Copyright Infringement and Prescription: What Retailers Should Know

The Supreme Court's 2008 ruling in Sanrio Company Limited v. Edgar C. Lim clarifies two important points for businesses and copyright owners alike: the filing of a complaint for preliminary investigation interrupts the prescriptive period for copyright offenses, and courts will generally respect a prosecutor's finding of no probable cause absent grave abuse of discretion. The case also offers practical guidance for retailers who may unknowingly sell counterfeit goods.

The Facts of the Case

Sanrio Company Limited, a Japanese corporation, owns the copyright to popular animated characters like Hello Kitty. Its exclusive distributor in the Philippines, Gift Gate Incorporated (GGI), licensed local manufacturers to produce Sanrio-branded products. In 2001, GGI commissioned market research to identify sellers of fake Sanrio items, which led to a search of respondent Edgar Lim's store, Orignamura Trading, where NBI agents seized various Sanrio products.

On April 4, 2002, Sanrio filed a complaint-affidavit with the Department of Justice (DOJ) against Lim for copyright infringement under Section 217 of the Intellectual Property Code. Lim defended himself by showing that he bought his merchandise from authorized manufacturers, presenting official receipts as evidence. The DOJ dismissed the complaint for lack of probable cause, finding that Lim relied on the manufacturers' representations that the items were genuine.

The Court of Appeals later dismissed Sanrio's petition on the ground of prescription, holding that the offense had prescribed because no complaint was filed in court within two years of the alleged violation.

The Issue: Did the Offense Prescribe?

The Supreme Court disagreed with the Court of Appeals on this point. Under Section 2 of Act 3326, prescription begins to run from the day of the commission of the violation, but it is interrupted when proceedings are instituted against the guilty person. The Court, citing the earlier case of Brillantes v. Court of Appeals, affirmed that the filing of a complaint for purposes of preliminary investigation interrupts the prescriptive period.

In this case, Sanrio filed its complaint-affidavit on April 4, 2002, about one year, ten months, and four days after the search. Because the filing was timely, the prescriptive period was tolled, and the offense had not yet prescribed.

The Issue: Did the DOJ Commit Grave Abuse of Discretion?

On the merits, the Court found no grave abuse of discretion on the part of the DOJ prosecutors. In a preliminary investigation, a public prosecutor determines whether probable cause exists — that is, whether there are facts that engender a well-founded belief that a crime has been committed and the respondent is probably guilty.

The Court emphasized that prosecutors are given wide latitude in conducting preliminary investigations, and courts generally do not interfere with their findings. Judicial review is only allowed when the prosecutor acts in an arbitrary, capricious, whimsical, or despotic manner. Here, the prosecutors carefully evaluated the evidence and found that Lim had no knowledge that the items were counterfeit, given that he purchased them from authorized manufacturers.

Practical Takeaways

• Filing a complaint with the DOJ stops the clock on prescription. Even if no information is immediately filed in court, the timely filing of a complaint-affidavit interrupts the prescriptive period for copyright offenses.
• Retailers who buy from authorized sources have a strong defense. If a retailer can show that it obtained goods from legitimate manufacturers and relied on their representations, prosecutors may find no probable cause for infringement.
• Knowledge is a key element. Under Section 217.3 of the Intellectual Property Code, liability for possessing infringing copies requires that the person knew, or ought to have known, that the items were counterfeit.
• Prosecutors' findings are hard to overturn. Courts will not disturb a prosecutor's dismissal of a complaint unless there is clear evidence of grave abuse of discretion.
• Keep your receipts. Documentary evidence of legitimate purchases can be crucial in defending against copyright infringement claims.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.