Republic Act (R.A.) No. 11232, otherwise known as the “Revised Corporation Code of the Philippines” (the “RCC”), was signed into law on 20 February 2019 repealing the thirty-eight (38) year-old Batas Pambasa Blg. 68 (the “Old Code”). Two of the most notable changes ushered in by the enactment of the RCC are (1) the grant of authority upon the Securities and Exchange Commission (the “Commission”) to regulate the use of corporate names; and (2) the additional protection granted to corporations to shield it from the abuses committed by its stockholders in the exercise of their rights to inspect corporate books.
The Commission’s Power to Stop Use of a Corporate Name
Apart from the available remedies that the present laws offer, such as an ordinary civil action for infringement and the injunctive order which the court may provisionally issue against an entity using the trade name of another, the RCC introduced another relief under Section 17, paragraph 3, of the RCC, thus:
The Commission upon determination that the corporate name is (1) not distinguishable from a name already reserved or registered for the use of another corporation; (2) already protected by law; or (3) contrary to law, rules and regulations, may summarily order the corporation to immediately cease and desist from using such name and require the corporation to register a new one.
From the perspective of a corporation whose business name is infringed upon, the RCC now provides an additional remedy before the Commission which may be more efficient. For one, no hearing is required before the Commission may issue the ‘cease and desist’ order against the offending entities. For another, in the event of failure or refusal to comply with said summary order, the Commission may hold the corporation including its responsible director and officers in contempt and/or civilly, administratively and criminally liable.
The Commission’s Power to Stop Use of a Trademark
Section 17 of the RCC also empowers the Commission to cause the removal of all visible signages, marks, labels, prints and other effects bearing such corporate name.
It is worthy of note that in R.A. No. 8293, otherwise known as the “Intellectual Property Code of the Philippines” (the “IPC”), only the Intellectual Property Office (the “IPO) holds the authority to cancel a trademark registration upon a petition filed by any person who believes that he is or will be damaged by said registration. With the advent of the RCC, it appears that the SEC is now empowered to cause the removal of all visible marks bearing a corporate name in violation of Section 17. In effect, the SEC may, upon determination that a proscribed corporate name is being used as an integral part of a trademark or any visible signage, order the discontinuance of its use, resulting in the cessation of all protection granted by law to a registered trademark.
Thus, in Section 17 of the RCC, when read in conjunction with the pertinent provisions of the IPC, it may be perceived that the Commission now shares the authority with the IPO to cancel trademark registrations. However, unlike the IPO, the Commission may exercise such power motu proprio.
The Commission’s Power to Reserve a Corporate Name
For associations which have yet to be incorporated, Section 18 of the RCC requires that they submit their intended corporate name to the Commission for verification. Once the availability of the intended corporate name is verified, the Commission will reserve said name in favor of the applicants. Only upon said reservation may the incorporators submit their articles of incorporation and by-laws to the Commission.
In discharging its duties under Section 18 of the RCC, the Commission may also take a leaf or two out of the IPO’s book. Section 165.2 (a) of the IPC states that, “(n)otwithstanding any laws or regulations providing for any obligation to register trade names, such names shall be protected, even prior to or without registration, against any unlawful act committed by third parties.” The Supreme Court is consistent in holding that a trade name need not be registered before an infringement suit may be filed or before protection may be accorded it; all that is required is that the trade name is previously used in trade or commerce in the Philippines. A business entity that operates under a trade name has exclusive proprietary rights over said trade name notwithstanding the absence of registration in the IPO. Simply stated, a trade name pertains to a particular enterprise or business entity.
In the same wise, the Commission may accord protection to corporate or trade names previously used by business entities even without having incorporated under the Old Code and the RCC. The business name of a sole proprietorship, for instance, enjoying prominence in the food industry shall be considered by the Commission in determining the availability of a corporate name applied for by incorporator/s. Moreover, the corporate name of a de facto corporation whose corporate existence is subsequently annulled in a quo warranto petition may be denied to other corporations desiring to incorporate under said de facto corporations’ name or any name similar thereto.
Penalties on Stockholders Who Abuse their Rights of Inspecting Corporate Books
A perusal of the Old Code’s provision on corporate books reveals its emphasis on the rights of the stockholders to information with regard to the affairs of the corporation. As a matter of fact, it did not expressly penalize stockholders who abuse said right to information except by way of a general penal provision for violations of the Old Code under its Section 144.
The RCC, however, addresses the extensive abuses that stockholders commit on the pretext of exercising their right to information on corporate affairs. Section 73 provides that stockholders who abuse their rights to inspect corporate books and records shall be penalized under Section 158 without prejudice to the provisions of the IPC and R.A. No. 10173, otherwise known as the “Data Privacy Act of 2012”. Section 158 imposes a fine ranging from five thousand pesos (Php5,000.00) to two million pesos (Php2,000,000.00), and not more than One thousand pesos (Php1,000.00) for each day of continuing violation but in no case to exceed two million pesos (Php2,000,000.00). Said penalty is notably heavier that Section 144 of the Old Code.
In addition, the remedies under the IPC may also be pursued independently of the punitive measures found in the RCC. Thus, any stockholder who requests and obtains information on a corporation’s books and records, including its trade secrets, and subsequently uses the same in his own business ventures shall be liable under Sections 71 and 158 of the RCC and guilty of Unfair Competition under Section 168.3 of the IPC.