D. Obtaining Exclusive Right to Use the Corporate Name
Library | South Carolina Corporate Practice Manual (SCBar) (2005 Ed.) |
D. Obtaining Exclusive Right to Use the Corporate Name
The rights to a name, and the ability to prevent other businesses from using a company name (or similar names), is basically dependent upon common law principles. Almost no rights are obtained from the filing of the name with the Secretary of State on the articles. Simply because the company has incorporated under a name gives it no right to use that name,13 and gives it very little protection from others who conduct their business under the same or a similar name.
1. Basics of Common Law Name Protection
In South Carolina, if a person wants to obtain the exclusive right to use a business name he must be the first user of the name. This first use, and not registration, creates ownership rights in the name. In determining whether the first user can stop a second user, questions of public confusion and unfair competition become critical. "The prior user of a distinctive trade name, or one which has become distinctive, i.e., attained secondary meaning, over a period of time, will ordinarily be entitled to injunctive relief against the use of the same or a similar name or trademark under circumstances where confusion is likely."14
The doctrine of common law unfair competition has been enhanced by provisions of the federal Lanham Act.
One section ofthe Lanham Act, section 43, 15 U.S.C.A. § 1125, significantly expands common law rights and creates a new federal cause of action. . . Section 43 is the federal counterpart of certain state unfair competition and antidilution rights. It prohibits the deceptive marketing of goods and services that causes injury to other competitors. This prohibition is not limited to the use of a competitor's trademark, and it has no geographic or product scope limitations, either.15
Section 43(a) . . . provides protection in the absence of trademark rights, or at least without regard to them. Its effect is to create a federal law regulating unfair trade practices. Limited to activities subject to the constitutional interstate Commerce Clause, it provides a broad civil remedy for these practices. Section 43(a) dispenses with intent, requiring only deception about a product, that is, false advertising. It also provides a wide range of equitable remedies, and does not require proof of actual loss. The importance of section 43(a) aside from the creation of a federal "common law" of unfair competition is that it provides federal subject matter jurisdiction even in the absence of federal trademark registration.16
As the helpful Jerome Gilson treatise, Trademark Protection and Practice, points out, these fairly recent amendments to Section 43(a) of the Lanham Act give protection to trade names.17 If the business owner believes that someone is infringing on the business name, Section 43(a) of the Lanham Act likely will protect the owner if the owner shows that he has priority rights in the name, that the trade name is either inherently distinctive or has attained secondary meaning, and that there is a likelihood of confusion between the two names. In analyzing these facts, courts will take into account the "strength" of the original business name and other applicable factors.18
There are some key terms in this area. First, a trade name is simply a name that a business uses to identify itself.19 Trade names that identify a business as a legal entity cannot generally be registered.20 But, by using the trade name, a person can acquire certain common law rights in the name. He or she may be able to prevent a nearby competitor or others from using the same or similar name. These rights protect the customer from being confused as to whom he or she is dealing with,21 and also to protect the first user (owner) from the infringer's unfair competition-the second user trying to palm off his products or services as being provided by the original user of the name. Although a trade name that merely identifies a business as a legal entity cannot be registered, protection against the confusing use of commercial and corporate names is afforded upon the same basic principles as apply generally to trademarks and service marks which may be registered.22 "As in general trademark law, the test of infringement of the names of corporate, professional and business organizations is 'likelihood of confusion.'"23 "Protection thus is ordinarily available under state law of unfair competition, either common law or statute, [or] under Section 43(a) . . . of the Lanham Act."24 "Section 43(a) [of the Lanham Act] . . . includes a cause of action for . . . trade name infringement in interstate commerce, and in such an action the plaintiff need not assert a federal . . . registration."25 "only actual use of the corporate name in business can establish protectible rights which can be asserted against third parties, and priority rights begin with actual use, not incorporation."26
A trademark is a word or symbol used by a manufacturer to distinguish its goods from those of others.27 A service mark is a "word, name, symbol or device . . . to identify and distinguish" the services (not goods) of one firm from the services of another firm.28Both a trademark and a service mark may be registered either in South Carolina or federally.
To summarize:
1. Trademarks identify products.
2. Service marks identify services.
3. Trade names identify businesses.
A business owner may decide to operate the business under a registered service mark. Although it is the use of the service mark which is important, the fact that the business also has registered the name can give it some benefits. "A trade name may also be used as a trademark to identify products and a trade name may be used as a service mark to identify services. Thus, the IBM company uses IBM in its company name, it uses IBM to identify its computer products, and it uses IBM to identify its computer leasing services."29
For protection, names are generally broken into four categories for trademark purposes and these four categories also will be applied as to whether a trade name may be entitled to protection as a unique name (even though trade names themselves generally cannot be registered).30 The following chart in Siegrun D. Kane's very helpful text, Trademark Law, explains the four basic categories.
Generic the common name for the kind of product - can never serve as a trademark
Descriptive a term that describes something about the product - can only be a trademark after some period of exclusive use
Suggestive a term that subtly suggests something about the product - can be a trademark immediately upon use
Arbitrary/Fanciful a term that bears little or no relationship to the product - the strongest of trademarks - can be a trademark immediately upon use31
Siegrum D. Kane then provides helpful examples for each category. He points out that generic terms include words such as automobile and cat food.32 Descriptive terms have included Honey-Baked (hams) and Vision Center (optical clinics).33 Suggestive terms include Citibank (banking services), Playboy (magazine), and Q-Tips (cotton-tipped medical swabs). "Examples of arbitrary marks are Camels of cigarettes, Ivory for soap, [and] Jellibeans for a roller skating rink . . . ."34 "Fanciful marks are coined (made-up) terms with no dictionary meaning. Exxon, Kodak, and Rolex are fanciful marks."35
As noted above, it is easier to obtain name protection if the name is "arbitrary" or "suggestive," than if it is merely "descriptive."
Some names, such as family names, generally cannot be registered and cannot serve as a trademark or a service mark. Likewise, dscriptive names are difficult to qualify. These limitations will likely apply when a business owner claims he or she is entitled to protection of his or her unregistered business trade name.36 However, if the family name or descriptive name has taken on a "secondary meaning," then it may qualify for protection. Merely descriptive, geographically descriptive, and personal names cannot be protected trade names unless they have developed a "secondary meaning." Generally, if the consumer has learned to associate the description with a single source, the name may be protectable.37 Secondary meaning is usually developed over some period of use through sales and advertising. An example of a protected descriptive name is "Extra Strength Pain Reliever," which is an EXCEDRIN trademark.38
Abbreviated corporate names and "nicknames" can also gain protection as a trade name. For example, the Great Atlantic & Pacific Tea Co. obtained an injunction prohibiting a business from calling itself "A. & P. Radio Stores, Inc.," since the prior user had established a protectable interest in the name "A. & P. Stores," an abbreviation of its full corporate name.39 The Fourth Circuit concluded in a suit to restrain the use of the name "Comcet, Inc." that the abbreviation "COMSAT" was a unique and distinctive abbreviation of the corporate name "Communications Satellite Corp."40
"[C]orporate names are protected against likely confusion even if the defendant uses the name for a non-competitive, but related, corporation."41
The right to protection extends in all cases where confusion as to the identities of the two corporations is likely to cause injury to the credit or business reputation of the senior corporation, or to the reputation of its merchandise, or to its market therefor, and to the public who may deal with the junior corporation believing it is the senior.42
A perfect example is found in South Carolina. John Taylor operated a culinary book store in Charleston, South Carolina under the name, "Hoppin' Johns." He was able to obtain an injunction against the operation of a bar in North Charleston under the same name.43
The total image of a product, including such things as size, shape, color, texture, is often referred to as the product's "trade dress."44 Generally speaking there are two types of trade dress: (1) product packaging/labeling and, (2) product...
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