SANRIO COMPANY LIMITED V.

LIM

Facts:
Petitioner Sanrio Company, a Japanese corporation, is the copyright owner of various animated
characters sold locally by its exclusive distributor, Gift Gate Incorporated, which allowed local
entities to manufacture petitioner’s products. A search warrant was issued against respondent
Lim alleged to be selling imitations of petitioner’s products. Thereafter, petitioner filed a
complaint for copyright infringement with the Task-Force on Anti-Intellectual Property Piracy
(TAPP) of the DOJ. Respondent asserted that he obtained his merchandise from petitioner’s
authorized manufacturers. The complaint was dismissed. CA affirmed and further held that the
offense had already prescribed.

Issues:
(1) Whether or not the action had prescribed.
(2) Whether or not there is copyright infringement.

Ruling:
(1) NO. Section 2 of Act 3326 provides that the prescriptive period for violation of special laws
starts on the day such offense was committed and is interrupted by the institution of proceedings
against respondent (i.e., the accused). Petitioner in this instance filed its complaint-affidavit 1
year, 10 months and 4 days after the NBI searched respondent’s premises and seized Sanrio
merchandise therefrom. Although no information was immediately filed in court, respondent’s
alleged violation had not yet prescribed. In the recent case of Brillantes v. Court of Appeals, we
affirmed that the filing of the complaint for purposes of preliminary investigation interrupts the
period of prescription of criminal responsibility. Thus, the prescriptive period for the prosecution
of the alleged violation of the IPC was tolled by petitioner’s timely filing of the complaint-affidavit
before the TAPP.
(2) NO. To be criminally liable for violation of Section 217.3 of the IPC, the following requisites
must be present:
possession of the infringing copy and
knowledge or suspicion that the copy is an infringement of the genuine article.
The prosecutors in this case consistently found that no probable cause existed against
respondent for violation of the IPC. The TAPP found that: Evidence on record would show that
respondent bought his merchandise from legitimate sources. While it appears that some of the
items seized during the search are not among those products which [GGI] authorized these
establishments to produce, the fact remains that respondent bought these from the abovecited
legitimate sources. At this juncture, it bears stressing that respondent relied on the
representations of these manufacturers and distributors that the items they sold were genuine.
As such, it is not incumbent upon respondent to verify from these sources what items [GGI] only
authorized them to produce. Thus, as far as respondent is concerned, the items in his possession
are not infringing copies of the original [petitioner’s] products.
SEC vs IRC

Facts:
1) 6 Aug 1994 – Board of Directors of IRC approved a Memorandum of Agreement (MoA)
with Ganda Holdings Berhad (GHB).
a. Under the MoA, IRC acquired 100% or the entire capital stock of Ganda Energy
Holdings, Inc. (GEHI), which would own and operate a 102 megawatt gas turbine power-
generating barge.

b. Also stipulated is that GEHI would assume a five-year power purchase

contract with National Power Corp. At that time, GEHI’s power-generating barge was
97% complete and would go on-line by mid-Sept 1994.

c. In exchange, IRC will issue to GHB 55% of the expanded capital stock of IRC (amounting to 40.88
billion shares – total par value of P488.44 million)

d. On the side, IRC would acquire 67% of the entire capital stock of Philippine Racing Club,
Inc. (PRCI). PRCI owns 25.724 hectares of real estate property in Makati.

e. Under the Agreement, GHB, a member of the Westmont Group of Companies in

Malaysia, shall extend or arrange a loan required to pay for the proposed acquisition by IRC of
PRCI.

2) 8 Aug 1994 – IRC alleged that a press release announcing the approval of the agreement was
sent through fax to Philippine Stock Exchange (PSE) and the SEC, but that the fax machine of SEC
could not receive it. Upon the advice of SEC, IRC sent the press release on the morning of 9 Aug
1994.

3) SEC averred that it received reports that IRC failed to make timely public disclosures of its
negotiations with GHB and that some of its directors heavily traded IRC shares utilizing this
material insider information.

4) 16 Aug 1994 – SEC Chairman issued a directive requiring IRC to submit to SEC a copy of its
aforesaid MoA with GHB and further directed all principal officers of IRC to appear at a hearing
before the Brokers and Exchanges Dept (BED) of SEC to explain IRC’s failure to immediately
disclose the information as required by the Rules on Disclosure of Material
Facts by Corporations Whose Securities are Listed in Any Stock Exchange or
Registered/Licensed Under the Securities Act

5) IRC sent a letter to SEC, attaching copies of MoA and its directors appeared to explain IRC’s
alleged failure to immediately disclose material information as required under the Rules on
Disclosure of Material Facts.
6) 19 Sept 1994 – SEC Chairman issued an Order finding that IRC violated the Rules on Disclosure
when it failed to make timely disclosure, and that some of the officers and directors of IRC
entered into transactions involving IRC shares in violation of Sec 30, in relation to Sec 36 of the
Revised Securities Act.

7) IRC filed an Omnibus Motion (later an Amended Omnibus Motion) alleging that SEC had no
authority to investigate the subject matter, since under Sec 8 of PD 902-A, as amended by PD
1758, jurisdiction was conferred upon the Prosecution and Enforcement Dept (PED) of SEC
8) IRC also claimed that SEC violated their right to due process when it ordered
that the respondents appear before SEC and show cause why no administrative, civil
or criminal sanctions should be imposed on them, and thus, shifted the burden of proof to the
respondents. They filed a Motion for Continuance of Proceedings.

9) No formal hearings were conducted in connection with the Motions.

10) 25 Jan 1995 – SEC issued an Omnibus Order: creating a special investigating panel
to hear and decide the case in accordance with Rules of
Practice and Procedure before the PED, SEC; to recall the show cause orders; and to
deny the Motion for Continuance for lack of merit.

11) Respondents filed a petition before the CA questioning the Omnibus Orders and filed a
Supplemental Motion wherein they prayed for the issuance of a writ of preliminary injunction.

12) 5 May 1995 – CA granted their motion and issued a writ of preliminary
injunction, which effectively enjoined SEC from filing any criminal, civil or
administrative case against the respondents.

13) 20 Aug 1998 – CA promulgated a Decision

a. Determined that there were no implementing rules and regulations regarding
disclosure, insider trading, or any of the
provisions of the Revised Securities Acts which respondent allegedly violated.

b. It found no statutory authority for SEC to initiate and file any suit for civil liability under Sec 8,
30 and 36 of the Revised Securities Act, thus, it ruled that no civil, criminal or administrative
proceedings may possibly be held against the respondents without violating their rights to due
process and equal protection.

c. It further resolved that absent any implementing rules, the SEC cannot be allowed to quash
the assailed Omnibus Orders

d. Further decided that the Rules of Practice and Procedure before

the PED did not comply with the statutory requirements contained in the Administrative
Code of 1997. Section 9, Rule V of the Rules of Practice and Procedure before the PED affords a
party the right to be present but without the right to cross-examine witnesses
presented against him, in violation of Sec 12(3), Chap 3, Book VII of the Administrative Code.

Issues:
1. Do sections 8, 30, and 36 of the Revised Securities Act require the enactment of
implementing rules to make them binding and effective? No.

2. Does the right to cross-examination be demanded during investigative

proceedings before the PED? No.

3. May a criminal case still be filed against the respondents despite the repeal of
Sections 8, 30, and 36 of the Revised Securities Act? Yes.

4. Did SEC retain the jurisdiction to investigate violations of the Revised Securities
Act, re-enacted in the Securities Regulations Code, despite the abolition of the PED?
Yes.

5. Does the instant case prescribed already? No.

6. Is CA justified in denying SEC’s Motion for Leave to Quash SEC Omnibus

Orders? Yes.

Ruling:
The petition is impressed with merit.
-It should be noted that while the case was pending in SC, RA 8799 (Securities Regulation Code)
took effect on 8 August 2000.
-Section 8 of PD 902-A, as amended, which created the PED, was already repealed as provided
for in Sec 76 of Securities Regulation Code.
-Thus, under the new law, the PED has been abolished, and the Securities Regulation
Code has taken the place of the Revised Securities Act.

On the merits:
1) Sections 8, 30, and 36 of the Revised Securities Act (RSA) do not require the
enactment of implementing rules to make them binding and effective.
 The mere absence of implementing rules cannot effectively invalidate provisions of
law, where a reasonable construction that will support the law may be given.
 Absence of any constitutional or statutory infirmity, which may concern Secs 30 and 36 of RSA,
the provisions are legal and binding.
 Every law has in its favour the presumption of validity. Unless and until a specific provision of
the law is declared invalid and unconstitutional, the same is valid and binding for all intents and
purposes.
 The Court does not discern any vagueness or ambiguity in Sec 30 and 36 of RSA
Sec 30 – Insider’s duty to disclose when trading
 Insiders are obligated to disclose material information to the
other party or abstain from trading the shares of his corporation. This duty to disclose
or abstain is based on two factors:

1. the existence of a relationship giving access, directly or indirectly, to information

intended to be available only for a corporate purpose and not for the personal benefit of
anyone

2. the inherent unfairness involved when a party takes advantage of such information
knowing it is unavailable to those with whom he is dealing.

 The intent of the law is the protection of investors against

fraud, committed when an insider, using secret information, takes advantage of an
uninformed investor.

 In some cases, however, there may be valid corporate reasons for nondisclosure of material
information. Where such reasons exist, an issuer’s decision not to make any public disclosures is
not ordinarily considered as a violation of insider trading. At the same time,
the undisclosed information should not be improperly used for non-corporate purposes,
particularly to disadvantage other persons with whom an insider might transact, and
therefore the insider must abstain from entering into transactions involving such securities.
Sec 36 – Directors, officers and principal stockholders
 A straightforward provision that imposes upon:
1.a beneficial owner of more than 10 percent of any class of any equity security or;

2.a director or any officer of the issuer of such security

the obligation to submit a statement indicating his or her ownership of the issuer’s
securities and such changes in his or her ownership.

 Sections 30 and 36 of the RSA were enacted to promote full disclosure in the securities market
and prevent unscrupulous individuals, who by their positions obtain non-public information,
from taking advantage of an uninformed public.
 Sec 30 prevented the unfair use of non-public information in securities transactions,
while Sec 36 allowed the Sec to monitor the transactions entered into by corporate
officers and directors as regards the securities of their companies.
 The lack of implementing rules cannot suspend the effectivity of these provisions.

2) The right to cross-examination is not absolute and cannot be demanded during investigative
proceedings before the PED.
 Sec 4, Rule 1 of the PED Rules of Practice and Procedure, categorically
stated that the proceedings before the PED are summary in nature, not necessarily
adhering to or following the technical rules of evidence obtaining in the courts of law
 Rule V – Submission of documents, determination of necessity of hearing and disposition of
case.
A formal hearing was not mandatory, it was within the discretion of the Hearing Officer whether
there was a need for a formal hearing
Since the holding of a hearing before the PED is discretionary, then the right to cross-
examination could not have been demanded by either party.
 Chapter 3, Book VII of the Administrative Code refers to “Adjudication” and does not affect the
investigatory functions of the agencies.
 The law creating PED empowers it to investigate violations of the rules and regulations
promulgated by the SEC and to file and prosecute such cases.
It fails to mention any adjudicatory functions insofar as the PED is concerned. Thus, PED Rules
of Practice need not comply with the provisions of the Administrative Code on adjudication.
The only powers which the PED was likely to exercise over the respondents were
investigative in nature

 In proceedings before administrative or quasi-judicial bodies, such as NLRC

and POEA, created under laws which authorize summary proceedings,
decisions may be reached on the basis of position papers or other
documentary evidence only. They are not bound by technical rules of procedure and
evidence. It is enough that every litigant be given reasonable opportunity to appear and defend
his right and to introduce relevant evidence in his favour, to comply with the due process
requirements.

3) The Securities Regulation Code (SRC) did not repeal Sections 8, 30, and 36 of the Revised
Securities Act since said provisions were re-enacted in the new law
 when the repealing law punishes the act previously penalized under the old law, the act
committed before the re-enactment continues to be an offense and pending cases are not
affected.
Sec 8 of RSA, which previously provided for the registration of
securities and the information that needs to be included in the registration statements,
was expanded under Sec 12 of the Securities Regulations Code. Further details of the information
required to be disclosed by the registrant are explained.
Sec 30 of RSA has been re-enacted as Sec 27 of SRC, still penalizing an insider’s misuse of material
and non-public information about the issuer, for the purpose of protecting public investors
Sec 23 of SRC was practically lifted from Sec 36 of RSA.
 The legislature had not intended to deprive the courts of their authority to punish a person
charged with violation of the old law that was repealed

4) The SEC retained the jurisdiction to investigate violations of the Revised

Securities Act, re-enacted in the Securities Regulations Code, despite the abolition of
the PED.
 Sec 53 of SRC clearly provides that criminal complaints for violations of rules and regulations
enforced or administered by SEC shall be referred to the DOJ for preliminary investigation,
while the SEC nevertheless retains limited
investigatory powers. SEC may still impose the appropriate administrative sanctions under
Sec 54.

5) The instant case has not yet prescribed.

 Respondents point out that the prescription period applicable to offenses punished
under special laws is 12 years. Since the offense was committed in 1994, they reasoned that
prescription set in as early as 2006 and rendered this case moot.
 It is an established doctrine that a preliminary investigation interrupts the
prescription period. A preliminary investigation is essentially a determination
whether an offense has been committed, and whether there is probable cause for the
accused to have committed as offense.

6) The CA was justified in denying SEC’s Motion for Leave to Quash SEC Omnibus Orders dated
23 October 1995.
 Since it found other issues that were more important than whether or not the PED was the
proper body to investigate the matter, CA denied SEC’s motion for leave to quash SEC Omnibus
Orders.

In all, the SC rules that no implementing rules were needed to render effective
Sections 8, 30, and 36 of the Revised Securities Act; nor was the PED Rules of Practice and
Procedure invalid, prior to the enactment of the Securities Regulations Code, for
failure to provide parties with the right to cross-examine the witnesses
presented against them. Thus, the respondents maybe investigated by the
appropriate authority under the proper rules of procedure of the Securities Regulations
Code for violations of Secs 8, 30, and 36 of the Revised Securities Act.

PCGG vs Desierto

Facts:
On October 8, 1992, then President Fidel V. Ramos issued Administrative Order No. 13 creating
the Presidential Ad Hoc Fact-Finding Committee on Behest Loans (Committee) which was tasked
to inventory all behest loans, determine the parties involved and recommend whatever
appropriate actions to be pursued thereby.

On November 9, 1992, President Ramos issued Memorandum Order No. 61 expanding the
functions of the Committee to include the inventory and review of all non-performing loans,
whether behest or non-behest.

The Memorandum set the following criteria to show the earmarks of a "behest loan," to wit: "a)
it is undercollaterized; b) the borrower corporation is undercapitalized; c) a direct or indirect
endorsement by high government officials like presence of marginal notes; d) the stockholders,
officers or agents of the borrower corporation are identified as cronies; e) a deviation of use of
loan proceeds from the purpose intended; f) the use of corporate layering; g) the non-feasibility
of the project for which financing is being sought; and, h) the extraordinary speed in which the
loan release was made."

Among the accounts referred to the Committee's Technical Working Group (TWG) were the loan
transactions between NOCOSII and PNB.

After it had examined and studied all the documents relative to the said loan transactions, the
Committee classified the loans obtained by NOCOSII from PNB as behest because of NOCOSII's
insufficient capital and inadequate collaterals. Specifically, the Committee's investigation
revealed that in 1975, NOCOSII obtained loans by way of Stand-By Letters of Credit from the PNB;
that NOCOSII was able to get 155% loan value from the offered collateral or an excess of 85%
from the required percentage limit; that the plant site offered as one of the collaterals was a
public land contrary to the General Banking Act; that by virtue of the marginal note of then
President Marcos in the letter of Cajelo, NOCOSII was allowed to use the public land as plant site
and to dispense with the mortgage requirement of PNB; that NOCOSII's paid-up capital at the
time of the approval of the guaranty was only P2,500,000.00 or only about 6% of its obligation.

Based on the Sworn Statement of PCGG consultant Orlando Salvador, petitioner filed with the
Office of the Ombudsman the criminal complaint against respondents. Petitioner alleges that
respondents violated the following provisions of Section 3 (e) and (g) of R.A. No. 3019.

The respondents failed to submit any responsive pleading before the Ombudsman, prompting
Graft Investigator Officer (GIO) I Melinda S. Diaz-Salcedo to resolve the case based on the
available evidence. In a Resolution dated January 12, 1998 in OMB-0-95-0890, GIO Diaz-Salcedo
recommended the dismissal of the case on the ground of insufficiency of evidence or lack of
probable cause against the respondents and for prescription of the offense. Ombudsman
Desierto approved the recommendation on May 21, 1999. Petitioner filed a Motion for
Reconsideration but it was denied by GIO Diaz-Salcedo in the Order dated July 9, 1999, which
was approved by Ombudsman Desierto on July 23, 1999.

Issue:
Whether respondents violated the following provisions of Sec 3 (e) and (g), specifically corrupt
practices of public official, of Republic Act No. 3019 or the Anti-Graft and Corrupt Practices Act?

Held:
On the issue of whether the Ombudsman committed grave abuse of discretion in finding that no
probable cause exists against respondents, it must be stressed that the Ombudsman is
empowered to determine whether there exists reasonable ground to believe that a crime has
been committed and that the accused is probably guilty thereof and, thereafter, to file the
corresponding information with the appropriate courts. Settled is the rule that the Supreme
Court will not ordinarily interfere with the Ombudsman's exercise of his investigatory and
prosecutory powers without good and compelling reasons to indicate otherwise. Said exercise of
powers is based upon his constitutional mandate and the courts will not interfere in its exercise.
The rule is based not only upon respect for the investigatory and prosecutory powers granted by
the Constitution to the Office of the Ombudsman, but upon practicality as well. Otherwise,
innumerable petitions seeking dismissal of investigatory proceedings conducted by the
Ombudsman will grievously hamper the functions of the office and the courts, in much the same
way that courts will be swamped if they had to review the exercise of discretion on the part of
public prosecutors each time they decided to file an information or dismiss a complaint by a
private complainant.

While there are certain instances when this Court may intervene in the prosecution of cases, such
as, (1) when necessary to afford adequate protection to the constitutional rights of the accused;
(2) when necessary for the orderly administration of justice or to avoid oppression or multiplicity
of actions; (3) when there is a prejudicial question which is sub-judice; (4) when the acts of the
officer are without or in excess of authority; (5) where the prosecution is under an invalid law,
ordinance or regulation; (6) when double jeopardy is clearly apparent; (7) where the court has
no jurisdiction over the offense; (8) where it is a case of persecution rather than prosecution; (9)
where the charges are manifestly false and motivated by the lust for vengeance; and (10) when
there is clearly no prima facie case against the accused and a motion to quash on that ground has
been denied, none apply here.

After examination of the records and the evidence presented by petitioner, the Court finds no
cogent reason to disturb the findings of the Ombudsman.

No grave abuse of discretion can be attributed to the Ombudsman. Grave abuse of discretion
implies a capricious and whimsical exercise of judgment tantamount to lack of jurisdiction. The
exercise of power must have been done in an arbitrary or despotic manner by reason of passion
or personal hostility. It must be so patent and gross as to amount to an evasion of positive duty
or a virtual refusal to perform the duty enjoined or to act at all in contemplation of law.

The herein assailed Orders being supported by substantial evidence, there is no basis for the
Court to exercise its supervisory powers over the ruling of the Ombudsman. As long as substantial
evidence supports the Ombudsman's ruling, that decision will not be overturned.

WHEREFORE, the petition is DISMISSED. Except as to prescription, the assailed Resolution dated
May 21, 1999 and Order dated July 23, 1999 of the Ombudsman in OMB No. 0-95-0890 are
AFFIRMED. No costs. SO ORDERED.