pablo Querubin, Political Reform and Elite Persistence: Term Limits and Political Dynasties in the Philippines, Harvard Academy for International and Area Studies (2011).

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Philippines is a notable example of a dynastic democracy. More than half of elected Philippine congressmen and governors have a relative who has held elected office previously. In 40% of the 79 provinces, the provincial governor and congressman are related.39 Political dynasties can undermine the quality of democracy and economic development in the long growth. The dynastic nature of Philippine politics has led to a personalized style of politics that undermines the creation of a strong state and the adoption of country-wide policies.40 Ironically, while the Philippine Constitution provides that political dynasties are prohibited, it is not a self-executory provision; rather, there must first be a law passed by the legislature that will enforce the principle against political dynasties.41 Several bills have been filed in the past to define political dynasties but these have yet to succeed, especially when the members of Congress themselves are not too eager to limit their own concentration of power.42 As to the judiciary, there was one decision of the Supreme Court that tested its independence from the political influence of the other branches of government. In Republic v. Sereno,43 the Supreme Court removed its own Chief Justice on the grounds of lack of integrity due to the non-filing of Statement of Assets, Liabilities, and Net Worth, even though the Philippine Constitution expressly stated that the Chief Justice can only be removed through the process of impeachment. While the Court extensively defended its judgment based on constitutional and legal arguments, it cannot be ignored that before the case against the Chief Justice was initiated, President Rodrigo Duterte expressly stated that he considered the Chief Justice, her staunch critic, as his enemy and that he will forcefully remove her from office.44 The third assumption is also unavailing. As stated earlier, the members of the legislature mostly act based on self-interest, particularly, the perpetuation of power. While there is an assumption of political maturity,45 wherein the representatives are presumed to act genuinely on behalf of the people, there are some doubts whether it actually happens in reality. The Philippine Constitution adopted a multi-party system for the legislature, where political parties are created freely and, at the same time, the members of the legislature can transfer from one political party to another without any repercussions. 39 Id. 40 Id. 41 1987 Philippine Constitution, Article II, Section 26. The State shall guarantee equal access to opportunities for public service and prohibit political dynasties as may be defined by law. 42 Anti-political dynasty bills filed in 18th Congress, CNN Philippines, July 4, 2019. https:// cnnphilippines.com/news/2019/7/4/Anti-political-dynasty-bills-18th-Congress-.html. 43 G.R. No. 237428, [May 11, 2018]. 44 Siobhán O’Grady, She was the enemy of Philippine President Duterte, and her fellow judges just sacked her, Washington Post, May 11, 2018, https://www.washingtonpost.com/news/worldviews/ wp/2018/05/11/she-was-the-enemy-of-philippine-president-duterte-and-her-fellow-judges-justsacked-her/. 45 See Socrates v. Commission on Elections, G.R. Nos. 154512, 154683 & 155083-84, [November 12, 2002], 440 PHIL 106-180.

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Political parties are important because they represent the ideals that their members represent. These parties should be the component that distinguishes one representative from another. However, due to the multi-party system of the Philippines, the representatives may just jump from one ship to another, regardless of the political ideals of the parties, as long as the membership in that party shall serve the representatives’ political motive, which is to perpetuate power. Thus, the feature that should distinguish the representatives of the legislature, through their political views in the membership of the political parties, are blurred and rendered nugatory. For instance, whenever a President is elected, there is a trend that the members of the legislature will join the political party of the sitting President.46 Rather than ascribing to the ideals of their original political party, to which the people have chosen them, the representatives would rather set aside party ideals and simply join the ruling party. In that sense, it cannot be said that the will of the people is genuinely reflected by the representatives. Lastly, the fourth assumption is also not pertinent, which requires that the majority have utmost respect for the minority views despite good faith disagreements. For instance, when the Reproductive Health Bill was being debated in the Philippine Congress, the discussions were heated. It came to the point that those representatives who were in favor of the bill, which deals with reproductive rights, were branded as “Team Patay” or in favor of death; while those who were against the bill were branded as “Team Buhay” or in favor of life. There was no mutual respect for the discussion regarding reproductive rights. There was this mentality that: if you are not with us, then you’re against us. During the 2013 elections, the legislative members were chosen as either Pro-RH or Anti-RH through election materials. A case was filed before the Supreme Court to determine whether the materials were constitutionally valid. In The Diocese of Bacolod v. Commission on Elections,47 the Court ruled that these materials were valid and these are not against the election laws, as these were part of the right of the freedom of expression. Thus, in a sense, these non-good faith disagreements regarding reproductive rights were recognized by the Court. The problem with not having good faith disagreements is that minority rights shall not be recognized until there has been an intervention by the court, through a strong form of judicial review. Based on the above discussion, it is clear that that the core of the case against judicial review is not applicable in the Philippines because the four assumptions are inapplicable. Hence, there is no value to seek for the constitutional amendment to shift from the strong-form of judicial review to the weak-form of judicial review. Notably, even

46 Gil C. Cabacungan, From 3 to 300, PDP-Laban forms ‘supermajority’ in House, Inquirer.Net, May 26, 2016. https://newsinfo.inquirer.net/787547/from-3-to-300-pdp-laban-forms-supermajorityin-house#ixzz6yREton1V. 47 G.R. No. 205728, January 21, 2015, 751 PHIL 301-450.

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Waldron concedes that in states where democracy is still developing, it may not be judicious to adopt the core of the case against judicial review as the rights of those people holding the minority view shall not be respected.48

V. Reimagining As can be seen in Part III, there can be several benefits of the weak-form of judicial review in the democratic institutions for rights protection, such as respect for sovereignty, high esteem for the judicial branch, and inter-branch cooperation. However, as discussed in Part IV, the core of the case against judicial review of Waldron is inapplicable in the Philippines because of the incompatibility of the assumptions. Accordingly, it may not be beneficial for the Philippines, which has strong-form of judicial review, to amend its constitution to simply adopt a weak-form of judicial review. It will be counterintuitive and would lead to further degradation on the protection and enforcement of rights. Thus, this paper now comes to a conjunction: may the Philippines, which has a strong-form of judicial review, still reap the benefits of the weak-form of judicial review? I will argue that it is possible to reimagine the core of the case against judicial review so that the Philippines may still enjoy the benefits without adopting any constitutional amendment. Even though the members of the courts are not chosen directly by the people, from whom sovereignty resides, and the people also do not participate in the decision-making of the judges, the courts may still adopt some internal self-regulations in order to ensure that sovereignty of the people are respected and given primary importance. Self-regulation is very important in any of the branches of the government as it puts a limitation on itself so that these branches will not overstep their boundaries and disobey the precepts of constitutional order.

Political question The first self-regulation that the judiciary should purposefully adopt is the application of the political question theory. In the landmark US case of Baker v. Carr,49 the SCOTUS defined political question through a series of enumeration, to wit: Prominent on the surface of any case held to involve a political question is found a textually demonstrable constitutional commitment of the issue to a co48 Waldron, Jeremy, The Core of the Case Against Judicial Review. The Yale Law Journal. 115. 1346. 10.2307/20455656, p. 1353, (2006). 49 Baker v. Carr, 369 U.S. 186, 187, 82 S. Ct. 691, 694, 7 L. Ed. 2d 663, 668.

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ordinate political department, or a lack of judicially discoverable and manageable standard for resolving it, or the impossibility of deciding without an initial policy determination of a kind clearly for nonjudicial discretion, or the impossibility of a court’s undertaking independent resolution without expressing lack of the respect due co-ordinate branches of government, or an unusual need for unquestioning adherence to a political decision already made, or the potentiality of embarrassment from multifarious pronouncements by various departments on one question; unless one of these formulations is inextricable from the case, there should be no dismissal for nonjusticiability on the ground of the presence of a political question.50 On the other hand, Finn stated that the political question doctrine holds that some questions, in their nature, are fundamentally political, and not legal, and if a question is fundamentally political, then the court will refuse to hear that case.51 The court will claim that it does not have jurisdiction, and it will leave that question to some other aspect of the political process to settle out.52 To put it simply, when the question before the courts involves the exercise of wisdom of the other branches of government, the political question doctrine shall apply and the courts shall not resolve the dispute due to its lack of justiciability. According to Baker v. Carr, the political question doctrine is a tool for maintenance of governmental order, and will not be so applied as to promote only disorder.53 Hence, when the dispute involves the exercise of the wisdom of the legislative branch, which is solely within the sphere of that branch, pursuant to its authority to act as the representative of the people, then the courts shall not intervene and will let the legislature perform its sworn duty under the constitution. In this manner of applying the political question doctrine, the courts actually respect the authority that is given by the Constitution, which was ratified by the people, to the legislative branch and their representatives. It recognizes that there are some aspects of the State functions that the courts cannot interfere with, especially when it involves the will of the people. The legislative branch can act confidently, knowing that the judiciary will not strike down legislation regarding rights protection, which are solely within the ambit of legislative wisdom and does not violate any constitutional text. In the Philippines, however, the political question doctrine with

50 Ibid. 51 John E. Finn (2016). “Civil Liberties and the Bill of Rights.” The Teaching Company. Part I: Lecture 4: The Court and Constitutional Interpretation. 52 Id. 53 Baker v. Carr, 369 U.S. 186, 187, 82 S. Ct. 691, 694, 7 L. Ed. 2d 663, 668.

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respect to rights disagreements has become illusive. In Council of Teachers and Staff of Colleges and Universities of the Philippines v. Secretary of Education,54 which involve the right to expanded educational years or the K-12 Program, the Court emphasized that the political question doctrine is no longer the insurmountable obstacle to the exercise of judicial power or the impenetrable shield that protects executive and legislative actions from judicial inquiry or review under the expanded definition of judicial power of the 1987 Philippine Constitution. Section 1, Article VIII thereof authorizes courts of justice not only to settle actual case controversies involving rights which are legally demandable and enforceable but also to determine whether there has been grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government. Accordingly, the judiciary in the Philippines has been more hesitant to apply the political question doctrine in resolving rights disagreements.

Reduced stare decisis Another aspect of self-regulation that is adopted by the courts in order to give deference to legislative review is the reduced application of stare decisis. The concept of stare decisis is adopted in the US common law system so that courts may rely on its previous decisions provided that the facts and circumstances of each case are similar. The problem with stare decisis is that if the previous court decision regarding rights protection is wrong, then the subsequent cases of the court shall also follow the wrong interpretation. Indeed, the existing doctrine of stare decisis should not be a license to adopt erroneous interpretation of the constitutional text. If the courts find that a previous decision regarding rights protection is undoubtedly wrong because it is inconsistent with the bill of rights, then the courts should not hesitate to disregard the stare decisis doctrine. Verily, in that manner, the courts should uphold the sanctity of the constitutional text, which is the expression of the will of the people, rather than be bound by the limitations of stare decisis. For instance, in Lawrence v. Texas,55 the SCOTUS held that the anti-sodomy laws are unconstitutional because they violate the fundamental right to privacy. Liberty protects the person from unwarranted government intrusions into a dwelling or other private place.56 Liberty presumes an autonomy of self that includes freedom of thought, belief, expression, and certain intimate conduct.57 Indeed, the Court did not apply stare decisis because it did not follow the 54 55 56 57

G.R. Nos. 216930, 217451, 217752, 218045, 218098, 218123 & 218465, October 9, 2018. 539 U.S. 558, 562, 123 S. Ct. 2472, 2475 (2003). Id. Id.

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previous decision in Bowers v. Hardwick,58 which did not strike down the anti-sodomy laws. The central holding of Bowers demeaned the lives of homosexual persons. The State could not demean their existence or control their destiny by making their private sexual conduct a crime. Lawrence v. Texas is a perfect example of how the court did not strictly rely on stare decisis based on the previous decision of Bowers v. Hardwick; rather, the court gave utmost reverence to the constitutional text in order to ensure that the rights protection as envisioned by the will of the people is upheld. In the Philippines, there is a pending case before the Supreme Court that would determine whether stare decisis shall be applied with respect to the protection and recognition of rights, particularly, of illegitimate children. In Aquino v. Aquino,59 the petition seeks to declare unconstitutional Art. 992 of the Civil Code, or the Iron Curtain Principle, which states that an illegitimate child has no right to inherit ab intestato from the legitimate children and relatives of his father or mother. In that case, it shall be determined whether the petitioner, who is an illegitimate granddaughter, can inherit from her legitimate grandfather, whom she cared for. It will be interesting to observe whether the Court will apply stare decisis, as there was a previous decision entitled, Diaz v. Intermediate Appellate Court,60 which held that Article 992 is a valid statute that affects the inheritance rights of illegitimate children, or will it uphold the rights of children based on the doctrine of equal protection of laws under Constitution.

Flexibility in favor of the legislature Another instance of self-regulation that courts with strong-form of judicial review may adopt to reap the benefits of the weak-form of judicial review is to provide flexibility in their decisions in favor of the legislative branch. Whenever the courts render a judgment in rights protection, the raison d’être or the judicial justification is controlling. Thus, if judgment provides too much restrictions on the role of the legislature, then there is not much leeway for the legislative branch to exercise its legislative branch with respect to rights protection. There will be a monopoly of wisdom solely to the courts; and the cooperation between the judiciary and the legislature is minimized. The better approach is for the courts to give sufficient flexibility on their decisions in favor of the legislature to exercise their discretion subsequently in legislative review. A good example on how the judiciary gives sufficient leeway to the legislature in rights protection can be seen in South Africa, which also adopted the strong-form of judicial review in their constitution. 58 59 60

478 U.S. 186 (1986). G.R. Nos. 208912 & 209018. G.R. No. L-66574, June 17, 1987, 234 PHIL (636-644).

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In Republic of South Africa v. Grootboom,61 the Constitutional Court of South Africa held that there is a constitutional right to humane living conditions; and that the State has the obligation to provide such living conditions to the citizens in need, within a reasonable and progressive realization of such rights. Nevertheless, while the Court issued a declaratory relief, it referred the case to the legislature so that the latter may draft policies to address the lack of humane living conditions to the citizens in need. Rather than dictating the policy to the legislature, the judiciary deferred to the understanding of the legislature in order to specifically address this concern. Indeed, as pointed out, the members of the legislature, who are the direct representatives of the people, are in the best position to determine precisely how those rights should be protected and how disagreements between rights should be settled. In the Philippines, the recent case of Falcis III v. Civil Registrar General62 demonstrates this deference to the legislature. The Court tackled the petition invoking the recognition of same-sex marriage under the Constitution. The petitioner argued that the provisions of the Family Code, which limited marriages between a man and woman, are discriminatory and contrary to the tenets of the Constitution. However, the Court dismissed the case, among others, due to lack of actual controversy as the petitioner did not suffer a direct injury. In the final note of the decision, the Court emphasized that as there is no actual case or controversy, then it is up to the democratically-elected representatives of Congress to determine whether same-sex marriage shall be legalized in the country. It showed that the Court gave much flexibility to the legislature, the elected representatives of the people, to decide such rights disagreement.

Judicial Integrity The above-discussed are some of the concepts of self-regulation that the courts, with strong form of judicial review, may adopt in order to enjoy the benefits of weak-form of judicial review, such as respect for sovereignty, high-esteem for the judicial branch, and inter-branch cooperation. Self-regulation of the courts may be an effective tool for states with strong-form of judicial review to keep themselves in check and give due recognition to legislative review regarding rights dispute. However, there is a central question to this mechanism: what is the assurance that courts will genuinely exercise self-regulation? Indeed, the courts are not subject to re-election; the justices and judges are not adjudged by the people regularly in the elections. In the United States, once the justices are appointed in the SCOTUS, they shall

61 Republic of South Africa v. Grootboom. Case No. CCT 11/00. 2000 (11) BCLR 1169 and Minister of Health v. Treatment Action Campaign. Case No. CCT 8/02, Constitutional Court of South Africa, July 5, 2002. 62 G.R. No. 217910, September 3, 2019.

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serve their term for life.63 How then can the people know that the courts will perform their sworn duty with self-regulation and some deference to the legislative review when it comes to rights protection? I believe that judicial integrity is an important aspect that will ensure the compliance of the judicial branch in their self-regulation with respect to the rendering decision regarding rights protection. Public trust to the judiciary is indispensable; the courts will not be able to function if the people do not believe in the court decisions. The manner by which the people’s trust in the judiciary shall be maintained is that if the courts will render judgment based on the constitution, which was ratified by the people. In turn, the courts must state in their judgment that the procedure they adopted in rendering judgment with respect to resolving rights disputes was in accordance with the constitution. Only when the people trust and believe the courts shall the latter’s judgments become binding and applicable to the sovereign. Otherwise, if there is a court that does not enjoy the public trust of the people, then any judgment it renders shall become an exercise of futility. Thus, if the judiciary does not exercise self-regulation and will completely meddle with the affairs of the legislature with respect to rights protection at all instances, even at the expense of separation of powers, then the people’s trust in the judiciary may be dampened. Judicial integrity, as the basis for the self-regulation of courts, actually may be a good argument to support Dworkin’s position in favor of judicial review. Dworkin, a proponent of judicial activism, believes in “leaving issues to the court’s judgment” and investing the people’s faith in their decisions.64 Indeed, the people may only invest their full faith and credence in court when the members of the judiciary highly maintain judicial stability.

VI. Conclusion Waldron’s “The Core of The Case Against Judicial Review” is inapplicable to the Philippines due to the assumptions therein. Nevertheless, it cannot be denied that there are some benefits for the weak-form of judicial review, such as respect for sovereignty, highesteem for the judicial branch, and inter-branch cooperation. It is possible for a State with strong-form of judicial review, such as the Philippines, to reap these benefits without amending the constitution. 63 US Constitution, Article III. Section. 1. The judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish. The Judges, both of the supreme and inferior Courts, shall hold their Offices during good Behaviour, and shall, at stated Times, receive for their Services, a Compensation, which shall not be diminished during their Continuance in Office. 64 Sarnowski, Eddie, “Discussing the Allegedly Democratic Nature of Judicial Review” (2004). All Volumes (2001-2008). 84, citing Dworkin, Ronald. “Constitutional Cases.” Readings in the Philosophy of Law. John Arthur and William H. Shaw. Third Edition. Upper Saddle River: Prentice Hall, 2001. 526-534.

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Through self-regulation, the courts, which have the judicial power to set aside a statute, shall be sensitive and careful against monopolizing the judicial review of rights disputes. They shall recognize that there are indeed some areas wherein the legislative can exercise their legislative review of rights and, at the same time, it will respect the people’s will, from which sovereignty resides. To ensure selfregulation, judicial integrity shall be put to the test because without it, there can be no judicial legitimacy.

Challenges in Pursuing Torts Cases as Class Actions in the Philippines

Reynold L. Orsua1

Abstract This paper discusses the viability of utilizing class actions in tort cases in the Philippines. It also presents the challenges in pursuing the same based on existing procedural rules and jurisprudence interpreting the concept of class action. While, by and large, it may be said that the provision on class action is based on American rules of procedure, current practice in tort litigation in the country reveals the divergence in the use of class actions in tort cases between the Philippines and the United States. This paper will present a plausible explanation for such divergence by introducing a general discussion of the amendments of the class suit provisions in both jurisdictions. This paper theorizes that, based on the wording of Section 12, Rule 3 of the 1997 Rules of Civil Procedure, and existing jurisprudence on the matter, it may be difficult, if not impossible, to pursue claims for damages arising from quasi-delicts through class actions in the Philippines. This has not been explicitly stated in the rules and jurisprudence, but it is argued that this can be implied from the case laws discussing the elements of class action in relation to tort cases involving numerous plaintiffs arising from a single act, event, transaction, or circumstance. A bulk of the discussion will be on significant and relevant case laws on

The author is a graduate of San Beda College of Law and is the Salutatorian of Class 2015. He is currently a Court Attorney at the Supreme Court of the Philippines. This article is solely the opinion of the author, and is written for educational purposes only.

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the matter which tend to show the challenges in maintaining an action for damages involving numerous plaintiffs pursued through a class action. This may also initially serve as basis to explain why there has been no successful class tort action in the Philippines. This proposition is important in order to serve as a caution for future parties regarding the legal challenges in employing this procedural modality which may affect the overall strategy in litigating these cases.

Introduction

The Commission on Population and Development estimates that there are already more than 108 million Filipinos.2 Our number has an impact on various social aspects of our lives such as employment, consumption, health and safety, etc. In particular, the current population of the Philippines fuels the rise of consumerism which is hastened by the digital era. The advent of innovative modes of sale of goods and the performance of services has gained considerable ground in the Philippines due to the relative ease in entering into these transactions. This phenomenon, in turn, supports mass production of goods and performance of services in order to keep up with public demand. It is also a reality of life in the Philippines that our sheer number has resulted in mass accidents for various causes such as vehicular, maritime, and air accidents, occupational, etc., which have caused loss of lives and properties. Considering these realities, it is inevitable that disputes will arise involving consumer products, claims for damages arising from vehicular, maritime, or air accidents, exposure to harmful chemicals, etc., which may involve numerous parties. Time and again, the Supreme Court has been confronted with cases involving numerous plaintiffs who may have been wronged due to the same cause, act, or circumstance. One of the modes in litigation available to numerous parties involved in a case in general is a class suit which is supposedly used in order to make litigation economical for individuals belonging to the same class who would want to protect or enforce their rights, or for their common defense. It is also meant to litigate actions in one venue in order to supposedly avoid multiplicity of suits, and conflicting decisions from various courts or administrative agencies. While seen as a procedural device, the class suit mechanism touches upon substantive issues such as “collective justice” which may only be better and efficiently achieved if parties collectively file a case as a class and be vindicated as a group. However, as will be

2 Philippine Population Clock (as of May 16, 2020) based on the Population Projections from the 2015 Census of Population., aAvailable at <http://popcom.gov.ph>.

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discussed below, the current wording of our rules on class actions, and the rulings of the Supreme Court which employed a strict view on the application of the class action provision makes it difficult, if not impossible, to pursue class actions in tort cases.

II. Class Action under the Philippine Rules of Civil Procedure Class action is an exception to the usual rule that litigation is conducted by and on behalf of the individual parties only.3 As discussed in the 1925 case of Borlasas v. Polistico,4 the Supreme Court explained: “The general rule with reference to the making of parties in a civil action requires, of course, the joinder of all necessary parties wherever possible, and the joinder of all indispensable parties under any and all conditions, the presence of those latter being a sine qua non of the exercise of judicial power. The class suit contemplates an exceptional situation where there are numerous persons all in the same plight and all together constituting a constituency whose presence in the litigation is absolutely indispensable to the administration of justice. Here the strict application of the rule as to indispensable parties would require that each and every individual in the class is sufficiently represented to enable the court to deal properly and justly with that interest and with all other interests involved in the suit. In the class suit, then, representation of a class interest which will be affected by the judgment is indispensable; but it is not indispensable to make each member of the class an actual party.”5 Class action embodies the principle of collective justice for parties confronted with common questions of fact and law. Having been influenced by American rules of procedure, in class action, one person or group of people – called the class representative(s) – represents other people – called the class members – who have claims and defenses similar to those of the class representatives.6 Class action is also provided as a matter of procedural convenience for cases with numerous parties, and with common questions and circumstances. It is also used as a means for parties belonging to a putative class which may have small claims, and as a result, may 3 4 5 6

Califano v. Yamasaki, 442 U.S. 682, 700–701 (1979). G.R. No. 22909, January 28, 1925, 47 PHIL 345-350. Id. Thomas D. Rowe Jr., Suzanna Sherry & Jay Tidmarsh, Civil Procedure (4th Ed.), p. 651.

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instead opt not to litigate due to the expenses that come with it if filed separately, to pool together their resources in order to collectively pursue their claims. “Class action possesses a collective power and a potential for efficient adjudication unrivaled in other forms of litigation. If a million victims have allegedly been defrauded of $100 apiece, few, if any, of the victims will sue individually. The class action created the lawsuit – a $100 million lawsuit at that. If the plaintiffs’ claims are strong, the class action provides a useful deterrent to misbehavior = although some might argue that the law should not deal in, much less encourage, lawsuits over trifling arms.”7 The United States model has been enriched by their experience in class action litigations which is in stark contrast with that of the Philippines, where class actions have largely been limited through the interpretations of the Supreme Court to a number of cases. Among the leading cases which discuss class action at length is Mathay v. Consolidated Bank and Trust Co.,8 where the Supreme Court explained a restrictive interpretation of the applicability of class actions in certain cases. While Mathay does not involve torts, the plaintiffs therein filed a class suit for and on behalf of other subscribing stockholders which had been denied the right to subscribe at par value, in proportion to their equities, and prayed that the subscriptions and shareholdings acquired by the defendants therein, and the persons chosen by them be annulled and transferred to plaintiffs and other subscribing stockholders. In ruling that the class suit was improper, the Supreme Court discussed: “The necessary elements for the maintenance of a class suit are accordingly: (1) that the subject matter of the controversy be one of common or general interest to many persons, and (2) that such persons be so numerous as to make it impracticable to bring them all to the court. An action does not become a class suit merely because it is designated as such in the pleadings. Whether the suit is or is not a class suit depends upon the attending facts, and the complaint, or other pleading initiating the class action should allege the existence of the necessary facts, to wit, the existence of a subject matter of common interest, and the existence of a class and the number

7 8

Ibid. G.R. No. L-23136, August 26, 1974, 157 PHIL 551-578.

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of persons in the alleged class, in order that the court might be enabled to determine whether the members of the class are so numerous as to make it impracticable to bring them all before the court, to contrast the number appearing on the record with the number in the class and to determine whether claimants on record adequately represent the class and the subject matter of general or common interest. xxx The statute also requires, as a prerequisite to a class suit, that the subject-matter of the controversy be of common or general interest to numerous persons. Although it has been remarked that the ‘innocent ‘common or general interest’ requirement is not very helpful in determining whether or not the suit is proper’, the decided cases in our jurisdiction have more incisively certified the matter when there is such common or general interest in the subject matter of the controversy. By the phrase ‘subject matter of the action’ is meant ‘the physical facts, the things real or personal, the money, lands, chattels, and the like, in relation to which the suit is prosecuted, and not the delict or wrong committed by the defendant.’ xxx Even if it be assumed, for the sake of argument, that the appellants and the CMI stockholders suffered wrongs that had been committed by similar means and even pursuant to a single plan of the Interim Board of Organizers of the Bank, the wrong suffered by each of them would constitute a wrong separate from those suffered by the other stockholders, and those wrongs alone would not create that common or general interest in the subject matter of the controversy as would entitle any one of them to bring a class suit on behalf of the others. Anent this point it has been said that: ‘Separate wrongs to separate persons, although committed by similar means and even pursuant to a single plan, do not alone create a ‘common’ or ‘general’ interest in those who are wronged so as to entitle them to maintain a representative action.’ Appellants,

however,

insisted,

citing

American

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authorities, that a class suit might be brought even if the interests of plaintiffs-appellants might be several as long as there was a common question of law or fact affecting them and a common relief was sought. We have no conflict with the authorities cited; those were rulings under the Federal Rules of Civil Procedure, pursuant to Rule 23 of which, there were three types of class suits, namely: the true, the hybrid, and the spurious, and these three had only one feature in common, that is, in each the persons constituting the class must be so numerous as to make it impracticable to bring them all before the court. The authorities cited by plaintiffs-appellants refer to the spurious class action Rule 23 (a) (3) which involves a right sought to be enforced, which is several, and there is a common question of law or fact affecting the several rights and a common relief is sought. The spurious class action is merely a permissive joinder device; between the members of the class there is no jural relationship, and the right or liability of each is distinct, the class being formed solely by the presence of a common question of law or fact. This permissive joinder is provided in Section 6 of Rule 3, of our Rules of Court. Such joinder is not and cannot be regarded as a class suit, which this action purported and was intended to be as per averment of the complaint.”9 It is clear from the foregoing that the Supreme Court categorically declared that “[s]eparate wrongs to separate persons, although committed by similar means and even pursuant to a single plan, do not alone create a ‘common’ or ‘general’ interest in those who are wronged so as to entitle them to maintain a representative action.” This statement has restrictive effect on class actions on tort actions considering that quasi-delicts presuppose an injury, and whether due to a single act or circumstance, all persons affected thereby will have their own cause of action. Furthermore, the definition in Mathay of the phrase “subject matter of the action” as an element of class action may pose a hurdle in pursuing tort actions through class actions. As previously stated therein, “subject matter of action”, which the members of class should have common or general interest to, pertains to “the physical facts, the things real or personal, the money, lands, chattels, and the like, in relation to which the suit is prosecuted, and not the delict or wrong committed by the defendant.” This may have a foreclosing effect on tort actions involving numerous parties since the common point of interest between them is the wrong committed by the defendant.

Supra., citations omitted; emphasis and underscoring supplied.

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In this regard, quasi-delict as stated in Article 2176 of the Civil Code provides that “[w]hoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.” Jurisprudence specifies four (4) essential elements: (1) duty; (2) breach; (3) injury; and (4) proximate causation.10 A central element in torts is the claim of injury which may differ, both in causation, extent, and circumstances. As such, even those actions for damages involving numerous parties arising from a single act or cause will have to establish the separate and distinct injuries they allegedly suffered pursuant to the interpretation of the Supreme Court in Mathay.

III. History of Class Suit Provisions in Philippine Rules of Procedure The class suit provision in the Philippines can arguably be said to have been based on American rules of procedure considering that the same was introduced on August 7, 1901 when the Philippine Commission approved Act No. 190 entitled “An Act Providing a Code of Procedure in Civil Actions and Special Proceedings in the Philippine Islands” (“Code of Civil Procedure”). The rule on class action was expressed therein under the Section 118 sub-titled as Numerous Parties, to wit: “Section 118 Numerous Parties. — When the subjectmatter of the controversy is one of common or general interest to many persons, and the parties are so numerous that it is impracticable to bring them all before the court, one or more may sue or defend for the benefit of all. But in such case any party in interest shall have a right to intervene in protection of his individual interest, and the court shall make sure that the parties actually before it are sufficiently numerous and representative so that all interests concerned are fully protected.” Thereafter, on January 1, 1964, the Supreme Court promulgated the Rules of Court. Section 12, Rule 3 thereof provides for the provision on class suit which was notably similar with the Code of Civil Procedure except for the title of the rule and the transposition of the last sentence of the previous rule, thus: “Sec. 12. Class suit.— When the subject matter of the controversy is one of common or general interest 10 Alano v. Magud-Logmao, G.R. No. 175540, April 7, 2014 citing Garcia, Jr. v. Salvador, 547 Phil. 463, 470 (2007) & Lucas v. Tuaño, 604 PHIL 98, 121 (2009).

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to many persons, and the parties are so numerous that it is impracticable to bring them all before the court, one or more may sue or defend for the benefit of all. But in such case the court shall make sure that the parties actually before it are sufficiently numerous and representative so that all interests concerned are fully protected. Any party in interest shall have a right to intervene in protection of his individual interest.”11 On April 8, 1997, the Supreme Court approved the 1997 Revised Rules of Civil Procedure. Section 12, Rule 3 thereof revised the provision on class suit, to wit: “Section 12. Class suit. — When the subject matter of the controversy is one of common or general interest to many persons so numerous that it is impracticable to join all as parties, a number of them which the court finds to be sufficiently numerous and representative as to fully protect the interests of all concerned may sue or defend for the benefit of all. Any party in interest shall have the right to intervene to protect his individual interest.”12 Notably, the change included the number of individuals who may pursue or defend a class from “one or more” to “a number of them”. Also, the revised provision changed the previous supposition that it is the court which has the duty to ensure that the parties actually before it are sufficiently numerous and representative so that all interests concerned are fully protected. “Under the former Rule, when a supposed class suit was filed, it was the duty of the court to make sure that the parties actually before it were sufficiently numerous and representative of the class. Under the present formulation, such fact is one of the requisites for instituting and maintaining a class suit. The significance of such changes is that the parties bringing the suit have the burden of proving the sufficiency of the representative character which they claim. Corollarily, the defendant can assail the fact through a motion to dismiss on the ground that the plaintiffs have no capacity to sue xxx, that is that they do not have the representation they claim xxx.”13 In comparison with the United States model, Federal Equity 11 12 13

Emphasis and underscoring supplied. Emphasis and underscoring supplied. Justice Florenz D. Regalado, Remedial Law Compendium, Vol. I (10th Ed.), p. 100.

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Rule 38 on Representatives of Class similarly provides that “[w]hen the question is one of common or general interest to many persons constituting a class so numerous as to make it impracticable to bring them all before the court, one or more may sue or defend the whole.”14 This was said to be in affirmation of an old principle of equity, and is based on the English rule: “Where there are numerous persons having the same interest in one cause or matter, one or more of such persons may sue or be sued, or may be authorized by the court or a judge to defend in such cause or matter, on behalf or for the benefit of all persons so interested.”15 This was, however, later amended under the US Federal Rules of Procedure, which now provides a more detailed statement of the requirements as well as the procedure in utilizing the same: “Rule 23. Class Actions (a) Prerequisites. One or more members of a class may sue or be sued as representative parties on behalf of all members only if: (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class. (b) Types of Class Actions. A class action may be maintained if Rule 23(a) is satisfied and if: (1) prosecuting separate actions by or against individual class members would create a risk of: (A) inconsistent or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class; or (B) adjudications with respect to individual class members that, as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications or would 14 James Love Hopkins, The New Federal Equity Rules (1913), p. 168, available at https://archive.org/ details/newfederalequit00hopkgoog/page/n192/mode/2up/search/class+action. 15 Ibid. at p. 168-169.

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substantially impair or impede their ability to protect their interests; (2) the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole; or (3) the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. The matters pertinent to these findings include: (A) the class members’ interests in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already begun by or against class members; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and (D) the likely difficulties in managing a class action. (c) Certification Order; Notice to Class Members; Judgment; Issues Classes; Subclasses. (1) Certification Order. (A) Time to Issue. At an early practicable time after a person sues or is sued as a class representative, the court must determine by order whether to certify the action as a class action. (B) Defining the Class; Appointing Class Counsel. An order that certifies a class action must define the class and the class claims, issues, or defenses, and must appoint class counsel under Rule 23(g). (C) Altering or Amending the Order. An order that grants or denies class certification may be altered or amended before final judgment. (2) Notice. (A) For (b)(1) or (b)(2) Classes. For any class certified under Rule 23(b)(1) or (b)(2), the court may direct appropriate notice to the class. (B) For (b)(3) Classes. For any class certified under Rule 23(b)(3)—or upon ordering

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notice under Rule 23(e)(1) to a class proposed to be certified for purposes of settlement under Rule 23(b)(3)—the court must direct to class members the best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort. The notice may be by one or more of the following: United States mail, electronic means, or other appropriate means. The notice must clearly and concisely state in plain, easily understood language: (i) the nature of the action; (ii) the definition of the class certified; (iii) the class claims, issues, or defenses; (iv) that a class member may enter an appearance through an attorney if the member so desires; (v) that the court will exclude from the class any member who requests exclusion; (vi) the time and manner for requesting exclusion; and (vii) the binding effect of a class judgment on members under Rule 23(c)(3). (3) Judgment. Whether or not favorable to the class, the judgment in a class action must: (A) for any class certified under Rule 23(b) (1) or (b)(2), include and describe those whom the court finds to be class members; and (B) for any class certified under Rule 23(b) (3), include and specify or describe those to whom the Rule 23(c)(2) notice was directed, who have not requested exclusion, and whom the court finds to be class members. (4) Particular Issues. When appropriate, an action may be brought or maintained as a class action with respect to particular issues. (5) Subclasses. When appropriate, a class may be divided into subclasses that are each treated as a class under this rule. (d) Conducting the Action. (1) In General. In conducting an action under this rule, the court may issue orders that: (A) determine the course of proceedings or prescribe measures to prevent undue

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repetition or complication in presenting evidence or argument; (B) require—to protect class members and fairly conduct the action—giving appropriate notice to some or all class members of: (i) any step in the action; (ii) the proposed extent of the judgment; or (iii) the members’ opportunity to signify whether they consider the representation fair and adequate, to intervene and present claims or defenses, or to otherwise come into the action; (C) impose conditions on the representative parties or on intervenors; (D) require that the pleadings be amended to eliminate allegations about representation of absent persons and that the action proceed accordingly; or (E) deal with similar procedural matters. (2) Combining and Amending Orders. An order under Rule 23(d)(1) may be altered or amended from time to time and may be combined with an order under Rule 16. (e) Settlement, Voluntary Dismissal, or Compromise. The claims, issues, or defenses of a certified class—or a class proposed to be certified for purposes of settlement—may be settled, voluntarily dismissed, or compromised only with the court’s approval. The following procedures apply to a proposed settlement, voluntary dismissal, or compromise: (1) Notice to the Class. (A) Information That Parties Must Provide to the Court. The parties must provide the court with information sufficient to enable it to determine whether to give notice of the proposal to the class. (B) Grounds for a Decision to Give Notice. The court must direct notice in a reasonable manner to all class members who would be bound by the proposal if giving notice is justified by the parties’ showing that the court will likely be able to: (i) approve the proposal under Rule 23(e)(2); and (ii) certify the class for purposes of

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judgment on the proposal. (2) Approval of the Proposal. If the proposal would bind class members, the court may approve it only after a hearing and only on finding that it is fair, reasonable, and adequate after considering whether: (A) the class representatives and class counsel have adequately represented the class; (B) the proposal was negotiated at arm’s length; (C) the relief provided for the class is adequate, taking into account: (i) the costs, risks, and delay of trial and appeal; (ii) the effectiveness of any proposed method of distributing relief to the class, including the method of processing class-member claims; (iii) the terms of any proposed award of attorney’s fees, including timing of payment; and (iv) any agreement required to be identified under Rule 23(e)(3); and (D) the proposal treats class members equitably relative to each other. (3) Identifying Agreements. The parties seeking approval must file a statement identifying any agreement made in connection with the proposal. (4) New Opportunity to Be Excluded. If the class action was previously certified under Rule 23(b)(3), the court may refuse to approve a settlement unless it affords a new opportunity to request exclusion to individual class members who had an earlier opportunity to request exclusion but did not do so. (5) Class-Member Objections. (A) In General. Any class member may object to the proposal if it requires court approval under this subdivision (e). The objection must state whether it applies only to the objector, to a specific subset of the class, or to the entire class, and also state with specificity the grounds for the objection. (B) Court Approval Required for Payment in Connection with an Objection. Unless approved by the court after a hearing, no payment or other consideration may be

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provided in connection with: (i) forgoing or withdrawing an objection, or (ii) forgoing, dismissing, or abandoning an appeal from a judgment approving the proposal. (C) Procedure for Approval After an Appeal. If approval under Rule 23(e)(5)(B) has not been obtained before an appeal is docketed in the court of appeals, the procedure of Rule 62.1 applies while the appeal remains pending. (f) Appeals. A court of appeals may permit an appeal from an order granting or denying class-action certification under this rule, but not from an order under Rule 23(e)(1). A party must file a petition for permission to appeal with the circuit clerk within 14 days after the order is entered or within 45 days after the order is entered if any party is the United States, a United States agency, or a United States officer or employee sued for an act or omission occurring in connection with duties performed on the United States’ behalf. An appeal does not stay proceedings in the district court unless the district judge or the court of appeals so orders. (g) Class Counsel. (1) Appointing Class Counsel. Unless a statute provides otherwise, a court that certifies a class must appoint class counsel. In appointing class counsel, the court: (A) must consider: (i) the work counsel has done in identifying or investigating potential claims in the action; (ii) counsel’s experience in handling class actions, other complex litigation, and the types of claims asserted in the action; (iii) counsel’s knowledge of the applicable law; and (iv) the resources that counsel will commit to representing the class; (B) may consider any other matter pertinent to counsel’s ability to fairly and adequately represent the interests of the class; (C) may order potential class counsel to provide information on any subject pertinent to the appointment and to

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propose terms for attorney’s fees and nontaxable costs; (D) may include in the appointing order provisions about the award of attorney’s fees or nontaxable costs under Rule 23(h); and (E) may make further orders in connection with the appointment. (2) Standard for Appointing Class Counsel. When one applicant seeks appointment as class counsel, the court may appoint that applicant only if the applicant is adequate under Rule 23(g)(1) and (4). If more than one adequate applicant seeks appointment, the court must appoint the applicant best able to represent the interests of the class. (3) Interim Counsel. The court may designate interim counsel to act on behalf of a putative class before determining whether to certify the action as a class action. (4) Duty of Class Counsel. Class counsel must fairly and adequately represent the interests of the class. (h) Attorney’s Fees and Nontaxable Costs. In a certified class action, the court may award reasonable attorney’s fees and nontaxable costs that are authorized by law or by the parties’ agreement. The following procedures apply: (1) A claim for an award must be made by motion under Rule 54(d)(2), subject to the provisions of this subdivision (h), at a time the court sets. Notice of the motion must be served on all parties and, for motions by class counsel, directed to class members in a reasonable manner. (2) A class member, or a party from whom payment is sought, may object to the motion. (3) The court may hold a hearing and must find the facts and state its legal conclusions under Rule 52(a). (4) The court may refer issues related to the amount of the award to a special master or a magistrate judge, as provided in Rule 54(d) (2)(D).”16 Rule 23 of the Federal Rules of Procedure is said to probably be

16 Federal Rules of Civil Procedure, Rule 23, available at https://www.law.cornell.edu/rules/frcp/ rule_23.

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the most contentious – and arguably least procedural,17 and one of the longest rules.18 Apart from a detailed enumeration of the requirements under the rule, and the types of class actions, Rule 23 also provides the manner of certification, notice to the putative members of the class, conduct of the action, judgment, settlement, appointment of the class counsel, and the appeal. This materially differs from the general wording of our Section 12, Rule 3 of the 1997 Rules of Civil Procedure. To obtain class certification under Rule 23, a class representative must demonstrate that all of the requirements of Rules 23(a) and –(g) are met, plus one (or more) of the requirements of Rule 23(b).19 Notably, Rule 23(b)(3) acknowledges as a type of class action, a case where the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. This correlates to the findings in Mathay where it referred to spurious class actions which pertain to permissive joinder of actions with common questions of fact and law. This can also explain the popularity of class actions including in tort cases in the United States owing to the codified liberality, so to speak, of Rule 23. Lacking similar parameters in terms of the language of Rule 23, this may also explain the lack of uniform treatment on class actions and the manner of determining their appropriateness in a given case. The broad language of Section 12, Rule 3 also shows the uncertainties in its application which may leave so much discretion in the courts handling the same to interpret. In this regard, it may not be completely accurate to rely on United States jurisprudence to justify resort to class actions especially in tort cases due to the material differences in the text of Rule 23 compared to Section 12, Rule 3 to prove the propriety of the use of such modality. In this regard, Professor John Coffee Jr. in his 1995 article observed that, “at the beginning of the decade [1990s], the mass tort class action was uniformly rejected by appellate courts. But by the end of the decade, it was at least provisionally embraced by many.”20 This was further explained as follows: “Some of the reasons for the initial judicial skepticism of the mass tort class action were obvious. 17 Thomas D. Rowe Jr., Suzanna Sherry & Jay Tidmarsh, Civil Procedure (4th Ed.), p. 650. 18 Ibid. at p. 654. 19 Id. 20 John C. Coffee Jr., Class Wars: The Dilemma of the Mass Tort Class Action, 95 COLUM. L. REV. 1356 (1995), citations omitted, available at: https://scholarship.law.columbia.edu/faculty_ scholarship/29.

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First, the Advisory Committee that drafted Rule 23 of the Federal Rules of Civil Procedure has suggested that a “‘mass accident’ . . . is ordinarily not appropriate for a class action” because of the presence in such cases of significant issues (including causation and possible defenses) that would impact upon the individual class members differently. Individual issues and defenses, it was felt, would likely overwhelm common questions, and eventually disaggregation would become inevitable. Judicial decisions following the 1966 revisions of Rule 23 were quick to take this hint to decline class certification in mass tort cases. Even when trial courts did certify a mass tort class, they were usually reversed. In 1981, Judge Spencer Williams certified the first Dalkon Shield class action, but in 1982 the Ninth Circuit reversed him. Also in 1981, after the collapse of two skywalks at the Hyatt Regency Hotel in Kansas City, Missouri, the victims were certified as a class, but again a year later the Eighth Circuit reversed. Other cases at the time encountered a similar fate. xxx The breakthrough in the attitude of appellate courts to the certification of mass tort class actions came first with asbestos. In 1986, in affirming class certification in an asbestos mass tort case, Jenkins v. Raymark Industries, the Fifth Circuit was explicit about its motivation: “The courts are now being forced to rethink the alternatives and priorities by the current volume of litigation and more frequent mass disasters.” That same year, the Third Circuit also partially upheld a similar certification in another asbestos class action. A year later, the Second Circuit upheld Judge Weinstein’s certification of the Agent Orange class action. Finally, in 1989, in the most emphatic victory for mass tort class certification, the Fourth Circuit approved class action treatment for the Dalkon Shield litigation.”21 Accordingly, the change in the judicial attitude in the treatment of mass tort class actions was explained by Prof. Coffee in this guise: “xxx [a] strong hint is supplied by a curious fact: in the early 1980s, the federal courts first refused to certify class actions in simple ‘mass accident’ cases (like the Skywalk collapse), but several years

Ibid., at pp. 1356-1358; citations omitted.

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later certified class actions in far more complicated ‘mass exposure’ cases. By any doctrinal test, class certification is easier to justify in the mass accident setting than in the mass exposure context. In the former context, there is little variation in terms of legal claims among those injured (thus making class treatment more appropriate), while in the latter “mass exposure” cases both the facts and the applicable law vary greatly from case to case. Unlike a single accident (such as a plane crash or a building collapse), mass exposure to a toxic product (such as asbestos, the Dalkon Shield, or Agent Orange) implicates the law of multiple jurisdictions. In a nationwide class, it may involve most state jurisdictions and most major participants in the industry. The hypothesis that best explains this puzzling inconsistency is that the burden on the courts from a failure to certify was far greater in the latter context where individual actions would otherwise proliferate. For example, Jenkins, the first asbestos mass tort class action to be certified, arose in East Texas, an area that one commentator has called ‘the fertile crescent of asbestos litigation.’ Put differently, asbestos cases had a characteristic that a mass accident class action did not: unless resolved on a class basis, they threatened to flood the docket within that district.”22 It can also be gleaned from the foregoing that while the text of the Federal Rules of Procedure of the US is different from that of the Philippines, the shift in considering mass torts as litigated in class actions also necessitated a change in the judicial appreciation of courts which apparently was highly motivated by the convenience that class action may promise especially in cases involving numerous parties in various jurisdictions. Certainly, the divergence in class actions between the two jurisdictions may be the subject of a more thorough analysis and evaluation.

IV. Relevant Jurisprudence on Class Actions involving Tort Cases in the Philippines Generally, jurisprudence involving claims for damages arising from quasi-delict have been denied by the Supreme Court on the basis that the injury suffered and the extent of the damages incurred by the members of a putative class should be alleged and proved separately and distinctly. This is consistent with the Supreme Court’s interpretation in Mathay that the “subject matter of the action” which

Ibid., at p. 1358; citations omitted.

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must be of common and general interest to the parties does not refer to the wrong committed by the defendant. As such, the standing rule appears to be that parties have to separately prove their claims and allegations even if arising from the same act or circumstance. In discussing class actions, the landmark case of Oposa v. Factoran23 is one of the few civil cases filed as a class suit which was declared to have been properly instituted by the Supreme Court. This civil case was filed by the principal plaintiffs therein, who are all minors duly represented and joined by their respective parents, for themselves and in representation of “their generation as well as generations yet unborn” together with a non-stock and non-profit corporation, aimed at enforcing their right to the full benefit, use and enjoyment of the natural resource treasure that is the country’s virgin tropical rainforests. It is notable, however, that the class did not pray any form of damages, but instead asked that the public defendants be ordered to: (a) cancel all existing timber license agreements in the country; and (b) cease and desist from receiving, accepting, processing, renewing or approving new timber license agreements. In ruling that all the elements of a class action are present, the Supreme Court declared: “The subject matter of the complaint is of common and general interest not just to several, but to all citizens of the Philippines. Consequently, since the parties are so numerous, it, becomes impracticable, if not totally impossible, to bring all of them before the court. We likewise declare that the plaintiffs therein are numerous and representative enough to ensure the full protection of all concerned interests. Hence, all the requisites for the filing of a valid class suit under Section 12, Rule 3 of the Revised Rules of Court are present both in the said civil case and in the instant petition, the latter being but an incident to the former.”24 This case supposedly confirms the idea of a common cause of action on the part of a class. It was allowed even without going into details of the elements of a class action which has been common in cases where the court allowed such cases to proceed as class actions. As will be shown below, however, available jurisprudence shows the difficulties in maintaining actions for damages particularly arising from quasi-delict as class actions considering the restrictive interpretation of the Supreme Court of the class suit provision. This lends credence to the impossibility or difficulty, under our current legal framework, to maintain a tort action as a class suit.

23 24

G.R. No. 101083, July 30, 1993. Ibid.

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This may also explain the opinion of Retired Supreme Court Justice Abraham Sarmiento when he stated that “while a class suit is allowed in the Philippines the device has been employed strictly. Mass sterility will not qualify as a class suit injury within the contemplation of the Philippine statute.”25 While this was presented in a trial court in that case, the acknowledgment by a former magistrate as to the limited applicability of class suits in tort actions is telling of the predisposition of the Supreme Court as regards this type of cases. In Re: Request of the Plaintiffs, Heirs of the Passengers of the Doña Paz to set aside the Order dated January 4, 1988 of Judge B.D. Chingcuangco,26 the Supreme Court stated that a class action may not be available if the individuals belonging to the class will have to prove their respective damage regardless of the commonalities of issues of facts and law between and among them. The remarks of the Supreme Court relate to the highly publicized MV Doña Paz incident which was dubbed as the worst maritime disaster. In particular, the disquisitions of the Supreme Court stemmed from a complaint for damages amounting to Php1.6 Billion filed in the name and on behalf of the relatives or heirs of the victims of the sinking of the vessel. The complaint was characterized as a class suit prosecuted by 27 named plaintiffs in behalf of the approximately 4,000 persons who are close relatives and legal heirs of the passengers of the vessel. The Supreme Court stated therein that the rule governing the case is not a class suit under Section 12, Rule 3 of the 1997 Rules of Civil Procedure. The Supreme Court also mentioned that an example of a proper class suit is a derivative suit by stockholders to enjoin or nullify an act constitutive of a breach of trust or an ultra vires act, thus: “What is contemplated, as will be noted, is that (a) the subject matter in controversy is of common or general interest to many persons, and (b) those persons are so numerous as to make it impracticable to bring them all before the court. Illustrative of the rule is a so-called derivative suit brought in behalf of numerous stockholders of a corporation to perpetually enjoin or nullify what is claimed to be a breach of trust or an ultra vires act of the company’s board of directors. In such a suit, there is one, single right of action pertaining to numerous stockholders, not multiple rights belonging separately to several,

25 Navida v. Dizon, G.R. Nos. 125078, 125598, 126654, 127856 & 128398, May 30, 2011, 664 PHIL 283336. 26 A.M. No. 88-1-646-0, March 3, 1988.

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distinct persons.”27 In the said case, it is emphasized that in a derivative suit there is only a single right of action pertaining to stockholders, and not multiple rights belonging to several persons. Further, as an alternative to numerous parties, the Supreme Court stated that permissive joinder of parties in Section 6 of the same Rule 3 may be utilized to litigate all the claims in a single court. Nonetheless, parties will still be required to prove their respective allegations: “On the other hand, if there are many persons who have distinct, separate rights against the same party or group of parties, but those rights arise from the same transaction or series of transactions and there are common questions of fact or law resulting therefrom, the former may join as plaintiffs in one action against the same defendant. This is authorized by the above mentioned joinder-of-parties rule in Section 6 of Rule 3. xxx For instance, it has been held that employees dismissed by their employer on the same occasion for substantially the same reasons, allegedly without cause or justification, may join as plaintiff in a single action to obtain relief from their employer. In such a case, the plaintiff each have a material interest only in the damages properly due to him, not in those that may be payable to the others, although their rights thereto arise from the same transaction. In other words, there are as many rights of action as there are plaintiffs joined in the action. Similarly, the owner of a tract of land whose property has been illegally occupied by many persons claiming different portions thereof, may bring a single action against all illegal occupants thereof, in accordance with this rule of permissive joinder of parties. The right of action is not unal but plural, there being as many rights asserted in the action as there are defendants, each defendant having an interest only in the portion of the land occupied by him.”28 Crucial to the analysis given by the Supreme Court is the imposition of the requirement that there is only one right or cause of action pertaining or belonging in common to many persons, not

27 28

Ibid., citations omitted. Id., citations omitted.

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separately or severally to distinct individuals: “It is true that in both juridical situations, similar essential factors exist i.e., the same transaction or series of transactions is involved; and common questions of fact or law are at issue. What makes the situation a proper case for a class suit is the circumstance that there is only one right or cause of action pertaining or belonging in common to many persons, not separately or severally to distinct individuals. The ‘true’ class action, which is the invention of equity, is one which involves the enforcement of a right which is joint, common, or secondary or derivative. ... (It) is a suit wherein, but for the class action device, the joinder of all interested parties would be essential. A ‘true class actions’ — distinguished from the socalled hybrid and the spurious class action in U.S. Federal Practice—involves principles of compulsory joinder, since . . (were it not) for the numerosity of the class members all should ... (be) before the court. Included within the true class suit ... (are) the shareholders’ derivative suit and a class action by or against an unincorporated association. ... A judgment in a class suit, whether favorable or unfavorable to the class, is binding under res judicata principles upon all the members of the class, whether or not they were before the court. It is the non-divisible nature of the right sued on which determines both the membership of the class and the res judicata effect of the final determination of the right. The object of the suit is to obtain relief for or against numerous persons as a group or as an integral entity, and not as separate, distinct individuals whose rights or liabilities are separate from and independent of those affecting the others.”29 While the wording of Section 12, Rule 3 of the 1997 Rules of Civil Procedure on class suit does not explicitly require a single or common cause of action among the parties, the Supreme Court has espoused such view in the foregoing discussion. Thus, in addition to the definition of “subject matter of the action” in Mathay, it has also been expressed in Re: Request of the Heirs of the Passengers of the Doña Paz that a proper class action presupposes only one right or cause of action pertaining to the parties which is anathema to the nature of

Id., citations omitted; emphasis and underscoring supplied.

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tort cases involving numerous individuals. In the related case of Bulig-Bulig Kita Kamaganak Association v. Sulpicio Lines, Inc.,30 which involves a Petition for Certiorari filed by the same plaintiffs to nullify the trial court’s act of dismissing the case pursuant to the ruling of the Supreme Court in the abovementioned case, the Supreme Court reiterated that the cases cannot be pursued as a class action, and that parties are not without any other mode to pursue their claims, thus: “While the resolution plainly declares that the circumstances of the case do not warrant the institution of a class action in accordance with Section 12, Rule 3 of the Rules of Court, it does not direct that the numerous plaintiffs litigate their individual claims separately and in different courts; for the resolution just as plainly declares that the plaintiffs may join in one proceeding under the principle of permissive joinder of parties in Section 6 of the same Rule 3 of the Rules of Court. The petitioners’ ingenious theory that they should first be allowed to bring a class suit — to determine the single, general question of the defendants’ liability for negligence — and afterwards, and on the assumption that the defendants be indeed adjudged negligent, to litigate individually and separately — in order this time to fix the amount of damages payable to each of the plaintiffs or their heirs, is not only proscribed by procedural rules, as the Solicitor General points out, but would eventually cause the very mischief — ‘a tremendous flood of litigation’ — that the petitioners themselves advert to in support of their basic thesis. The petitioners’ obsession with a class action — in preference to one in which there is joinder of parties, which the Resolution of March 3, 1988 suggested as the proper alternative — is difficult to understand. The reason cannot be to avoid what would be the rather extensive paper work involved in drawing up the complaint and, perhaps, subsequent pleadings: for, as far as that is concerned, there cannot be any significant difference in content or volume between what has to be alleged in a class action and what ought to be pleaded where there is a joinder of parties plaintiff. The complaint in a class suit would obviously have to specify the personal circumstances

G.R. No. 84750, May 19, 1989.

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and condition of each individual claimant to precisely the same extent that it would in an action brought by multiple plaintiffs under the joinder-of-parties rule, since it is not to be supposed that each of the thousands of claimants involved is so identically situated as each of the others as to justify precisely the same amount of recovery for each and every one of them. Indeed, acknowledgment of the differences in condition and state among the claimants is implicit in the proposal of the petitioners themselves, i.e., first obtain a general declaration of liability against the carrier in the class suit, and then, allow each claimant to institute a separate action to prove and recover on his own claim. xxx At all events, a class suit is out of the question for the reasons already made clear in the Resolution of March 3, 1988. The petitioners would be well advised to consider seriously joining in a common suit, or in several common suits in different venues, under the provisions of Section 6 of Rule 3, Rules of Court. From another aspect, the simplificatory alternatives offered by the rule on consolidation of actions (Section 1, Rule 31, Rules of Court) should also in great part relieve petitioners’ apprehensions about the difficulties and complications attendant upon hundreds of individual cases being brought in numerous courts throughout the country. As held in Salazar v. Court of First Instance of Laguna, 64 Phil. 785, 791-792: ‘There are three ways of consolidating actions or special proceedings where the questions at issue and the parties in interest are the same. The first consists in recasting the cases already constituted, conducting only one hearing and rendering only one decision; the second takes place when the existing cases are consolidated, only one hearing held and only one decision rendered; and the third takes place when, without recasting or consolidating the cases, the principal one is heard, the hearing on the others being suspended until judgment has been rendered in the first case. The court, in the exercise of its sound discretion, may adopt any of these three forms of consolidation whenever in its opinion the proceeding is beneficial to and convenient for the parties.

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The power so exercised is discretionary. . . .’ Clearly, it is not only within the power of the litigants to seek, but also within the competence of the courts involved to adopt motu proprio, any of the three indicated modes of consolidating the trial and disposition of the actions, howsoever numerous, brought within each particular venue for the recovery of damages in consequence of a single event, in this case the Doña Paz maritime disaster.”31 It is notable that the plaintiffs probably tried to argue along the lines of the United States model by claiming that the common issues predominate the case when they proposed that “that they should first be allowed to bring a class suit — to determine the single, general question of the defendants’ liability for negligence — and afterwards, and on the assumption that the defendants be indeed adjudged negligent, to litigate individually and separately — in order this time to fix the amount of damages payable to each of the plaintiffs or their heirs.” However, this was not well-received by the Supreme Court when it justified its ruling by stating that “there cannot be any significant difference in content or volume between what has to be alleged in a class action and what ought to be pleaded where there is a joinder of parties plaintiff.” This may be a departure from how a class action is perceived in other jurisdictions as a faster way to resolve disputes involving numerous parties. In any case, this is in line with the strict interpretation of Section 12, Rule 3 of the 1997 Rules of Civil Procedure as stated in Mathay and Re: Request of the Heirs of the Passengers of the Doña Paz. Apart from the foregoing cases, other issues on the elements of class actions have been discussed in other case laws. In MVRS Publications Inc. v. Islamic Da’wah Council of the Philippines Inc.,32 the Supreme Court stated that the class action for damages arising from alleged libelous remarks cannot be sustained since the plaintiffs therein have not shown that they are sufficiently numerous to represent all Muslims. After ruling that they lack of cause of action, it was discussed that this cannot be cured by the filing of a class suit: “As correctly pointed out by Mr. Justice Jose C. Vitug during the deliberations, ‘an element of a class suit is the adequacy of representation.’ In determining the question of fair and adequate representation of members of a class, the court must consider (a) whether the interest of the named party is coextensive with the interest of the other members of the class; (b)

31 32

Ibid., citations omitted. G.R. No. 135306, January 28, 2003, 444 PHIL 230-308.

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the proportion of those made parties as it so bears to the total membership of the class; and, (c) any other factor bearing on the ability of the named party to speak for the rest of the class. The rules require that courts must make sure that the persons intervening should be sufficiently numerous to fully protect the interests of all concerned. In the present controversy, Islamic Da’wah Council of the Philippines, Inc., seeks in effect to assert the interests not only of the Muslims in the Philippines but of the whole Muslim world as well. Private respondents obviously lack the sufficiency of numbers to represent such a global group; neither have they been able to demonstrate the identity of their interests with those they seek to represent. Unless it can be shown that there can be a safe guaranty that those absent will be adequately represented by those present, a class suit, given its magnitude in this instance, would be unavailing.”33 Due to the lack of specific parameters under our class action provision, questions as to the adequacy of representation by the representative members, and ultimately, to the elements of class suit in the Philippines have divided even the High Court. This can be seen in the dissenting opinion of Justice Carpio in the same case where, after stating that the case alleges an intentional tortious act, he stated that class suit is precisely the device in order to prevent multiplicity of cases filed in courts on profanities against religious groups claimed as actionable, thus: “The Court, pursuant to its rule making power, can require that in actions like the instant case, the plaintiffs must bring a class suit. This will avoid multiplicity of suits considering the numerous potential plaintiffs all over the country. A judgment in a class suit, whether favorable or unfavorable to the class, is binding under the res judicata principle on all members of the class whether or not they were before the court. This rule will address the fear that cases will swamp the courts all over the country if profanities against religious groups are made actionable under Article 26.”34 Furthermore, Justice Austria-Martinez in her dissenting opinion discussed that the elements of class action are present in this case, to

33 34

Ibid., citations omitted. Id., citations omitted.

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wit: “It has further been held that in order to maintain a class action there must be an ascertainable class as well as a community of interest among the members of that class in questions of law and fact involved. The class must be cognizable and manageable, and must be defined at the outset of the action. There must be a cognizable class beyond the general strains which can be conceived to create a class of any superficially resembling parties, but it is not necessary that the exact number comprising the class be specified or that the members be identified. The first element is present in this case. The class spoken of in the assailed article that segregates them from the other members of the general populace is the Muslim people, and their common interest, undoubtedly, is their religious belief in adoring Allah as the one and only God and that the greatest sin is to worship persons or things other than Allah. The article is an outrageous misrepresentation, inflicting stark insult on the religious beliefs of the Muslims. Concerning the second element, i.e., numerosity of parties — one must bear in mind that the purpose of the rule permitting class actions is to furnish a mode of obtaining a complete determination of the rights of the parties in such cases, when the number is so great as to preclude involvement by actual service. In this class of cases, one is allowed to sue for all as a matter of convenience in the administration of justice. A class action is particularly proper in an action wherein the persons are so multitudinous as vexatiously to prolong and probably altogether prevent a full hearing. Judicial notice may be taken of the fact that Muslims in this country comprise a lot of the population, thus, it is highly impractical to make them all parties or bring them all before the court. It is beyond contradiction that the Muslims affected by the assailed article are multitudinous, and therefore, the second element is present in the instant case. With regards to the third element, that the action be maintained by one who fairly and adequately represents the class, it is essential that the relief sought must be beneficial to the class members, the

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party must represent the entire class asserted, and be a member of the class he claims to represent, in addition to having an interest in the controversy common with those for whom he sues. For adequate representation, it is sufficient that there are persons before the court who have the same interest as the absent persons and are equally certain to bring forward the entire merits of the question and thus give such interest effective protection. It has also been held that whether the class members are adequately represented by the named plaintiffs depends on the quality of representation rather than on the number of representative parties as compared with the total membership of the class. Thus, even one member of a large class can provide the kind of representation for all that is contemplated by the class suit. Respondent IDCP, as a religious organization, being a federation or umbrella organization of more than seventy (70) Muslim religious organizations in the Philippines, and its officers who are individual respondents as well, carry the requisite personality to file a case for damages in behalf of all Muslims. Unequivocally, they properly represent the Muslims who are similarly situated and affected by the assailed article.”35 This ruling of the majority in the foregoing case is also in part consistent with the earlier ruling of the Supreme Court in Newsweek, Inc. v. Intermediate Appellate Court36 where it discussed the inapplicability of a class suit in a case for damages arising from alleged libelous remarks by stating that “[w]e have here a case where each of the plaintiffs has a separate and distinct reputation in the community. They do not have a common or general interest in the subject matter of the controversy.”37 Among the other notable cases in this jurisdiction are the “Pepsi cases” which involve Pepsi’s promotional campaign “Number Fever” in 1992 where it promised to give cash prizes to holders of specially marked caps of Pepsi-cola softdrinks. On the day of the announcement of the three-digit combination, reports showed that there were numerous claimants, and upon verification, while they had the said digits they have the incorrect security codes. As such, Pepsi only honored those with the correct security codes, and promised to give goodwill amounts of Php500.00 for other crowns which have the incorrect security codes. As a result, numerous persons filed their 35 36 37

Id., citations omitted. G.R. No. L-63559, May 30, 1986, 226 PHIL 99-108. Ibid.

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cases before different courts. It was notable in the Pepsi cases that the cases filed in the Supreme Court were not filed as class actions, and that the individuals pursued cases in groups consistent with the suggestion of the Supreme Court in Mathay and the Doña Paz cases. In the Pepsi cases, however, the first case ruled by the Supreme Court which attained finality was made to apply to other similar cases filed by other individuals. In Pepsi-Cola Products Phils., Inc. v. Pagdanganan,38 the Supreme Court reversed the ruling of the Court of Appeals which ordered the payment of the sum to plaintiffs therein. In reversing the ruling, the Supreme Court ratiocinated by stating that same questions of facts have already been settled in a similar case: “There is no question that the cases of Mendoza, Rodrigo, Patan and De Mesa, including the case at bar, arose from the same set of facts concerning the ‘Number Fever’ promo debacle of petitioners PCPPI and PEPSICO. Mendoza, Rodrigo, Patan, De Mesa, Pagdanganan and Lumahan are among those holding supposedly winning ‘349’ Pepsi/7-Up/ Mirinda/Mountain Dew soft drink crowns and/or resealable caps. Said crowns and/or resealable caps were not honored or allowed to be cashed in by petitioners PCPPI and PEPSICO for failing to contain the correct security code assigned to such winning combination. As a result, the rejected crown and/ or resealable cap holders filed separate complaints for specific performance/sum of money/breach of contract, with damages, all against petitioners PCPPI and PEPSICO. A survey of said cases is imperative in order to determine whether or not the principle of stare decisis will, indeed, bar the relitigation of the instant case. In 2001, in the case of Mendoza v. PepsiCola Products Phils., Inc. and Pepsico, Inc., the RTC dismissed the complaint for specific performance and damages against herein petitioners PCPPI and PEPSICO. On appeal with the Court of Appeals, the latter dismissed the appeal for lack of merit and affirmed the dismissal of the complaint. xxx A Petition for Review on Certiorari was then filed with this Court. In a Resolution dated 24 July 2002, we denied Mendoza’s petition for review for failing to

G.R. No. 167866, October 16, 2006, 535 PHIL 540-555.

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show that the Court of Appeals committed reversible error. Similarly, in 2002, in Rodrigo v. Pepsi Cola Products (Phils.), Inc. and Pepsico, Inc., the RTC therein dismissed the complaint for Specific Performance and Damages filed against herein petitioners PCPPI and PEPSICO. The Court of Appeals then affirmed the dismissal of the complaint xxx The principle of stare decisis et non quieta movere (to adhere to precedents and not to unsettle things which are established) is well entrenched in Article 8 of the Civil Code, to wit: ART. 8. Judicial decisions applying or interpreting the laws or the Constitution shall form a part of the legal system of the Philippines. With the above provision of law, in tandem with the foregoing judicial pronouncements, it is quite evident that the appellate court committed reversible error in failing to take heed of our final, and executory decisions — those decisions considered to have attained the status of judicial precedents in so far as the Pepsi/”349” cases are concerned. For it is the better practice that when a court has laid down a principle of law as applicable to a certain state of facts, it will adhere to that principle and apply it to all future cases where the facts are substantially the same. In the case at bar, therefore, we have no alternative but to uphold the ruling that the correct security code is an essential, nay, critical, requirement in order to become entitled to the amount printed on a “349” bearing crown and/or resealable cap.”39 This was the same ruling of the Supreme Court in Cabigon v. PepsiCola Products Philippines, Inc.,40 where it reiterated that: “Over the past years, we have promulgated a number of cases involving the 349 number fever promo. Thus, we are bound by our pronouncement in those cases. The principle of stare decisis et non quieta movere holds that a point of law, once established by

39 40

Ibid., citations omitted. G.R. No. 168030, December 19, 2007, 565 PHIL 450-458.

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the court, will generally be followed by the same court and by all courts of lower rank in subsequent cases involving a similar legal issue. This proceeds from the legal principle that, in the absence of powerful countervailing considerations, like cases ought to be decided alike. We have consistently held (in previous 349 number fever promo cases) that the correct security code was an indispensable requirement to be entitled to the cash prize concerned. Here, petitioners held 349 crowns bearing either security code L-2560-FQ or L-3560-FQ. These, however, were not the security codes for the 349 crowns issued during the extended period of the promo. Thus, petitioners were never entitled to any prize.”41 It can be gathered from the Pepsi cases that, in case of separate litigations for actions arising from a common cause or incident, the resolution of the first case with finality, whether favorable or not, may have an effect of binding other cases on common questions of fact and law. This may have a foreclosing effect on other similar cases which may not even necessitate going into the specific questions peculiar to each case. It is also within the realm of uncertainty, albeit a valid point for reflection, if the case may have been better handled if the parties were allowed to pursue it as a class action since they will be able to pool their resources for better representation in court. This point goes into the substantive dimension of class action as a procedural device.

V. Conclusion Existing jurisprudence in the Philippines shows a degree of incompatibility between class actions and actions arising from quasidelicts involving numerous parties due to the requirements of class actions that: (a) the cause of action should be single and common as held in Mathay; and (b) the subject matter, which parties should have common or general interest to, does not refer to the wrong committed by the defendant/s as held in Re: Request of the Heirs of the Passengers of the Doña Paz, and Bulig-Bulig Kita Association. The singularity of the cause of action contradicts the common rule in torts that there are as many causes of action as there are persons injured. Moreover, in almost all tort cases involving numerous individuals, it is actually the wrong committed by the defendant/s which is common to the plaintiffs. Thus, these are potential strong objections to those who will pursue tort actions through class suits.

Ibid., citations omitted.

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Furthermore, it can be said that the issue as to the utilization (or non-utilization) of class actions in the Philippines, in general, will persist due to the uncertainties brought about by the lack of particulars in our procedural rule on class action. The general wording of the class action provision has given wide latitude of discretion to courts in determining the presence of the elements in a given case. This has resulted in different interpretations of the elements of class action such as the adequacy of representation by the representative plaintiffs as demonstrated in MVRS Publications Inc. In addition, an important factor which can explain why litigants and lawyers shy away from the use of class actions is the possibility that such procedural matter may only complicate matters, and veer away from the merits of the case. The uncertainties are also brought about by the fact that the resolution of the propriety of a class action has been ordinarily resolved as part of the main case. Worse, in certain cases,42 the propriety of the class action has not even been decided upon especially when not opposed by the other party. This is problematic since litigation strategies of parties especially in trial will differ if the case is pursued as a class suit or not. More importantly, failure to resolve the propriety of class actions will only lead to further questions if the decision on the merits bind even those parties not named therein but belong to the putative class. Other issues such as notification requirements to members of the class, opt-out measures for those who do not want to be part of the suit, settlement of the class action, etc. should also be evaluated and considered in order to give a definitive ruling and guidance for the bench and the bar. The suggestions of the Supreme Court to litigate cases separately or jointly whether as a whole or in groups where the allegations of each and every person will have to be proved may also have repercussions as demonstrated in the Pepsi cases. As previously mentioned, in the said case, the disposition of the first case became so crucial such that upon its finality, the Supreme Court used it as a precedent to dismiss other similar cases. While it is speculative to say that the results would have been different on the merits, it can be argued that a collective action, in general, promises more resources to benefit the class in litigating their claims. Under a class action, litigants may be able to pool in their resources to come up with the best possible representation of their claims and allegations in court. Ultimately, the question on the expansion of the concept of class actions as a procedural device remains to be within the rulemaking power of the Supreme Court. It is, however, recognized that such procedural device touches upon substantive rights such as due

ee Philippine Army v. Spouses Pamittan, G.R. No. 187326, June 15, 2011, 667 PHIL 440-449, and Picop S Resources, Inc., v. Calo, G.R. No. 161798, October 20, 2004, 483 PHIL 775-784.

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process and evidence-based decision-making. In any case, any move to expand the concept of class action similar to that of the United States will also necessitate much effort and resources from our court system. Thus, the feasibility of adopting and expanding such modality under our current set-up may also prove to be a challenge to our judicial system.

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The Sufficiency of our Data Privacy Laws to Protect Children's Personal Data in the midst of Online Learning

Felson M. Dalaguete, CPA1

The COVID-19 Pandemic has changed the landscape of a lot of industries and sectors. The education sector is not an exception. With several restrictions on the conduct of face-to-face classes imposed by various governments around the globe, schools have resorted to different modes of learning delivery. One of these modes is online delivery of learning. This article aims to look closer into the right of children to have their personal data protected. What is the nature of these rights and how different are children’s personal data from that of a regular person? This article would also analyze the sufficiency of our domestic privacy laws in protecting children’s data, as compared to its international counterparts as well as international frameworks on data privacy.

Introduction

The COVID-19 pandemic has created the largest disruption of education systems in history, affecting nearly 1.6 billion learners in more than 190 countries and all continents. 94% of the world’s student population have been affected by the closure of schools and other learning spaces, while 99% of affected learners are in low and 1 Atty. Dalaguete is currently the President of Integrated School of Science, an educational institution offering basic education programs from Pre-Elementary to Senior High School. He is also a law practitioner under Dalaguete Accounting and Law, specializing in education law, corporate law, taxation, and labor.

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lower-middle income countries.2 This education crisis has stimulated innovations within the education sector through distance learning solutions that support education continuity.3 In the Philippines, 25.03 million school-age children have enrolled in public schools and private schools nationwide for Academic Year (A.Y.) 2020-2021. This is a 10% drop in enrollment, considering that in A.Y. 2019-2020, total enrollment nationwide is 27.7 million.4 748 out of 14,435 private educational institutions have suspended operations. A move affecting 3,233 teachers and 40,345 learners.5 The Department of Education (DepEd) launched the Basic Education-Learning Continuity Plan (BE-LCP) to help teachers and students cope with the challenges of remote learning. The BE-LCP calls for schools to use “blended” approach to teaching based on a mix of “modular” learning and online classes.6 The adoption of distance or remote learning through online classes means that various platforms, software programs, applications, and learning management systems (LMS) will be a regular part of a learner’s education. This has raised a lot of data privacy concern on how all this technology will be collecting, storing, and using student’s personal information.7

II. Emerging Issues in Protecting Children's Right to Privacy Even before the pandemic, privacy has already appeared as an issue in education. The series of high-profile breaches of corporate, government, and consumer information have raised awareness in education policymakers and the public on the amount of information collected and stored about individuals in computer systems. While these data breaches have not had any significant impact on the education sector, the increased use of educational technology (ed tech) by schools have raise concerns on the ability of schools to protect learner’s data.8

The Right to Privacy of Children

2 United Nations (August 2020). Policy Brief: Education during COVID-19 and Beyond. United Nations. 3 Ibid. 4 Hernando-Malipot, Merlina (1 Oct 2020). DepEd Reports over 24M Enrollees this School Year. https:// mb.com.ph/2020/10/01/deped-reports-over-24-m-enrollees-this-school-year/. 5 CNN Philippines (9 Sep 2020). 748 Private Schools suspend operations, this school year, DepEd says. https://www.cnnphilippines.com/news/2020/9/9/Private-schools-temporary-closure-DepEd-html. 6 Economics Policy Research Institute, UNICEF, UNDP (December 2020). Final Report: The Impact of the COVID-19 Crisis on Households in the National Capital Region of the Philippines. EPRI, UNICEF, UNDP. 7 Benjamin Herold (11 Aug 2020). School Reopening Bring Wave of COVID-19 Student-Data Privacy Concerns. Education Week. https://www.edweek.org/technology/school-reopenings-bring-waveof-covid-19-student-data-privacy-concerns/2020/08. 8 Foundation for Excellence in Education (December 2015). Protecting K-12 Student Privacy in a Digital Age. Foundation for Excellence in Education.

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The right to privacy is a fundamental human right. Art. 12 of the United Nations Declaration of Human Rights (UDHR) states that no one shall be subject to arbitrary interference with his privacy, family, home, or correspondence.9 Likewise, Article 16 of the Convention of the Rights of the Child, provides that no child shall be subjected to arbitrary or unlawful interference with his or her privacy, family, home, or correspondence, nor to unlawful attacks on his or her reputation. The child has the right to the protection of the law against such interference or attacks.10 There is a widespread belief that standards of data protection and security concerning children’s right to privacy should be set at a higher level. Issues such as informed consent, the extent to which parents can serve as surrogates for decisions about children’s data, and the right to have data erased or forgotten have raised the issue of children’s privacy right beyond mere data protection.

What Makes Children Different and Distinctive? There is a growing demand for use of big data and the rapid development of technologies for its collection and analysis. This accumulation implies that more data will be collected on children over their lifetime than ever before. In short, without broader and coherent ethical and legal frameworks for the governance of children’s data, children are likely to suffer the consequences hardest and longest.11 However, it should be noted that children are also likely to reap the greatest potential benefits that data analysis would give over their lifetime. This uncertainty between the potential harm and benefit that data collection and accumulation over the lifetime of a child should be assessed against Article 3 of the Convention of the Rights of the Child (CRC), which provides that in all actions concerning children the best interest of the child shall be a primary consideration.12

III. Philippine Legal Framework for the Protection of Children's Data Privacy Right In General In the Philippines, the right to privacy is fundamentally enshrined in the Bill of Rights, which says that the privacy of communication and

9 Article 12, United Nations Declaration of Human Rights 1948. 10 Article 16, Convention on the Rights of the Child, 20 Nov 1989. 11 Berman, G. and Albright, K. (2017). Children and the Data Cycle: Rights and Ethics in a Big Data World, Innocenti Working Paper 2017-05, UNICEF Office of Research, Florence. 12 Article 3, Supra 10.

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correspondence shall be inviolable except upon lawful order of the court, or when public safety or order requires otherwise, under law.13 Likewise, the Education Act of 1982 recognizes the right of students to access their own school records, the confidentiality of which shall be kept and preserved by the school.14

The Data Privacy Act of 2012 Republic Act No. 10173, otherwise known as the “Data Privacy Act of 2012” (DPA) is the primary privacy law in the Philippines. It is the policy of the State to protect the fundamental human right of privacy, of communication while ensuring free flow of information to promote innovation and growth.15 Under the DPA, the processing of personal information shall be generally allowed, subject to compliance with the requirements of the DPA and other laws allowing disclosure of information to the public and adherence to the principles of transparency, legitimate purpose, and proportionality.16

IV. Analysis of Philippine Laws vis-à-vis Emegering Issues in the Protection of Children's Privacy Right Informed Consent Primary amongst the various issues on the protection of children’s privacy right is the issue on informed consent. Under various national and international legislative and regulatory frameworks, guardians or parents are responsible for providing parental consent for the collection of data from children under eighteen or the relevant age of majority. Various international regulatory frameworks have tried to address issues on informed consent. An example of such a framework is the Children’s Online Privacy Protection Act (COPPA) and the European Union (EU) General Data Protection Regulation (GDPR). Under COPPA, it is a requirement that commercial websites aimed at children under age 13, give parents notice about their data collection activities, obtain verifiable consent from parents prior to collection of data from children, provide parents with access to any information collected from children, and finally give parents the

13 14 15 16

Article 3, Section 2(1), 1987 Philippine Constitution. Section 9, Batas Pambansa Blg. 232, otherwise known as the “Education Act of 1982.” Section 2, Republic Act 10173 otherwise known as the “Data Privacy Act of 2012. Section 11, Ibid.

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opportunity to discontinue further uses of data collected.17 The GDPR, on the other hand, explicitly recognizes that children deserve specific protection of their personal data and introduces added rights and safeguards for children. It says that children merit specific protection regarding their personal data, as they may be less aware of the risks, consequences and safeguards concerned and their rights in relation to the processing of personal data.18 In the Philippines, consent is one of the primary requirements for the lawful collection of data. The DPA requires that the data subject has given his or her consent to the processing of personal information.19 Further, it ensures the right of the data subject to be informed whether personal information about him or her shall be, are being, or have been processed.20 Under the DPA, consent of the data subject refers to any freely given, specific, informed indication of will, whereby the data subject agrees to the collection of his or her personal, sensitive personal, or privileged information. Consent shall be evidenced by written, electronic or recorded means. It may also be given on behalf of a data subject by a lawful representative or agent specifically authorized by the data subject to do so.21 However, unlike its international counterparts, the DPA does not provide any other qualifications, requirements, or safeguards to ensure that informed consent is taken from children or minors. Several Advisory Opinions2223 issued by the National Privacy Council have emphasized on taking the consent of minor children through their parents or legal guardians, but none of them have explicitly stated any other safeguards or added requirements on the taking of consent from children or minors. On the other side of the spectrum, recommendations have been raised to consider the evolving capacities of children as guaranteed by Article 5 of the CRC in obtaining informed consent. Article 5 introduces the idea that children should be able to exercise their rights as they acquire the competence to do so. State parties should take this right into account when establishing minimum ages on particular issues.24 This is particularly true with regard to data privacy rights. Some adolescents aged 14-17, which are still considered children in many countries, are more capable in navigating and understanding

17 18 19 20 21 22 23 24

Children’s Online Privacy Protection Act of 1998, 15 U.S.C. 6501-6505. Recital 38 of Article 8 of the European Union – General Data Protection Regulation. Section 12(a) and Section 13(a), Supra 15. Section 16, Supra 15. Section 3(a), Supra 15. National Privacy Commission Advisory Opinion No. 2020-046. National Privacy Commission Advisory Opinion No. 2019-020. Article 5, Supra 10.

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the internet than their parents or legal guardian. The effect of which is that this class of children would be in a better position to weigh the opportunity and risks in providing consent.

The Persistence of Data Data collected from the internet is characterized by its persistence; in that it is automatically registered and stored. The persistence of data collected presents a greater impact for children over their lifetime as compared to its impact on adults. Children’s data collected and stored may have significant implications for their public digital identity, their capacity to shape that identity, and its long-term impact and outcomes. The right of a person to removal of information is commonly referred to as the right to erasure, or also known as the “right to be forgotten”. The GDPR recognizes this right under Article 17, which states that the data subject shall have the right to obtain from the controller the erasure of personal data concerning him or her without undue delay and the controller shall have the obligation to erase personal data without undue delay subject to certain conditions. More specifically the GDPR, introduces extra requirements when the request for erasure relates to children’s personal data. Data collectors are required to pay special attention to situations where a child has given consent to processing and request the erasure of the data regardless of age at the time of request. Recital 65 of Article 17 of the GDPR recognizes the possibility that the data subject has given his or her consent as a child and was not fully aware of the risks involved by the processing of his or her data, and later wants to remove such personal data, especially on the internet. Under the DPA, the right to erasure or blocking can be found in Section 16(e). Rule VIII, Section 34 of the Implementing Rules and Regulations (IRR) of the DPA defines the right to erasure and blocking as the right of data subjects to suspend withdraw or order the blocking, removal, or destruction of his or her personal data from the personal information controller’s filing system.25 Among the identified reasons for the exercise of the right to erasure or blocking, it is significant to note that this right can be exercised if the data subject withdraws consents or objects to the processing, and there is no legal ground or overriding legitimate interest for the processing.

Section 16(e), Supra 15.

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V. Children's Right to Privacy and the COVID-19 Pandemic Technology has assumed an even more prominent role in children’s lives since the COVID-19 Pandemic took hold. Datapowered technologies have been used to track, trace, and control the infection rate, as well as continue the provision of education, health, and social services to children while government-imposed lockdowns are being implemented.26 In education, schools have shifted to technology-enabled remote learning. This shift required children to use online platforms to access education meaning that true consent is not possible — they must provide their personal data in exchange for accessing their fundamental right to education.27 This situation falls squarely with the challenge of obtaining informed consent of children. Additionally, the utilization of online learning platforms places the burden of determining the acceptability of the platform or application’s data protection and privacy policies to educators and school systems. Normally, teachers and school administrators do not have the knowledge, time, or capacity to review terms and conditions from privacy policies. Hence, the urgency has concentrated on bringing necessary services to children, and less attention has been paid to privacy and protection of data.28 The shift to remote learning also increased children’s use of social media and the internet. Children in many parts of the world are spending more time online to connect with friends or to keep themselves entertained. This increased use of the internet puts in the spotlight the issue of persistency of data. Without regular supervision of their parents or legal guardians, children may unknowingly give consent to the processing of their information without being fully aware of the risks involved in the processing. The vast amount of children’s data that can be collected and stored through this uninformed giving of consent can have a significant effect over the children’s lifetime. In the Philippines, the Data Privacy Council Education Sector of the National Privacy Commission issued Advisory No. 20200129 to guide schools and other educational institutions, as well as other stakeholders in the education sector, in their efforts to ensure adequate data protection in the conduct of online learning and other related activities. However, the advisory is only meant to be a set of recommendations and shall not be treated as a policy. Each educational

26 Referee, Linda; Day, Emma; and Byrne Jasmina (August 2020). COVID-19: A spotlight on child data governance gaps. United Nations Children’s Fund (UNICEF). 27 Ibid. 28 Ibid. 29 Advisory No. 2020-01, issued by the Data Privacy Council Education Sector.

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institution retains the prerogative to decide on the privacy measures that they will implement that are appropriate for their context. The DepEd also issued DepEd Order No. 013, s. 2020 or the Readiness Assessment Checklist for Learning Delivery Modalities in the Learning Continuity Plan of Private Schools. It required private schools to have an educational platform or LMS that is either subscription based or locally developed, a 24/7 technical support for the LMS, and an email facility or domain name for all students and learners. These requirements are imposed to ensure that private schools would be able to protect the data privacy of their learners.30 These regulations are steps toward the right direction in protecting children’s data privacy right. However, these are all directed towards educational institutions on how they would be able to ensure data privacy in the implementation of their online distance learning programs. The fact remains that learners would still visit other websites apart from their school’s LMS to gather information and other learning resources. Learners will be exposed to data privacy risks if there are no policy safeguards directed to those websites to ensure that informed consent is taken.

V. Conclusion With the advancement of technology and through the incorporation of digital transformation initiatives in various industries, it cannot be denied that we are already living in a fastpaced information-driven society. This is both an opportunity that creates empowerment and a threat that requires protection. In the context of children living in this kind of society, the balance between empowerment and protection must be weighed through the best interest of the child. Overprotection and regulation of children’s data privacy rights without considering their evolving capacities would hinder growth and innovation among the children, the other way around would expose them to exploitation and other data privacy risks. The Data Privacy Act of 2012 remains the general law that governs data privacy protection in the Philippines. After almost a decade of passing the law, understanding data privacy and how to protect it remains a challenge in the Philippines. More so are addressing the different issues of protecting children’s data privacy among various stakeholders. Children’s data privacy rights must be given a more specific set of safeguards more stringent than those provided in the DPA. Once

Department of Education (DepEd) Order No. 013, s. 2020.

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a child goes online the challenge of obtaining informed consent is magnified since no one really knows if you are a child. Thus, even if regulations already existing, or being established to ensure consent, it would be hard to argue that this consent is truly informed because of the difficulties in authentication and the variability in oversight. Even when parents are available to provide consent for their child, terms and conditions in data privacy consent agreements provided in different websites are framed in legalistic language that even adults cannot understand. The fact remains that there are very few direct provisions for children in existing regulatory frameworks and data protection directives. Where they exist, such provisions tend to rely exclusively on parental consent, with little distinction made between older adolescents and younger children. Evolving capacities and the best interest of the child should still be the foundation of any regulation that would affect the protection of data privacy rights of children.

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Flattening the Curve through Law and Equity: Rising COVID-19 Cases and the Worsening Condtitions of Incarceration Facilities in the Philippines Roger B. Montero, Jr.1

“It is said that no one truly knows a nation until one has been inside its jails. A nation should not be judged by how it treats its highest citizens, but its lowest ones.” – Nelson Rolihlahla Mandela (1918-2013)

INTRODUCTION

Long before the outbreak of COVID-19,2 the Philippine incarceration system has already been plagued by the massive overcrowding in the country’s jails and prisons. Data reveals that the prison population trend in the Philippines swelled up to 179% within the last couple of decades.3 As of 2019, the Philippines has an incarceration rate of about 200 per 100,000 citizens. Records from the same year show that around 5,200 inmates in the National Bilibid Prison (NBP) die every year due to overcrowding.4 On April 6, 2020, an Urgent Petition was filed before the Supreme Court seeking for the temporary release, on bail or recognizance, of the petitioners who alleged that they are among the elderly, sick, and 1 Roger B. Montero, Jr. is a graduate of the San Beda University-College of Law Class of 2021. He also obtained his Bachelor’s Degree in Legal Management from the same University on 2014. He is set to take the Bar Exams this November 2021. 2 Corona Virus Disease 19. 3 Philippines, World Prison Brief. Available at <https://www.prisonstudies.org/country/philippines>. 4 More than 5,000 inmates die at this prison every year. Available at <https://edition.cnn.com/2019/10/04/ asia/philippines-inmate-deaths-intl-hnk-scli/index.html>.

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pregnant population of inmates exposed to the danger of contracting COVID-19.5 They invoked the Court’s equity jurisdiction and grounded their prayer for release on “humanitarian grounds”. The Court denied the petition and remanded the same to the trial court, the dispositive portion of the decision6 reads: WHEREFORE, in view of the foregoing reasons, the Court treats the present petition as petitioners’ application for bail or recognizance as well as their motions for other confinement arrangements, and refers the same to the respective trial courts where their criminal cases are pending, which courts are hereby directed to conduct the necessary proceedings and consequently, resolve these incidents with utmost dispatch. ACCORDINGLY, THE PROCEEDINGS BEFORE THIS COURT ARE CONSIDERED CLOSED AND TERMINATED. (Emphasis supplied) By adding the last sentence, the Court has effectively denied to give due course to the urgency of the reliefs prayed for by the petition. Curiously, the 391-page decision is but an extensive academic discussion, so to speak, with the ponencia7 itself comprising only of nine (9) pages and the rest constituting the separate opinions of the other justices who took part in the deliberations thereof. As such, this work, guided by law and jurisprudence, offers to lay down the legal justifications for the release of Persons Deprived of Liberty (PDLs) for humanitarian reasons during COVID-19 pandemic.

II. PROVISIONAL RELEASE ON BAIL OR RECOGNIZANCE BAIL The right to bail is enshrined under Section 13 Article III of the 1987 Philippine Constitution, which reads: SECTION 13. All persons, except those charged with offenses punishable by reclusion perpetua when evidence of guilt is strong, shall, before conviction, be bailable by sufficient sureties, or be released on recognizance as may be provided by law. The right to bail shall not be impaired even when the privilege of the writ of habeas corpus is suspended. Excessive bail

5 In Matter of Urgent Petition for Release of Prisoners On Humanitarian Grounds In Midst Of Covid-19 Pandemic V. People Of the Philippines. (Hereinafter referred to as “Almonte”). 6 Id. 7 Ponente not indicated. Not clear if it is a per curiam decision.

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shall not be required. Procedurally speaking, bail is the security given for the release of a person in custody of the law to guarantee his appearance before any court as may be required under specified conditions.8 Bail may be a matter of right or judicial discretion. Bail is a matter of right in the following instances: 1) Before or after conviction by the first level courts; 2) Before conviction by the RTC of an offense not punishable by death, reclusion perpetua or life imprisonment;9 and 3) Before conviction by the RTC of an offense punishable by death, reclusion perpetua or life imprisonment and the evidence of guilt is not strong.10 On the other hand, bail is a matter of discretion in the following instances: 1) Upon conviction by the RTC of an offense not punishable death, reclusion perpetua or life imprisonment; and 2) Upon conviction by the RTC and the court imposed a penalty of imprisonment exceeding six (6) years, except when any of the enumerated bailnegating11 circumstances under paragraph 3 of Section 5, Rule 114 is present then bail shall be denied. In People v. Bocar,12 the Court underscored the importance of bail hearing for offenses punishable by death, reclusion perpetua, and life imprisonment and the evidence of guilt is not strong. Here, the accused is a student charged with murder – an offense punishable by reclusion perpetua. During the hearing for bail, the defense presented an exam paper as evidence, purporting to prove that the accused was at school at the time the crime allegedly took place, thereby weakening the prosecution’s case against him. Similarly, in People v. Tanes13 the Court sustained the trial court in granting a petition for bail by an accused charged with violation of Section 5, Article II of R.A. 9165 which carries the penalty of life imprisonment, after the defense was able to prove that there was violation of the chain of custody rule under Section 21 of the same law. The Court however clarified that – The Court emphasizes that no part of this Decision should prejudice the submission of additional evidence for the prosecution to prove Tanes’ guilt in the main case. After all, a grant of bail does not prevent the RTC, as the trier of facts, from 8 Rules of Court, Rule 114, Sec. 1. 9 Rules of Court, Rule 114, Sec. 4. 10 Rules of Court, Rule 114, Sec. 7. 11 Leviste vs Court of Appeals, C.J. Corona: These circumstances are herein referred to as “bail-negating” because the presence of any of them will negate the allowance of bail. 12 27 SCRA 512, 514-15 (1969). 13 G.R. No. 240596, April 3, 2019.

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making a final assessment of the evidence after full trial on the merits. Further, the judge who issued the warrant or granted the application shall fix a reasonable amount of bail considering primarily, but not limited to the following guidelines: (a) (b) (c) (d) (e) (f) (g) (h) (i)

Financial ability of the accused to give bail; Nature and circumstances of the offense; Penalty of the offense charged; Character and reputation of the accused; Age and health of the accused; The weight of the evidence against the accused; Probability of the accused appearing in trial; Forfeiture of other bonds; The fact that accused was a fugitive from justice when arrested; and ( j) The pendency of other cases in which the accused is under bond. Excessive bail shall not be required.14 Under the present rules, a hearing on an application for bail is mandatory. Jurisprudence is replete with decisions15 on the procedural necessity of a hearing, whether summary or otherwise, relative to the grant of bail, especially in cases involving offenses punishable by death, reclusion perpetua, or life imprisonment, where bail is a matter of discretion. The rationale for this was explained in the case of Cortes v. Judge Catral,16 to wit: Bail should be fixed according to the circumstances of each case. The amount fixed should be sufficient to ensure the case presence of the accused at the trial yet reasonable enough to comply with the constitutional provision that bail should not be excessive. Therefore, whether bail is a matter of right or of discretion, reasonable notice of hearing is required to be given to the prosecutor or fiscal or at least he must be asked for his recommendation because in fixing the amount of bail, the judge is required to take into account a number of factors such as the applicant’s character and reputation, forfeiture of other bonds or whether he is a fugitive from justice.

14 Rules of Court, Rule 114, Sec. 9. 15 Docena-Caspe vs. Judge Arnulfo O. Bugtas March 28, 2003, 400 SCRA 37, citing Directo vs. Bautista, 346 SCRA 223 (2000); People vs. Cabral, 303 SCRA 361 (1999); Basco vs. Rapatalo, 269 SCRA 220 (1997). 16 344 Phil. 415, 430 (1997), citing Basco v. Rapatalo, 336 Phil. 214 (1997).

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To do away with the requisite bail hearing is to dispense with this time-tested safeguard against arbitrariness. It must always be remembered that imperative justice requires the proper observance of indispensable technicalities precisely designed to ensure its proper dispensation.17

RECOGNIZANCE Recognizance is a mode of securing the release of any person in custody or detention for the commission of an offense who is unable to post bail due to abject poverty. The court where the case of such person has been filed shall allow the release of the accused on recognizance as provided herein, to the custody of a qualified member of the barangay, city or municipality where the accused resides.18 It is an obligation of record, entered into before some court or magistrate duly authorized to take it, with the condition to do some particular act, the most usual such condition is the appearance of the accused for trial.19 The release on recognizance of any person in custody or detention for the commission of an offense is a matter of right when the offense is not punishable by death, reclusion perpetua, or life imprisonment, so long as the conditions provided by law are complied with.20 Of particular importance is the duty of the custodian to guarantee the appearance of the accused whenever required by the court and the consequent penalty of imprisonment imposed upon the custodian who failed to deliver or produce the accused before the court, upon due notice, without justifiable reason.21 In summary, the conventional remedies available for an accused to secure provisional release pending trial remain to be limited to bail and recognizance.

THE CURIOUS CASE OF ENRILE v. SANDIGANBAYAN22 In Almonte, Chief Justice Diosdado Peralta, in his separate opinion,23 opined that the Enrile ruling may not be considered as pro hac vice24. He noted the 2017 En Banc case of Knights of Rizal v. DMCI

17 Domingo v. Pagayatan, AM No. RTJ-03-1751, June 10, 2003. 18 R.A. 10389, Sec. 3. 19 People v. Abner G.R. No. L-2508, October 27, 1950. 20 R.A. 10389, Sec. 5. 21 R.A. 10389, Sec. 9. 22 G.R. No. 213847, August 18, 2015. 23 C.J, Peralta, Separate Opinion, p. 5. 24 Pro hac vice is a Latin term meaning “for this one particular occasion”. (Partido ng Manggagawa (PM) v. COMELEC, 519 Phil. 644,671 (2006).

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Homes, Inc., 25 where the Court have declared illegal such a ruling, as “pro hac vice decision violates statutory law - Article 8 of the Civil Code.” He was joined by Justice Amy Lazaro-Javier in refusing to treat the Court’s decision in Enrile as pro hac vice as the ruling was not intended for the sole and exclusive benefit of Senator Enrile.26 An opposite view was espoused by Justices Marivic Leonen, Estela Perlas-Bernabe, and Alfredo Caguioa.27 To them, the Enrile ruling is applicable only to the distinct ruminations accorded to Sen. Enrile and therefore, cannot be a binding precedent, because there was no hearing to determine the existence of “strong evidence of guilt” The peculiarity of the Enrile case is, at its core, the lack of a hearing to determine whether the evidence of guilt is strong prior to admission to bail. Then 91 year-old Juan Ponce Enrile, who was charged with Plunder, a nonbailable offense,28 filed a Motion for Detention at the PNP General Hospital and a Motion to Fix Bail before the Sandiganbayan, citing the following grounds: (a) the prosecution had not yet established that the evidence of guilt is strong; (b) penalty as to him is only reclusion temporal, alleging that two (2) mitigating circumstances exists in his favor, viz: voluntary surrender and that he was already over 70 years of age at the time of the commission of the offense; and that (c) he was not a flight risk and his age and physical condition must further be seriously considered. The Sandiganbayan issued a resolution denying Enrile’s Motion to Fix Bail, disposing thusly: “[I]t is only after the prosecution shall have presented its evidence and the Court shall have made a determination that the evidence of guilt is not strong against accused Enrile can he demand bail as a matter of right. Then and only then will the Court be duty-bound to fix the amount of his bail. To be sure, no such determination has been made by the Court. In fact, accused Enrile has not filed an application for bail. Necessarily, no bail hearing can even commence. It is thus exceedingly premature for accused Enrile to ask the Court to fix his bail. xxxx Accused Enrile next argues that the Court should grant him bail because while he is charged with 25 G.R. No. 213948, April 18, 2017. 26 J. Lazaro-Javier, Separate Opinion. p. 12. 27 J. Leonen, Separate Opinion, p. 20; J. Perlas-Bernabe, Separate Opinion, p. 5. J. Caguioa, Separate Opinion, p. 8. 28 R.A. No. 7080, as amended by R.A. No. 7659, provides that the imposable penalty for plunder is reclusion perpetua to death.

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plunder, “the maximum penalty that may be possibly imposed on him is reclusion temporal, not reclusion perpetua.” He anchors this claim on Section 2 of R.A. No. 7080, as amended, and on the allegation that he is over seventy (70) years old and that he voluntarily surrendered. “Accordingly, it may be said that the crime charged against Enrile is not punishable by reclusion perpetua, and thus bailable.” The argument has no merit. xxxx x x x [F]or purposes of bail, the presence of mitigating circumstance/s is not taken into consideration. These circumstances will only be appreciated in the imposition of the proper penalty after trial should the accused be found guilty of the offense charged. xxxx Lastly, accused Enrile asserts that the Court should already fix his bail because he is not a flight risk, and his physical condition must also be seriously considered by the Court. Admittedly, the accused’s age, physical condition and his being a flight risk are among the factors that are considered in fixing a reasonable amount of bail. However, as explained above, it is premature for the Court to fix the amount of bail without an anterior showing that the evidence of guilt against accused Enrile is not strong.” (emphasis supplied) This prompted Enrile to elevate the matter by certiorari to the Supreme Court, which overturned the assailed Sandiganbayan resolution, thereby granting bail to the accused on the basis that (1) that the detainee will not be a flight risk or a danger to the community; and (2) that there exist special, humanitarian, and compelling circumstances. The Court went on to expound: “In our view, his social and political standing and his having immediately surrendered to the authorities upon his being charged in court indicate that the risk of his flight or escape from this jurisdiction is highly unlikely. His personal disposition from the onset of his indictment for plunder, formal or otherwise, has demonstrated his utter respect for the legal

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processes of this country. We also do not ignore that at an earlier time many years ago when he had been charged with rebellion with murder and multiple frustrated murder, he already evinced a similar personal disposition of respect for the legal processes and was granted bail during the pendency of his trial because he was not seen as a flight risk. With his solid reputation in both his public and his private lives, his long years of public service, and history’s judgment of him being at stake, he should be granted bail. The currently fragile state of Enrile’s health presents another compelling justification for his admission to bail, but which the Sandiganbayan did not recognize. xxx It is relevant to observe that granting provisional liberty to Enrile will then enable him to have his medical condition be properly addressed and better attended to by competent physicians in the hospitals of his choice. This will not only aid in his adequate preparation of his defense but, more importantly, will guarantee his appearance in court for the trial. On the other hand, to mark time in order to wait for the trial to finish before a meaningful consideration of the application for bail can be had is to defeat the objective of bail, which is to entitle the accused to provisional liberty pending the trial. There may be circumstances decisive of the issue of bail – whose existence is either admitted by the Prosecution or is properly the subject of judicial notice – that the courts can already consider in resolving the application for bail without awaiting the trial to finish. The Court thus balances the scales of justice by protecting the interest of the People through ensuring his personal appearance at the trial, and at the same time realizing for him the guarantees of due process as well as to be presumed innocent until proven guilty.” (emphasis supplied) Thus, in so ruling, the Court have made an unprecedented pronouncement that bail may be granted prior to the required hearing without clarifying the guidelines thereof. The author submits that the ruling by the Court in this case is an unusual judicial precedent for having deviated from the above-mentioned legal course before one

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could be released on bail. Expectedly, Supreme Court was once more confronted by the same issue regarding the provisional release of bail on humanitarian grounds. This time, however, for far more novel setting. In Almonte, the petitioners, in support of their broad claim for humanitarian considerations, relied on the pronouncement by the Court in the Enrile case where the Court have granted the late senator’s provisional release due to his old-age and frail health condition. Here, the members of the Court are in unison regarding the inapplicability Enrile decision. However, their reasons therefor differ on certain material points as discernible from their separate opinions; which only goes to show how unreliable the Enrile decision inasmuch as an application for discretionary bail requires matter of factual consideration. Parallel to the Almonte case is the petition for bail before the Sandiganbayan filed by Atty. Gigi Reyes, the former chief of staff of former senator Enrile who has been detained for six years over the pork barrel scam. Reyes similarly cited the Supreme Court’s bail grant to Enrile on humanitarian grounds. The anti-graft court, in denying the petition, said: “Except for her bare claim, accused Reyes did not present any substantiating evidence that she is suffering from a medically diagnosed life-threatening illness such that her continued confinement at Camp Bagong Diwa would be injurious to her health or endanger her life during this pandemic.”29 The referral by the Court of the Almonte petition to the trial courts, only recognized the need for a proper hearing of factual matters involved in the grant of discretionary bail.

TEMPORARY LEAVE FOR SERIOUS ILLNESS Temporary leave for serious illness is allowed; however, this is not a leave of bail, but a hospitalization leave that requires court approval. The Bureau of Jail Management and Penology Comprehensive Operations Manual,30 reads: Section 65. LEAVE FROM JAIL - Leave from jail shall be allowed in very meritorious cases, like the following: 1. Death or serious illness of spouse, father, mother, brother, sister, or children.

29 No COVID-19 risk: Sandiganbayan junks bail plea of ex-Enrile aide Gigi Reyes in 3-2 vote, September 30, 2020. Available at <https://www.rappler.com/nation/sandiganbayan-resolutiongigi-reyes-covid-19-bail-appeal>. (Accessed on July 7, 2021). 30 Revised 2015.

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2. Inmates who are seriously ill or injured may, under proper escort, be allowed hospitalization leave or medical attendance. However, such leave shall require prior approval of the Courts having jurisdiction over them Provided, however, that in life and death cases where immediate medical attention is imperative, the warden, at his/her own discretion, may allow an inmate to be hospitalized or moved out of jail for medical treatment; Provided further, that when the emergency has ceased as certified by the attending physician, the warden shall cause the inmate’s immediate transfer back to the jail, except when there is a court order directing him to continue the inmate’s confinement in a hospital until his/her recovery or upon order of the Court for his/her immediate return to the jail.

ADMINISTRATIVE CIRCULAR (AC) NO. 38-2020 The Supreme Court ordered the imposition of reduced bail and recognizance to indigent PDLs in order to ease up congestion in detention facilities pending the continuation of their trial or resolution of their cases. Under (AC) No. 38-2020, the lowered bail can only be availed of during the declared period of Public Health Emergency and shall be granted as follows: 1. For those charged with a crime punishable with the maximum period of reclusion temporal or twelve (12) years and one (1) day to twenty (20) years, the bail shall be computed by getting the medium period multiplied by Three Thousand Pesos (P3,000.00) for every year of imprisonment; 2. For those charged with a crime punishable with the maximum period of prision mayor or six (6) years and one (1) day to twelve (12) years, the bail shall be computed by getting the medium period multiplied by Two Thousand Pesos (P2,000.00) for every year of imprisonment; 3. For those charged with a crime punishable with the maximum period of prision correccional or six (6) months and one (1) day to six (6) years, the bail shall be computed by getting the medium period multiplied by One Thousand Pesos (P1,000.00) for every year of imprisonment; and 4. For those charged with a crime punishable by arresto mayor or one (1) month and one (1) day to six (6) months, and arresto menor or one (1) day to

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thirty (30) days, they may be released on their own recognizance. An indigent PDL must first be arraigned before being granted the lower bail or recognizance. The arraignment can be done through videoconferencing. Those PDLs who have already been arraigned and are undergoing trial may likewise avail of the reduced bail, unless they have already served the minimum imposable penalty for the crime charged, in which case they may be released on their own recognizance. This Circular however excludes those already serving their sentence. The Circular further provides that if the accused PDL violates any of the undertakings or conditions imposed on the bail or recognizance, such bail or recognizance may be cancelled, and a warrant of arrest may be issued thereafter. Finally, the courts in their own discretion may deny the application for bail or recognizance if there are reasonable grounds based on prevailing jurisprudence and existing rules. It may also cancel or impose additional bail and conditions should the accused be eventually convicted, pending their appeal.

III. EQUITY CONSIDERATIONS Equity is applied only in the absence, never in contravention, of statutory law.31 Equity jurisdiction aims to do complete justice in cases where a court of law is unable to adapt its judgments to the special circumstances of a case because of the inflexibility of its statutory or legal jurisdiction. It is through this principle that substantial justice may be attained in cases where the prescribed or customary forms of ordinary law are inadequate.32 This principle is reinforced under the Civil Code, viz: Article 9. No judge or court shall decline to render judgment by reason of the silence, obscurity or insufficiency of the laws. Since the law has definite provisions on bail and recognizance for the release of PDLs, equity jurisdiction may not be the sole basis for the grant of the relief of bail and recognizance.

IV. WRIT OF KALAYAAN: PROPOSED RULES TO ADDRESS JAIL

31 32

Agra v. PNB, 368 Phil. 829 (1999). Reyes v. Lim G.R. No. 134241, August 11, 2003.

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DECONGESTION Considering the significant and far-reaching implication of the issues raised in the Almonte petition, mainly the petitioners’ prayer for their temporary release invoking humanitarian considerations on account of their advanced age and compromised health conditions, in light of the rarity and magnitude of the Covid-19 Pandemic, the invocation of the Court’s inherent rule-making powers under Section 5 Article VIII of the 1987 Constitution is in order. Human Rights group KAPATID has urged Supreme Court to call a national consultation to hasten the adoption of rules on the Writ of Kalayaan, which could be used as basis to release prisoners who are vulnerable to the coronavirus. For the group, the writ of kalayaan “provides a judicial remedy grounded on social justice and humanity to address the problems of extreme jail congestion amid the continuing pandemic and violations of the rights of people deprived of liberty.”33 The issuance of extraordinary writs will essentially depend on the guidelines laid down in the recent landmark case of GIOS-SAMAR, Inc. v. Department of Transportation and Communications,34 which are condensed as follows: (1) Despite having original and concurrent jurisdiction with the Regional Trial Courts and the Court of Appeals (or the Sandiganbayan and the Court of Tax Appeals, in some cases) in the issuance of extraordinary writs, a direct recourse to this Court seeking for such issuance is proper only to seek resolution of questions of law because it is not a trier of facts; (2) The hierarchy of courts is a constitutional imperative and a filtering mechanism so that this Court may be able: (a) to devote its time and resources primarily to cases falling within its exclusive jurisdiction; and (b) to ensure the adequate ascertainment of all facts by lower courts which are necessarily equipped to perform such function. (3) The doctrine of hierarchy of courts proceeds from the constitutional power of this Court to promulgate rules “concerning the protection and enforcement of constitutional rights, pleading, practice and procedure in all courts” for the orderly administration of justice

33 Human rights group pushes for writ of kalayaan rules to address jail congestion, June 11, 2021 https://www.bworldonline.com/human-rights-group-pushes-for-writ-of-kalayaan-rules-toaddress-jail-congestion/ (last accessed July 7, 2021). 34 G.R. No. 217158, March 12, 2019, citations omitted.

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(4) The recognized exceptions to the hierarchy of courts have a common denominator-the issues for resolution are purely legal. (1) when there are genuine issues of constitutionality that must be addressed at the most immediate time; (2) when the issues involved are of transcendental importance; (3) cases of first impression; (4) the constitutional issues raised are better decided by the Court; (5) exigency in certain situations; (6) the filed petition reviews the act of a constitutional organ; (7) when petitioners rightly claim that they had no other plain, speedy, and adequate remedy in the ordinary course of law that could free them from the injurious effects of respondents’ acts in violation of their right to freedom of expression; [and] (8) the petition includes questions that are “dictated by public welfare and the advancement of public policy, or demanded by the broader interest of justice, or the orders complained of were found to be patent nullities, or the appeal was considered as clearly an inappropriate remedy.” Justice Leonen, in his separate opinion35 in Almonte, similarly urged the Court to formulate rules to meet the exigencies of the public health crisis and therefore respond to the urgent violation of constitutional rights with transcendental effects. The Court have done so, without overstepping on the discretion of the trial court acting on the petition, in writ of habeas corpus cases,36 and the writ of continuing mandamus or writ of kalikasan in environmental cases.37 In Metropolitan Manila Development Authority v. Concerned Citizens of Manila Bay, the Court have issued, for the first time, a writ of continuing mandamus compelling various government agencies to fulfil their duties to restore and clean up the Manila Bay. The Court, just like how it recognized the extreme urgency of the situation of the environmental degradation of Manila Bay, may likewise take a look upon the global pandemic vis-à-vis the perennial congestion in our

35 See J. Leonen, Separate Opinion, Pp. 79-81. 36 In the Matter of Application for the Issuance of a Writ of Habeas Corpus Richard Brian Thornton for and in behalf of the minor child Sequeira Jennifer Delle Francisco Thornton v. Adelfa Francisco Thornton, 436 SCRA 550 (2014). 37 RULES OF PROCEDURE FOR ENVIRONMENTAL CASES, A.M. No. 09-6-8-SC.

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penal facilities. The writ of kalayaan may require a more constant supervision by an executive judge for the traditional or extraordinary releases of PDLs and should provide an order of precedence in order to decongest the jails and prisons to a more humane level.

V. CONCLUSION The severe congestions in our penal facilities correlate to the case congestions in the court dockets. The courts of justice could only do so much of its own to address the problem. The remedies for provisional release under the law appear to be limited, strict and burdensome. Courts of justice are only able to expound on the propriety of these remedies within the limits set forth by the law. The decision in the Enrile case is bereft of any clear guidelines by which future cases involving applications for bail for crimes punishable by reclusion perpetua, hence, reliance thereto is at best, abstract. Settled are the principles and procedure governing hearings on an application for bail – where bail is not a matter of right, as in these cases of Almonte and Reyes, the prosecution must be given the opportunity to prove that there is a strong evidence of guilt, subject to the similar opportunity given to the defense. The formulation of the extraordinary writ of Kalayaan appears to be promising but much has been desired considering the guidelines laid down in the case of GIOS-SAMAR, Inc. v. Department of Transportation and Communications for extraordinary writs. While such guidelines are related to the procedural aspect for its issuance, the Courts equity jurisdiction may be exercised where a strict application of procedural rules will overrule “strong considerations of substantial justice.”38 Perhaps a paradigm shift in the criminal justice system as regards incarceration in general may provide for a better and more holistic approach in addressing the much-needed reform in the country’s correctional facilities. The global pandemic only magnified the necessity for a more humane treatment of the PDLs which, in turn, calls for the kind of justice that restores, taking into consideration the various interests involved. The kind which is amenable to treating the highly congested prisons and jails not only as a matter of national security and law enforcement, but more of a public health and humanitarian crisis.

Orata v. Intermediate Appellate Court, 263 Phil. 846, 852 (1990) [Per J. Paras, Second Division].

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Harnessing the Future: The Prospect of Court Modernization in the Philippines

David Jerome G. Dominguez1

Introduction

The rate at which technology has advanced in recent years is unprecedented. Particularly, the developments in Internet protocols, information technology, and telecommunications have completely changed the way most of society functions. The ease of use and accessibility brought about by these changes, coupled with the ubiquity of smart devices, have given individuals the power to control various facets of their lives right at their fingertips. From being able to communicate with others in real time regardless of distance to being able to shop for necessities from the comfort of one’s home, and even to permanent work-from-home setups, individuals now have the ability to thrive in the online world. In fact, the media is replete with stories about those who have actually built and maintained successful businesses purely through an online platform. One might think that given these developments, the sudden shift to online platforms due to the complications brought about by the global COVID-19 pandemic would be seamless and immediate. While it is true that some people, as well as some fields and industries, were able to find some semblance of normalcy through the utilization of online resources, the same cannot be said for others. The justice

1 David Jerome G. Domiguez is a 3rd year Student in the San Beda University-College of Law (SBU-COL). He is a member of the Electoral Board of the SBU-COL, and thebarrister, the official student publication of SBU-COL. He obtained his Bachelor of Arts in International Studies Major in European Studies and Bachelor of Science in Legal Management from De La Salle University, Manila.

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system is one of those sectors which struggled to cope with the pandemic. The administration of justice is grounded on the interpretation of the laws as they are written. Legal proceedings hinge on the proper application of established rules of procedure. Precedent is relied upon heavily in the adjudication of cases; in fact, the doctrine of stare decisis is one of the most basic legal doctrines incorporated in most judicial systems. Laws, rules of procedure, and jurisprudence are, by their very nature, difficult to change. Whether it be due to the procedure in place for the creation or amendment of laws, the time it takes to study and debate the propriety of such changes, or the politics behind their passage, the process is, for the most part, slow and lethargic. The stark difference between the rapid pace of technological developments and the sluggish rate with which laws are created or amended gives rise to a very distinct gap wherein the legal system becomes either illequipped to address the legal issues that arise due to these changes or unable to take advantage of the benefits provided by said changes.2 The Philippine judicial system is one such institution that has, unfortunately, continued to struggle in terms of adapting to the speed at which technology develops. Philippine courts were not spared by the near global paralysis brought about by the COVID-19 pandemic. Heavy restrictions on travel and assembly made it difficult for an institution traditionally reliant on face-to-face interactions to function effectively. Moreover, dependence on the manual delivery of physical documents made even the most basic proceedings grind to a halt. Existing case management systems are also hampered by lack of computerization, inadequate storage spaces, and the sheer amount of pending cases.3 While technological developments, particularly advancements in online capabilities, provide for a means to circumvent these problems, the current state of the Philippine justice system is inadequate in terms of fully utilizing available technologies. To put things into perspective, a 2018 survey conducted by the United Nations Development Programme (UNDP) found that only 20% of Filipinos have proper access to justice, leaving 80% without legal assistance.4 In the survey, the common reasons why Filipinos were not able to access legal service are costliness, inconvenience due to distance, and time constraints, among others.5

2 Marchant, G. E. (2011). The Growing Gap Between Emerging Technologies and the Law. The International Library of Ethics, Law and Technology, 19–33. Available at <https://doi.org/10.1007/97894-007- 1356-7_2>. 3 Hunter, R. (2002). Reconsidering Globalisation: Judicial Reform in the Philippines, Law Text Culture, 6. 4 World Justice Project. (2018). Rule of Law Index 2017-2018. <https://sustainabledevelopment. un.org/partnership/?p=33320> (Accessed on 13 June 2021). 5 Id.

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Despite commendable efforts in recent years to digitize certain facets of the judicial system, various legal and logistical issues have stymied any substantial developments. Whether it be questions arising from the proper application of existing laws and rules of procedure with regard to trials conducted by means of videoconferencing or the dismal Internet speed the Philippines is notorious for, roadblocks abound the path toward proper court digitization. This article will have a three-fold purpose. First, it narrates the history of court digitization in the Philippines, with emphasis on projects and measures which have already been proposed or implemented by the Supreme Court. Second, it analyzes the various issues and hindrances which have made the prospect of proper court digitization difficult to attain, focusing primarily on the legal, infrastructural, and societal dimensions of these issues. Finally, it discusses the importance of court modernization, taking into consideration the potential benefits such an initiative may have not only on legal processes and court proceedings but also on the stakeholders in the justice system, both internal and external.

II. Early Attempts on Court Modernization Although the Court’s hand has essentially been forced in terms of adopting means by which it can continue to operate despite COVID-19 related restrictions, attempts to digitize certain aspects of the justice system are not novel. As early as 2001, the Philippine judiciary, through the Action Program for Judicial Reform (APJR) sought to identify, prioritize, and implement judicial reform. Under this program, an automated case management system was installed in the Supreme Court, the Court of Appeals, the Court of Tax Appeals, and the Sandiganbayan with pilot testing being done in several lower courts in Pasay City.6 In 2009, the Court approved the Enterprise Information Systems Plan (EISP) which was intended to provide the judiciary with the functional, technical, and structural specifications for selected systems pertaining to the judiciary’s ICT capabilities.7 The EISP was intended to serve as the framework of the Information and Communications Technology (ICT) initiatives of the judiciary. INDRA Sistemas was designated to provide Management and Consultancy Services for the development of the judiciary’s ICT Capability as part of the Judicial Reform Support Project financed by the World Bank. In 2012, the Judicial Strengthening to Improve Court Effectiveness

6 Panganiban, A. V. (2013, June 23). Automating the judiciary. INQUIRER.net. https://opinion. inquirer.net/55129/automating-the-judiciary. <http://www.competitive.org.ph/stories/639>. (Accessed on 13 June 2021). 7 A.M. No. 14-09-06-SC.

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( JUSTICE) Project was launched. A USAID-funded program led by the American Bar Association Rule of Law Initiative (ABA ROLI), in partnership with The Asia Foundation, JUSTICE sought to further bolster the efficiency of, and confidence in, the Philippine justice system by enhancing court efficiency through, among others, the installation of an e-Court system intended for computerized case tracking and management.8 The following year, the Supreme Court launched a pilot run of the electronic Court (eCourt) system in a number of Quezon City courts.9 Its key goals were to encourage speed in court processes, eliminate possible sources of corruption, and provide greater transparency.10 This initiative aided in increasing court efficiency and transparency by reducing court staff’s administrative workload and providing lawyers and litigants easy access to case information. Under this system, as soon as a case is filed, lawyers and litigants know which court and judge their case has been assigned to. The system also generates barcodes that allow tracking of case files and progress. It is constantly updated with information on motions, hearings and decisions, providing court administrators and supervising judges with real-time information on the performance of individual courts. The eCourt system also notifies judges of deliverables and deadlines, providing them with templates for orders and decisions in order to fast-track the release of resolutions, and urging them to prioritize prolonged cases to reduce case backlogs. Aside from speeding up the pace of litigation, the system also enables random electronic sampling and raffling of cases. Additionally, the public can access case information at one of the kiosks in the courts’ lobbies. As of 2017, over 300 courts in the country have adopted the eCourt system.11 More recent developments, particularly those directly addressing the COVID-19 issue, have also been instituted by the Court. Various issuances and circulars intended to facilitate the continued operations of the Court despite heavy restrictions have been issued throughout the duration of the pandemic. Of particular importance are those concerning the usage of video conferences for the conduct of hearings, the raffle of cases, the allowance of remote appearances, and the implementation of Electronic Filing of Criminal Complaints,Informations, and Posting of Bails. Important to note is that the Supreme Court is now actively trying to improve its systems 8 American Bar Association. (2017, June 15). Judicial Reform Initiatives Gain Momentum in the Philippines. American Bar Association. Available at <https://www.americanbar.org/advocacy/rule_of_law/ where_we_work/asia/philippines/news/news-philippines-judicial-reform-initiatives-gainmomentum-0617/>. (Accessed on 13 June 2021). 9 American Bar Association. (2013, August 1). Case Management System to Improve Efficiency in Philippine Trial Courts. American Bar Association. Available at <https://www.americanbar.org/advocacy/rule_ of_law/where_we_work/asia/philippines/news/news_philippines_ecourt_0813/>. (Accessed onvisited 13 June 2021). 10 Id. 11 Baranda, E., Lovita, T., Thammasujarit, P., & Vu, Y. (2020, July 10). E-filings and hearings in Courts in South East Asia. Rouse Available at <https://rouse.com/insights/news/2020/e-filings-and-hearingsin-courts-in-south-east-asia>. (Accessed on 14 June 2021).

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and explicitly places modernization as a key goal in the near future. In a recent discussion with the media, Chief Justice Alexander Gesmundo emphasized that one of his goals as head magistrate is to achieve a technology-driven judiciary through the implementation of various programs geared towards streamlining electronic case management flows, improving accessibility through online platforms, and providing real-time data on court proceedings.12 While COVID-19 may have caused immediate shifts to online platforms, court modernization has clearly always been a key consideration for the Court. Whether or not these programs come to fruition is a different matter altogether but, at the very least, one cannot deny the initiative of the Philippine judiciary to improve their services by applying modern technology. Notwithstanding efforts to take full advantage of recent technological developments, the Court itself has recognized that programs and initiatives are only one aspect of court modernization. The paramount importance of adequate infrastructures to support such projects cannot be understated and as conceded by the Chief Justice himself, the Philippines’ electrical and telecommunication facilities leave a lot to be desired.13 The Philippines regularly finds itself at the bottom of most rankings concerning Internet speed, Internet stability, accessibility, and affordability. In 2020, the Speedtest Global Index placed the Philippines at 84 out of 134 countries in terms of mobile speeds and 80 out of 176 in fixed broadband speeds. This dismal performance is only exacerbated by the fact that some of the country’s neighbors such as Singapore and South Korea consistently find themselves near the top of said lists. Mobile speeds were no better as the Philippines placed sixth among the ten ASEAN countries.

III. Infrastructural Hindrances Why the Philippines lags behind other countries in terms of internet capabilities boils down to a number of reasons. First, the geography of the country itself poses a problem. Given that the Philippines is an archipelago, there is great difficulty in ensuring that the more than 7,000 islands comprising its territory get adequate access to the internet.14 It is simply not feasible to lay down all the cables, connections, and transmissions necessary for proper internet access. Simply stated, for the most part, Philippine Internet access is highly dependent on cell sites and network towers for its connectivity. These sites and towers, however, only provide signals within a limited range. Moreover, there are simply not enough cell sites and network 12 SUPREME COURT OF THE PHILIPPINES. (2021). Towards a Technology-Driven Judiciary. YouTube. Available at <https://www.youtube.com/watch?v=EI3gV-4eyII&t=671s>. 13 SUPREME COURT OF THE PHILIPPINES. (2021). Towards a Technology-Driven Judiciary. YouTube. Available at <https://www.youtube.com/watch?v=EI3gV-4eyII&t=671s>. 14 Jennings, R. (2016, February 23). How The Philippines Got Asia’s Worst Internet Service. Forbes. Available at <https://www.forbes.com/sites/ralphjennings/2016/02/23/meet-asias-internetlaggard-the-philippines/?sh=55cc8e453df7> (Accessed on 13 June 2021).

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towers to ensure sufficient coverage throughout the country. As such, if one finds themselves outside signal range, the chances of getting a stable connection will be low, to say the least. Second, telecommunications in the Philippines are considered public utilities and, as such, are subject to a greater deal of scrutiny and restriction. Bureaucratic red tape has made it difficult for any prospective service provider to even get a foothold in the industry. Additionally, laws and regulations aside, the actual process of securing the necessary permits from both the national government as well as local governments is a slow and tedious endeavor.15 The lack of existing infrastructure and the difficulty in setting up new facilities lead to a situation where the country’s already beleaguered ICT infrastructure cannot handle the ever-increasing demand for more data and higher bandwidth, thus leading to suboptimal internet services. In line with this, the virtual stranglehold that existing telecommunication companies have on the market results in a severe lack of competition. With only Philippine Long Distance Telephone (PLDT) and Globe Telecoms (Globe) being the only two viable providers in the country, consumers are forced to accept whatever packages these two companies have to offer, no matter how bad they may be on paper.16 This distinct lack of competition has also removed the incentive for PLDT and Globe to innovate as can be demonstrated by their expensive yet inefficient product offerings as well as the snail’s pace at which they move with regard to improving existing services. Although the government has exerted efforts to foster genuine and effective competition in the country’s telecommunication industry by introducing a third player in the market, the Dito Telecommunity Corporation, the available products and services offered by the two dominant incumbents in the sector still fall way short of providing decent connectivity to their customers. The confluence of these factors leads to a great disparity between the need of the consumers and the capacity of the telecommunication industry to supply such need. With a population of over 110 million as of January 2021 and an Internet penetration rate of 67%, there are over 73 million Internet users in the Philippines.17 On the other hand, the country only has around 18,000 telecom towers between Globe and Smart.18 The DICT estimates that to achieve optimal coverage,

15 Natividad, N. (2021, February 22). Why Internet Speeds in the Philippines Are So Slow. VICE. Available at <https://www.vice.com/en/article/n7vy3m/why-internet-speeds-philippines-slow-laws>. (Accessed on 13 June 2021). 16 Natividad, N. (2021, February 22). Why Internet Speeds in the Philippines Are So Slow. VICE. Available at <https://www.vice.com/en/article/n7vy3m/why-internet-speeds-philippines-slow-laws>. (Accessed on 13 June 2021). 17 Kemp, S. (2021, February 11). DIGITAL 2021: THE PHILIPPINES. DataReportal. Available at <https://datareportal.com/reports/digital-2021-philippines>. (Accessed on 13 June 2021). 18 Barton, J. (2020, June 11). Philippines overhauls tower sharing to boost coverage. Developing Telecoms. <https://developingtelecoms.com/telecom-business/telecom-regulation/9639-philippinesoverhauls-tower-sharing-to-boost-coverage.html>. (Accessed on 15 July 2021).

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the country requires around 50,000 more to be built.19 In actual practice, the impact of poor infrastructure can be readily seen during online hearings wherein proceedings are stalled due to fluctuating connections. Parties have to routinely ask questions and statements to be repeated due to one or more participants not being able to hear them correctly. Witness testimonies can also be hampered in instances wherein there is a lag or delay between parties with different levels of internet stability. All things considered, arguably the biggest hindrance to proper court digitization and efficient remote access is the simple fact that the Philippines simply does not have the infrastructure to effectively support such initiatives. It is basic knowledge that access to the Internet requires the presence of physical structures such as lines, cables, towers, and satellites. Regardless of whatever programs may be initiated, if the infrastructure necessary to put these plans into practice is not sufficient then such programs will be rendered ineffective at best and inutile at worst.

IV. End-user Deficiencies While infrastructural problems are the biggest hindrance to having a truly technology driven judiciary, other issues also pose a problem. From the user’s end, the inability or unwillingness of certain users, particularly members of the older generation, to adapt to new technologies may hamper the effectiveness of certain court modernization programs. It is no secret that the proper use of technology is a two-way street; one that involves both the efficacy of the technology itself as well as the capacity of the user to properly utilize it. A well-laid plan, supported by adequate infrastructure, is of no use when the user himself is unable to fully maximize the technology at hand. Even with the institution of videoconferencing for the conduct of hearings, proceedings are sometimes hampered by a judge or a court personnel who is either unfamiliar with the intricacies of videoconferencing or unable to troubleshoot routine problems that may arise during the hearing. Such an issue may be easily remedied by having seminars and workshops to ensure that both the public, as well as members of the judiciary, are made familiar with the technologies involved in any court digitization program. In fact, court assessments of various countries consistently indicate that, with regard to the efficacy of modernization projects, the proper training of court personnel is key in ensuring the success of such projects.20

V. Legal Discordance

19 Id. 20 Bosio, E., Ebeid, O., Gramckow, H., & Mendez, J. L. S. (n.d.). (rep.). GOOD PRACTICES FOR COURTS: Helpful Elements for Good Court Performance and the World Bank’s Quality of Judicial Process Indicators.

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Another issue, although one which the Court is more equipped to handle by itself, is the implication of using online hearings on existing laws and rules of procedure. While issues on infrastructure and userend familiarity may be outside the Court’s power to control, how a modernized Court reconciles the usage of emerging technologies with established laws and regulations is something that can readily be resolved. For example, issues pertaining to the applicability of certain rules on evidence, requirements for statements of presentations to be made in open court, and the examination of witnesses may be addressed either in the case wherein they are concerned or through circulars and Administrative Orders issued by the Court. All the same, inconsistencies between the law and the circumstances brought about by the utilization of online means may pose a problem with regard to the viability of the latter.

VI. The Prospect of Court Modernization Taking all these factors into consideration, one might think that the prospect of court digitization is nothing but a pipedream. While it is true that the way forward is beset with roadblocks, one must remember why such changes must be made. What such improvements will bring to the table should be more than enough justification to address the issues that prevent them from coming into fruition in the first place. The proper and efficient administration of justice is one of the bounded duties of the Court. In line with this, adequate access to the justice system is one of the rights enshrined in no less than the Constitution itself. It thus begs the question why a country whose laws and jurisprudence harken on the importance of the administration of justice and access to the courts, is notorious for dispensing justice at a snail’s pace. It does not take much to realize that many of the problems plaguing the legal system can be easily remedied by today’s technology. Time and distance constraints mean very little when there are now accessible means of meeting others online, in real time. Judges, court personnel, and litigants need not worry about digging through voluminous records to keep up with schedules when case management programs exist that allow courts to effectively store and display data on case progress as well as give litigants the ability to monitor progress in real time. If any doubt still exists with regard to the ability of technology to bolster the administration of justice, one only needs to look at other states that have implemented, in some form or another, court modernization programs.

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In Bhutan, the UNDP worked with the judiciary to initiate an e-litigation project. Similar to the Philippines, the geography of Bhutan made it difficult for litigants to travel to courts thus deterring them from accessing the justice system. Additionally, heavy COVID-19 restrictions essentially shut down courts across the county. The e-litigation program provided videoconferencing equipment to 14 courts across the country, allowing more than half of its courts to undertake virtual hearings between March to October 2020.21 Similarly, Australia sought to address a similar problem regarding remote populations and widespread ignorance of legal protections and remedies by working to provide remote hearing and case management software, training, and resources. This endeavor led to the capacity to conduct digital court proceedings throughout the Pacific Island Nations.22 Thailand has also implemented a Digital Court Program that allows for electronic filing and payment, case tracking services, electronic notice for the delivery of documents as well as court schedules, and online conferences.23 South Korea, one of the first Asian countries to prioritize court modernization, saw improvements in cost and space savings, data security, transparency, access, and contract enforcement dispute resolution after the implementation of its e-court system.24 Infrastructural aspects aside, the Philippine judiciary would do well to study how these countries implemented their respective modernization initiatives and see what facets of these programs may be feasibly applied to the Philippines as well as how it will be executed.

VII. Steps in the Right Direction Notwithstanding the difficulties in addressing infrastructural issues, key players in the telecommunications industry have begun the process of making improvements in their capacity to provide reliable connectivity. In 2021, Globe and Smart announced plans to launch 2,000 new cell sites or towers each.25 Additionally, a Globe 21 COVID-19 in Asia and the Pacific: Solutions to Rule of Law Challenges. World Justice Project. (2021, April 16). Available at <https://worldjusticeproject.org/news/covid-19-asia-and-pacific-solutionsrule-law-challenges>. (Accessed on 14 June 2021). 22 Id. 23 Baranda, E., Lovita, T., Thammasujarit, P., & Vu, Y. (2020, July 10). E-filings and hearings in Courts in South East Asia. Rouse Available at <https://rouse.com/insights/news/2020/e-filings-and-hearingsin-courts-in-south-east-asia>. (Accessed onvisited 14 June 2021). 24 Bosio, E., & Vilquin, J. (2013). Improving court efficiency: the Republic of Korea’s e-court experience. Doing Business 2014, 66–70. World Bank. Improving court efficiency: the Republic of Korea’s e-court experience | Doing Business 2014: Understanding Regulations for Small and Medium-Size Enterprises (worldbank.org). 25 Globe, PLDT-Smart to roll out 4,000 cell sites. Business World. (2020, December 23). <https://www. bworldonline.com/globe-pldt-smart-to-roll-out-4000-cell-sites/>. (Accessed on 14 July 2021).

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subsidiary closed a $2 million investment with Singapore-based space tech startup Transcelestial Technologies, which uses wireless laser communication technology in lieu of cell towers and other physical infrastructure to hopefully boost the dismal internet speeds in the country.26 While the majority of hindrances to modernization are external to the judiciary, all is not lost as steps have been taken to address the issues which are within the Court’s control. While physical infrastructure may not be something that can directly be addressed by the judiciary, Chief Justice Gesmundo has already indicated that the Court has begun to coordinate with both public and private entities with regard to potential solutions for the inadequacies in infrastructure. Particularly, dialogues with Judiciary Reform Initiative, a group of businessmen who have expressed support for the judiciary, have been conducted in the hopes that the former will be able to raise the Court’s Internet and broadband concerns to the telecommunications industry.27 Additionally, the DICT has raised the possibility of providing Internet services to the judiciary.28 From the Court’s side, certain software and programs have been used to initiate the modernization process. As previously mentioned, ICT improvements have been implemented over the years with the focus being primarily on case flow management and accessibility of data. Reports during the initial years of the eCourt program showed promising results. A 2021 assessment showed that three years after the implementation of the JUSTICE project – which incorporated a number of simultaneous initiatives, including eCourts – found a 60% reduction in the median processing times of trial cases.29 A later assessment of the JUSTICE project covering the years 2014 to 2017 found a 42% reduction in the average age of pending cases compared to before the initiatives were launched although, at the time, average clearance and disposition rates still left a lot to be desired.30 In the same report, it was theorized that the reason for the initial shortcomings of the project were due to, among other things, lack of access to the basic necessary infrastructure, lack of maintenance and updating of case records, the maintenance of a parallel paper-based system instead of fully transitioning into the electronic system, and a lack of training

26 Rey, A. (2021, February 19). Singapore’s space tech startup enters PH market for high-speed internet. Rappler. Available at <https://www.rappler.com/business/singapore-space-tech-startuptranscelestial-enters- philippine-market-deliver-high-speed-internet> (Accessed on 14 July 2021). 27 SUPREME COURT OF THE PHILIPPINES. (2021). Towards a Technology-Driven Judiciary. YouTube. Available at <https://www.youtube.com/watch?v=EI3gV-4eyII&t=671s.> 28 Id. 29 Orbeta, AC, Jr, Paqueo, VB and Siddiqi, B, (2021). Impacts of electronic case management systems on court congestion in the Philippines, 3ie Impact Evaluation Report 133. New Delhi: International Initiative for Impact Evaluation (3ie). 30 Id.

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with and familiarity of the eCourt system.31 Headway has also been made in more recent years. During the initial stages of the pandemic when lockdown measures were at their strictest, the Supreme Court partnered with Microsoft and began utilizing Microsoft Teams, a unified communication and collaboration platform with innovative Office web applications, intelligent cloud services, and world-class security, for the conduct of videoconferencing.32 In line with this, a webinar on maximizing said platform and optimizing digital workplaces was held by the Court and participated in by over 4,000 of the judiciary’s employees.33 Additionally, following the commendable results from the pilot testing of the use of videoconferencing, the Court approved the Guidelines on the Conduct of Videoconferencing34 which took effect on January 16, 2021. Emphasis is made on the fact that videoconferencing is still considered an alternative mode to in-court proceedings, with the latter remaining to be the primary mode of hearing cases but the court, motu proprio, or the litigants, by motion, may opt to have the proceedings conducted online. A key feature of these guidelines is the harmonization of the manner in which online hearings are conducted and existing rights and obligations as provided by law. Conduct of video-conferences are to resemble in-court hearings, with remote locations viewed as extensions of the courtroom. As such, rules and practices on proper court decorum are to be observed and laws on perjury and contempt shall apply. Public access to video conference hearings is guaranteed as any individual who wishes to attend such hearings need only request the concerned court at least 3 days before a scheduled hearing and comply with the requirements under OCA No. 166-2020. Litigants and their counsel will also be allowed to communicate privately when necessary through the provision of means such as secure phone lines, separate meeting rooms within the videoconferencing platform, and other suitable electronic means. With regard to the examination of witnesses, the guidelines also provide for means to ensure compliance with the Rules on Evidence and other pertinent laws. Particularly, virtual inspections of the 31 Id. 32 Supreme Court of the Philippines Institutionalizes Videoconferencing Hearings to Ensure Continuation of Justice Throughout COVID-19 and Beyond. Microsoft News Center Philippines. (2021, March 16). Available at <https://news.microsoft.com/en-ph/2021/03/16/supreme-court-of-the-philippinesinstitutionalizes-videoconferencing-hearings-to-ensure-continuation-of-justice-throughoutcovid-19-and-beyond/>. (visited 14 July 2021). 33 Scph. (2021, March 18). SC, Microsoft Partner to Digitize Work Practices and Methods. Available at <https://sc.judiciary.gov.ph/17777/>. (Accessed on 14 July 2021). 34 A.M. No. 20-12-01-SC.

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remote locations are conducted in order to ensure that no coaching or disturbances occur during the proceedings. In line with this, participants speaking or testifying are required to be seen from a frontal angle and heard clearly by all other participants to ensure that the court is not impeded in exercising its crucial role of determining the credibility of of witnesses and their testimonies notwithstanding the remote observation of the latter’s demeanor, conduct, and attitude during the taking of their electronic testimonies. The rules also provide for the subsequent issuance of guidelines concerning the digital signing of documents during video conferences. In criminal cases, the rights of the accused to be present at every stage of the proceedings, to testify as a witness, and to confront and cross-examine a witness against them at trial are deemed observed when such appearance and/or testimony is done remotely through videoconferencing under the guidelines with their consent. The guidelines also cover the presentation of evidence during online hearings. For documentary evidence and judicial affidavits, copies of said documents and affidavits must be filed and served at least 3 days prior to the scheduled hearing. Colored and legible electronic copies of the same shall also be made available through email or the shared document repository of the court to ensure that all concerned parties receive the exact, uneditable versions. During the online hearings, parties may share their documentary evidence on-screen. Means shall be provided for the sharing and viewing of these documents for the purposes of marking, authenticating, and presenting them through means such as cameras, digital screensharing functions, and other similar means. This is without prejudice to the physical presentation of documents and affidavits in court should technical limitations render online presentation insufficient or impossible. Object evidence may also be presented during online hearings if the same can be exhibited, examined, or viewed by all participants by displaying the object on the screen or physically showing it to a witness testifying in their remote location, within full view of the other participants. Similar to document evidence, if online marking or examination is rendered impossible by technical limitations, the court may direct that in-court hearings be held for such purposes

VIII.

Conclusion

Michigan Chief Justice Bridget McCormack perhaps best characterized the transformative change that technology can bring to the justice system when she described the state’s court modernization programs as “a refocusing of priorities to bring justice to people where they live instead of simply as a way to retool old ways to

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accommodate old problems.”35 The rate at which technology is advancing may far outpace the ability of the courts to keep up but this does not mean that attempts should not be made to adapt. Times may change but the bounden duty of the court to provide justice in an efficient and accessible manner, as well as the right of the public to such a service, remains of paramount importance today as it did in years past. While it is unfortunate that deficiencies in infrastructure, being the biggest hindrance to proper court modernization, are factors outside the control of the judiciary, the Court has nonetheless made commendable efforts to utilize emerging technologies. Only time will tell if the country’s infrastructure will improve to the point that a nationwide digital platform for the judiciary can be supported. While the Court may not have the power to determine when such improvements will take place, all signs point to a judiciary that is ready and willing to take the leap forward once the necessary opportunities present themselves.

35 Hicks, J. P. (2020, June 25). Technology brought ‘much-needed change’ to judicial system, Michigan Supreme Court chief justice tells Congress. mlive. Available at <https://www.mlive.com/publicinterest/2020/06/technology-brought-much-needed-change-to-judicial-system-michigansupreme-court-chief-justice-tells-congress.html>. (Accessed on 14 June 2021).

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When the Gavel Hits: A Jurisprudential Examination of Taxation Law During the years 2019-2020

Jose Lorenzo C. Dave1

The study of law can be said to be one of those roads frequently travelled. This peculiar road, despite being long and winding, is one which is abound by travelers as a considerable number of individuals aspire to become lawyers. However, more often than not, only the few and far between would have fate on their side. As the bar examination history would present, only 20% to 32% of the bar examinees from the years 2000 to 2019 (except for the 2016 Bar Exam where 59.06% passed) were eventually chosen to be one.2 In the pursuit to learn the law, complicated legal frameworks and structures are repeatedly encountered. Over and over, those who seek dexterity and finesse of the laws are hurdled by these challenges. In the Philippine legal landscape, one of the tougher subjects to conquer is Taxation Law. Based on the statistics released by the Supreme Court on the 2019 Philippine Bar Exam,3 Taxation Law appears to be one of the subjects which the bar examinee has a difficulty in surviving. This article is written primarily to provide an overview, if not an in-depth presentation, of the decisions promulgated by the Philippine Supreme Court during the years 2019-2020 (except for one decision from the year 2021) covering Taxation Law. The decisions are grouped into five major categories: General Principles of Taxation, National

1 The author is a student of San Beda University–College of Law. He is the Associate Editor of the 57th San Beda Law Journal Editorial Board and the Subject Chair for Taxation Law of the San Beda University–College of Law RGCT Bar Operations Center 2021. 2 2,103 New Lawyers; UST Legaspi Graduate Tops the 2019 Bar Exams, April 29, 2020. Available at <https://sc.judiciary.gov.ph/11279/>. (Accessed on 8 July 2021). 3 2019 Bar Examinations – Percentage of Passing Students – Subject/School dated May 21, 2020.

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Taxation, Local Taxation, Judicial Remedies, and Special Laws on Taxation. Because jurisprudence is replete with explanations regarding the very intricate subject of Taxation, an examination of it is in order. To gain mastery of the topic as much as possible, a student of law must learn not only from what the law itself provides but also from what our honorable magistrates interpret the law to be. Just as when the gavel hits, we are all called to its attention, tasked to put our minds to work, and commanded to listen to what magistrates have to say. Through its authoritative sound, and from the words that are eventually imbibed in the archives of legal history, we deepen our understanding and knowledge on what the law is and how it should be applied.

GENERAL PRINCIPLES OF TAXATION

A compromise is proper when a taxpayer fails to elevate the decision of the Commissioner, or his authorized representative, to the Court of Tax Appeals (CTA) within 30 days from receipt thereof and there is a reason to believe that the assessment is lacking in legal and/or factual basis. In the case of Kepco Philippines Corporation v. Commissioner of Internal Revenue,4 the Court had the occasion to rule on the power of the Commissioner of Internal Revenue (CIR) to enter into compromise agreements. The Court herein ruled that the power of the CIR to enter into compromise agreements for deficiency taxes is explicit in Section 204 (A) of the 1997 National Internal Revenue Code (NIRC) as amended. The CIR may compromise an assessment when there is reasonable doubt as to the validity of the claim against the taxpayer exists, or the financial position of the taxpayer demonstrates a clear inability to pay the tax. In the said case, the Court adjudged the situation of Kepco Philippines Corporation (Kepco) as falling within one of the bases for acceptance of the compromise settlement on the ground of doubtful validity. Citing R.R. No. 30-2002, as amended by R.R. No. 08-2004, one of the bases is when the taxpayer failed to elevate to the CTA an adverse decision of the Commissioner, or his authorized representative, in some cases, within 30 days from receipt thereof and there is reason to believe that the assessment is lacking in legal and/or factual basis. Kepco’s case falls directly under the said provision. The assessment against Kepco became final, executory, and demandable because the company failed to appeal the inaction or “deemed denial” of the CIR

G.R. Nos. 225750-51, July 28, 2020.

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to the CTA within 30 days after the expiration of the 180-day period within which the CIR must decide the disputed assessment. In the case at hand, Kepco filed its protest to the Formal Letter of Demand (FLD) on November 26, 2009. The CIR had 180 days or until May 25, 2010 to act on the protest. Thereafter, Kepco may elevate its protest to the CTA within 30 days from the lapse of the 180-day period,5 or until June 24, 2010. For purposes of determining whether taxpayers may already appeal to the CTA, the inaction of the CIR within 180 days shall be deemed denial or an adverse decision of the CIR.6 Since Kepco failed to appeal the inaction or deemed denial or adverse decision of the CIR on June 24, 2010, the assessment became final, executory and demandable.

The power to compromise of the CIR is purely discretionary and the courts have no power to intervene with such authority. As to whether the CIR properly accepted Kepco’s offer for a compromise because “the assessment is lacking in legal and/or factual basis,” the general rule is that the authority of the CIR to compromise is purely discretionary and the courts cannot interfere with his exercise of discretionary functions, absent grave abuse of discretion. Here, no grave abuse of discretion exists. Kepco complied with the procedures prescribed under the Bureau of Internal Revenue (BIR) rules on the application and approval of compromise settlement on the ground of doubtful validity.

A compromise agreement has the effect of res judicata on the parties. In the same case, the Court ruled that to allow the Office of the Solicitor General (OSG) to question the validity of the compromise settlement alleging anomalies in its approval is not only unfair to Kepco and taxpayers alike that entered into compromise agreements in good faith but there will also be no final and definitive settlement of tax compromises. A compromise agreement has the effect of res judicata on the parties. Compromises are generally to be favored and those entered in good faith cannot be set aside, except when there is mistake, fraud, violence, intimidation, undue influence, or falsity of documents. To rule that a legitimate compromise agreement may be annulled by the BIR commissioner “would subject the validity and finality of a tax compromise agreement to depend on the different interpretations of succeeding BIR Commissioners. Such lack of finality of tax compromises would discourage taxpayers from entering into tax 5 6

A. M. No. 05-11-07-CTA (2005), Rule 4, Sec. 3(a)(2). Id.

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compromises with the BIR, considering that compromises entail admissions by taxpayers of violations of tax laws.”7

An application for tax treaty relief should merely operate to confirm the entitlement of the taxpayer to the relief. In the case of Commissioner of Internal Revenue v. Interpublic Group of Companies, Inc.,8 Interpublic Group of Companies (IGC) is a nonresident foreign corporation duly organized and existing under and by virtue of the laws of the State of Delaware, United States of America. It filed for an administrative claim for refund or issuance of tax credit certificate (TCC) in the amount of P12,338,921.00, representing the alleged overpaid Final Withholding Tax (FWT) on dividends paid by McCann Worldgroup Philippines, Inc. (McCann) to IGC. In the said administrative claim, the IGC averred that as a non-resident foreign corporation, it may avail of the preferential FWT rate of 15% on dividends received from a domestic corporation under Section 28(B) (5)(b) of the NIRC. The application was not acted upon by the CIR and eventually, the case reached the Supreme Court. Before the Court, the CIR contends that IGC is not entitled to a tax refund or a tax credit. In support thereof, the CIR argued that the IGC failed to file a Tax Treaty Relief Application (TTRA) with the International Tax Affairs Division (ITAD) of the Bureau of Internal Revenue (BIR) 15 days before it paid the tax on dividends, in accordance with Revenue Memorandum Order (RMO) No. 1-2000. In ruling in favor of IGC, the Court stated, citing Deutsche Bank AG Manila Branch v. Commissioner of Internal Revenue,9 that the period of application for the availment of tax treaty relief as required by RMO No. 1-2000 should not operate to divest entitlement to the relief as it would constitute a violation of the duty required by good faith in complying with a tax treaty. The denial of the availment of tax relief for the failure of a taxpayer to apply within the prescribed period under the administrative issuance would impair the value of the tax treaty. At most, the application for a tax treaty relief from the BIR should merely operate to confirm the entitlement of the taxpayer to the relief.10 Once it was settled that the taxpayer is entitled to the relief under the tax treaty, then it could pay its tax liabilities using the tax relief provided by the treaty. In other words, the requirements under RMO No. 1-2000 applies only to a taxpayer who is about to pay their taxes based on tax reliefs provided by international agreements and treaties 7 8 9 10

PNOC v. Court of Appeals, 496 Phil. 506, 572 (2005), Dissenting Opinion, J. Carpio. G.R. No. 207039, August 14, 2019. 716 Phil. 676 (2013). Commissioner of Internal Revenue v. S.C. Johnson and Son, Inc., 368 Phil. 388, 404 (1999).

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and to confirm its entitlement to the said reliefs.

The application for tax treaty relief is not applicable on claims for tax refund. As explained by the Court, the underlying principle of prior application with the BIR becomes moot in refund cases where the very basis of the claim is erroneous or there is excessive payment arising from the non-availment of a tax treaty relief at the first instance. The prior application requirement under RMO No. 1-2000 becomes illogical.11 In the present case, it would be illogical for the IGC to comply with the prior requirement under RMO No. 1-2000 before it paid the FWT on the dividends earned. At the time of the transaction, the IGC was not availing of the 15% preferential tax rate as prescribed pursuant to the RP-US tax treaty, but it was applying the 35% regular tax rate. RMO No. 1-2000 is clear that application must be filed 15 days before the transaction (time of payment). It appears then that the prior application requirement under RMO No. 1-2000 is no longer a condition precedent to refund an erroneously paid tax based on the regular tax rate under the Tax Code.

For a non-stock, non-profit educational institution to be exempt from income taxes pursuant to the 1987 Constitution, the twin requirements of being classified as a non-stock, non-profit educational institution, and that there must be actual, direct, and exclusive use of income for educational purposes, should be satisfied. The Court, in the case of La Sallian Educational Innovators Foundation, Inc. v. Commissioner of Internal Revenue,12 had the opportunity to rule on the exemption status of an educational institution. The educational institution is the La Sallian Educational Innovator Foundation, Inc. (Foundation). In this case, the Foundation is a non-stock, non-profit domestic corporation duly organized and existing under the laws of the Philippines. The CIR issued two Assessment Notices, both numbered 33-FY 05-31-02, for fiscal year ending May 31, 2002, where the alleged deficiency income tax amounted to P122,414,521.70, inclusive of interest. To contest the assessment, the Foundation filed a Protest or Request for Reconsideration to the CIR on July 20, 2005. By reason of the CIR’s inaction, the Foundation filed a Petition for Review

11 12

Id. G.R. No. 202792, February 27, 2019.

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before the Special First Division of the CTA. The CIR alleges that the Foundation had lost is exempt status making it liable for deficiency income tax reasoning that the Foundation is a profit-oriented organization wherein majority of its revenue-operating activities are generating huge amount of profit amounting to P643 million. Additionally, they alleged that 70% of foundation’s earnings goes to administrative purposes. Because of these reasons, the Foundation has allegedly failed to comply with the constitutional requirements and is, thus, a profit-oriented educational institution and no longer a tax-exempt entity. Accordingly, it should be subject to a 10% income tax rate as a taxable proprietary educational institution. On the other hand, petitioner Foundation consistently argued that it enjoys a tax-exempt status from all taxes as a non-stock, nonprofit educational institution as expressly provided under Paragraph 4, Section 4, Article XIV of the 1987 Constitution. In deciding the case in favor of the Foundation, the Court ruled that the Foundation fulfilled the requirements in order to be granted tax exemption under Par. 4, Sec. 4, Art. XIV of the 1987 Constitution. These are: (1) it must fall under the classification of non-stock, nonprofit educational institution; and (2) the income it seeks to be exempted from taxation is used actually, directly and exclusively for educational purposes.13 For the first requirement, there is no contest as both the parties have stipulated that the Foundation is a non-stock, non-profit educational institution. Moreover, the Foundation’s primary and secondary purposes in its Amended Articles of Incorporation clearly provide that it is a non-stock, non-profit educational entity. Noteworthy to mention that in BIR Ruling No. 176-88 dated August 23, 1988, the BIR already declared that the Foundation is a non-stock, non-profit educational institution that is exempt from certain taxes. As to the allegation that the Foundation is not a non-profit educational institution anymore due to its alleged enormous profits since it is generating massive profits in the amount of P643,000,000.00 from tuition fees, and having cash worth P775,000,000 in its bank, such were completely unsupported by facts and evidence. Based on the evidence presented, the P643,000,000.00 is not petitioner Foundation’s profit as it is just the gross receipt from school year 2002. Unfortunately, the CIR easily overlooked petitioner Foundation’s administrative and non-administrative expenses amounting to P582,903,965.00. This sum constituted the total operating expenses of petitioner Foundation for the fiscal year ended

13 Commissioner of Internal Revenue v. De La Salle University, Inc., 799 Phil. 141, 167 (2016); and Revenue Memorandum Order No. 20-2013.

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May 31, 2002. Thus, the income of petitioner Foundation is only P60,375,183.00 or 9.38% of its operating receipts. This is way below the average gross profit margin rate of 20% for most business enterprises. Furthermore, the alleged P775,000,000 cash of petitioner Foundation is a part of its Cash and Cash Equivalents account. The amount of P575,700,000.00 therein constitutes Funds Held in Trust to finance capital improvements, scholarship, faculty development, retirement and for other restricted uses. The rest of the account consists of highly liquidated debt instruments purchased with a shortterm maturity. Clearly, there is nothing in the petitioner Foundation’s books that will indicate that it is driven by profit or that its income is used for anything but in pursuit of its primary purpose. In several cases, this Court has ruled that a non-profit institution will not be considered profit driven simply because it is generating profits.14 The reason behind this was explained by this Court in its earlier ruling in Jesus Sacred Heart College v. Collector of Internal Revenue,15 to wit: To hold that an educational institution is subject to income tax whenever it is so administered as to reasonably assure that it will not incur in deficit, is to nullify and defeat the aforementioned exemption. Indeed, the effect, in general, of the interpretation advocated by appellant would be to deny the exemption whenever there is net income, contrary to the tenor of said Section 27 (e)16 which positively exempts from taxation those corporations or associations which, otherwise, would be subject thereto, because of the existence of said net income. Needless to say, every responsible organization must be so run as to, at least insure its existence, by operating within the limits of its own resources, especially its regular income. In other words, it should always strive, whenever possible, to have a surplus. Considering the clear explanation of the nature of the money involved, it is evident that all of petitioner Foundation’s income is actually, directly and exclusively used or earmarked for promoting its educational purpose. To reiterate, the CIR never argued that the income of the Foundation was used in any manner other than

14 Commissioner of Internal Revenue v. St. Luke’s Medical Center, 805 Phil. 607, 619 (2017); Commissioner of Internal Revenue v. St. Luke’s Medical Center, 695 Phil. 867, 885 (2012); and Hospital De San Juan De Dios, Inc. v. Pasay City, et al.,123 Phil. 38, 42 (1966). 15 95 Phil. 16 (1954). 16 National Internal Revenue Code of 1939.

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for promoting its purpose as a non-stock, non-profit educational institution. In fact, there is not even a single argument or evidence presented to cast a doubt in the proper usage of the Foundation’s income. Furthermore, a simple reading of the Constitution would show that Article XIV, Section 4 (3) does not require that the revenues and income must have also been earned from educational activities or activities related to the purposes of an educational institution. The phrase “all revenues” is unqualified by any reference to the source of revenues. Thus, so long as the revenues and income are used actually, directly and exclusively for educational purposes, then said revenues and income shall be exempt from taxes and duties. In the instant case, petitioner Foundation firmly and adequately argued that none of its income inured to the benefit of any officer or entity. Instead, its income has been actually, exclusively and directly used for performing its purpose as an educational institution. Undoubtedly, petitioner Foundation has also proven this second requisite. Thus, the tax-exempt status of Foundation under the 1987 Constitution is clear.

II. NATIONAL TAXATION

Demurrage and detention fees are outside the scope of the preferential rate of 2.5% on Gross Philippine Billings (GPB) of International Carriers. However, the said fees are part of gross income. The Court, in Association of International Shipping Lines, Inc. v. Secretary of Finance17 answered the question on whether the demurrage and detention fees of an international carrier forms part of Gross Philippine Billings subject to the preferential rate of 2.5%. The case was brought about by a petition for declaratory relief filed by Association of International Shipping Lines, Inc. (Association) assailing the validity of R.R. No. 15-2013. The regulation, among others, subjects the demurrage and detention fees of international carriers to income tax under the regular rate. The regulation was issued to implement R.A. No. 10378 which was passed amending Section 28(A)(3)(a) of the NIRC. One of the arguments of the Association is that demurrage and detentions fees are not income, but penalties imposed by the carrier

G.R. No. 222239, January 15, 2020.

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on the charterer, shipper, consignee, or receiver to allow the carrier to recover losses or expenses associated with or caused by the undue delay in the loading and/or discharge of the latter’s shipments from the containers. Incidentally, they are akin to damages. In determining whether demurrage and detention fees are subject to the preferential rate of 2.5%, the Court referred to the definition of “Gross Philippine Billings” (GPB) under Section 28(A)(I)(3)(a) of the NIRC, as amended by RA 10378, to wit: “gross revenue whether for passenger, cargo or mail originating from the Philippines up to final destination, regardless of the place of sale or payments of the passage or freight documents.” This definition is echoed under R.R. No. 15-2013. Further, the definition of demurrage and detention fees was likewise discussed, to wit: “Demurrage fee is the allowance or compensation due to the master or owners of a ship, by the freighter, for the time the vessel may have been detained beyond the time specified or implied in the contract of affreightment or the charterparty. It is only an extended freight or reward to the vessel, in compensation for the earnings the carrier is improperly caused to lose.” On the other hand, “detention occurs when the consignee holds on to the carrier’s container outside of the port, terminal, or depot beyond the free time that is allotted.” It is “charged when import containers have been picked up, but the container (regardless if it is full or empty) is still in the possession of the consignee and has not been returned within the allotted time.” It “is also charged for export containers in which the empty container has been picked up for loading, and the loaded container is returned to the steamship line after the allotted free time.” Based on the foregoing, the Court ruled that the exclusion of demurrage and detention fees from the preferential rate of 2.5% is proper since they are not considered income derived from transportation of persons, goods and/or mail, in accordance with the rule expressio unius est exclusio alterius. However, even if the demurrage and detention fees are excluded from the preferential rate of 2.5%, the Court said that they form part of an international sea carrier’s gross income for they are acquired in the normal course of trade or business. The phrase “in the course of trade or business” means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. Surely, gross income means income derived from whatever

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source, including compensation for services; the conduct of trade or business or the exercise of a profession; dealings in property; interests; rents; royalties; dividends; annuities; prizes and winnings; pensions; and a partner’s distributive share in the net income of a general professional partnership,18 among others. All told, demurrage and detention fees fall within the definition of “gross income” — the former is considered as rent payment for the vessel, and the latter, compensation for use of a carrier’s container.

Association dues, membership fees, and other assessments/charges of condominium corporations are not subject to income tax, valueadded tax (VAT), and withholding tax. In the case of Bureau of Internal Revenue v. First E-Bank Tower Condominium Corp.,19 respondent First E-Bank Tower Condominium Corp. (First E-Bank) is assailing the constitutionality of R.M.C. No. 652012 because the said circular, according to First E-Bank, burdened the owners of condominium units with income tax and VAT on their own money which they exclusively used for the maintenance and preservation of the building and its premises. The Court ruled that the collection of association dues, membership fees, and other assessments/charges is not subject to income tax because they do not constitute profit or gain. They are collected purely for the benefit of the condominium owners and are the incidental consequence of a condominium corporation’s responsibility to effectively oversee, maintain, or even improve the common areas of the condominium as well as its governance. Further, they are not subject to value-added tax for they do not arise from transactions involving the sale, barter, or exchange of goods or property nor are they generated by the performance of services. Both R.A. No. 8424, or the NIRC, and R.A. No. 10963, or the Tax Reform Acceleration and Inclusion (TRAIN) Law make no mention that association dues, membership fees, and other assessments/ charges collected by condominium corporations are subject to VAT; and rightly so. For when a condominium corporation manages, maintains, and preserves the common areas in the building, it does so only for the benefit of the condominium owners and cannot be said to be engaged in trade or business, thus, the collection of association dues, membership fees, and other assessments/charges is not a result of the regular conduct or pursuit of a commercial or an economic activity, or any transactions incidental thereto.

18 19

CIR v. PAL, 535 Phil. 95, 106 (2006). G.R. No. 215801 & 218924, January 15, 2020.

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Neither can it be said that a condominium corporation is rendering services to the unit owners for a fee, remuneration or consideration. Association dues, membership fees, and other assessments/charges form part of a pool from which a condominium corporation must draw funds in order to bear the costs for maintenance, repair, improvement, reconstruction expenses and other administrative expenses. Finally, association dues, membership fees, and other assessments/ charges are not subject to withholding tax because Section 57 of R.A. No. 8424 directs that only income, be it active or passive, earned by a payor-corporation can be subject to withholding tax. Necessarily, if there is no income, as ruled in this case, no withholding tax can be collected.

Membership fees, dues, and assessments of recreational clubs are not subject to income tax and VAT. Similarly, the Court, in Commissioner of Internal Revenue v. Federation of Golf Clubs of the Philippines, Inc.,20 tackled the taxability of membership fees, dues, and assessments of recreational clubs. In this case, Federation of Golf Clubs of the Philippines was assailing the implementation of R.M.C. No. 35-2012 issued by the CIR. The said circular subjects the income of recreational clubs from whatever source, including but not limited to membership fees, assessment dues, among others, to income tax; and the gross receipts of such clubs including but not limited to membership fees, assessment dues, among others, to value-added tax (VAT). Ruling in a similar fashion, the Court reiterated its ruling in Association of Non-Profit Clubs, Inc. v. Bureau of Internal Revenue,21 where it was resolved that membership fees, assessment dues, and the like are neither income nor part of gross receipts of recreational clubs. Hence, they are not taxable insofar as income tax and VAT are concerned. Banking on the distinction between “income” and “capital” where “income” is the item that is being taxed, the Court considered membership fees and the like as “capital,” as they are intended for the upkeep of the facilities and operations of the recreational clubs, and not to generate revenue. As to VAT, the Court interpreted that RMC No. 35-2012 erroneously included the gross receipts of recreational clubs on membership fees, assessment dues, and the like as subject to VAT because Section 105 of the NIRC specified the taxability of only those which deal with the

20 21

G.R. No. 226449, July 28, 2020. G.R. No. 228539, June 26, 2019.

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“sale, barter or exchange of good or properties, or sale of service.” In collecting such fees from their members, recreational clubs are not selling any kind of service, in the same way that the members are not procuring service from them. Thus, there could be no sale, barter or exchange of goods or properties, or sale of a service to speak of, which would then be subject to VAT under the NIRC.

The element of “control” in a tax-free exchange transaction refers to the “collective” increase of equity on the part of stockholders as a result of the transaction. The Court, in Commissioner of Internal Revenue v. Co, et. al.,22 discussed the term “control” in connection with a tax-free exchange under Section 40(C)(2) of the NIRC. The provision provides that: “(C) Exchange of Property. — xxx xxx xxx “No gain or loss shall also be recognized if property is transferred to a corporation by a person in exchange for stock or unit of participation in such a corporation of which as a result of such exchange said person, alone or together with others, not exceeding four (4) persons, gains control of said corporation: Provided, that stocks issued for services shall not be considered as issued in return for property.” In the said case, the respondents entered into a Deed of Exchange with Puregold Price Club, Inc. (Puregold) whereby the former exchanged its shares of Kareila Management Corporation (Kareila) in exchange of for Puregold shares. As a result, the respondents increased their shareholdings of Puregold from 66.57% to 75.83%. However, the respondents paid Capital Gains Tax due to their erroneous belief that the transaction is subject to such. The Court ruled that the CIR clearly has no basis to claim that the share swap transaction between the respondents and Puregold is not covered by the tax-free exchange as provided in Section 40(C)(2) in relation to Section 40(C)(6) (c) of the NIRC of 1997, as amended. Preliminarily, the Court stated that the requisites for the nonrecognition of gain or loss pursuant to Section 40(C)(2) are as follows: (a) the transferee is a corporation; (b) the transferee exchanges its shares of stock for property or properties of the transferor; (c) the transfer is made by a person, acting alone or together with others, not exceeding four persons; and, (d) as a result of the exchange the

G.R. No. 241424, February 26, 2020.

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transferor, alone or together with others, not exceeding four, gains control of the transferee. With respect to the term “control”, the Court stated that that the element of control is satisfied even if one of the transferors is already owning at least 51% of the shares of the transferee corporation, if after the exchange, the transferors, not more than five, collectively increase their equity in the transferee corporation by 51% or more.23 In the case at hand, it is undisputed that after the exchange, the respondents collectively increased their control over Puregold from 66.57% to 75.83%. Accordingly, the respondents cannot be held liable for income taxes on the supposed gain which may have resulted from such transfer. The CGT paid by the respondents on the subject transfer are considered erroneously paid taxes and must perforce be refunded pursuant to Section 229 of the NIRC.

Withholding taxes are not penalties but internal revenue taxes covered by Section 203 of the NIRC. In the case of Commissioner of Internal Revenue v. La Flor Dela Isabela, Inc,24 the CIR, forwards a novel theory that Section 203 is inapplicable in the present assessment of EWT and WTC deficiency against La Flor Dela Isabela Inc. It argues that withholding taxes are not contemplated under the said provision considering that they are not internal revenue taxes but are penalties imposed on the withholding agent should it fail to remit the proper amount of tax withheld. The CIR cites the case of National Development Company v. Commissioner of Internal Revenue25 where the Court ruled that “the imposition of the deficiency taxes on the NDC is a penalty for its failure to withhold the same from the Japanese shipbuilders.” In disagreeing with the CIR, the Court ruled that that the Court did not equate withholding tax assessments to the imposition of civil penalties imposed on tax deficiencies. The word “penalty” was used to underscore the dynamics in the withholding tax system that it is the income of the payee being subjected to tax and not of the withholding agent. It did not mean that withholding taxes do not fall within the definition of internal revenue taxes, especially considering that income taxes are the ones withheld by the withholding agent. Withholding taxes do not cease to become income taxes just because it is collected and paid by the withholding agent. The liability of the withholding agent is distinct and separate from the tax liability of the income earner. It is premised on its duty 23 24 25

Commissioner of Internal Revenue v. Filinvest Dev’t. Corp., 669 Phil. 323, 351-355 (2011). G.R. No. 211289, January 14, 2019. 235 Phil. 477, 485-486 (1987).

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to withhold the taxes paid to the payee. Should the withholding agent fail to deduct the required amount from its payment to the payee, it is liable for deficiency taxes and applicable penalties. Thus, withholding tax assessments such as EWT and WTC clearly contemplate deficiency internal revenue taxes. Their aim is to collect unpaid income taxes and not merely to impose a penalty on the withholding agent for its failure to comply with its statutory duty. Further, a holistic reading of the Tax Code reveals that the CIR›s interpretation of Section 203 is erroneous. Provisions of the NIRC itself recognize that the tax assessment for withholding tax deficiency is different and independent from possible penalties that may be imposed for the failure of withholding agents to withhold and remit taxes. For one, Title X, Chapter I of the NIRC provides for additions to the tax or deficiency tax and is applicable to all taxes, fees and charges under the Tax Code. In addition, Section 247 (b) of the NIRC provides: SEC. 247. General Provisions. —xxx xxx xxx (b) If the withholding agent is the Government or any of its agencies, political subdivisions or instrumentalities, or a government-owned or controlled corporation, the employee thereof responsible for the withholding and remittance of the tax shall be personally liable for the additions to the tax prescribed herein. On the other hand, Section 251 of the Tax Code reads: SEC. 251. Failure of a Withholding Agent to Collect and Remit Tax. — Any person required to withhold, account for and remit any tax imposed by this Code or who willfully fails to withhold such tax, or account for and remit such tax, or aids or abets in any manner to evade any such tax or the payment thereof, shall, in addition to other penalties provided for under this Chapter, be liable upon conviction to a penalty equal to the total amount of the tax not withheld, or not accounted for and remitted. Based on the above-cited provisions, it is clear to see that the “penalties” are amounts collected on top of the deficiency tax assessments including deficiency withholding tax assessments. Thus, it was wrong for the CIR to restrict the EWT and WTC assessments against La Flor as only for the purpose of imposing penalties and not for the collection of internal revenue taxes.

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Actual export of goods and services from the Philippines to a foreign country must be free of VAT while those destined for use or consumption within the Philippines shall be imposed with VAT pursuant to the Cross-Border Doctrine and Destination Principle. The Court, in the case of Commissioner of Internal Revenue v. Filminera Resources Corporation,26 had the occasion to apply the CrossBorder Doctrine and Destination Principle. In the said case, Filminera Resources filed an administrative claim for refund or issuance of Tax Credit Certificate of its unutilized input VAT attributable to its zero-rated sales for the third and fourth quarters of the fiscal year (FY) ending June 30, 2010. The claim was in connection with its sales to Philippine Gold Processing and Refining Corporation (PGPRC) which is a domestic corporation registered with the Board of Investments (BOI). When the Court of Tax Appeals denied Filminera Resources’ petition for review on the ground of insufficiency of evidence, it sought reconsideration and presented a certified true copy of a BOI Certification to establish that PGPRC was a BOI-registered enterprise that exported its total sales volume from July 1, 2009 to June 30, 2010. The Court denied the claim of refund of Filminera Reources. In ruling so, it discussed that the tax treatment of export sales is based on the Cross Border Doctrine and Destination Principle of the Philippine VAT system. Under the Destination Principle, goods and services are taxed only in the country where these are consumed.27 In this regard, the Cross Border Doctrine mandates that no VAT shall be imposed to form part of the cost of goods destined for consumption outside the territorial border of the taxing authority.28 Hence, actual export of goods and services from the Philippines to a foreign country must be free of VAT; while, those destined for use or consumption within the Philippines shall be imposed with VAT. Plainly, sales of export products to another producer or to an export trader are subject to zero percent rate provided the export products are actually exported and consumed in a foreign country.

Proof of actual exportation of goods sold by a VAT-registered taxpayer to a BOI-registered enterprise is vital for the transaction to be considered as zero-rated export sales. In the said case, upon closer inspection of the BOI certification, it only states that PGPRC exported 100% of its total sales volume/ value, from January 1 to December 31, 2009. There is nothing in the 26 G.R. No. 236325, September 16, 2020. 27 Atlas Consolidated Mining and Dev’t Corp. v. Commissioner of Internal Revenue, 551 Phil. 519, 544 (2007), citing Commissioner of Internal Revenue v. Seagate Technology (Phils.), 491 Phil. 317 (2005). 28 Id.

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certification which shows that PGPRC similarly exported its entire products for the third and fourth quarters of FY 2010, or from January 1 to June 30, 2010. Without the certification from the BOI that the products sold to PGPRC during the third and fourth quarters of FY 2010 were actually exported and consumed in a foreign country, the sales cannot be considered export sales. Consequently, Filminera Resources is not entitled to VAT refund nor credit of input VAT attributable to its sales to PGPRC.

The tax on sale of shares of stock sold or exchanged through initial public offering is separately computed. That is, one computation for primary offering, and another computation or computations for secondary offering or offerings. In the case of I-Remit, Inc. v. Commissioner of Internal Revenue,29 the petitioner offered to the public its shares number 140,604,000 by way of an initial public offering. Of these, 107,417,00 shares were offered by primary offering by the petitioner as the issuing corporation, and 33,187,000 shares were offered in secondary offering by JPSA Global Services Co. ( JPSA), JTKC Equities, Inc. ( JTKC), and Surewell Equities, Inc. (Surewell), as selling shareholders of the petitioner. In compliance with Section 127 (B) requiring payment of tax in accordance with the “shares of stock sold, bartered, exchanged or otherwise disposed” in proportion to the “total outstanding shares of stock after the listing,” the petitioner paid the tax in the amount of P26,321,069.00. The dividend used by I-Remit in arriving at the corresponding tax rate of 4% was 140,604,000, which was the total amount of shares sold to the public in both primary and secondary offerings. Believing it was entitled to refund, the petitioner filed for a claim of refund with the CIR. Before the Supreme Court, the petitioner argues that the tax on sale of shares of stock sold or exchanged through initial public offering should be jointly computed for both sale of shares in primary offering, where the shares are offered by the issuing corporation, and in secondary offering, where the shares are offered by the selling shareholders of the corporation. On the other hand, the CIR counters that the tax should be separately computed for the sale for shares in the primary and secondary offerings. The Court ruled that a plain reading of Section 127 (B) shows that tax is imposed on “every sale, barter, exchange or other disposition through initial public offering of shares of stock in closely held corporations”. Section 127(B) provides:

G.R. No. 209755, November 9, 2020.

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SEC. 127. Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded through the Local Stock Exchange or through Initial Public Offering. — xxx xxx xxx (B) Tax on Shares of Stock Sold or Exchanged Through Initial Public Offering. — There shall be levied, assessed and collected on every sale, barter, exchange or other disposition through initial public offering of shares of stock in closely held corporations, as defined herein, a tax at the rates provided hereunder based on the gross selling price or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed in accordance with the proportion of shares of stock sold, bartered, exchanged or otherwise disposed to the total outstanding shares of stock after the listing in the local stock exchange: xxxx” The word “every” precedes the word “sale.” The use of such word is clear and leaves no room for interpretation. Each sale of shares of stock in closely held corporations through initial public offering is taxed under Section 127 (B). Thus, every sale in Section 127 (B) is referenced to the seller, i.e., the issuing corporation in case of primary offering, and each of the selling shareholders of the corporation in case of secondary offering. The sale contemplated is not a lone, lump sum sale, as suggested by the petitioner, since more than one sale may transpire under Section 127 (B). Incidentally, the Court also noted that the Percentage Tax Return, or BIR Form No. 2552 ( July 1999) version provides for separate files for computation of tax on sale of shares in primary and secondary offerings.

A VAT-refund is considered as timely filed with the CIR if the filing is done within 120 days from the submission of complete documents. In case of an adverse decision, or an inaction, by the CIR, the taxpayer may file a petition for review within 30 days from the receipt of the adverse decision, or from the expiration of the 120-day period, respectively. In the case of Commissioner Internal Revenue v. Chevron Holdings, Inc.,30 the Court ruled that preliminarily, the law allows the taxpayer to file an administrative claim for refund with the BIR within two years after the close of the taxable quarter when the purchase was made (for the input tax paid on capital goods) or after the close of the

G. R. No. 233301, February 17, 2020.

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taxable quarter when the zero-rated or effectively zero-rated sale was made (for input tax attributable to zero-rated sale). The CIR must then act on the claim within 120 days from the submission of complete documents in support of the application. In the event of an adverse decision, the taxpayer may elevate the matter to the CTA by way of a petition for review within 30 days from the receipt of the CIR’s decision. If, on the other hand, the 120-day period lapses without any action from the CIR, the taxpayer may validly treat the inaction as denial and file a petition for review before the CTA within 30 days from the expiration of the 120-day period. An appeal taken prior to the expiration of the 120-day period without a decision or action of the CIR is premature, without a cause of action, and, therefore, dismissible on the ground of lack of jurisdiction.31 In the said case, the administrative claim for refund of Chevron Holdings, Inc. (Chevron) for input VAT credits for the four taxable quarters of 2009 was considered by the Court as timely filed. Upon Chevron’s timely filing of its application on November 2, 2009, the CIR had 120 days or until March 2, 2011 to decide whether to grant or deny the application. But the 120-day period expired without the CIR having acted on the claim. At this juncture, Chevron had 30 days from the lapse of the 120-day period or until April 1, 2011 to file its judicial claim. Thus, when Chevron filed its petition for review with the CTA on March 23, 2011, it was properly made within the period prescribed by law.

The claimant has the prerogative to determine whether he had completed his submissions upon filing or within 30 days thereafter. The complete submission of documents is what triggers the running of the 120-day period for filing of VAT-refund. In the case of Commissioner of Internal Revenue v. Deutsche Knowledge Services Pte. Ltd.,32 the respondent Deutsche Knowledge Services Pte. Ltd (DKS) filed a claim for refund which was supported by relevant documents. Alleging that the CIR had not acted upon their administrative claim, DKS filed a judicial claim before the CTA, which, in its En Banc decision, ruled in favor of DKS. Before the Court, the CIR contends that the judicial claim by DKS was prematurely filed for its failure to submit the complete documents. Hence, the 120 and 30-day periods did not begin to run. The Court found the contention untenable. The Court emphasized that the law accords the claimant sufficient latitude to determine the completeness of his submission for the purpose of ascertaining the date of completion from which the 120-day period

31 32

Aichi Forging Co. of Asia, Inc. v. Court of Tax Appeals (En Banc), 817 Phil. 403, 409 (2017). G.R. No. 234445, July 15, 2020.

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shall be reckoned. He “enjoys relative freedom to submit such evidence to prove his claim” because, in the first place, he bears the burden of proving his entitlement to a tax refund or credit.33 To counterbalance the claimant’s liberty to do so, he may be required by the tax authorities during their evaluation, to submit additional documents for the proper evaluation thereof. In which case, the CIR shall duly notify the claimant of his request from which the claimant has 30 days to comply. Notably, both parties are given the occasion to determine the completeness of documents supporting a claim for tax refund or credit. However, the Court must differentiate between these two functions. On the part of the claimant, he or she has the prerogative to determine whether he had completed his submissions upon filing or within 30 days thereafter. This procedural determination of completeness is aimed at ascertaining the date of completion from which the 120-day period shall commence. In contrast, whether the claimant’s submissions “are actually complete as required by law — is for the CIR and the courts to determine.”34 The CIR and courts’ subsequent evaluation of the documents is a substantive determination of completeness, for the purpose of ascertaining the claimant’s entitlement to the tax refund or credit sought. Clearly, the CIR has no authority to unilaterally determine the completeness of these documents and dictate the running of the 120day period to resolve the claim, as he attempts to do so in the present case. To sanction this would be giving the tax authorities “unbridled power to indefinitely delay the administrative claim” and in turn “prevent the filing of a judicial claim with the CTA.”

The ruling that the claimant has discretion to determine the completeness of his or her submissions only apply to claims filed prior to June 11, 2014. Afterwards, the provisions of R.M.C. 54-14 governs. However, the Court reiterates that the above analysis involving the determination of the completeness of documents supporting a claim for tax refund or credit applies only to claims filed prior to June 11, 2014. At present, R.M.C 54-14 requires the taxpayer to attach the following to his claim upon filing thereof: (a) complete supporting documents, as enumerated in the issuance, and (b) a statement under oath attesting that the documents submitted are in fact complete. The guidelines now ensure that the date of completion coincides with the date of filing of the claim.

33 34

Pilipinas Total Gas, Inc. v. Commissioner of Internal Revenue, 774 Phil. 473 (2015). Id.

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This new issuance cannot be made to apply to the present case, which involves a claim filed in 2011, due to the rule on nonretroactivity of rulings.35

A VAT-refund does not require the submission of subsidiary sales and subsidiary purchase journals. In the case of Commissioner of Internal Revenue v. Philex Mining Corporation,36 Philex is a domestic corporation engaged in the mining business including the exploration and operation of mine properties and the commercial production and marketing of mining products. Pursuant to Section 4.112-1 of Revenue Regulations (RR) No. 162005, Philex filed its claim for refund/tax credit with the One Stop Shop (OSS) Center of the Department of Finance in the amount of P27,115,507.10 on September 28, 2011. The CIR failed to act on Philex’s administrative claim for refund which prompted Philex to file a Petition for Review with the CTA on January 27, 2012. Ruling in favor of Philex, the Court agreed with the tax tribunal that the submission of the subsidiary sales journal and subsidiary purchase journal is not indispensable to support Philex’s claim for refund. Section 112 (A) of the NIRC, which enumerates the requisites for a taxpayer to be entitled to a tax refund or credit, does not require subsidiary journals as part of the substantiation requirements. According to the Court, the CTA En Banc thus correctly held that “there is nothing in the afore-quoted provision of the NIRC of 1997 which require[s] the presentation of the subsidiary sales journal and subsidiary purchase journal in order [for] a taxpayer [to] be entitled to refund, or issuance of a tax credit certificate, of its claimed input tax attributable to zero-rated sales.” The subsidiary journals are not required, but they may be utilized by the CIR as vital sources of information for other purposes such as making assessments.37

No prior confirmatory ruling from the BIR is required for tax exemption or refund. In the previously mentioned case of Commissioner of Internal Revenue v. Co, et. al.,38 the BIR refuses to allow the refund of respondents Co, et.al. on the ground that they failed to secure a prior confirmatory ruling that the subject transaction qualifies as a tax-free exchange. The Court finds the argument untenable. In practice, a taxpayer often secures a BIR ruling, prior to entering a transaction, to prepare 35 Supra, citing Section 246 of the Tax Code. 36 G.R. No. 218057, January 18, 2021. 37 Commissioner of Internal Revenue v. Philex Mining Corporation, G.R. No. 233942, February 21, 2018. 38 G.R. No. 241424, February 26, 2020.

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for any tax liability. However, in case a taxpayer already paid the tax, believing to be liable therefor, and later files a claim for refund on the basis of an exemption provided under the law, requiring a prior BIR ruling as a condition for the approval of the refund claim is clearly illogical. Moreover, there is nothing in Section 40(C)(2) of the NIRC, which requires the taxpayer to first secure a prior confirmatory ruling before the transaction may be considered as a tax-free exchange.

Late filing of the Income Tax Return (ITR) by one day was subjected to surcharge. Dura lex sed lex. In the case of Qatar Airways Company with Limited Liability v. Commissioner of Internal Revenue,39 the petitioner insists that the surcharge of P7,385,209.00 should be abated under RR No. 132001 for being unjust and excessive. The petitioner claims its belated filing of ITR was due to a technical problem beyond its control. The filing of the ITR was late by one day. The Court ruled that the surcharge was not unjust or excessive pursuant to Section 248 (A)(1) of the NIRC which provides for the imposition of a penalty equivalent to 25% of the amount due for failure to timely file any return and pay the tax due thereon. Dura lex sed lex. While the Court commiserates with the unfortunate plight of the petitioner, the Court, like the CTA, is still bound to apply and give effect to the applicable law and rules. On the petitioner’s averment that it had difficulty in interpreting the correct Gross Philippine Billings Computation for income tax under the then newly issued RR No. 11-2011, the petitioner could have filed a tentative quarterly income tax return if it were still unsure with the figures contained therein to avoid paying the 25% surcharge for late filing. Thereafter, it could modify, change, or amend the tentative return already filed if warranted, pursuant to Section 6(A) of the 1997 NIRC.

III. LOCAL TAXATION

Local Business Taxation; Section 143 (f) or the Local Business Taxes (LBT) on banks and other financial institutions are premised on the fact that the persons made liable for such tax are banks or other financial institutions by virtue of their being engaged in the business as such. In City of Davao v. Randy Allied Ventures, Inc.,40 Randy Allied

39 40

G.R. No. 238914, June 8, 2020. G.R. No. 241697, July 29, 2019.

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Ventures, Inc. (RAVI) is one of the Coconut Industry Investment Fund (CIIF) holding companies established to own and hold the shares of stock of San Miguel Corporation (SMC). On January 17, 2013, RAVI filed with the Regional Trial Court (RTC), a claim for refund or credit of erroneously and illegally collected LBT for the taxable year 2010. RAVI claimed that the petitioners erroneously and illegally collected LBT corresponding to its dividends from its SMC preferred shares, on the mistaken assumption that it is a non-bank financial intermediary (NBFI). For their part, the petitioners maintained that RAVI’s activities in owning shares and receiving dividends and interest income constitute investing or doing business as an NBFI. In deciding the case in favor of RAVI, the Court ruled that Section 143 (f) is premised on the fact that the persons made liable for such tax are banks or other financial institutions by virtue of their being engaged in the business as such. This is why the local business taxes under Sec. 143 (f) are imposed on their gross receipts from “interest, commissions and discounts from lending activities, income from financial leasing, dividends, rentals on property and profit from exchange or sale of property, insurance premium. In this case, RAVI is not a bank or other financial institution. Rather, it is a holding company which holds SMC shares on behalf of the National Government. While holding companies may partake in investment activities, this does not per se qualify them as financial intermediaries that are actively dealing in the same. Financial intermediaries are regulated by the BSP because they deal with public funds when they offer quasi-banking functions. On the other hand, a holding company is not similarly regulated because any investment activities it conducts are mere incidental operations, since its main purpose is to hold shares for policy-controlling purposes. Thus, RAVI’s management of the dividends from the SMC preferred shares, including placing the same in a trust account yielding interest, is not tantamount to doing business whether as a bank or other financial institution, but an activity that is essential to its nature as a CIIF holding company. Accordingly, it cannot be held liable for LBT under Section 143 (f) of the LGC (Id.).

Remedies against local tax assessment; Sections 195 and 196 of the Local Government Code (LGC). The Court had the occasion to rule on an aspect of Local Taxation in the case of City Treasurer of Manila v. Philippine Beverage Partners, Inc.41 In the said case, the City Treasurer of Manila (City Treasurer) issued a Statement of Account (SOA) to Philippine Beverage Partners, Inc. (PBPI). The SOA showed that PBPI is liable to pay to the City

G.R. No. 233556, September 11, 2019.

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Treasurer local business taxes and regulatory fees for the first quarter of 2007. PBPI protested the assessment through a letter dated January 19, 2007. On February 2, 2007, the City Treasurer issued a letter to PBPI denying the latter’s protest which it received on February 6, 2007. On February 13, 2007, PBPI paid the total amount stated in the SOA. Then, on March 2, 2007, it filed a written claim for refund of erroneously/illegally collected tax with the City Treasurer of Manila. Further, it also filed for Refund or Credit of LBT Erroneously/Illegally Collected with the Regional Trial Court on March 8, 2007. One of the contentions of the City Treasurer that that PBPI should have appealed the denial of its protest instead of instituting an action for refund. According to the City Treasurer, the assessment against PBPI became final and executory when the latter effectively abandoned its protest and instead sued in court for the refund of the assessed taxes and charges. Ruling against the City Treasurer of Manila, the Court cited its decision in the case of City of Manila v. Cosmos Bottling Corporation.42 In that case, the Court declared that a taxpayer who had protested and paid an assessment is not precluded from later instituting an action for refund or credit. The pertinent portion of the ruling in Cosmos are as follows: The taxpayers’ remedies of protesting an assessment and refund of taxes are stated in Sections 195 and 196 of the LGC, to wit: Section 195. Protest of Assessment. — When the local treasurer or his duly authorized representative finds that correct taxes, fees, or charges have not been paid, he shall issue a notice of assessment stating the nature of the tax, fee, or charge, the amount of deficiency, the surcharges, interests and penalties. Within sixty (60) days from the receipt of the notice of assessment, the taxpayer may file a written protest with the local treasurer contesting the assessment; otherwise, the assessment shall become final and executory. The local treasurer shall decide the protest within sixty (60) days from the time of its filing. If the local treasurer finds the protest to be wholly or partly meritorious, he shall issue a notice cancelling wholly or partially the assessment. However, if the local treasurer finds the assessment to be wholly or partly correct, he shall deny the protest wholly or partly with notice to the taxpayer. The taxpayer shall have thirty (30) days from the receipt of the denial of the protest or from the lapse of the sixty (60)-day period prescribed herein within which to appeal with

G.R. No. 196681, June 27, 2018.

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the court of competent jurisdiction otherwise the assessment becomes conclusive and unappealable. Section 196. Claim for Refund of Tax Credit. — No case or proceeding shall be maintained in any court for the recovery of any tax, fee, or charge erroneously or illegally collected until a written claim for refund or credit has been filed with the local treasurer. No case or proceeding shall be entertained in any court after the expiration of two (2) years from the date of the payment of such tax, fee, or charge, or from the date the taxpayer is entitled to a refund or credit. The first provides the procedure for contesting an assessment issued by the local treasurer; whereas, the second provides the procedure for the recovery of an erroneously paid or illegally collected tax, fee or charge. Both Sections 195 and 196 mention an administrative remedy that the taxpayer should first exhaust before bringing the appropriate action in court. In Section 195, it is the written protest with the local treasurer that constitutes the administrative remedy; while in Section 196, it is the written claim for refund or credit with the same office. As to form, the law does not particularly provide any for a protest or refund claim to be considered valid. It suffices that the written protest or refund is addressed to the local treasurer expressing in substance its desired relief. The title or denomination used in describing the letter would not ordinarily put control over the content of the letter. Obviously, the application of Section 195 is triggered by an assessment made by the local treasurer or his duly authorized representative for nonpayment of the correct taxes, fees or charges. Should the taxpayer find the assessment to be erroneous or excessive, he may contest it by filing a written protest before the local treasurer within the reglementary period of sixty (60) days from receipt of the notice; otherwise, the assessment shall become conclusive. The local treasurer has sixty (60) days to decide said protest. In case of denial of the protest or inaction by the local treasurer, the taxpayer may appeal with the court of competent jurisdiction; otherwise, the assessment becomes conclusive and unappealable. On the other hand, Section 196 may be invoked by a taxpayer who claims to have erroneously paid

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a tax, fee or charge, or that such tax, fee or charge had been illegally collected from him. The provision requires the taxpayer to first file a written claim for refund before bringing a suit in court which must be initiated within two years from the date of payment. By necessary implication, the administrative remedy of claim for refund with the local treasurer must be initiated also within such two-year prescriptive period but before the judicial action. Unlike Section 195, however, Section 196 does not expressly provide a specific period within which the local treasurer must decide the written claim for refund or credit. It is, therefore, possible for a taxpayer to submit an administrative claim for refund very early in the two-year period and initiate the judicial claim already near the end of such two-year period due to an extended inaction by the local treasurer. In this instance, the taxpayer cannot be required to await the decision of the local treasurer any longer, otherwise, his judicial action shall be barred by prescription. Additionally, Section 196 does not expressly mention an assessment made by the local treasurer. This simply means that its applicability does not depend upon the existence of an assessment notice. By consequence, a taxpayer may proceed to the remedy of refund of taxes even without a prior protest against an assessment that was not issued in the first place. This is not to say that an application for refund can never be precipitated by a previously issued assessment, for it is entirely possible that the taxpayer, who had received a notice of assessment, paid the assessed tax, fee or charge believing it to be erroneous or illegal. Thus, under such circumstance, the taxpayer may subsequently direct his claim pursuant to Section 196 of the LGC. Clearly, when a taxpayer is assessed a deficiency local tax, fee or charge, he may protest it under Section 195 even without making payment of such assessed tax, fee or charge. This is because the law on local government taxation, save in the case of real property tax, does not expressly require “payment under protest” as a procedure prior to instituting the appropriate proceeding in court. This implies that the success of a judicial action questioning the validity or correctness of the assessment is not necessarily hinged on the

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previous payment of the tax under protest. There is nothing to prevent the taxpayer from paying the tax under protest or simultaneous to a protest. There are compelling reasons why a taxpayer would prefer to pay while maintaining a protest against the assessment. For instance, a taxpayer who is engaged in business would be hard-pressed to secure a business permit unless he pays an assessment for business tax and/or regulatory fees. Also, a taxpayer may pay the assessment in order to avoid further penalties or save his properties from levy and distraint proceedings. The foregoing clearly shows that a taxpayer facing an assessment may protest it and alternatively: (1) appeal the assessment in court, or (2) pay the tax and thereafter seek a refund. Such procedure may find jurisprudential mooring in San Juan v. Castro43 wherein the Court described for the first and only time the alternative remedies for a taxpayer protesting an assessment — either appeal the assessment before the court of competent jurisdiction or pay the tax and then seek a refund. The Court, however, did not elucidate on the relation of the second mentioned alternative option, i.e., pay the tax and then seek a refund, to the remedy stated in Section 196. As this has a direct bearing on the arguments raised in the petition, we thus clarify. Where an assessment is to be protested or disputed, the taxpayer may proceed (a) without payment, or (b) with payment of the assessed tax, fee or charge. Whether there is payment of the assessed tax or not, the protest in writing must be made within sixty (60) days from receipt of the notice of assessment; otherwise, the assessment shall become final and conclusive. Additionally, the subsequent court action must be initiated within thirty (30) days from denial or inaction by the local treasurer; otherwise, the assessment becomes conclusive and unappealable. The rules may be thus stated as follows: (a) Where no payment is made, the taxpayer’s procedural remedy is governed strictly by Section 195.

43 565 Phil. 810, 816-817 (2007) citing Ernesto D. Acosta and Jose C. Vitug, Tax Law and Jurisprudence, 2nd edition. Rex Book Store: Manila, Philippines, 2000, pp. 463-464.

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That is, in case of whole or partial denial of the protest, or inaction by the local treasurer, the taxpayer’s only recourse is to appeal the assessment with the court of competent jurisdiction. The appeal before the court does not seek a refund but only questions the validity or correctness of the assessment. (b) Where payment was made, the taxpayer may thereafter maintain an action in court questioning the validity and correctness of the assessment (Section 195, LGC) and at the same time seeking a refund of the taxes. In truth, it would be illogical for the taxpayer to only seek a reversal of the assessment without praying for the refund of taxes. Once the assessment is set aside by the court, it follows as a matter of course that all taxes paid under the erroneous or invalid assessment are refunded to the taxpayer. The same implication should ensue even if the taxpayer were to style his suit in court as an action for refund or recovery of erroneously paid or illegally collected tax as pursued under Section 196 of the LGC. In such a suit for refund, the taxpayer cannot successfully prosecute his theory of erroneous payment or illegal collection of taxes without necessarily assailing the validity or correctness of the assessment he had administratively protested. It must be understood, however, that in such latter case, the suit for refund is conditioned on the prior filing of a written claim for refund or credit with the local treasurer. In this instance, what may be considered as the administrative claim for refund is the letter-protest submitted to the treasurer. Where the taxpayer had paid the assessment, it can be expected that in the same letter-protest, he would also pray that the taxes paid should be refunded to him. As previously mentioned, there is no particular form or style necessary for the protest of an assessment or claim of refund of taxes. What is material is the substance of the letter submitted to the local treasurer. Equally important is the institution of the judicial action for refund within thirty (30) days from the denial of or inaction on the letter-protest or claim, not any time later, even if within two (2) years from the date of payment (as expressly stated in Section 196). Notice that the filing of such judicial claim for refund after questioning the assessment is within the

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two-year prescriptive period specified in Section 196. Note too that the filing date of such judicial action necessarily falls on the beginning portion of the twoyear period from the date of payment. Even though the suit is seemingly grounded on Section 196, the taxpayer could not avail of the full extent of the twoyear period within which to initiate the action in court. The reason is obvious. This is because an assessment was made, and if not appealed in court within thirty (30) days from decision or inaction on the protest, it becomes conclusive and unappealable. Even if the action in court is one of claim for refund, the taxpayer cannot escape assailing the assessment, invalidity or incorrectness, the very foundation of his theory that the taxes were paid erroneously or otherwise collected from him illegally. Perforce, the subsequent judicial action, after the local treasurer’s decision or inaction, must be initiated within thirty (30) days later. It cannot be anytime thereafter because the lapse of 30 days from decision or inaction results in the assessment becoming conclusive and unappealable. In short, the scenario wherein the administrative claim for refund falls on the early stage of the two-year period but the judicial claim on the last day or late stage of such twoyear period does not apply in this specific instance where an assessment is issued. To stress, where an assessment is issued, the taxpayer cannot choose to pay the assessment and thereafter seek a refund at any time within the full period of two years from the date of payment as Section 196 may suggest. If refund is pursued, the taxpayer must administratively question the validity or correctness of the assessment in the ‘letter-claim for refund’ within 60 days from receipt of the notice of assessment, and thereafter bring suit in court within 30 days from either decision or inaction by the local treasurer. Simply put, there are two conditions that must be satisfied in order to successfully prosecute an action for refund in case the taxpayer had received an assessment. One, pay the tax and administratively assail within 60 days the assessment before the local treasurer, whether in a letter-protest or in a claim for refund. Two, bring an action in court within thirty (30) days from decision or inaction by the local treasurer, whether such action is denominated as an

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appeal from assessment and/or claim for refund of erroneously or illegally collected tax. In this case, after PBPI received the assessment on January 17, 2007, it protested such assessment on January 19, 2007. After payment of the assessed taxes and charges, it wrote another letter to the City Treasurer asking for the refund and reiterating the grounds raised in the protest letter. Then, on February 6, 2007, PBPI received the letter denying its protest. Thus, on March 8, 2007, or exactly thirty (30) days from its receipt of the denial, the respondent brought the action before the RTC of Manila. Hence, the respondent was justified in filing a claim for refund after timely protesting and paying the assessment.

Notice of Assessment is mandatory before the local treasurer may collect deficiency taxes from the taxpayer. Section 195 of the LGC provides that “When the local treasurer or his duly authorized representative finds that correct taxes, fees, or charges have not been paid, he shall issue a notice of assessment stating the nature of the tax, fee, or charge, the amount of deficiency, the surcharges, interests and penalties.” Thus, suffice it to say that the issuance of a notice of assessment is mandatory before the local treasurer may collect deficiency taxes from the taxpayer. The notice of assessment is not only a requirement of due process, but it also stands as the first instance the taxpayer is officially made aware of the pending tax liability.44 The local treasurer cannot simply collect deficiency taxes for a different taxing period by raising it as a defense in an action for refund of erroneously or illegally collected taxes. To reiterate, the respondent, after it had protested and paid the assessed tax, is permitted by law to seek a refund having fully satisfied the twin conditions for prosecuting an action for refund before the court.

Real Property Taxation; LRTA is not a government owned and controlled corporation (GOCC). In the case of Light Rail Transit Authority v. Quezon City,45 the Light Rail Transit Authority (LRTA) received several Statements of Delinquency and Final Notices of Tax Delinquency from respondent Quezon City. By letter dated October 15, 2007, the LRTA informed Quezon City that pursuant to the subsequent case of MIAA v. Court of Appeals,46 the LRTA is a government instrumentality, thus, exempt 44 45 46

Yamane v. BA Lepanto Condominium Corp., 510 Phil. 750, 770 (2005). G.R. No. 221626, October 9, 2019. 528 Phil. 181, 245-246 (2006).

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from real property tax. Before the Court, LRTA contends that it is not a GOCC but a government instrumentality, hence, its properties are not taxable. In deciding the case in favor of LRTA, the Court first determined whether LRTA is a GOCC which may be subject to real property taxes. Under the Administrative Code of 1987, a GOCC refers to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the government directly or indirectly through its instrumentalities either wholly, or where applicable as in the case of stock corporations to the extent of at least 51% (fifty-one percent) of its capital stock. Consequently, to be considered as a GOCC, an entity must either be organized as a stock or non-stock corporation. Looking at Section 15 of E.O. No. 603, which is the charter of the LRTA, it is found that the LRTA does have capital stock but is not divided into shares. Consequently, it cannot be considered as a stock corporation. Further, the LRTA is not organized for purposes stated under Section 88 of the Corporation Code nor does it have any members. Thus, it does not qualify to be a non-stock corporation. Hence, LRTA cannot be considered as a GOCC for it is neither a stock nor non-stock corporation.

The LRTA is a government instrumentality exercising corporate powers. In saying that the LRTA is a government instrumentality, the Court found that the LRTA satisfies all the requisites in order to be considered as a government instrumentality. To lay down the requisites, an agency will be classified as a government instrumentality vested with corporate powers when the following elements concur: a) it performs governmental functions, and b) it enjoys operational autonomy. It does not matter that the government instrumentality is endowed with corporate powers. Prescinding from the foregoing, the LRTA is a government instrumentality. First, the vesture of its corporate powers is found in Article 2 of E.O. No. 603 otherwise known as “Creating a Light Rail Transit Authority, Vesting the same with Authority to Construct and Operate the Light Rail Transit (LRT) project and providing funds therefor,” to wit: ARTICLE 2 CORPORATE POWERS SEC. 4. General Powers. — The Authority, through the Board of Directors, may undertake such actions as are

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expedient for or conducive to the attainment of the purposes and objectives of the Authority, or of any purpose reasonably incidental to or consequential upon any of these purposes. x x x. Second, the LRTA performs governmental functions. It is primarily responsible for the construction, operation, maintenance, and/or lease of light rail transit systems in the country, giving due regard to the reasonable requirements of the public transportation system of the country. Finally, the LRTA also enjoys operational autonomy, as it exists by virtue of a Charter, and its powers and functions are vested in and exercised by its Board of Directors. Consequently, LRTA’s properties are not subject to real property taxes under Section 133(o) of the LGC.

The LRTA operations and properties of public dominion are devoted to public use and public welfare, hence, are owned by the Republic of the Philippines, and for legal and socially significant reasons, are exempt from real property taxes and the means to collect such taxes. The light rail transit system is one of the major means of transportation in Metro Manila. The bulk of public commuters takes the light rail transit to go to and from their residences and places of work and other places of social interaction. The light rail transit passes along several cities and municipalities. There are two (2) LRT lines, the green and blue lines. The Light Rail Transit System Line No. 1 consists of the 15km elevated railway system servicing the Taft Avenue-Rizal Avenue route between Baclaran, Pasay City and the Bonifacio Monument in the City of Caloocan. The Megatren, more popularly known by its generic name Line 2, is a 13.8km mass transit line that traverses five (5) cities in Metro Manila, namely Pasig, Marikina, Quezon City, San Juan, and Manila, along the major thoroughfares of Marcos Highway, Aurora Boulevard, Ramon Magsaysay Boulevard, Legarda, and Recto Avenue. Undoubtedly, the light rail transit performs a crucial role in the lives of the people in Metro Manila. And the fact that by necessary implication, it must pass through several local government units, the protection accorded to properties of public dominion for public use must be extended to the LRTA and its properties. Taking some or a portion of the railroads, railways, carriageways, and terminal stations will hamper the operation of the light rail transit. Trains run on the rail tracks which are fastened to a concrete foundation resting on a prepared subsurface. Like an airport, the light rail transit has a terminal commonly known as the LRT station, where passengers converge to buy train tickets and access the train facilities. It is also where the

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trains regularly stop to load or unload passengers. These properties are essential for the passenger transport and continued operation of the light rail transit, without which this massive transportation system will be paralyzed. The fact that the LRTA may have entered into transactions with, short of alienating them, to private parties in relation to the establishment, operation, maintenance, and viability of a light rail transit in the country, does not detract from the characterization of the LRTA’s properties as properties of public dominion for public use or public service. What is important is the role, nexus, and relevance that these properties play in the public use or public service purposes of the LRTA.

Real property tax liability rests on the owner of the property or on the person with the beneficial use thereof. NPC, not being the owner, possessor nor beneficial user, does not have the legal interest to ask for exemption from real property taxes. In National Power Corp. v. Province of Pangasinan47, the petitioner National Power Corporation (NPC) entered into an Energy Conversion Agreement (ECA) with CEPA Pangasinan Electric Limited (CEPA), a private corporation, for the construction, operation, and maintenance of the Sual Coal-Fired Thermal Power Plant, whereby CEPA agreed to supply a coal-fired thermal power station to NPC on a Build-OperateTransfer (BOT) basis to generate electricity, which electricity will in turn be sold exclusively to NPC. CEPA subsequently became Mirant Sual Corporation (Mirant) and now also known as Team Energy Power Holdings Corporation (Team Energy). NPC religiously paid real property taxes for the land, buildings, machinery, and equipment pertaining to the power plant. Notably, said machinery and equipment were declared in the name of Mirant. On the second quarter of 2003, NPC stopped paying said taxes, purportedly pursuant to the provisions of R.A. No. 7160, which grants certain exemptions from real property tax liabilities. This prompted the Office of the Municipal Treasurer of Sual, Pangasinan to issue a Notice of Assessment dated September 10, 2003 for the payment of real property taxes thereon. Invoking its entitlement to an exemption under the provisions of R.A. No. 7160, NPC filed a petition for exemption with the LBAA. Unfortunately for NPC, the LBAA, the CBAA, and the CTA all ruled against it. Consequently, the case reached the Supreme Court. Before the Court, NPC argues that the CTA erred in denying its claim for exemption on the ground that it is not the owner of the subject facilities. NPC insists that, as project owner, it has legal interest over the power plant and as such, it has the legal personality to question

G.R. No. 210191, March 4, 2019.

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the assessment and claim for exemption therefor. In deciding the case against NPC, the Court ruled that NPC does not have the personality to question the assessment and claim for exemption. It is neither the owner nor the possessor or beneficial user of the subject facilities. NPC is yet to be the owner of the subject facilities because the ECA provides that Mirant shall directly or indirectly, own the Power Station and all the fixtures, fittings, machinery and equipment until the Transfer Date, which is the date when the Power Station will be transferred by Mirant to NPC. As a consequence, NPC cannot be considered to have any legal interest in the subject property to clothe it with the personality to question the assessment and claim for exemptions and privileges. Indeed, real property tax liability rests on the owner of the property or on the person with the beneficial use thereof such as taxes on government property leased to private persons or when tax assessment is made on the basis of the actual use of the property.48 In either case, the unpaid realty tax attaches to the property but is directly chargeable against the taxable person who has actual and beneficial use and possession of the property regardless of whether or not that person is the owner.49 Thus, until the transfer of the project to NPC, it does not have anything to do with the use and operation of the power plant. The direct, actual, exclusive, and beneficial owner and user of the power station, machineries, and equipment certainly pertains to Mirant. NPC, therefore, has no legal personality to question on the assessment or claim for exemption and privileges regarding the tax liability attached to the subject properties.

The fact that an exempt entity, such as NPC, assumed the tax liabilities in the ECA, does not warrant the grant of exemption to the contracting party. Such undertaking does not justify the exemption or entitlement to privileges. The privilege granted to NPC cannot be extended to Mirant. To rule otherwise would be to allow the circumvention of our law on exemptions and grant of privileges. To successfully claim exemption under Section 234 (c) of R.A. No. 7160, the claimant must prove that (a) the machinery and equipment are actually, directly and exclusively used by local water districts and government-owned and controlled corporations; and (b) the local water districts and government-owned and controlled corporations

48 49

National Power Corporation v. Province of Quezon, 624 Phil. 738 (2010). Id.

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claiming exemption must be engaged in the supply and distribution of water and/or the generation and transmission of electric power.50 It is important to emphasize that the government-owned and controlled corporation claiming exemption and entitlement to the privilege must be the entity actually, directly, and exclusively using the real properties, and the use must be devoted to the generation and transmission of electric power. As can be gleaned from the above disquisition, NPC miserably failed to satisfy said requirements. Although the subject machinery and equipment are devoted to generation of electricity, the ownership, use, operation, and maintenance thereof pertain to Mirant.

The University of the Philippines (UP) is exempt from Real Property Taxes. In University of the Philippines v. City Treasurer of Quezon City,51 the University of the Philippines (UP) filed a petition for certiorari against the City Treasurer of Quezon City (City Treasurer) seeking to annul the Statement of Delinquency addressed to UP as well as the Final Notice of Delinquency which required UP to pay real property tax on a parcel of land which is currently leased to Ayala Land, Inc. (ALI). In declaring that UP is exempt from Real Property Taxes, the Court cited R.A. No. 9500, or the UP Charter of 2008. Sec. 25 thereof provides that the provisions of any general or special law to the contrary notwithstanding: all revenues and assets of the University of the Philippines used for educational purposes or in support thereof shall be exempt from all taxes and duties. The Court further stated that the Contract of Lease between UP and ALI shows that there is an intent to develop “a prestigious and dynamic science and technology park, where research and technology-based collaborative projects between technology and the academe thrive, thereby becoming a catalyst for the development of the information technology and information technology-enabled service.” The development of the subject land is clearly for an educational purpose, or at the very least, in support of an educational purpose. Considering that the subject land and the revenue derived from the lease thereof are used by UP for educational purposes and in support of its educational purposes, UP should not be assessed, and should not be made liable for real property tax on the land subject of this case. Under R.A. No. 9500, this tax exemption, however, applies only to “assets of the University of the Philippines,” referring to assets owned by UP. Consequently, all improvements on the leased land

50 51

Id. Supra. G.R. No. 214044, June 19, 2019.

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under the Contract of Lease between UP and ALI “shall be owned by, and shall be for the account of the LESSEE [ALI]” during the term of the lease. The improvements are not “assets” owned by UP. Thus, UP’s tax exemption under R.A. No. 9500 does not extend to these improvements during the term of the lease.

The Philippine Heart Center is a government instrumentality. Thus, it is exempt from real property taxes. In Philippine Heart Center v. Local Government of Quezon City,52 the Court had the occasion to rule on the alleged delinquent real property taxes of Philippine Heart Center (PHC). The case will tell us that in 2004 respondent Quezon City Government issued three (3) final Notices of Delinquency for unpaid real property taxes of Php36,530,545.00 pertaining to the eleven (11) afore-cited properties of the PHC. The notices were unheeded, thus, respondent Quezon City Treasurer levied on the PHC’s properties. Before the Supreme Court, PHC argues that it is exempt from real property taxes. It also argues that under Article III, Section 28 (3) of the 1987 Constitution and Section 234 (b) of RA 7160, charitable institutions are exempt from paying real property taxes on its properties which are being actually, directly, and exclusively being used for charitable purposes. On the other hand, the Quezon City Government argues, among others, that the PHC is not exempt from real property taxes because it granted the beneficial use of its properties to commercial establishments such as Globe Telecom, Inc., Jollibee Foods Corporation, Course Development, Inc. and Proheart Food Corp. (Chowking). In resolving the issue of whether PHC is a government instrumentality, the Court ruled that there is a third category of government agencies under the jurisdiction of the Office of the Government Corporate Counsel which is now recognized. These are government instrumentalities vested with corporate powers or government corporate entities. These entities remain government instrumentalities because they are not integrated within the department framework and are vested with special functions to carry out a declared policy of the national government. According to the Court, an agency will be classified as a government instrumentality vested with corporate powers when the following elements concur: a) it performs governmental functions, and b) it enjoys operational autonomy. The PHC passes these twin criteria. Although not integrated in the department framework, the PHC is under supervision of the DOH and carries out government policies

G.R. No. 225409, March 11, 2020.

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in pursuit of its objectives in Section 4 of PD 673 such as: 6. To assist universities, hospitals and research institutions in their studies of cardio-vascular anomalies, to encourage advanced training on matters of, or affecting the heart, and related fields and to support educational programs of value to general health; 7. To encourage the formation of other organization on the national, provincial, city, municipal or barangay level and to coordinate their various efforts and activities for the purpose of achieving a more effective programmatic approach on the common problems relative to the objectives herein enumerated; and 8. To extend medical and cardiological services to the general public, to help prevent, relieve or alleviate the innumerable cardio-vascular afflictions and maladies of the people specially the poor and less fortunate in life, without regard to race, creed, color or political belief. The enumeration of PHC’s functions is less commercial than governmental, and more for public use and public welfare than for profit-oriented services. Also, the PHC is vested with corporate powers under Section 5 of PD 673: Section 5. Powers. — For the attainment and/or furtherance of the above purposes and objectives, the Philippine Heart Center, as a body corporate, acting through its Board of Trustees, shall have all the powers pertaining to a juridical person, and is therefore authorized, among other things: Therefore, the PHC bears the essential characteristics of a government instrumentality vested with corporate powers. Accordingly, it is exempt from real property taxes.

Lease of PHC’s properties to private individuals not covered by tax exemption does not validate the acts of the Quezon City Government of assessing, levying, and selling the property of the PHC. Jurisprudence requires that the respondents not only allege but also prove that the properties of the PHC have indeed been leased to private individuals; and the assessments, validly served on

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the lessees which have actual and beneficial use thereof. Here, the respondents’ bare allegation that the PHC had been leasing its properties to private individuals, without more, is not sufficient. As it was, the respondents failed to specify which of the eleven (11) properties or portions thereof were being leased out, to whom they were being leased, and the lease periods for which the private individuals are to be taxed. Consequently, respondents also failed to show that the taxable lessees were validly served notices of assessments covering the properties purportedly leased out by the PHC. As for the respondents’ levy and subsequent sale of the PHC’s properties, these acts have no basis in law. Section 256 of RA 7160 provides: Section 256. Remedies for the Collection of Real Property Tax. — For the collection of the basic real property tax and any other tax levied under this Title, the local government unit concerned may avail of the remedies by administrative action thru levy on real property or by judicial action. The provision must be read in connection with Section 133 (o) of RA 7160 exempting the Republic from local taxes, and Section 234 of the same law allowing the imposition of tax on real property owned by the Republic when the beneficial use thereof has been granted to a “taxable person.” Notably, it is the “taxable person” with beneficial use who shall be responsible for payment of real property taxes due on government properties. Any remedy for the collection of taxes should then be directed against the “taxable person,” the same being an action in personam.53 In another vein, the Republic and its instrumentalities including the PHC retain their exempt status despite leasing out their properties to private individuals. The fact that PHC was short of alienating its properties to private parties in relation to the establishment, operation, maintenance and viability of a fully functional specialized hospital, does not divest them of their exemption from levy; the properties only lost the exemption from being taxed, but they did not lose their exemption from the means to collect such taxes. Otherwise stated, local government units are precluded from availing of the remedy of levy against properties owned by government instrumentalities, whether or not vested with corporate powers, such as the PHC. Indeed, it would be the height of absurdity to levy the PHC’s properties to answer for taxes the PHC does not

Salva v. Magpile, G.R. No. 220440, November 8, 2017.

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owe. This leaves the Quezon City Government with only one recourse — judicial action for collection of real property taxes against private individuals with beneficial use of the PHC’s properties.

IV. JUDICIAL REMEDIES

The Court of Tax Appeals has jurisdiction to determine the constitutionality or validity of a tax law or regulation or administrative issuance. In the case of Bureau of Internal Revenue v. First E-Bank Tower Condominium Corp.,54 respondent First E-Bank Tower Condominium Corp. (First E-Bank) is assailing the constitutionality of R.M.C. No. 65-2012 on the ground that it was oppressive and confiscatory before the Regional Trial Court. On appeal, both the petitioner’s and the respondent’s appeal were filed with the Court of Appeals which dismissed both appeals on the ground of lack of jurisdiction. On the issue of jurisdiction, the Court reasoned that the Court of Tax Appeals has undoubted jurisdiction to pass upon the constitutionality or validity of a tax law or regulation when raised by the taxpayer as a defense in disputing or contesting an assessment or claiming a refund. It is only in the lawful exercise of its power to pass upon all matters brought before it, as sanctioned by Section 7 of Republic Act No. 1125, as amended. Incidentally, the Court of Tax Appeals may likewise take cognizance of cases directly challenging the constitutionality or validity of a tax law or regulation or administrative issuance (revenue orders, revenue memorandum circulars, rulings).55 Nevertheless, the Court ruled that resort to the Court of Appeals was proper for the prevailing doctrine when the case was ongoing before the lower courts was the ruling in British American Tobacco v. Camacho, et.al.56 wherein the Court ruled that it is the regular courts that have jurisdiction over the determination of whether a specific rule or set of rules issued by an administrative agency contravenes the law or the Constitution. Therefore, the Court of Appeals should have taken cognizance of the case.

The term “decisions” under R.A. No. 9282 refer to decisions of the CIR on the protest of the taxpayer against the assessments. In the case of Commissioner of Internal Revenue v. V.Y. Domingo Jewellers, Inc,57 the BIR issued a Preliminary Assessment Notice 54 55 56 57

G.R. No. 215801 & 218924, January 15, 2020. Banco de Oro v. Republic of the Phils., et. al., 793 Phil. 97, 124-125 (2016). 584 Phil. 489 (2008). G.R. No. 221780, March 25, 2019.

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(PAN) against V.Y. Domingo Jewellers Inc. (V.Y. Domingo), a corporation primarily engaged in manufacturing and selling emblematic jewelry. V.Y. Domingo filed a Request for Re-evaluation/Re-investigation and Reconsideration with the Regional Director of BIR-Revenue Region No. 6, requesting a “thorough re-evaluation and re-investigation to verify the accuracy of the computation as well as the accounts included in the Preliminary Assessment Notice.” V.Y. Domingo then received a Preliminary Collection Letter (PCL) from the Revenue District Office (RDO) No. 28-Novaliches, informing it of the existence of Assessment Notice No. 32-06-IT-0242 and Assessment Notice No. 32-06-VT-0243, for collection of its tax liabilities. However, instead of filing an administrative protest against the assessment notice within thirty (30) days from its receipt of the requested copies of the Assessment Notices on September 15, 2011, V.Y. Domingo elected to file its petition for review before the CTA First Division on September 16, 2011, ratiocinating that the issuance of the PCL and the alleged finality of the terms used for demanding payment therein proved that its Request for Re-evaluation/Re-investigation and Reconsideration had been denied by the CIR. In deciding the case in favor of the CIR, the Court ruled that a protesting taxpayer like V.Y. Domingo has only three options to dispute an assessment, to wit: 1. If the protest is wholly or partially denied by the CIR or his authorized representative, then the taxpayer may appeal to the CTA within 30 days from receipt of the whole or partial denial of the protest; 2. If the protest is wholly or partially denied by the CIR’s authorized representative, then the taxpayer may appeal to the CIR within 30 days from receipt of the whole or partial denial of the protest; 3. If the CIR or his authorized representative failed to act upon the protest within 180 days from submission of the required supporting documents, then the taxpayer may appeal to the CTA within 30 days from the lapse of the 180-day period. None of these remedies were availed of by V.Y. Domingo. V.Y. Domingo’s belief that the PCL “undeniably shows” the intention of the CIR to make it as its final “decision” did not give it cause of action to disregard the procedure set forth by the law in protesting tax assessments and act prematurely by filing a petition for review before the courts. The word “decisions” in the aforementioned provision of R.A. No. 9282 has been interpreted to mean the decisions of the CIR on the

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protest of the taxpayer against the assessments.58 Definitely, said word does not signify the assessment itself.59 Where a taxpayer questions an assessment and asks the Collector to reconsider or cancel the same because he (the taxpayer) believes he is not liable therefor, the assessment becomes a “disputed assessment” that the Collector must decide, and the taxpayer can appeal to the CTA only upon receipt of the decision of the Collector on the disputed assessment. To reiterate, what is appealable to the CTA are decisions of the CIR on the protest of the taxpayer against the assessments. There being no protest ruling by the CIR when V.Y. Domingo’s petition for review was filed, the dismissal of the same by the CTA First Division was proper.

Relaxation of the Period to File an Appeal; Strong Compelling Reasons. In the case of Misnet, Inc. v. Commissioner of Internal Revenue,60 the Court had the occasion to relax the procedural requirement that an appeal the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within (30) days from receipt of the said decision. In the said case, Misnet, Inc. (petitioner) received both an Amended Assessment Notice reflecting an amended Deficiency Expanded Withholding Taxes (EWT) after reinvestigation and a Final Decision on Disputed Assessment (FDDA) with respect to Deficiency EWT, Final Withholding of VAT, and Compromise Penalty. Misnet, Inc. averred that after receiving the Amended Assessment Notice and the FDDA of the CIR on March 28, 2011, it filed, without the assistance of a counsel, a letter protesting the Amended Assessment Notice. This letter of protest was filed by the petitioner on April 11, 2011 or within the statutory period within which to appeal. Apparently, the petitioner was merely relying on the statement in the said Amended Assessment Notice which states that if it disagrees with the assessment, it should file its protest with the CIR within 30 days from receipt. Thus, the petitioner opted to file the protest with the Regional Director. On May 12, 2011, the petitioner received a letter informing it that its filing of a letter of protest was an improper remedy. Therefore, the petitioner, on May 27, 2011, filed a Petition for Relief from Judgment before the CIR on the ground of mistake in good faith for relying on the statement provided in the Amended Assessment Notice. On June 29, 2011, the petitioner received a Preliminary Collection Letter dated June 22, 2011, which is deemed a denial of the petitioner’s Petition for Relief. Hence, on July 26, 2011, or ninety-three (93) days from its 58 59 60

Allied Banking Corporation v. Commissioner of Internal Revenue, 625 Phil. 530, 538 (2010). Lascona Land Co., Inc. v. Commissioner of Internal Revenue, 683 Phil. 430, 440 (2012). G.R. No. 210604, June 3, 2019.

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receipt of the FDDA, it filed its Petition for Review before the CTA. Clearly, it appears that the petitioner’s filing of an appeal with the CTA was beyond the statutory period to appeal. As a result, the CTA First Division dismissed the case. The CTA En Banc affirmed the same. The petitioner contends that the CTA En Banc should have taken into consideration that the filing of the Petition for Relief from Judgment has stopped the running of the period to appeal. The petitioner insists that all these incidents constitute excusable delay that justified its belated filing of an appeal with the CTA. In ruling for Misnet, Inc., the Court stated that when petitioner sent a letter-reply dated April 8, 2011 to the Regional Director, it was actually protesting both the Amended Assessment Notice and the FDDA. The Amended Assessment Notice reflects the amended deficiency EWT of the petitioner after reinvestigation while the FDDA reflects the Final Decision on: (a) petitioner’s deficiency EWT; (b) Final Withholding of VAT; and (c) Compromise Penalty. Since the deficiency EWT is a mere component of the aggregate tax due as reflected in the FDDA, then the FDDA cannot be considered as the final decision of the CIR as one of its components — the amended deficiency EWT — is still under protest. The petitioner was correct when it protested with the Regional Director the deficiency EWT as per the Amended Assessment Notice sent by the BIR. However, instead of resolving the protest, the Regional Director informed the petitioner that it was an improper remedy. A ruling totally inconsistent with the statement reflected in the Amended Assessment Notice, which states that protest must be filed with the CIR or the Regional Director within 30 days from receipt thereof. Apparently, the Regional Director has hastily presumed that petitioner was already protesting the FDDA, which incidentally was received by petitioner on the same date as that of the Amended Assessment Notice. With the petitioner’s pending protest with the Regional Director on the amended EWT, then technically speaking, there was yet no final decision that was issued by the CIR that is appealable to the CTA. It is still incumbent for the Regional Director to act upon the protest on the amended EWT — whether to grant or to deny it. Only when the CIR settled (deny/grant) the protest on the deficiency EWT could there be a final decision on petitioner’s liabilities. And only when there is a final decision of the CIR, would the prescriptive period to appeal with the CTA begin to run. Hence, the petitioner’s belated filing of an appeal with the CTA is not without strong, compelling reason. The Court stated that the petitioner was merely exhausting all administrative remedies available before seeking recourse to the judicial courts. While the rule is that a

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taxpayer has 30 days to appeal to the CTA from the final decision of the CIR, the said rule could not be applied if the Assessment Notice itself clearly states that the taxpayer must file a protest with the CIR or the Regional Director within 30 days from receipt of the Assessment Notice. Under the circumstances obtaining in this case, we opted not to apply the statutory period within which to appeal with the CTA considering that no final decision yet was issued by the CIR on the petitioner’s protest. The subsequent appeal taken by the petitioner is from the inaction of the CIR on its protest.

V. SPECIAL LAWS ON TAXATION

The enumeration of direct costs deductible from a PEZA-registered enterprise’s gross income in R.R. No. 11-2005 is not exclusive. In Commissioner of Internal Revenue v. East Asia Utilities Corp.,61 the case involved a deficiency tax assessment that was issued by the BIR to East Asia Utilities Corporation (East Asia Utilities). The assessment was brought about from the CIR’s disallowance of East Asia Utilities claimed costs and expenses in the amount of P34,467,835.76, P24,669,324.88 of which were allowed by the CTA En Banc to be deducted. Before the Court, one of the contentions of the CIR was that the enumeration of direct costs and expenses under R.R. No. 11-2005, which are costs and expenses allowed to be deducted from gross income before the income will be taxed, are exclusive in accordance with the principle of expression unius est exclusio alterius. In denying the contention of the CIR, the Court ruled that R.R. No. 11-2005 uses the word “included”. The provision provides: SECTION 3. Gross Income Earned. — xxx xxx xxx For purposes of computing the total five percent (5%) tax rate imposed, the following direct costs are included in the allowable deductions to arrive at gross income earned for specific types of enterprises: xxx xxx xxx The word “include” means “to take in or comprise as a part of a whole”; “to contain as a part of something. The participle “including” typically indicates a partial list.62 In Sterling Selections Corp. v. Laguna Lake Development Authority (LLDA),63 the Court held that using the word “including” necessarily conveys the enumeration’s very idea of non-exclusivity. Thus, the word 61 62 63

G.R. No. 225266, November 16, 2020. Black’s Law Dictionary, 2009 Edition. 662 Phil. 243 (2011).

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“involving,” when understood in the sense of “including,” implies that there are activities other than those included. Accordingly, the CTA En Banc did not err in examining the nature and type of each of the expenses East Asia Utilities claimed as deductions vis-à-vis their relation to East Asia Utilities’ PEZA-registered activities in computing the correct amount of tax deficiency.

The exemption of foreign exchange earnings under the PEZA Law depends on whether the earnings is part of an activity subject to an income tax incentive. In the case of Aegis PeopleSupport, Inc. v. Commissioner of Internal Revenue,64 Aegis PeopleSupport, Inc. (Aegis) is a domestic corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal office at PeopleSupport Center, Ayala corner Senator Gil Puyat Avenue, Makati City. It is registered with the Board of Investments (BOI) under its former name PeopleSupport (Philippines), Inc., with Certificate of Registration No. 2003-059 as a new and pioneer IT Export service firm in the field of Customer Contact Center. It is also registered with the PEZA, under its former name PeopleSupport (Philippines), Inc., as a new Ecozone IT (Export) Enterprise to engage in the establishment of a contact center which will provide outsourced customer care services and business process outsourcing (BPO). Aegis filed with the BIR Revenue District Office (RDO) No. 47, an administrative claim for refund or issuance of tax credit certificate (TCC) and an Application for Tax Credits/Refunds for its excess payment of income tax for taxable year 2007. Before the CTA En Banc, it ruled that the foreign exchange gains realized by Aegis have been derived from the foreign exchange contracts entered into by it with Citibank, and not from its registered activity as a contact center nor necessarily related to it as would entitle such to income tax holiday and therefore, subject to a tax refund. Taking the case before the Court, Aegis insists that it is entitled to a refund or to be issued a tax credit certificate for the tax it erroneously paid for the foreign exchange (forex) gains it realized from the hedging contract it entered into with Citibank because said gains were attributable to its PEZAregistered activity as a contact center. In ruling in favor of Aegis, the Court cited PEZA Memorandum Circular No. 2005-032 which states, in part: The tax treatment of foreign exchange (forex) gains shall depend on the activities from which these arise. Thus, if the forex gain is attributed to an activity with income tax incentive (Income Tax Holiday or 5% Gross Income Tax), said forex gain shall be covered

G.R. No. 216601, October 7, 2019.

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by the same income tax incentive. On the other hand, if the forex gain is attributed to an activity without income tax incentive, said forex gain shall likewise be without income tax incentive, i.e., therefore, subject to normal corporate income tax. The Court then proceeded to determine whether the forex fluctuation “gains” of the petitioner under the hedging contract it entered into with Citibank is subject to the regular income tax under the NIRC. To start, the Court said that a hedge is an investment undertaken to reduce the risk of adverse price movements in an asset. Simply put, it is a loose form of insurance against value or price fluctuations of a particular asset (such as cash in the form of foreign currency). In the context of foreign currency exchanges, hedging involves contracting with a foreign currency broker to deliver or receive a specified foreign currency at a specified future date and at a specified exchange rate. Here, a fully hedged transaction results in no exchange gain or loss to the company; and for a fee, the broker assumes all the risks associated with exchange rate changes. This is because the equivalent amount or value of the foreign currency in legal tender remains to be an estimate until it is actually converted to local currency. Therefore, any occurring fluctuation in local currency value before the conversion of foreign currency does not result in the realization of any gain or loss. In the instant case, the petitioner may validly enter into a hedging contract to manage its foreign currencies on-hand earned as gross revenues since it is one of its Secondary Purposes in its Amended Articles of Incorporation. Such item undoubtedly authorizes the petitioner to enter into a hedging contract with a broker such as Citibank in order to protect its gross revenues in the form of foreign currency from being severely devalued in terms of local currency. Consequently, the Court considers hedging to be very much related to its registered activities and, hence, still subject to a preferential tax treatment under R.A. No. 7916 and EO No. 226.

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